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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K/A

AMENDMENT NO. 1


| |  |   |  |                                                                                     
| |  | - |  | ------------------------------------------------------------------------------------
| |  | x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| |  |   |  | For the fiscal year ended June 30, 2003                                             
| |  |   |  | OR                                                                                  
| |  | o |  | 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                                         |  | 391168275                           
|                                                              
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|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

Securities registered pursuant to Section 12(b) of the Act:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each
Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|NONE                |  | NONE                                     

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.005 par value
(voting)

(Title of class)


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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12(b)-2).
YES x  
NO o

The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of December 31, 2002 was approximately $8,715,910 (based on
the $18.65 per share closing price of the Companys Common Stock as reported on
the NASDAQ Stock Market on December 31, 2002). In determining who are
affiliates of the





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Company for purposes of this computation, it is assumed that
directors, officers, and any persons who held on August 1, 2003 more than 5%
of the issued and outstanding common stock of the
Company are affiliates of the Company. The characterization of such
directors, officers, and other persons as affiliates is for purposes of this
computation only and should not be construed as a determination or admission
for any other purpose that any of such persons are, in fact, affiliates of the
Company.

On August 1, 2003, 3,767,929 shares of voting common stock were
outstanding.

Documents Incorporated by Reference

Part III incorporates by reference information from Koss Corporations Proxy
Statement for its 2003 Annual Meeting of Stockholders filed with the
Commission under Regulation 14A within 120 days of the end of the fiscal year
covered by this Report.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A for Koss Corporation (the Company)
amends the Companys annual report on Form 10-K for fiscal year ended June 30,
2003 and is being filed to restate the financial statements of the Company to
reflect a change in the treatment of repurchases of some Company stock issued
to employees on the exercise of employee stock options to comply with FIN 44:
Accounting for Certain Transactions Involving Stock Compensation an
interpretation of APB Opinion No. 25 (FIN 44). The Company had previously
accounted for these transactions as an acquisition of treasury stock, whereas
under FIN 44, the Company will treat the expenditures to acquire stock
purchased directly from Company employees who held the stock for less than six
months as a compensation expense.

The change has the following effects on the Companys previously reported
financial results:



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|

In connection with this restatement, changes have been made to (i) amend Item 1.Business,
(ii) amend Item 6. Selected Financial Data, (iii) amend Item 7.Managements Discussion
and Analysis of Financial Condition and Results of Operations, (iv) amend Item
8.Financial Statements and Supplementary Data, and (v) amend Item
15.Exhibits, Financial Statement Schedules and Reports on Form 8-K to update
the certifications of certain executive officers as of the date of this
amendment. See Note 14 to the Consolidated Financial Statements included in
Item 8. for a discussion of the restatement of the financial statements
referred to above. This Form 10-K/A is hereby amended, as described above, and
for convenience of reference is restated in its entirety as set forth herein.

This amended annual report continues to speak as of the original date of
the original annual report and unless as otherwise noted, the Company has not
updated the disclosure in this amended annual report to speak as of a later
date.

2



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TABLE OF CONTENTS



|                                      |                                                                                               |  |  |  |  |  |  | 
|------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                               
|                                      | Item 1. BUSINESS                                                                             
|                                      | Item 2. PROPERTIES                                                                           
|                                      | Item 3. LEGAL PROCEEDINGS                                                                    
|                                      | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                              
|                                      | Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                      | Item 6. SELECTED FINANCIAL DATA                                                              
|                                      | Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                      | Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                      | Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                      | Item 9.CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE     
|                                      | Item 9A. Controls and Procedures                                                             
|PART III                             
|                                      | Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                      | Item 11. EXECUTIVE COMPENSATION                                                              
|                                      | Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                      | Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                      | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                              
|PART IV                              
|                                      | Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES                           
|EXHIBIT INDEX                        
|Consent of PricewaterhouseCoopers LLP
|Certification of CEO and CFO         
|Certification of CEO and CFO         



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PART I




Item 1. BUSINESS.

GENERAL

As used herein, the term Company means Koss Corporation and its consolidated
subsidiaries, unless the context otherwise requires. The Company was
incorporated in Delaware in 1971.

The Company operates in the audio/video industry segment of the home
entertainment industry through its design, manufacture and sale of stereo
headphones and related accessory products. During the last fiscal year, the
Company acquired certain assets of ADDAX Sound Company. See Part II, Item 7 
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS herein.

The Company does not report its finances by segment, as the Companys principal
business line is the design, manufacture, and sale of stereo
headphones and related
accessories. The percentage of total revenues related to this central business
line over the past three fiscal years was:

|             |  |      |     |      |  |      |    |   |  |  |    |  
|------------ |  | ---- | --- | ---- |  | ---- | -- | - |  |  | -- | -
|             |  | 2003 |     | 2002 |  | 2001
|             |  |      |     |      |  |     
|Stereophones |  |      | 100 | %    |  |      | 97 | % |  |  | 94 | %

The Companys products are sold through audio specialty stores, the Internet,
direct mail catalogs, regional department store chains, discount department
stores, military exchanges, prisons, and national retailers under the Koss
name and dual label. The Company also sells products to distributors for
resale to schools systems, and directly to other manufactures for inclusion
with their own products. The Company has more than 1,600 domestic dealers and
its products are carried in approximately 16,000 domestic retail outlets.
International markets are served by domestic sales representatives and a sales
office in Switzerland which utilizes independent distributors in several
foreign countries.

In May of 2003, the Company
purchased the assets of ADDAX Sound, a company which
specializes in the development of communications headsets. The ADDAX company is
essentially a design and source operation utilizing contract manufactures in
Asia. The Assets of ADDAX included inventory, receivables, tooling, furniture
and fixtures as well as patents on designs for telecommunications products.

ADDAX has been renamed Bi Audio and services the public safety market through
distributors. Bi Audio develops and sells headsets and microphones for
communication via two-way radio by police, fire and security personnel. Bi
Audio also sells a line of telephone headsets for the small office and home
office as well as for the call center industry. These products are developed
on an original equipment manufacturer (OEM) basis and are sold to other
companies for distribution at retail or direct to consumers.

Bi Audio also markets headsets to be used with cellular telephones and cordless
home telephones. These products are developed on an OEM basis for sale to
other companies who redistribute the products through retail channels or direct
to consumers.

The Bi Audio category of products represents less than 5% of the Companys
total revenue and is further split into products for three categories Public
Safety, Call Center, Cellular telephone.

Ninety five percent of the Companys products are stereo headphones for
listening to music. The products are not significantly differentiated by
channel or application with the exception of products sold to the school system
which sometimes include a microphone. Sales in this channel represent less
than 5 % of the Companys revenue. There are no other product line
differentiations other than the quality of the sound produced by the stereo
headphone itself, which is highly subjective. Therefore any remaining
classification of the business would be by distribution channel. Consumers
purchase more than 95% of the Koss stereophone range of product through some
form of retail channel or reseller.

The Company maintains a sales office in Switzerland. The Company sells its
products to independent distributors in countries outside the United States.
(See section Foreign Sales below)The countries are too numerous to mention here
but include countries in the following regions. Western and Eastern Europe,
Scandinavia, The Middle East, Africa, Asia, South America, Latin America, the
Caribbean, and Mexico. The Company sells products in the Canadian market
directly to retailers, and also through a distributor who services smaller
specialty accounts. During the last three fiscal years sales of all Koss products,
including the products of Bi Audio (for the most recent period), were as
follows:

2003
    
    2002
    
    2001Percentage of Revenue
    
    
    12.5
    %
    
    
    11.1
    %
    
    
    9.3
    %Derived from the Export ofKoss Products


Management believes that it has sources of raw materials that are adequate for
its needs.

No employment or compensation
agreement exists between the company and its dealers.
The company uses independent
manufacturers representatives. The company typically signs one year
contracts with these manufacturers representatives. The
representative agreements are seldom renewed in writing. Two such
agreements are currently in force. One is based upon the business in
the Rocky Mountain region of the United States which accounts for
less than 1% of the companys total annual sales.

The company recently entered into a
manufacturers representative agreement with a firm in Detroit to
work exclusively in the automotive arena. The sales from these will
account for approximately 5% of the companys total revenue in 2004.
The automotive representative is paid 5% for all business in this
area until 2005, 4% until 2006, 3% until 2007 and 2% thereafter.

Any remaining agreements with distributors, past or present, pertain to geographic countries without compensation attached. The company
has the  right to terminate these agreements with foreign distributors at will.

INTELLECTUAL PROPERTY

The Company regularly applies for registration of its trademarks in countries
in which it does business, including the United States, and over the years the
Company has had numerous trademarks registered and patents issued in these
countries. John Koss has been recognized for creating the stereophone industry with the
first SP3 stereophone in 1958. The Company has trademarks to protect the brand
name Koss and its logotype on its products. These trademarks are maintained
throughout the countries in which the Company sells its products. The Company
also holds many design patents that protect the unique visual appearance of
some of its products. These trademarks and patents are important to differentiate Koss from its competitors. Certain of the Companys trademarks
are of material value and importance to the conduct of its business. The Company considers protection of its proprietary developments
important; however, the Companys business is not, in the opinion of
management, materially dependent upon any single trademark or patent.

See Part II, Item 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS herein for information relating to the
Companys license agreements.

SEASONALITY

Although retail sales of consumer electronics have been historically higher
during the holiday season, stereophones have also seen increased interest as
gift items over the years. Management of the Company is of the opinion that its
business and industry segment are no longer seasonal as evidenced by the fact
that 50% of sales occurred in the first six months of the fiscal year ended
June 30, 2003, and 50% of sales occurred in the latter six months of that
fiscal year. Management believes that the reason for this level performance of
sales to retailers is related to the fact that stereo headphones have become
replacement items for portable electronic products. In many instances if a
stereo headphone is not operational, the product which plays the music cannot
be heard. Therefore upgrades, and replacements appear to have as much interest
over the course of the year as gifts of stereophones.

WORKING CAPITAL AND BACKLOG

The Companys working capital needs do not differ substantially from those of
its competitors in the industry and generally reflect the need to carry
significant amounts of inventory to meet delivery requirements of its

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customers. From time to time, although rarely, the Company may extend payment terms to its
dealers for a special promotion. For instance, the Company has in the past
offered a 90-120 day repayment period for certain customers, such as computer
retailers and office supply stores. Based on
historical trends, management does not expect these practices to have any
material effect on net sales or net income. The Companys current backlog of
orders is not material in relation to annual net sales and was not material in
relation to net sales in fiscal 2003.

CUSTOMERS

The Company markets its products to approximately 2,000 customers worldwide.
During 2003, the Companys sales to its largest single customer, Wal-Mart
Stores Inc., were approximately 20% of total gross sales. Koss markets a line of products used by consumers to listen to music. The
Company distributes these products through retail channels in the U.S. and
independent distributors throughout the rest of the world. The Company is
dependent upon its ability to retain an existing base of customers to sell the
Companys line of products. Loss of customers means loss of product placement.
The Company has broad distribution across many channels including specialty
stores, mass merchants, electronics stores and computer retailers. Since
distribution is broadly based, any loss of a customer directly translates into
a reduction in sales volume which can only be replaced by replacing a similar
number of representative retail outlets. For example, the loss a customer
representing 10% of the Companys business would translate into a reduction in
revenues of up to 10% based upon the point through the fiscal year that the
customer was lost. Attracting a new customer during the course of a fiscal
year could have a positive impact or simply replace an account which has been
lost. In addition, a customer can decide to make a change in the models that it
decides to offer for sale. Such changes can take place arbitrarily throughout
the course of a year which can cause reductions in sales revenues in proportion
to the number of retail outlets that the store represents in the market. The
Company may not be able to maintain customers or model selections and therefore
experience a reduction in its sales revenue until a model is restored to the
mix or a customer is replaced by a new customer. A reduction in sales volume
would cause a reduction in profitability.

Management believes
that any loss of Wal-Marts revenues would be partially offset by a
corresponding decrease, on a percentage basis, in expenses, thereby partially reducing
the impact on the Companys operating income. The five largest customers of the Company (including
Wal-Mart) accounted for approximately 50% of total sales in 2003.

COMPETITION

The Company has a single focus on the headphone industry. The recent
acquisition of ADDAX, now Bi Audio, continues to emphasize the Companys
interest in all categories of headsets, headphones, and stereophones. In the
stereophone market, the Company competes directly with approximately five major
competitors, several of which are large and diversified and have greater total
assets and resources than the Company. Koss provides a single product focus
to its customers that is unique in the marketplace. The extent to which
retailers view Koss as an innovative vendor of high quality headphone products,
and a provider of positive after sales customer service, is the extent to which
the Company will be considered competitive. The Company relies upon its unique
sound, quality workmanship, brand identification, engineering skills and
customer service to maintain its competitive position.

RESEARCH AND DEVELOPMENT

The amount spent on engineering and research activities relating to the
development of new products or the improvement of existing products was
$134,000 during fiscal 2003 as compared with $114,000 during fiscal 2002 and
$89,000 during fiscal 2001. These activities were conducted by both Company
personnel and outside consultants.

ENVIRONMENTAL MATTERS

The Company experiences no material effects resulting from its compliance with
applicable environmental laws.

EMPLOYEES

As of June 30, 2003, the Company employed 108 people. The Company also
utilizes temporary personnel to meet seasonal production demands.

