Edgar Filing: AUDIOVOX CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended		November 30, 2002
Commission file number		0-28839

AUDIOVOX CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		13-1964841
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

150 Marcus Blvd., Hauppauge, New York		11788
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (631) 231-7750

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

Name of Each Exchange on

Title of each class:		Which Registered

Class A Common Stock $.01 par value		Nasdaq Stock Market

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

None

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 requirement for the past 90 days.

Yes o No ý

Indicate by check mark whether Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec 229.405 of this chapter) 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.

The aggregate market value of the common stock held by non-affiliates of the Registrant was $168,886,196 (based upon closing price on the Nasdaq Stock Market on May 30, 2003).

The number of shares outstanding of each of the registrant’s classes of common stock, as of

May 23, 2003 was:

Class		Outstanding

Class A common stock $.01 par value		20,651,374
Class B common stock $.01 par value		2,260,954

Table of Contents

PART I		1

	Item 1 - Business	1
	Item 2 - Properties	30
	Item 3 - Legal Proceedings	30
	Item 4 - Submission of Matters to a Vote of Security Holders	31

PART II		32

	Item 5 - Market for the Registrant’s Common Equity and Related Stockholder Matters	32
	Item 6 - Selected Consolidated Financial Data	32
	Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Item 7a - Quantitative and Qualitative Disclosures About Market Risk	71
	Item 8 - Consolidated Financial Statements and Supplementary Data	72
	Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	157

PART III		157

	Item 10 - Directors and Executive Officers of the Registrant	157
	Item 11 - Executive Compensation	157
	Item 12 - Security Ownership of Certain Beneficial Owners and Management	163
	Item 13 - Certain Relationships and Related Transactions	164

PART IV		165

	Item 14 - Controls and Procedures	165

PART IV		166

	Item 15 - Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K	166

SIGNATURES		171

PART I

Item 1 - Business

All tabular presentation is in thousands unless otherwise indicated.

(a) Restatement of Consolidated Financial Statements

The Company has restated its consolidated financial statements for the fiscal years ended November 30, 2000 and 2001 and for the quarters ended February 28, 2002, May 31, 2002 and August 31, 2002. In addition, the Company has reclassified certain expenses from operating expenses to cost of sales for fiscal 2000 and 2001 and for each of the quarters in the nine months ended August 31, 2002. These restatement adjustments are the result of the misapplication of generally accepted accounting principles.

The net effect of all of the restatement adjustments is as follows:

	Fiscal 2000		Fiscal 2001		First Quarter 2002			Second Quarter 2002			Third Quarter 2002
					(Unaudited)			(Unaudited)			(Unaudited)
Increase (decrease) income/(increase) decrease (loss) before extraordinary item and cumulative effect of a change in accounting for negative goodwill	$	263	$	1,011	$	(1,308	)	$	(782	)	$	751
Increase (decrease) net income/ (increase) decrease net (loss)	263		1,011		(1,308		)	(782		)	751
Increase (decrease) net income/ (increase) decrease net (loss) per common share - diluted	$	0.01	$	0.05	$	(0.06	)	$	(0.03	)	$	0.04

The following table provides additional information regarding these restatement adjustments:

Effects of Restatement Adjustments on Net Income or Net Loss

(in thousands)

	Increase (Decrease) in Net Income for the Fiscal Year Ended November 30, 2000			(Increase) Decrease in Net Loss for the Fiscal Year Ended November 30, 2001			Increase (Decrease) in Net Income for the Nine Months Ended August 31, 2002
							Unaudited
Restatement adjustments:
Revenue recognition	$	(779	)	$	779		—
Timing of revenue				(15		)	$	(103	)
Litigation				(373		)	427
Foreign currency translation	—			—			(1,491		)
Inventory pricing	—			—			420
Sales incentives	1,884			910			847
Gain on the issuance of subsidiary shares	—			—			(1,556		)
Operating expense reclassification to cost of sales (2)	—			—			—
Total adjustment to pre-tax income (loss)	1,105			1,301			(1,456		)
(Provision for) recovery of income taxes	(842		)	(310		)	204
Minority interest (1)	—			20			(87		)
Total effect on net income (loss)	$	263		$	1,011		$	(1,339	)

(1) This adjustment reflects the impact of the restatement adjustments on minority interest.

(2) This adjustment represents a reclassification of warehousing and technical support and general and administrative costs (which are components of operating expenses) to cost of sales. This reclassification did not have any effect on previously reported net income or (loss) for any fiscal year or period presented herein.

See Note 2, “Restatement of Consolidated Financial Statements”, of Notes to Consolidated Financial Statements for restatement adjustments to previously reported fiscal years 2000 and 2001 and Note 26, “Unaudited Quarterly Financial Data- As Restated”, of Notes to Consolidated Financial Statements for restatement adjustments to previously reported unaudited quarterly consolidated statements of operations data for the quarters ended February 28, 2001 through August 31, 2002 as a result of the restatements and reclassifications.

The following discussion addresses each of the restatement adjustments and the reclassification adjustment for the corrections of accounting errors. Any references to quarterly amounts are unaudited.

Revenue recognition. The Company overstated net sales in each of the third and fourth quarters of fiscal 2000 for shipments of product that did not conform to the technical requirements of the customer (i.e., the goods were non-conforming). The Company did not properly evaluate this shipment of non-conforming goods as required in accordance with Staff Accounting Bulletin No. 101 (SAB No. 101), “Revenue Recognition in Financial Statements”, which would preclude revenue recognition until the specific performance obligations have been met by the Company. These product shipments resulted in the Company overstating net sales by $19,166 and gross profit by $779 for fiscal 2000.

During the first quarter of fiscal 2001, the Company recorded a sales return of this fiscal 2000 non-conforming product sale. The recording of this product return (sales reversal) resulted in the Company understating net sales by $19,166 and gross profit by $779 for fiscal 2001.

Timing of revenue. During each of the third and fourth quarters of fiscal 2001 and the first, second and third quarters of fiscal 2002, the Company (overstated) understated net sales by $(976), $857, $(4,601), $(7,757) and $10,472, respectively, as the timing of revenue recognition was not in accordance with the established shipping terms with certain customers. SAB 101 specifically states that delivery generally is not considered to have occurred unless the customer has taken title (which is, in this situation, when the product was delivered to the customer’s site). Accordingly, the Company should have deferred revenue recognition until delivery was made to the customer’s site. During each of the third and fourth quarters of fiscal 2001 and the first, second and third quarters of fiscal 2002, gross profit was overstated (understated) by $34, ($19), $