FOREIGN SALES

International markets are serviced
through manufacturers representatives or independent distributors with product produced in the United States. The countries are too numerous to mention here but include countries in the
following regions. Western and Eastern Europe, Scandinavia, The Middle East,
Africa, Asia, South America, Latin America, the Caribbean, and Mexico. The
Company sells products in the Canadian market directly to retailers, and also
through a distributor who services smaller specialty accounts.


In the opinion of management, the Companys competitive position and risks
relating to the conduct of its business in such markets are comparable to the
domestic market. The Company does note however, that the governments of
foreign nations may elect to erect barriers to trade on imports. The creation
of such barriers would reduce the Companys revenue and profit. For further
information, see Note 11 to the consolidated financial statements accompanying
this Form 10-K/A.The Company operates a small sales office in Switzerland to service the
International export marketplace. The Company is aware of no material risk in
maintaining this operation. Loss of this office would result in a transfer of
sales and marketing responsibility. The Company uses contract manufacturing
facilities in Mainland China, Taiwan, and South Korea. These independent
supplier entities are distant from the Company which means that we are at risk
of business interruptions due to natural disaster, war, disease, and government
intervention through tariffs or trade restrictions. The Company maintains
finished goods inventory level in its US facility to mitigate this risk. The
approximate level of finished goods inventory is stocked at an average of 90
days demand per item. Recovery of a single facility through a replacement of
supplier in the event of a disaster or suspension of supply could take 120
days. The Company believes that it could restore production of its top ten
selling models (which represent 76% of the Companys sales revenue) within 1
year. The Company is also at risk if the trade restrictions are introduced on
its products based upon country of origin. In addition, any increase in
tariffs and freight charges would not be acceptable to pass along to the
Companys customers and would directly impact the Companys profits. For
example, an additional 5% in duty for a complete fiscal year of purchases would
amount to a reduction in pre-tax profit of approximately $600,000 based upon sales reported
in the Companys 10-K/A for the period ending June 30, 2003.




Item 2. PROPERTIES.

The Company leases its main plant and offices in Milwaukee, Wisconsin from its
Chairman, John C. Koss. On May 28, 2003, the lease was renewed for a period of
five years, and is being accounted for as an operating lease. The lease
extension maintained the rent at a fixed rate of $380,000 per year. At anytime
during this period the Company has the option to renew the lease for an
additional five years for the period commencing July 1, 2008

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and ending June
30, 2013 under the same terms and conditions. The lease is on terms no less
favorable to the
Company than those that could be obtained from an independent party. The
Company is responsible for all property maintenance, insurance, taxes and other
normal expenses related to ownership.

All facilities are in good repair and, in the opinion of management, are
suitable for the Companys business purposes.




Item 3. LEGAL PROCEEDINGS.

From time to time the Company is involved in routine litigation; however,
neither Koss nor its subsidiaries are subject to any material legal proceedings
in managements opinion.




Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of stockholders during the fourth quarter
of the fiscal year ended June 30, 2003.




PART II




Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION ON COMMON STOCK

The Companys common stock is traded on The NASDAQ Stock Market under the
trading symbol KOSS. There were approximately 885 record holders of the
Companys common stock as of August 1, 2003. This number does not include
individual participants in security position listings. The quarterly high and
low sale prices of the Companys common stock for the last two fiscal years as
well as dividends paid (both adjusted for the 2 for 1 stock split) are shown
below.

|                   |  |          |       |         |  |          |       |  |  |           |       | 
|------------------ |  | -------- | ----- | ------- |  | -------- | ----- |  |  | --------- | ----- | 
|                   |  |          |       |         |  |          |       |  |  | Per Share
|Quarter Ended      |  | High (1) |       | Low (1) |  | Dividend
|                   |  |          |       |         |  |         
|September 30, 2001 |  | $        | 19.00 |         |  | $        | 15.00 |  |  | $         | 0.125 | 
|December 31, 2001  |  | $        | 19.00 |         |  | $        | 12.60 |  |  | $         | 0.120 | 
|March 31, 2002     |  | $        | 17.10 |         |  | $        | 14.20 |  |  | $         | 0.120 | 
|June 30, 2002      |  | $        | 18.75 |         |  | $        | 14.41 |  |  | $         | 0.120 | 
|September 30, 2002 |  | $        | 17.51 |         |  | $        | 16.00 |  |  | $         | 0.130 | 
|December 31, 2002  |  | $        | 18.99 |         |  | $        | 15.36 |  |  | $         | 0.130 | 
|March 31, 2003     |  | $        | 21.66 |         |  | $        | 17.01 |  |  | $         | 0.130 | 
|June 30, 2003      |  | $        | 20.25 |         |  | $        | 14.81 |  |  | $         | 0.130 | 



|(1) |  | Rounded to the nearest cent and adjusted to give effect to the November 5,
2001 2-for-1 stock split
|--- |  | ---------------------------------------------------------------------------------------------------

The Companys stockholders are entitled to receive dividends as may be declared
by the Board of Directors and paid out of funds legally available therefore.
The Company began paying dividends for the quarter ended September 30, 2001 and
has paid a dividend for each quarter since, including the last fiscal quarter
ending June 30, 2003. On June 27, 2003, the Company announced its quarterly
dividend of $0.13. Although the Company anticipates it will continue to pay a
quarterly dividend, the decision to pay dividends and the amount of such
dividends are within the sole discretion of the Board of Directors, who meet quarterly. The decision to pay dividends will depend on the
Companys operating results, financial condition, tax considerations,
alternative uses for such funds, and other factors the Board of Directors deem
relevant, and there can be no assurance that dividends will be paid in the
future.

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See Part III, Item 12 for information relating to the Companys equity
compensation plan information.




Item 6. SELECTED FINANCIAL DATA. (Restated  Note 14)

|                                     |       |         |            |               |      |               |            |               |      |          |            |          |      |   |            |      |      |   |            |      |      | 
|------------------------------------ | ----- | ------- | ---------- | ------------- | ---- | ------------- | ---------- | ------------- | ---- | -------- | ---------- | -------- | ---- | - | ---------- | ---- | ---- | - | ---------- | ---- | ---- | 
|                                     |       |         |            | June 30,      |      | June 30,      |            | June 30,      |      |          |            |          |      |   |            |     
|                                     |       |         |            | 2003          |      | 2002          |            | 2001          |      | June 30, |            | June 30,
|                                     |       |         |            | (as restated) |      | (as restated) |            | (as restated) |      | 2000     |            | 1999    
|                                     |       |         |            |               |      |               |            |               |      |          |            |         
|Net sales                            |       | $       | 33,802,634 |               |      | $             | 36,571,303 |               |      | $        | 38,609,335 |          |      | $ | 35,401,533 |      |      | $ | 33,776,039 |     
|Net income                           |       | $       | 4,169,411  |               |      | $             | 4,587,259  |               |      | $        | 5,183,143  |          |      | $ | 4,953,461  |      |      | $ | 4,318,189  |     
|Earnings per common
share:           |       |         |            |               |      |               |            |               |      |          |            |          |      |   |            |      |      |   |            |     
|                                     | Basic |         | $          | 1.14          |      |               | $          | 1.24          |      |          | $          | 1.23     |      |   | $          | 0.97 |      |   | $          | 0.70 |     
|                                     |       | Diluted |            | $             | 1.08 |               |            | $             | 1.17 |          |            | $        | 1.16 |   |            | $    | 0.95 |   |            | $    | 0.69 | 
|Total assets                         |       | $       | 23,786,818 |               |      | $             | 20,645,153 |               |      | $        | 21,767,872 |          |      | $ | 25,334,547 |      |      | $ | 25,950,180 |     
|Contingently redeemable common stock |       | $       | 1,490,000  |               |      | $             | 1,490,000  |               |      | $        | 1,490,000  |          |      | $ | 1,490,000  |      |      | $ | 1,490,000  |     
|Cash dividends per
common share:     |       | $       | 0.52       |               |      | $             | 0.485      |               |      |          |           |          |      |   |           |      |      |   |           |     




|        |  |                                                                                       
|------- |  | --------------------------------------------------------------------------------------
|Item 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

The Managements Discussion and Analysis of Financial Condition and
Results of Operations presented below reflects the restatement to previously
issued consolidated financial statements for fiscal 2003, 2002 and 2001. See
Note 14 to the consolidated financial statements for further discussion of this
matter.

FINANCIAL CONDITION AND LIQUIDITY

During 2003, cash provided by operations was $2,796,616. Working capital was
$14,227,234 at June 30, 2003. The increase in working capital of $1,470,571
from the balance at June 30, 2002 represents primarily the net effect of an
increase in cash, receivables, inventories, income taxes receivable and
payables.
The increase in the Companys accounts receivables is attributable solely to
the Companys acquisition of Bi-Audio. At June 30, 2003, the Bi-Audio
receivables were $566,744, compared with -0- at June 30, 2002. The increase in
the number of days sales in accounts receivable is solely due to the Companys
acquisition of Bi-Audio. The relative increase in receivables is not
indicative of a collection problem, but attributable solely to the Companys
acquisition of Bi-Audio.

Capital expenditures for new property and equipment (including production
tooling) were $627,567, $664,139, and $814,851, in fiscal years 2003, 2002, and
2001, respectively. Depreciation charges totaled $569,776, $576,892, and
$599,526, for the same fiscal years. Budgeted capital expenditures for fiscal
year 2004 are $1,273,000. The Company expects to generate sufficient funds
through operations to fund these expenditures.

Stockholders investment increased to $16,501,202 at June 30, 2003 from
$13,735,534 at June 30, 2002. The increase reflects primarily the effect of
the purchase and retirement of common stock and dividends declared offset by
current year net income and proceeds from the exercise of stock options during
the year. On June 27, 2003, the Company declared a quarterly cash dividend of
$0.13 per share ($488,856) payable on July 15, 2003 to stockholders of record
on June 30, 2003, which is recorded as dividends payable.

The Companys credit facility matures on November 1, 2003. This unsecured
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 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 maximum leverage of the Company, which consists of the ratio of its total
liabilities to its tangible net worth, must not exceed 1.50 to 1.0. The
tangible net worth of the Company must not fall below $10.0 million at any
time. The fixed charge ratio of the Company, which consists of the ratio of
its earnings before interest, income taxes, depreciation, amortization, and
other non-cash charges to its total interest expense, must not be less than
2.10 to 1.0. The current ratio of the Company, which is the ratio of its
current assets to its current liabilities, must exceed 2.50 to 1.0. The Company has been and is well within these requirements. However, if the Company at some point in the future fails to meet the financial covenants, the lender may accelerate the debt and allow creditors to foreclose on the assets.
The Company uses its credit facility from time to time, although there was no
utilization of this credit facility at June 30, 2003 or 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
recently approved increase was for additional purchases of $2,000,000, which
occurred in January of 2003, for an aggregate maximum of $37,500,000. The
Company intends to effectuate all stock purchases either on the open market or

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through privately negotiated transactions, and intends to finance all stock
purchases through its own cash flow or by borrowing for such
purchases. The Company will continue to redeem its shares from the market when the board
determines the shares to be undervalued. The Company may elect to use the
purchase of these shares to minimize the dilutive effects to its stockholders
when the Company's stock is used in acquisitions as consideration (as in the case
of the purchase of the assets of ADDAX). The Company has no immediate plans to make another
acquisition at this time.

For the fiscal year ended June 30, 2003, the Company purchased 67,500 shares of
its common stock at an average net price of $13.58 per share, for a total
purchase price of $916,663. As of the date hereof, the Companys Board of Directors has authorized the
repurchase by the Company of up to $2,112,685.82 in Company common stock at
the discretion of the Chief Executive Officer of the Company.

From the commencement of the Companys stock repurchase program through June
30, 2003, the Company has purchased a total of 4,924,180 shares for a total
gross purchase price of $39,778,045 (representing an average gross purchase
price of $8.08 per share) and a total net purchase price of $35,418,735
(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.

RISK FACTORS

REDUCTION IN PRESENT LEVELS OF CASH FLOW COULD ADVERSELY AFFECT THE COMPANYS BUSINESS

The Companys primary source of liquidity over the past twelve months has been
operating cash flows. The Companys future cash flows from operations (on both
a short term and long term basis) are dependent upon, but not limited to:



| |  |  | the Companys ability to attract new customers that will sell
the Companys products and pay for them,                                                                                                                                                     
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Companys ability to retain the Companys existing
customers at the level of sales previously produced,                                                                                                                                                
|
| |  |  | the volume of sales for these customers,                                                                                                                                                                                                                   
|
| |  |  | the loss of business of one or more primary customers,                                                                                                                                                                                                     
|
| |  |  | changes in types of products that the customers purchase in their sales mix,                                                                                                                                                                               
|
| |  |  | the volume of royalty income paid to the Company by its
licensees based upon the terms of each royalty agreement, including the inability to negotiate favorable royalty
arrangements and renew current arrangements with certain existing
favorable terms,
|
| |  |  | poor or deteriorating economic conditions which would directly
impact the ability of the Companys customers to remain in business
and pay for their products on a timely basis,                                                                           
|
| |  |  | managements ability to hold the line on any requests for
increases in material or labor cost increases, and                                                                                                                                               
|
| |  |  | the ability to collect in full and in a timely manner,
amounts due to the Company.                                                                                                                                                                         

FAILURE TO ATTRACT AND RETAIN CUSTOMERS TO SELL THE COMPANYS PRODUCTS COULD ADVERSELY AFFECT SALES VOLUME AND FUTURE PROFITABILITY

The Company markets a line of products used by consumers to listen to music.
The Company distributes these products through retail channels in the U.S. and
independent distributors throughout the rest of the world. The Company is
dependent upon the Companys ability to retain an existing base of customers to
sell the Companys line of products. Loss of customers means loss of product
placement. The Company has broad distribution across many channels including
specialty stores, mass merchants, electronics stores and computer retailers.
Since distribution is broadly based, any loss of a customer directly translates
into a reduction in sales volume which can only be replaced by replacing a
similar number of representative retail outlets. The inability of the
Companys sales and marketing staff to obtain new distribution outlets
translates into a lack of future growth and possibly a setback in sales volumes
when loss of current customers occurs. For example, the loss a customer representing 10% of the Companys business would
translate into a reduction in revenues of up to 10% based upon the point
through the fiscal year that the customer was lost. Attracting a new customer
during the course of a fiscal year could have a positive impact or simply
replace an account which has been lost. In addition, a customer can decide to
make a change in the models that it decides to offer for sale. Such changes
can take place arbitrarily throughout the course of a year which can cause
reductions in sales revenues in proportion to the number of retail outlets that
the store represents in the market. The Company may not be able to maintain
customers or model selections and therefore experience a reduction in its sales
revenue until a model is restored to the mix or a customer is replaced by a new
customer. A reduction in sales volume would cause a reduction in
profitability. The Companys failure to retain existing customers, obtain new
customers or develop new product lines that customers would choose to offer to
consumers could significantly affect the Companys future profitability. The
loss of business of one or more principal customers or a change in the sales
volume from a particular customer could have a material adverse effect on the
Companys sales volume and profitability.

SHIFT IN CUSTOMER SPECIFICATIONS TO LOWER PRICED ITEMS CAN REDUCE PROFIT
MARGINS NEGATIVELY IMPACTING PROFITABILITY

The Company sells a line of products with a suggested retail price ranging from
less than $10 dollars US to $1000 dollars US. The gross margin for each of
these models is unique in terms of percentages. The price range of the
products also produces a different level of actual dollar contribution per
unit. For example a product with a gross margin contribution of 50% might yield
a $5.00 contribution for one item, while another item may feature a 30% gross
margin which could yield $50.00 dollars. The Company finds the low priced
portion of the market most competitive and therefore most subject to pressure
on gross margin percentages which tends to lower profit contributions. Retail
preference for lower priced items can reduce profit margins and contributions.
The risk is that a shift in retail customer specifications toward lower
priced items can lead to lower gross margins and lower profit contributions
per unit of sale. Due to the range of products that the Company sells, the
product sales mix can produce a variation in terms of a range of profit
margins. Some customers sell a limited range of products that yield lower
profit margins than others. Most notably, the budget priced headphone segment of the market below $10.00 retail which is distributed through computer stores, office supply stores, and mass market retailers tend to yield the lowest gross margins. An increase in business with these types of
accounts, when coupled with a simultaneous reduction in sales to customers with
higher gross margins will reduce profit margins and profitability.

POOR ECONOMIC CONDITIONS CAN RESTRICT OR LIMIT PRODUCT PLACEMENT, SALES
AND REPLENISHMENT WHICH COULD DECREASE PROFITS

Deteriorating or weak economic conditions, or a forecast for the same, can
trigger changes in inventory stocking at retail. This may in turn lead to a
reduction in model offerings and to out of stock situations. If a retail
customer of the Company does not have adequate stocks of the Companys products
to offer for sale in a retail store, consumers may choose another competitive
model instead. Customers operating retail stores anticipate future sales
demands and inventory products accordingly. Whenever a general economic
slowdown occurs, at both the domestic or foreign level, sales volume levels
and re-orders change. These changes directly impact the Companys sales and
profitability. The Company is not in a position to determine how it will be
affected by these circumstances, how extensive the effects may be, or for how
long the Company may be impacted by these circumstances. The Companys customers respond to
changes in economic conditions and any anticipated changes in economic
conditions can therefore restrict product placement, availability, sales,
replenishment and ultimately profitability. These conditions exist
domestically and internationally.

MANAGEMENT IS SUBJECT TO DECISIONS MADE OUTSIDE ITS CONTROL WHICH COULD
DIRECTLY AFFECT FUTURE PROFITABILITY

Retail customers determine which products they will stock for resale. The
Company competes with other manufacturers to secure shelf space in retail
stores for the Companys products. During the course of a year changes in the
customers management personnel can ultimately lead to changes in the stock
assortment offered to consumers. These changes are often arbitrary. The sales
and marketing team cannot always overcome such decisions. In addition to
changes in personnel within the Companys customers, it is also possible that a
strategic decision can be made by a retail customer to consolidate vendors, or
to discontinue certain product categories all together. In these instances the
Companys management team is not able to overcome such decisions. The
Companys management team is also engaged in the effective procurement,
assembly, and manufacture of products. The ability to negotiate with
suppliers, maintain productivity, and hold the line on cost increases can be
subjected to pressures outside the control of management. For example,
increases in fuel costs can increase rates in freight. Increases of this
nature can seldom be avoided and the Company is not able to pass such increases
along to its customers. The Companys managements effective control of the
manufacturing processes will have a direct impact on the Companys future
profitability. The Company regularly makes decisions that affect production
schedules, shipping schedules, employee level, and inventory levels. The
Companys ability to make effective decisions in managing these areas has a
direct effect on future profitability.

ACCOUNTS RECEIVABLE AMOUNTS DUE FROM OUR CUSTOMERS CAN BE LOST AS A
RESULT OF CUSTOMER, BANKRUPTCY, OPERATIONAL DIFFICULTY, OR FAILURE TO PAY
NEGATIVELY IMPACTING FUTURE PROFITABILITY

The Company has significant accounts receivable or other amounts due from the
Companys customers or other parties. The accounts receivable balance at the
end of the last 4 quarters averaged approximately eight million dollars US.
Terms of payment for customers range from cash in advance to net 90 day credit
terms. These credit arrangements are negotiated at unspecified and irregular
intervals. The largest customers generate the largest receivable balances. If
a customer develops operational difficulty it is not uncommon to temporarily
suspend payment to vendors. The Company is not immune from such practice in
the retail marketplace. From time to time a customer may develop severe
operating losses which can trigger a bankruptcy. In these cases, the Company
loses most of the outstanding balance due. Occasionally the Company has been
current with a customer at the time such an event occurs. The risk is that
losing the revenue of the customer in the future after a re-structure, might be
more onerous than losing the current outstanding debt. The Company is not
immune from making such decisions. In addition, many companies that will
insure accounts receivables will not do so for the Companys largest mass
market customers. The best example of such a loss was KMART Corporation. The
Company lost approximately $500,000 when KMART filed for re-organization.
KMART had been current with the Company at the time that KMART filed Chapter 11
bankruptcy. The Company continued to supply KMART during its post petition re-organization and continue to supply
the customer profitably today. The risk is that the Company derives most of the
Companys sales revenue and profits from selling products to retailers for
resale to consumers. The failure of the Companys customers to pay in full
amounts due to the Company could negatively affect future profitability.

COMPANY PROFITS CAN SUFFER FROM INTERRUPTIONS IN SUPPLY CHAIN

The Company operates a small sales office in Switzerland to service the
International Export marketplace. The Company is aware of no material risk in
maintaining this operation. Loss of this office would result in a transfer of
sales and marketing responsibility. The Company uses contract manufacturing
facilities in Mainland China, Taiwan, and South Korea. These independent
supplier entities are distant from the Company which means that the Company is
at risk of business interruptions due to natural disaster, war, disease, and
government intervention through tariffs or trade restrictions. The Company
maintains a finished goods inventory level in the Companys US facility to
mitigate this risk. The approximate level of finished goods inventory is
stocked at an average of 90 days demand per item. Recovery of a single
facility through a replacement of supplier in the event of disaster or
suspension of supply could take approximately 120 days. The Company believes
that it could restore production of its top ten selling models (which represent
76% of the Companys sales revenue) within 1 year. The Company is also at risk
if trade restrictions are introduced on the Companys products based upon
country of origin. In addition any increase in tariffs and freight charges
would not be acceptable to pass along to the Companys customers and would
directly impact the Companys profits. For example, an additional increase of
5% in duty for a complete fiscal year of purchases would amount to a reduction
in pretax profit of approximately $600,000 based upon sales reported in the
Companys 10K for the period ending June 30, 2003.

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2003 RESULTS OF OPERATIONS COMPARED WITH 2002

Net sales for 2003 were $33,802,634 compared with $36,571,303 in 2002, a
decrease of $2,768,669 or 7.6%. This decline was due to soft retail business
through the first and second quarter offset by stronger retail sales in the
third quarter. The Company has no direct information relating to consumer demand that would
indicate a reason for any reductions in sales. However, general concerns were
expressed by several major retailers during this period and as a result models
were consolidated, eliminated from the sales mix, or reduced in terms of
reorder size.

Gross profit, as a percentage of net
sales, was $13,848,039 or 41% in 2003 compared with $14,574,484 or 40% in
2002. The increase in gross profit was due to cost reductions in
2003. The cost reductions were attributable to a reduction of overhead and inventory costs.

Selling, general and administrative expenses for 2003 were $7,737,030 compared
with $8,011,829 in 2002, a decrease of $274,799 or 3%. The decrease was a
result of the Company experiencing lower selling expenses associated with lower
sales for the fiscal year.

Income from operations was $6,111,009 in 2003 compared with $6,562,655 in 2002,
a decrease of 7%. Interest income was $12,711 in 2003 compared with $30,445 in
2002, a decrease of 58%. Interest income fluctuates in relation to cash
balances on hand throughout the year and fluctuations in interest rates earned.
Interest expense for 2003 was $14,572 compared with $100,454 in 2002. The
decrease in interest expense is due to the Companys lack of borrowing activity
under its unsecured line of credit during the fiscal year.

On May 1, 2003, the Company acquired certain assets of ADDAX Sound Company
(ADDAX) in exchange for 19,875 shares of common stock of the Company (value
on May 1, 2003 of $317,603 based upon a market price of $15.98) plus $100 in
cash and assumed certain liabilities of ADDAX.

Royalty income was $755,364 in 2003 compared with $964,297 in 2002, a decrease
of 22%. The decrease in royalty income was primarily a result of a reduction
of sales by licensees under certain royalty agreements. The following three
paragraphs describe generally the Companys significant royalty agreements.

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, 2004. 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.

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

8



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certain countries in South America and Europe, requiring royalty
payments by Logitech through June 30, 2008, subject to certain minimum annual
royalty amounts.

Effective June 30, 2003, the Company entered into a License Agreement with
Sonigem Products, Inc. (Sonigem) of Ontario, Canada whereby the Company
licensed to Sonigem the right to sell video and
communications products under the Koss brand name. This License Agreement
covers Canada, requiring royalty payments by Sonigem through June 30, 2010,
subject to certain minimum annual royalty amounts.

The provision for income taxes was $2,695,101 and $2,869,684 in 2003 and 2002,
respectively. The effective tax rate was 39% in 2003 and 38% in 2002.

2002 RESULTS OF OPERATIONS COMPARED WITH 2001

Net sales for 2002 were $36,571,303 compared with $38,609,335 in 2001, a
decrease of $2,038,032 or 5.3%. This decline was due to soft retail business
through the second and fourth quarter offset by stronger retail sales in the
third quarter.
The Company has no direct information relating to consumer demand that would
indicate a reason for any reductions in sales. However, general concerns were
expressed by several major retailers during this period and as a result models
were consolidated, eliminated from the sales mix, or reduced in terms of
reorder size.

Gross profit was $14,574,484 or 40% in 2002 compared with $15,572,208 or 40% in
2001.

Selling, general and administrative expenses for 2002 were $8,011,829 compared
with $8,272,969 in 2001, a decrease of $261,140 or 3%. The decrease was a
result of the Company experiencing lower selling expenses associated with lower
sales for the fiscal year offset by additional reserves for bad debts of
approximately $500,000 for outstanding KMART receivables recorded in the last
six months of fiscal 2002.

Income from operations was $6,562,655 in 2002 compared with $7,299,239 in 2001,
a decrease of 10%. Interest income was $30,445 in 2002 compared with $85,423
in 2001, a decrease of 64%. Interest income fluctuates in relation to cash
balances on hand throughout the year and fluctuations in interest rates earned.
Interest expense for 2002 was $100,454 compared with $15,465 in 2001. The
increase in interest expense is due to the Companys borrowing activity under
its unsecured line of credit during the fiscal year.

Royalty income was $964,297 in 2002 compared with $1,010,026 in 2001, a
decrease of 4.5%. The decrease in royalty income was primarily a result of a
reduction of sales by licensees under certain royalty agreements.

The provision for income taxes was $2,869,684 and $3,196,080 in 2002 and 2001,
respectively. The effective tax rate was 38% in 2002 and 2001.

OFF-BALANCE SHEET FINANCING

The Company has no off-balance sheet financing arrangements.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company has disclosed information pertaining to these items in footnotes 4
and 12 to its consolidated financial statements included in this Form 10-K/A.

DISCLOSURES ABOUT CERTAIN TRADING ACTIVITIES THAT INCLUDE NON-EXCHANGE TRADED
CONTRACTS ACCOUNTED FOR AT FAIR VALUE

The Company does not have any trading activities that include non-exchange
traded contracts accounted for at fair value.

DISCLOSURES ABOUT EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES

The Company has an agreement with its Chairman to repurchase 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 $2.5 million 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 a 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.

In 1991, the Board of Directors agreed to continue the Chairmans current base
salary in the event he becomes disabled prior to age 70. After age 70, he
shall receive his current base salary for the remainder of his life, whether he
becomes disabled or not. The Chairman has turned 70. The Company has a
deferred compensation liability of $631,855 recorded as of June 30, 2003, and
$737,599 as of June 30, 2002 for this arrangement.

The Company leases its main plant and offices in Milwaukee, Wisconsin from its
Chairman, John C. Koss. On May 28, 2003, the lease was renewed for a period of
five years, and is being accounted for as an operating lease. The lease
extension maintained the rent at a fixed rate of $380,000 per year. At anytime
during this period the Company has the option to renew the lease for an
additional five years for the period commencing July 1, 2008 and ending June
30, 2013 under the same terms and conditions. The lease is on terms no less
favorable to the Company than those that could be obtained from an independent
party. The Company is responsible for all property maintenance, insurance,
taxes and other normal expenses related to ownership.

All facilities are in good repair and, in the opinion of management, are
suitable for the Companys purposes.

DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES

The Companys more critical accounting policies include revenue recognition,
royalty income and the use of estimates (which inherently involve judgment and
uncertainties) in valuing inventory and accounts receivable.

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Revenue Recognition

The Company recognizes revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred; the
sellers price to the buyer is fixed or determinable; and collectibility is
reasonably assured. These criteria are generally satisfied and the Company
recognizes revenue upon shipment. The Company also offers certain of its
customers the right to return products that do not meet the standards agreed
with the customer. The Company continuously monitors such product returns and
while such returns have historically been minimal, the Company cannot guarantee
that they will continue to experience the same return rates that they have in
the past. Any significant increase in product quality failure rates and the
resulting credit
returns could have a material adverse impact on the Companys operating results
for the period or periods in which such returns materialize.

The Company provides for certain sales incentives, which include sales rebates.
The Company records a provision for estimated incentives based upon the
incentives offered to customers on product related sales in the same period as
the related revenues are recorded. The Company also records a provision for
estimated sales returns and allowances on product related sales in the same
period as the related revenues are recorded. These estimates are based on
historical sales returns, analysis of credit memo data and other known factors.
If the historical data the Company uses to calculate these estimates does not
properly reflect future returns, adjustments may be required in future periods.

Products sold are covered by a lifetime warranty. The Company accrues a
warranty reserve for estimated costs to provide warranty services. The
Companys estimate of costs to service its warranty obligations is based on
historical experience and expectation of future conditions. To the extent the
Company experiences increased warranty claim activity or increased costs
associated with servicing those claims, its warranty accrual will increase
accordingly and result in decreased gross profit.

Royalty Income

The Companys net income is significantly affected by the levels of royalty
income generated in any given period. Royalty income is recognized when earned
under the terms of the Companys License Agreements. These agreements require
minimum annual royalty payments. The Company currently has three royalty
agreements, which expire in 2004, 2008, and 2010, respectively. The inability
of the Company to negotiate favorable royalty arrangements and renew current
agreements could have a material adverse impact on the Companys results for
the period. Based upon the favorable relationships the Company has with the
parties under these License Agreements, termination, non-renewal or a
renegotiation toward more unfavorable terms under the current agreements is not
considered likely.

Accounts Receivable

The Company performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and the customers current credit
worthiness, as determined by the review of the customers current credit
information. The Company continuously monitors collections and payments from
customers and maintains a provision for estimated credit losses based upon the
Companys historical experience and any specific customer collection issues
that have been identified. The Company values accounts receivable net of an
allowance for uncollectible accounts. The allowance is calculated based upon
the Companys evaluation of specific customer accounts where the Company has
information that the customer may have an inability to meet its financial
obligations (bankruptcy, etc.). In these cases, the Company uses its judgment,
based on the best available facts and circumstances, and records a specific
reserve for that customer against amounts due to reduce the receivable to the
amount that is expected to be collected. These specific reserves are
re-evaluated and adjusted as additional information is received that impacts
the amount reserved. However, the ultimate collectibility of a receivable is
dependent upon the financial condition of an individual customer, which could
change rapidly and without advance warning.

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Inventories

The Company values its inventories at the lower of cost or market. Cost is
determined using the last-in, first-out method. Valuing inventories at the
lower of cost or market requires the use of estimates and judgment. Our
customers may cancel their orders or change purchase volumes. Any of these, or
certain additional actions, could create excess inventory levels, which would
impact the valuation of our inventories. The Company continues to use the same
techniques to value inventory as have been used in the past. Any actions taken
by our customers that could impact the value of our inventory are considered
when determining the lower of cost or market valuations. The Company regularly
reviews inventory quantities on hand and records a provision for excess and
obsolete inventory based primarily on our estimated forecast of product demand
and production requirements for the next
twelve months. If the Company is not able to achieve its expectations of the
net realizable value of the inventory at its current value, the Company would
have to adjust its reserves accordingly.

RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS

During April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards (SFAS) No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities, which amends and clarifies
financial accounting and reporting for certain derivative
instruments. The Company does not anticipate the adoption of this
statement to have a material impact on the Companys
consolidated financial statements, as the Company is not currently a party to
derivative financial instruments included in this standard.

During May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,
which establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and
equity. The Company does not anticipate the adoption of this statement to have a material impact on
the Companys consolidated financial statements, as the Company is not currently a party to such
instruments included in this standard. The Company will adopt this standard in
fiscal 2004.




Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In managements opinion, the Company does not engage in any material market
risk sensitive activities and does not have any market risk sensitive
instruments, other than the Companys commercial credit facility used for
working capital purposes and stock repurchases.




Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

MANAGEMENTS REPORT

The consolidated financial statements and related financial information
included in this report are the responsibility of management as to preparation,
presentation and reliability. Management believes that the financial
statements have been prepared in conformity with accounting principles
generally accepted in the United States of America appropriate under the
circumstances and necessarily include amounts that are based on best estimates
and judgments.

The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that the books and records
reflect the authorized transactions of the Company.

Oversight of managements financial reporting and internal accounting control
responsibilities is exercised by the Board of Directors, through an Audit
Committee that is comprised solely of non-employee directors. The Audit
Committee is also responsible for the selection and appointment of the
independent auditors and reviews the scope of their audit and their findings.
The independent auditors have direct access to the Audit Committee, with or
without the presence of management representatives, to discuss the scope and
the results of their audit work.

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The independent auditors provide an objective assessment of the degree to which
management meets its responsibility for fairness of financial reporting. They
evaluate the system of internal accounting controls in connection with their
audit and perform such tests and procedures, as they deem necessary to reach
and express an opinion on the fairness of the financial statements.

Consolidated financial statements of the Company at June 30, 2003 and 2002 and
for each of the three years in the period ended June 30, 2003 and the notes
thereto, and the report of independent auditors thereon are set forth on pages
16 to 28.

Selected unaudited quarterly financial data is as follows:

QuarterRestated
    
    Previously Reported2003
    
    First
    
    Second
    
    Third
    
    Fourth
    
    Third
    
    FourthNet sales
    
    $
    8,954,978
    
    
    $
    7,818,848
    
    
    $
    8,264,668
    
    
    $
    8,764,140
    
    
    $
    8,264,668
    
    
    $
    8,764,140Gross profit
    
    
    3,530,757
    
    
    
    3,190,860
    
    
    
    3,514,806
    
    
    
    3,611,616
    
    
    
    3,514,806
    
    
    
    3,611,616Net income
    
    
    1,100,778
    
    
    
    1,046,137
    
    
    
    699,188
    
    
    
    1,323,308
    
    
    
    990,258
    
    
    
    1,384,002Earnings per common
share:Basic (1)
    
    $
    .30
    
    
    $
    .29
    
    
    $
    .19
    
    
    $
    .35
    
    
    $
    .27
    
    
    $
    .37Diluted (1)
    
    
    .29
    
    
    
    .27
    
    
    
    .18
    
    
    
    .34
    
    
    
    .26
    
    
    
    .36


QuarterRestated
    
    
    
    
    
    
    
    
    
    Restated
    
    Previously Reported2002
    
    First
    
    Second
    
    Third
    
    Fourth
    
    First
    
    FourthNet sales
    
    $
    8,951,411
    
    
    $
    9,751,397
    
    
    $
    8,203,325
    
    
    $
    9,665,170
    
    
    $
    8,951,411
    
    
    $
    9,665,170Gross profit
    
    
    3,451,891
    
    
    
    3,899,847
    
    
    
    3,443,626
    
    
    
    3,779,120
    
    
    
    3,451,891
    
    
    
    3,779,120Net income
    
    
    871,298
    
    
    
    1,154,200
    
    
    
    1,242,839
    
    
    
    1,318,922
    
    
    
    1,030,874
    
    
    
    1,613,430Earnings per common
share:Basic (1)
    
    $
    .23
    
    
    $
    .31
    
    
    $
    .34
    
    
    $
    .36
    
    
    $
    .27
    
    
    $
    .44Diluted (1)
    
    
    .21
    
    
    
    .30
    
    
    
    .32
    
    
    
    .34
    
    
    
    .25
    
    
    
    .42




|(1) |  | Due to the use of weighted-average shares outstanding each
quarter for computing earnings per share, the sum of the
quarterly per share amounts may not equal the per share amount
for the year.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.




Item 9A. Controls and Procedures.

(a)
    
    Evaluation of Disclosure Controls and Procedures.The Company
maintains a system of disclosure controls and procedures that are
designed to provide reasonable assurance that information, which is
required to be timely disclosed, is accumulated and communicated to
management in a timely fashion. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. The
Companys Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Companys disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act
of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this report, have concluded that the Companys disclosure
controls and procedures are effective to provide reasonable assurance
that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and
communicated to the Companys management, including its principal
executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure and are effective
to provide reasonable assurance that such information is recorded,
processed, summarized and reported within the time periods specified in
the SECs rules and forms.(b)
    
    Changes in Internal Controls.The Companys internal control
over financial reporting (as defined in Exchange Act Rule 13a-15(f)) is
designed to provide reasonable assurances regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. There were no changes in the Companys internal control
over financial reporting that occurred during the Companys most recent
fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial
reporting. However, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company
have been detected.


12



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##### Table of Contents






PART III




Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information relating to the directors of Koss Corporation is incorporated
herein by reference from the ELECTION OF DIRECTORS  Information As To
Nominees, ELECTION OF DIRECTORS  Beneficial Ownership of Company Securities
and the ELECTION OF DIRECTORS  Executive Officers contained in the Koss
Corporation Proxy Statement for its 2003 Annual Meeting of Stockholders (the
2003 Proxy
Statement), which 2003 Proxy Statement was filed within 120 days of the
end of the fiscal year covered by this Report pursuant to General Instruction
G(3) of Form 10-K.




Item 11. EXECUTIVE COMPENSATION.

The Companys executive officers are paid base salaries commensurate with
their responsibilities, after comparison with base salaries of executive
officers of other light assembly or manufacturing companies taken from
data in an annual national survey.

Executive officers are also eligible for annual bonuses based upon
individual performance and overall Company performance and profitability.
Factors relevant to determining such bonuses include attainment of
corporate revenue and earnings goals and the development of new accounts.
The Companys Chairman is eligible to receive a bonus calculated as a
percentage of the Companys earnings before interest and taxes. The
Companys Vice President-Sales is entitled to receive a bonus based upon
increases in sales over the prior year, and a bonus for obtaining new
accounts from a predetermined list of potential new accounts and for
adding new product lines to current accounts. The Companys Vice
President  Europe is entitled to receive a bonus based upon the Companys
sales in export markets. The Companys Vice President Bi-Audio division
is entitled to receive a bonus based upon Company sales of communications
products.

The Compensation Committee annually reviews and determines the
compensation of the Chief Executive Officer. The CEOs salary is based on
his experience, responsibilities, historical salary levels for himself/herself and other executive officers of the Company,
and the salaries of Chief Executive Officers of other light assembly or
manufacturing companies.

The CEOs cash bonus is strictly based upon a quantitative measure of
performance. If the CEO does not achieve profitability, the cash bonus is
not paid. The CEO is eligible to receive a bonus calculated as a fixed
percentage of the Companys earnings before interest and taxes. The CEO
also participates in the Companys Flexible Incentive Plan.




Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information relating to the security ownership of certain beneficial owners and
management is incorporated herein by reference from the ELECTION OF DIRECTORS
 Beneficial Ownership of Company Securities section of the 2003 Proxy
Statement.




Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information relating to related transactions is incorporated herein by
reference from the ELECTION OF DIRECTORS  Executive Compensation and Related
Matters and ELECTION OF DIRECTORS  Related Transactions sections of the
2003 Proxy Statement.




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Information relating to the principle accountant fees and services is
incorporated herein by reference from the RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS section of the 2003 proxy statement.




PART IV




Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

a.     The following documents are filed as part of this report:



| | 1. |  | Financial Statements
| | -- |  | --------------------

|                                                                                                      |                                                                                         |  |    |    | 
|----------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- |  | -- | -- | 
|The following consolidated financial statements of Koss Corporation
are set forth on pages 15 to 27:  |                                                                                         |  |    |   
|                                                                                                      | Report of Independent Auditors                                                          |  |    | 16 | 
|                                                                                                      | Consolidated Statements of Income for the Years
Ended June 30, 2003, 2002, and 2001     |  |    | 17 | 
|                                                                                                      | Consolidated Balance Sheets as of June 30, 2003 and 2002                                |  |    | 18 | 
|                                                                                                      | Consolidated Statements of Cash Flows
for the Years Ended June 30, 2003, 2002, and 2001 |  |    | 19 | 
|Consolidated Statements of Stockholders Investment
for the Years Ended June 30, 2003, 2002, and 2001 |                                                                                         |  | 20 |   
|                                                                                                      | Notes to Consolidated Financial Statements                                              |  |    | 21 | 

13



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##### Table of Contents





| | 2. |  | Financial Statement Schedules                                                                                                                                                                 
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | All schedules have been omitted because the information is not
applicable or is not material or because the information required is
included in the financial statements or the notes thereto.
|
| | 3. |  | Exhibits Filed                                                                                                                                                                                

|      |  |                                                                                                                                                                                                                                                                                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Certificate of Incorporation of Koss Corporation.                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|3.2   |  | By-Laws of Koss Corporation.                                                                                                                                                                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|4.1   |  | Certificate of Incorporation of Koss Corporation.                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|4.2   |  | By-Laws of Koss Corporation.                                                                                                                                                                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.1  |  | Officer Loan Policy.                                                                                                                                                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.3  |  | Supplemental Medical Care Reimbursement Plan.                                                                                                                                                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.4  |  | Death Benefit Agreement with John C. Koss.                                                                                                                                                                                                                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.5  |  | Stock Repurchase Agreement with John C. Koss.                                                                                                                                                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.6  |  | Salary Continuation Resolution for John C. Koss.                                                                                                                                                                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.7  |  | 1983 Incentive Stock Option Plan.                                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.8  |  | Assignment of Lease to John C. Koss.                                                                                                                                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.9  |  | Addendum to Lease.                                                                                                                                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.10 |  | 1990 Flexible Incentive Plan.                                                                                                                                                                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.12 |  | Loan Agreement, effective as of February 17, 1995.                                                                                                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.13 |  | Amendment to Loan Agreement dated June 15, 1995,
effective as of February 17, 1995.                                                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.14 |  | Amendment to Loan Agreement dated April 29, 1999.                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.15 |  | Amendment to Loan Agreement dated December 15, 1999.                                                                                                                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|10.16 |  | Amendment to Loan Agreement dated October 10, 2001.                                                                                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|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).
|      |  |                                                                                                                                                                                                                                                                                                                                                           
|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).                                                                                                                                               

14



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##### Table of Contents



|      |  |                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19 |  | Third Amendment and Assignment of License Agreement to Jiangsu Electronics
Industries Limited dated March 31, 1997.                                        
|      |  |                                                                                                                                                            
|10.20 |  | Fourth Amendment to License Agreement dated as of May 29, 1998.                                                                                            
|      |  |                                                                                                                                                            
|10.21 |  | Fifth Amendment to License Agreement dated March 30, 2001.                                                                                                 
|      |  |                                                                                                                                                            
|10.22 |  | Sixth Amendment to License Agreement dated August 15, 2001.                                                                                                
|      |  |                                                                                                                                                            
|10.23 |  | Seventh Amendment to License Agreement dated December 28, 2001.                                                                                            
|      |  |                                                                                                                                                            
|10.24 |  | Eighth Amendment to License Agreement dated July 31, 2002.                                                                                                 
|      |  |                                                                                                                                                            
|10.25 |  | License Agreement dated June 30, 1998 between Koss
Corporation and Logitech Electronics Inc. (including Addendum
to License Agreement dated June 30, 1998).
|      |  |                                                                                                                                                            
|10.26 |  | Consent of Directors (Supplemental Executive
Retirement Plan for Michael J. Koss dated March 7, 1997).                                                     
|      |  |                                                                                                                                                            
|10.27 |  | Amendment to Lease.                                                                                                                                        
|      |  |                                                                                                                                                            
|10.28 |  | Partial Assignment, Termination and Modification of Lease.                                                                                                 
|      |  |                                                                                                                                                            
|10.29 |  | Restated Lease.                                                                                                                                            
|      |  |                                                                                                                                                            
|21    |  | List of Subsidiaries of Koss Corporation.                                                                                                                  
|      |  |                                                                                                                                                            
|23    |  | Consent of PricewaterhouseCoopers LLP                                                                                                                      
|      |  |                                                                                                                                                            
|31    |  | Certification of Chief Executive Officer and Chief
Financial Officer required by Rule 13a-14(a) or 15d-14(a).                                              
|      |  |                                                                                                                                                            
|32    |  | Certification of Chief Executive Officer and Chief
Financial Officer required by 18 U.S.C. Section 1350.                                                   



|b. |  | No reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this report.
|-- |  | --------------------------------------------------------------------------------------------------------------

15



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##### Table of Contents



Report of Independent Auditors

To the Board of Directors and Stockholders of Koss Corporation

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) on page 12 present fairly, in all material
respects, the financial position of Koss Corporation and its subsidiaries at
June 30, 2003 and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2003 in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

As discussed in Note 14 to the
consolidated financial statements, the Company has
restated its consolidated financial statements to reflect a change in
its accounting for stock repurchased from employees.

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 11, 2003, except as to the restatement discussed in Note 14,
   for which the date is February 13, 2004

16



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##### Table of Contents



KOSS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Restated  Note 14)

|                                             |                  |      |            |         |   |      |            |          |   |   |            |           |  
|-------------------------------------------- | ---------------- | ---- | ---------- | ------- | - | ---- | ---------- | -------- | - | - | ---------- | --------- | -
|Year Ended June 30,                          |                  | 2003 |            | 2002    |   | 2001
|                                             |                  |      |            |         |   |     
|Net sales                                    |                  | $    | 33,802,634 |         |   | $    | 36,571,303 |          |   | $ | 38,609,335 |          
|Cost of goods sold                           |                  |      | 19,954,595 |         |   |      | 21,996,819 |          |   |   | 23,037,127 |          
|                                             |                  |      |            |         |   |      |            |          |   |   |            |          
|Gross profit                                 |                  |      | 13,848,039 |         |   |      | 14,574,484 |          |   |   | 15,572,208 |          
|Selling, general, and
administrative expense |                  |      | 7,737,030  |         |   |      | 8,011,829  |          |   |   | 8,272,969  |          
|                                             |                  |      |            |         |   |      |            |          |   |   |            |          
|Income from operations                       |                  |      | 6,111,009  |         |   |      | 6,562,655  |          |   |   | 7,299,239  |          
|Other income (expense):                      |                  |      |            |         |   |      |            |          |   |   |            |          
|                                             | Royalty income   |      |            | 755,364 |   |      |            | 964,297  |   |   |            | 1,010,026 |  
|                                             | Interest income  |      |            | 12,711  |   |      |            | 30,445   |   |   |            | 85,423    |  
|                                             | Interest expense |      |            | (14,572 | ) |      |            | (100,454 | ) |   |            | (15,465   | )
|                                             |                  |      |            |         |   |      |            |          |   |   |            |          
|Income before income taxes                   |                  |      | 6,864,512  |         |   |      | 7,456,943  |          |   |   | 8,379,223  |          
|Provision for income taxes (note 6)          |                  |      | 2,695,101  |         |   |      | 2,869,684  |          |   |   | 3,196,080  |          
|                                             |                  |      |            |         |   |      |            |          |   |   |            |          
|Net income                                   |                  | $    | 4,169,411  |         |   | $    | 4,587,259  |          |   | $ | 5,183,143  |          
|                                             |                  |      |            |         |   |      |            |          |   |   |            |          
|Earnings per common share:                   |                  |      |            |         |   |      |            |          |   |   |            |          
|                                             | Basic            |      | $          | 1.14    |   |      | $          | 1.24     |   |   | $          | 1.23      |  
|                                             | Diluted          |      | $          | 1.08    |   |      | $          | 1.17     |   |   | $          | 1.16      |  
|                                             |                  |      |            |         |   |      |            |          |   |   |            |          
|Dividends per common share                   |                  | $    | 0.52       |         |   | $    | 0.485      |          |   |   | None       |          
|                                             |                  |      |            |         |   |      |            |          |   |   |            |          

The accompanying notes are an integral part of these consolidated financial
statements.

17



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##### Table of Contents



KOSS CORPORATION
CONSOLIDATED BALANCE SHEETS (Restated  Note 14)

|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |            | 
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|As of June 30,                                   |                                                                                                                                  | 2003                      |            | 2002      
|                                                 |                                                                                                                                  |                           |            |           
|ASSETS                                           |                                                                                                                                  |                           |            |            |            |   |            |           
|Current Assets:                                  |                                                                                                                                  |                           |            |            |            |   |            |           
|                                                 | Cash                                                                                                                             |                           | $          | 1,557,104  |            |   | $          | 1,052,364  |           
|                                                 | Accounts receivable, less allowances of
$975,689 and $801,055, respectively (note 13)                                            |                           |            | 8,695,553  |            |   |            | 8,371,187  |           
|                                                 | Inventories                                                                                                                      |                           |            | 7,333,772  |            |   |            | 6,380,212  |           
|                                                 | Income taxes receivable                                                                                                          |                           |            | 181,871    |            |   |            |           |           
|                                                 | Prepaid expenses                                                                                                                 |                           |            | 646,410    |            |   |            | 600,928    |           
|                                                 | Deferred income taxes (note 6)                                                                                                   |                           |            | 593,973    |            |   |            | 714,973    |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|                                                 |                                                                                                                                  | Total current assets      |            |            | 19,008,683 |   |            |            | 17,119,664 | 
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|Equipment and Leasehold Improvements, at cost:   |                                                                                                                                  |                           |            |            |            |   |            |           
|                                                 | Leasehold improvements                                                                                                           |                           |            | 1,146,787  |            |   |            | 1,104,954  |           
|                                                 | Machinery, equipment, furniture, and fixtures                                                                                    |                           |            | 4,862,961  |            |   |            | 5,152,552  |           
|                                                 | Tools, dies, molds, and patterns                                                                                                 |                           |            | 10,033,239 |            |   |            | 9,513,252  |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|                                                 |                                                                                                                                  |                           | 16,042,987 |            |            |   | 15,770,758 |           
|                                                 | Lessaccumulated depreciation                                                                                                    |                           |            | 14,119,170 |            |   |            | 13,992,703 |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|                                                 |                                                                                                                                  |                           | 1,923,817  |            |            |   | 1,778,055  |           
|Deferred Income Taxes (note 6)                   |                                                                                                                                  |                           | 609,135    |            |            |   | 512,135    |           
|Other Assets                                     |                                                                                                                                  |                           | 2,245,183  |            |            |   | 1,235,299  |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|                                                 |                                                                                                                                  | $                         | 23,786,818 |            |            | $ | 20,645,153 |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|LIABILITIES AND STOCKHOLDERS INVESTMENT         |                                                                                                                                  |                           |            |            |            |   |            |           
|Current Liabilities:                             |                                                                                                                                  |                           |            |            |            |   |            |           
|                                                 | Accounts payable                                                                                                                 |                           | $          | 2,793,550  |            |   | $          | 1,854,316  |           
|                                                 | Accrued liabilities (note 8)                                                                                                     |                           |            | 1,499,043  |            |   |            | 1,587,551  |           
|                                                 | Dividends payable                                                                                                                |                           |            | 488,856    |            |   |            | 440,466    |           
|                                                 | Income taxes payable                                                                                                             |                           |            |           |            |   |            | 480,668    |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|                                                 |                                                                                                                                  | Total current liabilities |            |            | 4,781,449  |   |            |            | 4,363,001  | 
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|Contingently Redeemable Equity Interest (note 5) |                                                                                                                                  |                           | 1,490,000  |            |            |   | 1,490,000  |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|Deferred Compensation                            |                                                                                                                                  |                           | 1,014,167  |            |            |   | 1,056,618  |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|Commitments and Contingencies (note 12)          |                                                                                                                                  |                           |            |            |            |   |            |           
|Stockholders Investment (note 5):               |                                                                                                                                  |                           |            |            |            |   |            |           
|                                                 | Common stock, $0.005 par value,
authorized 8,500,000 shares;
issued and outstanding 3,760,429
and 3,670,554 shares, respectively |                           |            | 18,802     |            |   |            | 18,353     |           
|                                                 | Contingently redeemable common stock                                                                                             |                           |            | (1,490,000 | )          |   |            | (1,490,000 | )         
|                                                 | Retained earnings                                                                                                                |                           |            | 17,972,400 |            |   |            | 15,207,181 |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|Total stockholders investment                   |                                                                                                                                  |                           | 16,501,202 |            |            |   | 13,735,534 |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           
|                                                 |                                                                                                                                  | $                         | 23,786,818 |            |            | $ | 20,645,153 |           
|                                                 |                                                                                                                                  |                           |            |            |            |   |            |            |           

The accompanying notes are an integral part of these consolidated financial
statements.

18



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##### Table of Contents



KOSS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Restated  Note 14)

|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |             |           |           | 
|------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------- | -------------------------------------------------------- | ----------------------------------------- | ---------- | ---------- | --------- | ---------- | ---------- | --------- | --------- | ----------- | ----------- | --------- | --------- | 
|Year Ended June 30,                   |                                                                                   | 2003                                  |                                                          | 2002                                      |            | 2001      
|                                      |                                                                                   |                                       |                                                          |                                           |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |            
|                                      | Net income                                                                        |                                       | $                                                        | 4,169,411                                 |            |            | $         | 4,587,259  |            |           | $         | 5,183,143   |            
|                                      | Adjustments to reconcile net
income to net cash provided by
operating activities: |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            
|                                      |                                                                                   |                                       | Allowance for doubtful accounts                          |                                           |            | 198,846    |           |            |            | 552,000   |           |             |             | 52,238    |          
|                                      |                                                                                   |                                       | Depreciation and amortization                            |                                           |            | 584,761    |           |            |            | 576,892   |           |             |             | 600,819   |          
|                                      |                                                                                   |                                       | Deferred income taxes                                    |                                           |            | 24,000     |           |            |            | (329,000  | )         |             |             | 229,000   |          
|                                      |                                                                                   |                                       | Deferred compensation                                    |                                           |            | (105,744   | )         |            |            | (277,791  | )         |             |             | 115,080   |          
|                                      |                                                                                   |                                       | Other                                                    |                                           |            |           |           |            |            |          |           |             |             | (61,001   | )        
|                                      |                                                                                   |                                       | Net changes in operating assets and
liabilities (note 9) |                                           |            | (2,074,658 | )         |            |            | 1,948,805 |           |             |             | 1,977,724 |          
|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            
|                                      |                                                                                   |                                       |                                                          | Net cash provided by operating activities |            |            | 2,796,616 |            |            |           | 7,058,165 |             |             |           | 8,097,003 | 
|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            
|CASH FLOWS FROM INVESTING
ACTIVITIES: |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |            
|                                      | Acquisition of ADDAX, net of cash acquired                                        |                                       |                                                          | 8,648                                     |            |            |           |           |            |           |           |            |            
|                                      | Acquisition of equipment
and leasehold improvements                               |                                       |                                                          | (627,567                                  | )          |            |           | (664,319   | )          |           |           | (814,851    | )          
|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            
|                                      |                                                                                   |                                       | Net cash used in investing activities                    |                                           |            | (618,919   | )         |            |            | (664,319  | )         |             |             | (814,851  | )        
|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            
|CASH FLOWS FROM FINANCING
ACTIVITIES: |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |            
|                                      | Payments under line of credit agreement                                           |                                       |                                                          |                                          |            |            |           | (6,786,500 | )          |           |           |            |            
|                                      | Borrowings under line of credit agreement                                         |                                       |                                                          |                                          |            |            |           | 6,786,500  |            |           |           |            |            
|                                      | Dividends paid                                                                    |                                       |                                                          | (1,866,782                                | )          |            |           | (1,338,424 | )          |           |           |            |            
|                                      | Purchase of common stock                                                          |                                       |                                                          | (340,000                                  | )          |            |           | (4,320,636 | )          |           |           | (10,442,398 | )          
|                                      | Exercise of stock options                                                         |                                       |                                                          | 533,825                                   |            |            |           | 135,900    |            |           |           | 177,523     |            
|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            
|                                      |                                                                                   | Net cash used in financing activities |                                                          |                                           | (1,672,957 | )          |           |            | (5,523,160 | )         |           |             | (10,264,875 | )        
|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            
|                                      | Net increase (decrease) in cash                                                   |                                       |                                                          | 504,740                                   |            |            |           | 870,686    |            |           |           | (2,982,723  | )          
|                                      | Cash at beginning of year                                                         |                                       |                                                          | 1,052,364                                 |            |            |           | 181,678    |            |           |           | 3,164,401   |            
|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            
|                                      | Cash at end of year                                                               |                                       | $                                                        | 1,557,104                                 |            |            | $         | 1,052,364  |            |           | $         | 181,678     |            
|                                      |                                                                                   |                                       |                                                          |                                           |            |            |           |            |            |           |           |             |            

The accompanying notes are an integral part of these consolidated financial
statements.

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KOSS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS INVESTMENT (Restated  Note 14)

|                       |                                                                  |  |              |           |          |   |          |        |   |   |            |             |  
|---------------------- | ---------------------------------------------------------------- |  | ------------ | --------- | -------- | - | -------- | ------ | - | - | ---------- | ----------- | -
|                       |                                                                  |  |              |           |          |   |          |        |   |   |           
|                       |                                                                  |  | Common Stock |           |         
|                       |                                                                  |  |              |           | Retained
|                       |                                                                  |  | Shares       |           | Amount   |   | Earnings
|                       |                                                                  |  |              |           |          |   |         
|Balance, June 30, 2000 |                                                                  |  | 4,698,738    |           |          | $ | 23,494   |        |   | $ | 21,960,139 |            
|                       | Net income                                                       |  |              |          |          |   |          |       |   |   |            | 5,183,143   |  
|                       | Purchase and retirement of
treasury stock                        |  |              | (859,482  | )        |   |          | (4,297 | ) |   |            | (10,438,101 | )
|                       | Exercise of stock options                                        |  |              | 47,500    |          |   |          | 237    |   |   |            | 172,953     |  
|                       | Other                                                            |  |              |          |          |   |          |       |   |   |            | (295,667    | )
|                       |                                                                  |  |              |           |          |   |          |        |   |   |            |            
|                       | Balance, June 30, 2001                                           |  |              | 3,886,756 |          |   |          | 19,434 |   |   |            | 16,582,467  |  
|                       | Net income                                                       |  |              |          |          |   |          |       |   |   |            | 4,587,259   |  
|                       | Dividends declared                                               |  |              |          |          |   |          |       |   |   |            | (1,778,890  | )
|                       | Exercise of stock options                                        |  |              | 22,500    |          |   |          | 113    |   |   |            | 135,787     |  
|                       | Purchase and retirement of
treasury stock                        |  |              | (238,702  | )        |   |          | (1,194 | ) |   |            | (4,319,442  | )
|                       |                                                                  |  |              |           |          |   |          |        |   |   |            |            
|                       | Balance, June 30, 2002                                           |  |              | 3,670,554 |          |   |          | 18,353 |   |   |            | 15,207,181  |  
|                       | Net income                                                       |  |              |          |          |   |          |       |   |   |            | 4,169,411   |  
|                       | Dividends declared                                               |  |              |          |          |   |          |       |   |   |            | (1,915,172  | )
|                       | Common stock issued in conjunction
with the acquisition of ADDAX |  |              | 19,875    |          |   |          | 99     |   |   |            | 317,504     |  
|                       | Exercise of stock options                                        |  |              | 90,000    |          |   |          | 450    |   |   |            | 533,376     |  
|                       | Purchase and retirement of
treasury stock                        |  |              | (20,000   | )        |   |          | (100   | ) |   |            | (339,900    | )
|                       |                                                                  |  |              |           |          |   |          |        |   |   |            |            
|Balance, June 30, 2003 |                                                                  |  | 3,760,429    |           |          | $ | 18,802   |        |   | $ | 17,972,400 |            
|                       |                                                                  |  |              |           |          |   |          |        |   |   |            |            

The accompanying notes are an integral part of these consolidated financial
statements.

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KOSS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ACCOUNTING POLICIES

CONCENTRATION OF CREDIT RISKThe Company operates in the audio/video industry
segment of the home entertainment industry through its design, manufacture, and
sale of stereo headphones and related accessory products. The Companys
products are sold through audio specialty stores, the Internet, direct mail catalogs, regional
department store chains, military exchanges and national retailers under the
Koss name and dual label. The Company has more than 1,600 domestic dealers
and its products are carried in approximately 16,000 domestic retail outlets.
International markets are served by domestic sales representatives and a sales
office in Switzerland, which utilizes independent distributors in several
foreign countries. The Company grants credit to its domestic and Canadian
customers. Collection is dependent on the retailing industry economy.
International customers outside of Canada are sold on a cash against documents
or letter of credit basis. Approximately 16% and 11% of the Companys accounts
receivable at June 30, 2003 and 2002, respectively, were foreign receivables.

BASIS OF CONSOLIDATIONThe consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-owned.
All significant intercompany accounts and transactions have been eliminated.

REVENUE RECOGNITIONRevenue is recognized by the Company when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred; the sellers price to the buyer is fixed or
determinable; and collectibility is reasonably assured. These criteria are generally
satisfied upon shipment of the Companys products. The Company may offer slotting fees, cooperative advertising programs and sales
discounts from time to time and the estimated costs for these items are accrued
for at the time revenue is recognized. These amounts are recorded as a
reduction to sales.

ROYALTY INCOMEThe Company recognizes royalty income when earned under terms
of license agreements, which expire in 2004, 2008, and 2010. These agreements
require minimum annual royalty payments. Royalty income owed to the
Company is calculated by the licensee and then verified by the
Company. Royalty payments are calculated based upon predetermined percentages of net
sales of the licensed products or based upon minimum annual royalty payments,
as set forth in the Companys license agreements. Royalty income is booked monthly, on an accrual
basis. When the royalty payments are received each quarter, the Company then
reduces the accounts receivable accordingly.

INVENTORIESSubstantially all of the Companys inventories are valued at the
lower of last-in, first-out (LIFO) cost or market. If the first-in, first-out
(FIFO) method of inventory accounting had been used by the Company for
inventories valued at LIFO, inventories would have been $1,009,586 and $787,361
higher than reported at June 30, 2003 and 2002, respectively.
The Company did not maintain any work-in-process inventories at
June 30, 2003 and June 30, 2002.

The components of inventories at June 30 are as follows:

2003
    
    2002
    
    2001Raw Materials
    
    $
    2,661,131
    
    
    $
    2,033,836
    
    
    $
    2,516,999Finished goods
    
    $
    4,672,641
    
    
    $
    4,346,376
    
    
    $
    5,979,011Total
    
    $
    7,333,772
    
    
    $
    6,380,212
    
    
    $
    8,496,010


EQUIPMENT AND LEASEHOLD IMPROVEMENTSDepreciation is provided on a
straight-line basis over the estimated useful life of the asset as follows:

|                        |  |            
|----------------------- |  | -----------
|Leasehold improvements  |  | 10-15 years
|Machinery, equipment,   |  |            
|furniture, and fixtures |  | 3-10 years 
|Tools, dies, molds,     |  |            
|and patterns            |  | 4-5 years  

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RESEARCH AND DEVELOPMENTResearch and development expenditures charged to
operations amounted to approximately $134,000 in 2003, $114,000 in 2002 and
$89,000 in 2001.

USE OF ESTIMATESThe preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

SHIPPING AND HANDLING FEES AND
COSTSShipping and handling fees charged to customers are included in net sales, and
shipping and handling costs incurred by the Company are included in cost of
goods sold within the accompanying consolidated statements of income.

FAIR VALUE OF FINANCIAL INSTRUMENTSCash, accounts receivable and accounts
payable recorded in the consolidated balance sheets approximate fair value
based on the short maturity of these instruments.

NEW ACCOUNTING PRONOUNCEMENTSDuring April 2003, the Financial Accounting
Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, which amends and clarifies financial accounting and reporting for
certain derivative instruments. The Company does not anticipate the adoption
of this statement to have a material impact on its consolidated financial
statements, as it is not currently a party to derivative financial instruments
included in this standard.

During May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,
which establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
Company does not anticipate the adoption of this statement to have a material
impact on its consolidated financial statements, as it is not currently a party
to such instruments included in this standard. The Company will adopt this standard in fiscal 2004.

RECLASSIFICATIONSCertain amounts in the prior year financial statements have
been reclassified to conform to current year presentation.

STOCK-BASED COMPENSATION At June 30, 2003, the Company has a stock-based
employee compensation plan, which is described more fully in Note 5. The
Company accounts for this plan under the recognition and measurement principles
of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. All options granted under the plan had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.

Year Ended June 30,
    
    2003
    
    2002
    
    2001Net income, as reported
    
    $
    4,169,411
    
    
    $
    4,587,259
    
    
    $
    5,183,143Add: Total stock-based employee
compensation recorded
    
    
    351,764
    
    
    
    454,084
    
    
    
    504,378Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards
    
    
    447,679
    
    
    
    382,696
    
    
    
    278,113Pro forma net income
    
    $
    4,073,496
    
    
    $
    4,658,647
    
    
    $
    5,409,408Earnings per share:Basic-as reported
    
    $
    1.14
    
    
    $
    1.24
    
    
    $
    1.23Basic-pro forma
    
    $
    1.11
    
    
    $
    1.26
    
    
    $
    1.29Diluted-as reported
    
    $
    1.08
    
    
    $
    1.17
    
    
    $
    1.16Diluted-pro forma
    
    $
    1.06
    
    
    $
    1.19
    
    
    $
    1.22


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2.     ADDAX ACQUISITION

On May 1, 2003, the Company acquired certain assets and assumed certain
liabilities of ADDAX Sound Company (ADDAX). The results of ADDAXs
operations have been included in the consolidated financial statements since
that date. ADDAX is a provider of hands-free communications devices, including
proprietary headsets and off-the-body communications systems. As a result of
the acquisition, the Company expects to increase its revenue in these markets.

The aggregate purchase price was $1,470,220, including $100 of cash, common
stock valued at $317,603, and liabilities assumed of $1,152,517. The value of
the 19,875 common shares issued was determined based on the average market
price of Koss common shares over the 2-day period before and after the terms
of the acquisition were agreed to and announced.

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition.

|                          |  |   |            |  
|------------------------- |  | - | ---------- | -
|Cash                      |  | $ | 8,748      |  
|Accounts receivable       |  |   | 374,300    |  
|Inventories               |  |   | 99,374     |  
|Equipment                 |  |   | 88,696     |  
|Intangible assets         |  |   | 899,102    |  
|                          |  |   |            |  
|Total assets acquired     |  |   | 1,470,220  |  
|Total liabilities assumed |  |   | (1,152,517 | )
|                          |  |   |            |  
|Net assets acquired       |  | $ | 317,703    |  
|                          |  |   |            |  

Of the $899,102 of acquired intangible assets, $710,291 was assigned to certain
technology patents. The remaining $188,811 of acquired intangible assets was
assigned to customer relationships. The patents and customer relationships
have useful lives of approximately 10 years.

Pro forma financial information relating to the ADDAX acquisition has not been
presented because the information would not be materially different from the
financial results reported herein.

3.     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 fiscal years ended June 30, 2003, 2002, and 2001, were
3,671,585, 3,700,884, and 4,208,082, respectively. When dilutive, stock
options are included in earnings per share as share equivalents using the
treasury stock method. Common stock equivalents of 173,010, 222,699, and
242,400 related to stock option grants were included in the computation of the
weighted-average number of shares outstanding for diluted earnings per share
for the fiscal years ended June 30, 2003, 2002, and 2001, respectively.

4.     CREDIT FACILITY

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 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, which

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require the Company to maintain a minimum tangible net worth, and specified
current, interest coverage, and leverage ratios. There were no borrowings
under this credit facility at June 30, 2003 or 2002.

5.     STOCK OPTIONS AND STOCK PURCHASE AGREEMENTS

In 1990, pursuant to the recommendation of the Board of Directors, the
stockholders ratified the creation of the Companys 1990 Flexible Incentive
Plan (the 1990 Plan). The 1990 Plan is administered by a committee of the
Board of Directors and provides for the granting of various stock-based awards
including stock options to eligible participants, primarily officers and
certain key employees. A total of 225,000 shares of common stock were
available in the first year of the Plans existence. Each year thereafter
additional shares equal to .25% of the shares outstanding as of the first day
of the applicable fiscal year were reserved for issuance pursuant to the 1990
Plan. On July 22, 1992, the Board of Directors authorized the reservation of
an additional 250,000 shares for the 1990 Plan, which was approved by the
stockholders. In 1993, the Board of Directors authorized the reservation of an
additional 300,000 shares for the 1990 Plan, which was approved by the
stockholders. In 1997, the Board of Directors authorized the reservation of an
additional 300,000 shares for the 1990 Plan, which was approved by the
stockholders. In 2001, the Board of Directors authorized the reservation of an
additional 300,000 shares for the 1990 Plan, which was also approved by the
stockholders. Options generally vest over a four year period, with a maximum
term of five to ten years.

The following table identifies options granted, exercised, cancelled, or
available for exercise pursuant to the above mentioned Plan:

|                                     |           |  |           |         |            |   |                   |              |          |   |       |       | 
|------------------------------------ | --------- |  | --------- | ------- | ---------- | - | ----------------- | ------------ | -------- | - | ----- | ----- | 
|                                     |           |  |           |         |            |   | Range of Exercise |              | Weighted
|                                     |           |  | Number of |         | Prices per |   | Average          
|                                     |           |  | Shares    |         | Share      |   | Exercise Price   
|                                     |           |  |           |         |            |   |                  
|Shares under option
at June 30, 2000 |           |  | 495,000   |         |            | $ | 2.66-$7.40        |              |          | $ | 5.85  |      
|                                     | Granted   |  |           | 160,000 |            |   | $                 | 16.76-$18.43 |          |   | $     | 17.80 | 
|                                     | Exercised |  |           | (47,500 | )          |   | $                 | 2.66-$6.73   |          |   | $     | 4.73  | 
|                                     | Settled   |  |           | (65,000 | )          |   | $                 | 2.66-$6.73   |          |   | $     | 4.73  | 
|                                     |           |  |           |         |            |   |                   |              |          |   |       |      
|Shares under option
at June 30, 2001 |           |  | 542,500   |         |            | $ | 5.10-$18.43       |              |          | $ | 9.61  |      
|                                     | Granted   |  |           | 150,000 |            |   | $                 | 16.80-$18.48 |          |   | $     | 17.92 | 
|                                     | Exercised |  |           | (22,500 | )          |   | $                 | 5.37-$6.75   |          |   | $     | 5.74  | 
|                                     | Settled   |  |           | (62,500 | )          |   | $                 | 5.11-$6.75   |          |   | $     | 5.74  | 
|                                     |           |  |           |         |            |   |                   |              |          |   |       |      
|Shares under option
at June 30, 2002 |           |  | 607,500   |         |            | $ | 5.10-$18.48       |              |          | $ | 12.20 |      
|                                     | Granted   |  |           | 180,000 |            |   | $                 | 15.75-$17.32 |          |   | $     | 16.62 | 
|                                     | Exercised |  |           | (90,000 | )          |   | $                 | 5.38-$6.73   |          |   | $     | 5.97  | 
|                                     | Settled   |  |           | (47,500 | )          |   | $                 | 5.38-$6.73   |          |   | $     | 5.97  | 
|                                     |           |  |           |         |            |   |                   |              |          |   |       |      
|Shares under option
at June 30, 2003 |           |  | 650,000   |         |            | $ | 5.10-$18.48       |              |          | $ | 14.75 |      
|                                     |           |  |           |         |            |   |                   |              |          |   |       |      
|                                     |           |  | 160,000   |         |            | $ | 5.10-$7.40        |              |          | $ | 6.62  |      
|                                     |           |  | 490,000   |         |            | $ | 15.75-$18.48      |              |          | $ | 17.75 |      
|Options exercisable
at June 30, 2003 |           |  | 247,500   |         |            | $ | 5.10-$18.48       |              |          | $ | 11.88 |      
|                                     |           |  |           |         |            |   |                   |              |          |   |       |      
|                                     |           |  | 130,000   |         |            | $ | 5.10-$7.40        |              |          | $ | 6.45  |      
|                                     |           |  | 117,500   |         |            | $ | 15.75-$18.48      |              |          | $ | 17.92 |      

The weighted-average fair value at date of grant for options whose exercise
price exceeded the market price of the stock on the grant date during 2003,
2002, and 2001 was $3.69, $4.91, and $5.31, respectively. The weighted-average
fair value at date of grant for options whose exercise price was less than the
market price of the stock on the grant date during 2001 was $7.90. There were
no options granted in 2003 or 2002 for which the exercise price was less than
the market price on the date of grant. The weighted-average fair value at date
of grant for options whose exercise price was equal to the market price of the
stock on the grant date during 2003 and 2002 was $5.94 and $7.68, respectively.
There were no options granted in 2001 for which the exercise price was equal
to the market price on the date of grant. As of June 30, 2003, the
weighted-average remaining contractual life of all outstanding options
approximates 5 years.

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For the pro forma information disclosed in Note 1, the fair value of each
option granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

|                                |  |            |       |            |  |            |       |   |  |  |       |  
|------------------------------- |  | ---------- | ----- | ---------- |  | ---------- | ----- | - |  |  | ----- | -
|                                |  | 2003       |       | 2002       |  | 2001      
|                                |  |            |       |            |  |           
|Expected stock price volatility |  |            | 43.40 | %          |  |            | 46.96 | % |  |  | 50.41 | %
|Risk free interest rate         |  |            | 2.84  | %          |  |            | 4.61  | % |  |  | 4.97  | %
|Expected dividend yield         |  |            | 3.30  | %          |  |            | 2.87  | % |  |  |      |  
|Expected life of options        |  | 5.33 years |       | 5.00 years |  | 5.13 years

The Company has an agreement with its Chairman to repurchase common stock from
his estate (only upon the election of the 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 purchased 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 a 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.

6.     INCOME TAXES

The Company utilizes the liability method of accounting for income taxes. The
liability method measures the expected income tax impact of future taxable
income and deductions implicit in the consolidated balance sheets.

The provision for income taxes in 2003, 2002, and 2001 consists of the
following:

|                    |         |      |           |           |  |      |           |           |  |   |           |           | 
|------------------- | ------- | ---- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|Year Ended June 30, |         | 2003 |           | 2002      |  | 2001
|                    |         |      |           |           |  |     
|Current:            |         |      |           |           |  |      |           |           |  |   |           |          
|                    | Federal |      | $         | 2,170,101 |  |      | $         | 2,621,684 |  |   | $         | 2,394,080 | 
|                    | State   |      |           | 501,000   |  |      |           | 577,000   |  |   |           | 573,000   | 
|Deferred            |         |      | 24,000    |           |  |      | (329,000  | )         |  |   | 229,000   |          
|                    |         |      |           |           |  |      |           |           |  |   |           |           | 
|                    |         | $    | 2,695,101 |           |  | $    | 2,869,684 |           |  | $ | 3,196,080 |          
|                    |         |      |           |           |  |      |           |           |  |   |           |          

The 2003, 2002, and 2001 tax provision results in an effective rate different
than the federal statutory rate due to the following:

|                                               |  |      |           |      |  |      |           |   |  |   |           |  
|---------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|Year Ended June 30,                            |  | 2003 |           | 2002 |  | 2001
|                                               |  |      |           |      |  |     
|Federal income tax at
statutory rate           |  | $    | 2,333,934 |      |  | $    | 2,535,361 |   |  | $ | 2,848,935 |  
|State income taxes, net of
federal tax benefit |  |      | 331,000   |      |  |      | 381,000   |   |  |   | 378,000   |  
|Other                                          |  |      | 30,167    |      |  |      | (46,677   | ) |  |   | (30,855   | )
|                                               |  |      |           |      |  |      |           |   |  |   |           |  
|Total provision for
income taxes               |  | $    | 2,695,101 |      |  | $    | 2,869,684 |   |  | $ | 3,196,080 |  
|                                               |  |      |           |      |  |      |           |   |  |   |           |  

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Temporary differences which give rise to deferred income tax assets and
liabilities at June 30 include:

|                                 |                                      |   |           |         |      |   |           |          |  
|-------------------------------- | ------------------------------------ | - | --------- | ------- | ---- | - | --------- | -------- | -
|                                 |                                      |   | 2003      |         | 2002
|                                 |                                      |   |           |         |     
|Deferred Income Tax Assets:      |                                      |   |           |         |      |   |           |         
|                                 | Deferred compensation                |   | $         | 243,000 |      |   | $         | 282,000  |  
|                                 | Accrued expenses and reserves        |   |           | 813,000 |      |   |           | 868,000  |  
|                                 | Package design and trademarks        |   |           | 231,000 |      |   |           | 244,000  |  
|                                 | Other                                |   |           | 2,000   |      |   |           | 9,000    |  
|                                 |                                      |   |           |         |      |   |           |         
|                                 |                                      |   | 1,289,000 |         |      |   | 1,403,000 |         
|Deferred Income Tax Liabilities: |                                      |   |           |         |      |   |           |         
|                                 | Royalties receivable/deferred        |   |           | (82,000 | )    |   |           | (174,000 | )
|                                 | Equipment and leasehold improvements |   |           | (4,000  | )    |   |           | (2,000   | )
|                                 |                                      |   |           |         |      |   |           |          |  
|Net deferred income tax asset    |                                      | $ | 1,203,000 |         |      | $ | 1,227,000 |         
|                                 |                                      |   |           |         |      |   |           |         

7.     INTANGIBLE ASSETS

Net intangible assets, acquired in 2003, of $884,117 are included in other
assets within the accompanying consolidated balance sheet. Amortization
expense related to such intangible assets was $14,985 in 2003. Amortization
expense for the next five years is expected to approximate $90,000 annually.
The components of net intangible assets at June 30, 2003 are as follows:

|                       |  |                 |         |              |  |                 |         |   |  |   |         | 
|---------------------- |  | --------------- | ------- | ------------ |  | --------------- | ------- | - |  | - | ------- | 
|                       |  | Gross           |         | Accumulated  |  | Net            
|                       |  | Carrying Amount |         | Amortization |  | Carrying Amount
|                       |  |                 |         |              |  |                
|Technology patents     |  | $               | 710,291 |              |  | $               | (11,838 | ) |  | $ | 698,453 | 
|Customer relationships |  |                 | 188,811 |              |  |                 | (3,147  | ) |  |   | 185,664 | 
|                       |  |                 |         |              |  |                 |         |   |  |   |         | 
|Total                  |  | $               | 899,102 |              |  | $               | (14,985 | ) |  | $ | 884,117 | 
|                       |  |                 |         |              |  |                 |         |   |  |   |         | 

8.     ACCRUED LIABILITIES

Accrued liabilities at June 30 consist of the following:

|                                                 |  |      |           |      |  |   |           | 
|------------------------------------------------ |  | ---- | --------- | ---- |  | - | --------- | 
|                                                 |  | 2003 |           | 2002
|                                                 |  |      |           |     
|Employee compensation                            |  | $    | 341,095   |      |  | $ | 407,367   | 
|Cooperative advertising
and promotion allowances |  |      | 734,358   |      |  |   | 747,777   | 
|Payroll taxes and other
employee benefits        |  |      | 171,537   |      |  |   | 189,342   | 
|Other                                            |  |      | 252,053   |      |  |   | 243,065   | 
|                                                 |  |      |           |      |  |   |           | 
|                                                 |  | $    | 1,499,043 |      |  | $ | 1,587,551 | 
|                                                 |  |      |           |      |  |   |           | 

9.     ADDITIONAL CASH FLOW INFORMATION

The net changes in cash as a result of changes in operating assets and
liabilities consist of the following:

|                    |  |      |            |      |  |      |           |   |  |   |           |  
|------------------- |  | ---- | ---------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                    |  | 2003 |            | 2002 |  | 2001
|                    |  |      |            |      |  |     
|Accounts receivable |  | $    | (153,589   | )    |  | $    | (676,142  | ) |  | $ | (71,098   | )
|Inventories         |  |      | (854,186   | )    |  |      | 2,115,798 |   |  |   | 918,026   |  
|Prepaid expenses    |  |      | (45,482    | )    |  |      | (6,967    | ) |  |   | (31,933   | )
|Income taxes        |  |      | (662,538   | )    |  |      | 696,108   |   |  |   | (558,039  | )
|Other assets        |  |      | (57,072    | )    |  |      | (7,704    | ) |  |   | (170,377  | )
|Accounts payable    |  |      | 939,234    |      |  |      | (208,160  | ) |  |   | 1,491,909 |  
|Accrued liabilities |  |      | (1,241,025 | )    |  |      | 35,872    |   |  |   | 399,236   |  
|                    |  |      |            |      |  |      |           |   |  |   |           |  
|Net change          |  | $    | (2,074,658 | )    |  | $    | 1,948,805 |   |  | $ | 1,977,724 |  
|                    |  |      |            |      |  |      |           |   |  |   |           |  

|                                   |              |  |      |           |      |  |      |           |  |  |   |           | 
|---------------------------------- | ------------ |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                   |              |  | 2003 |           | 2002 |  | 2001
|                                   |              |  |      |           |      |  |     
|Net cash paid during the year for: |              |  |      |           |      |  |      |           |  |  |   |          
|                                   | Interest     |  | $    | 14,572    |      |  | $    | 100,454   |  |  | $ | 15,465    | 
|                                   | Income taxes |  | $    | 3,332,091 |      |  | $    | 2,502,576 |  |  | $ | 3,675,119 | 

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10.     EMPLOYEE BENEFIT PLANS

Substantially all domestic employees are participants in the Companys Employee
Stock Ownership Plan and Trust under which an annual contribution in either
cash or common stock may be made at the discretion of the Board of Directors.
The expense recorded for such contributions approximated $49,000 in 2003,
$74,000 in 2002, and $94,000 in 2001.

The Company maintains a retirement savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers all employees of the Company who have
completed six months of service. Matching contributions can be made at the
discretion of the Board of Directors. For calendar years 2003, 2002 and 2001,
the matching contribution was 100% of employee contributions to the plan, not
to exceed 10% of the employees annual compensation. Vesting of Company
contributions occurs immediately. Company contributions were approximately
$281,000, $211,000 and $217,000 during the years ended June 30, 2003, 2002, and
2001, respectively.

11.     INDUSTRY SEGMENT INFORMATION, FOREIGN OPERATIONS AND SIGNIFICANT
CUSTOMERS

The Company has one line of businessthe design, manufacture, and sale of
stereophones and related accessories.

The Companys export sales amounted to $4,205,683 during 2003, $4,037,739
during 2002, and $3,575,201 during 2001.

Sales during 2003, 2002, and 2001 to the Companys five largest customers
represented approximately 50%, 47%, and 51% of the Companys net sales,
respectively. These customers generally are large, national retailers.

12.     COMMITMENTS AND CONTINGENCIES

The Company leases its main plant and offices in Milwaukee, Wisconsin from its
Chairman. On May 28, 2003, the lease was renewed for a period of five years,
and is being accounted for as an operating lease. The lease extension
maintained the rent at a fixed rate of $380,000 per year. At anytime during
this period the Company has the option to renew the lease for an additional
five years for the period commencing July 1, 2008 and ending June 30, 2013
under the same terms and conditions. The lease is on terms no less favorable
to the Company than those that could be obtained from an independent party. The
Company is responsible for all property maintenance, insurance, taxes and other
normal expenses related to ownership. Rent expense, which includes this lease,
approximated $426,000 in 2003, $421,000 in 2002, and $424,000 in 2001.

13.     SUPPLEMENTARY INFORMATION

Changes in the allowance for doubtful accounts for the years ended June 30,
2003, 2002, and 2001 are summarized as follows:

|       |  |                      |         |                     |  |             |         |        |  |                   |        |  |  |   |         | 
|------ |  | -------------------- | ------- | ------------------- |  | ----------- | ------- | ------ |  | ----------------- | ------ |  |  | - | ------- | 
|Year   |  | Balance at Beginning |         | Charges Against/    |  |             |         |        |  | Balance at End of
|Ending |  | Of Period            |         | (Credits To) Income |  | Deductions* |         | Period
|       |  |                      |         |                     |  |             |         |       
|2003   |  | $                    | 801,055 |                     |  | $           | 198,846 |        |  | $                 | 24,212 |  |  | $ | 975,689 | 
|2002   |  | $                    | 301,252 |                     |  | $           | 552,000 |        |  | $                 | 52,197 |  |  | $ | 801,055 | 
|2001   |  | $                    | 252,194 |                     |  | $           | 52,238  |        |  | $                 | 3,180  |  |  | $ | 301,252 | 

*Represents charges against the allowance, net of recoveries.

Advertising costs included within selling, general, and administrative expenses
in the accompanying statements of income were $97,000 in 2003, $50,000 in 2002,
and $0 in 2001. Such costs are expensed as incurred.

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14.
    
    RESTATEMENT OF FINANCIAL STATEMENTS FOR CHANGE OF TREASURY STOCK TREATMENT OF REPURCHASED EMPLOYEE SHARES Subsequent to the issuance of the
Companys consolidated financial
statements for the fiscal year ended June 30, 2003, the Company concluded that certain repurchases
of common stock from employees previously accounted for as treasury stock
transactions should instead have been accounted for as employee compensation
expense, pursuant to FASB Financial Interpretation 44: Accounting for Certain
Transactions Involving Stock Compensation  an interpretation of APB Opinion
No. 25. As a result, the Company has restated its consolidated financial
statements to increase employee compensation expense by $576,663, $744,400 and
$826,850 for 2003, 2002 and 2001, respectively. The effect of the restatement as described above and related income tax effect is as follows: 2003
    
    2002
    
    2001Net Income  Previously Reported
    
    $
    4,521,175
    
    
    $
    5,041,343
    
    
    $
    5,687,521Net Income  Restated
    
    
    4,169,411
    
    
    
    4,587,259
    
    
    
    5,183,143Earnings per Common ShareBasic  Previously Reported
    
    $
    1.23
    
    
    $
    1.36
    
    
    $
    1.35Basic  Restated
    
    
    1.14
    
    
    
    1.24
    
    
    
    1.23Diluted  Previously Reported
    
    
    1.18
    
    
    
    1.28
    
    
    
    1.28Diluted  Restated
    
    
    1.08
    
    
    
    1.17
    
    
    
    1.16
 The effect of the restatement was not material to the consolidated balance
sheets as of June 30, 2003 and 2002 or the statements of cash flows for each
of the three years in the period ended June 30, 2003. 28




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K/A 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-K/A 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-K/A, 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-K/A, or in other Company filings, press
releases, or otherwise. In addition to the factors discussed in this Form
10-K/A, 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.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities 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

|                             |  |                     |  |                
|---------------------------- |  | ------------------- |  | ---------------
|By:                          |  | /s/ Michael J. Koss |  | Dated:
 3/10/04
|                             |  |                     |  |                
|Michael J. Koss,             |  |                    
|Vice Chairman                |  |                    
|President                    |  |                    
|Chief Executive Officer      |  |                    
|Chief Operating Officer and  |  |                    
|Chief Financial Officer      |  |                    
|                             |  |                     |  |                
|By:                          |  | /s/ Sujata Sachdeva |  | Dated:  3/10/04
|                             |  |                     |  |                
|Sujata Sachdeva,             |  |                    
|Vice President - Finance     |  |                    
|Principal Accounting Officer |  |                    
|Secretary                    |  |                    

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:

|                          |  |                              
|------------------------- |  | -----------------------------
|/s/ John C. Koss          |  | /s/ Michael J. Koss          
|                          |  |                              
|John C. Koss, Director    |  | Michael J. Koss, Director    
|Dated:  3/10/04           |  | Dated:  3/10/04              
|                          |  |                              
|/s/ Martin F. Stein       |  | /s/ John J. Stollenwerk      
|                          |  |                              
|Martin F. Stein, Director |  | John J. Stollenwerk, Director
|Dated:  3/10/04           |  | Dated:  3/10/04              
|                          |  |                              
|/s/ Thomas L. Doerr       |  | /s/ Lawrence S. Mattson      
|                          |  |                              
|Thomas L. Doerr, Director |  | Lawrence S. Mattson, Director
|Dated:  3/10/04           |  | Dated:  3/10/04              

The signatures of the above directors constitute a majority of the Board
of Directors of Koss Corporation.

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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

Chris Gantz
Vice President  Communication Products

Declan Hanley
Vice President-International Sales

ANNUAL MEETING

September 23, 2003  9:00a.m.
Milwaukee River Hilton Inn
4700 N. Port Washington Rd.
Milwaukee, WI 53212

INDEPENDENT AUDITORS

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin

LEGAL COUNSEL

General Counsel
Hughes & Luce, L.L.P.
Dallas, Texas

DIRECTORS

John C. Koss
Chairman of the Board
Koss Corporation

Thomas L. Doerr
President
Doerr Corporation

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
Attn: Barbara Bahr
Shareholders Toll-free: 1-800-937-5449

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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.

|            |  |                                                                                      |  |               |     |  
|----------- |  | ------------------------------------------------------------------------------------ |  | ------------- | --- | -
|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 | )

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|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --- | -
|Designation |  |                                                                                                                                                                                                                                                                                                                                                           |  | Incorporation
|of Exhibit  |  | Exhibit Title                                                                                                                                                                                                                                                                                                                                             |  | by Reference 
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |              
|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 dated as of May 29, 1998                                                                                                                                                                                                                                                                                            |  |               | (20 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|10.21       |  | Fifth Amendment to License Agreement dated
March 30, 2001                                                                                                                                                                                                                                                                                                 |  |               | (21 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|10.22       |  | Sixth Amendment to License Agreement dated August 15, 2001                                                                                                                                                                                                                                                                                                |  |               | (22 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|10.23       |  | Seventh Amendment to License Agreement dated
December 28, 2001                                                                                                                                                                                                                                                                                            |  |               | (23 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|10.24       |  | Eighth Amendment to License Agreement 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       |  | Consent of Directors (Supplemental Executive
Retirement Plan for Michael J. Koss dated
March 7, 1997)                                                                                                                                                                                                                                                     |  |               | (26 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|10.27       |  | Amendment to Lease                                                                                                                                                                                                                                                                                                                                        |  |               | (27 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|10.28       |  | Partial Assignment, Termination and Modification of
Lease                                                                                                                                                                                                                                                                                                 |  |               | (28 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|10.29       |  | Restated Lease                                                                                                                                                                                                                                                                                                                                            |  |               | (29 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|21          |  | List of Subsidiaries of Koss Corporation                                                                                                                                                                                                                                                                                                                  |  |               | (30 | )
|            |  |                                                                                                                                                                                                                                                                                                                                                           |  |               |     |  
|23          |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                                                     |  |               | (31 | )

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|            |  |                                                                                                              |  |               |     |  
|----------- |  | ------------------------------------------------------------------------------------------------------------ |  | ------------- | --- | -
|Designation |  |                                                                                                              |  | Incorporation
|of Exhibit  |  | Exhibit Title                                                                                                |  | by Reference 
|            |  |                                                                                                              |  |              
|31          |  | Certification of Chief Executive Officer and Chief Financial
Officer required by Rule 13a-14(a) or 15d-14(a) |  |               | (31 | )
|            |  |                                                                                                              |  |               |     |  
|32          |  | Certification of Chief Executive Officer and Chief Financial
Officer required by 18 U.S.C. Section 1350      |  |               | (31 | )

|     |  |                                                                                                                                                       |  |  |  | 
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|(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)  

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##### Table of Contents



|     |  |                                                                                                                                                                 
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 Annual
Report on Form 10-K for the year ended June 30, 2002 (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)          

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##### Table of Contents



|     |  |                                                                                                                                                             
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 10.2 to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 (Commission File No. 0-3295)
|     |  |                                                                                                                                                             
|(27) |  | 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)      
|     |  |                                                                                                                                                             
|(28) |  | 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)      
|     |  |                                                                                                                                                             
|(29) |  | 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)      
|     |  |                                                                                                                                                             
|(30) |  | Incorporated by reference from Exhibit 22 to the Companys Annual Report on Form 10-K for the year
ended June 30, 1988 (Commission File No. 0-3295)         
|     |  |                                                                                                                                                             
|(31) |  | Filed herewith                                                                                                                                              

37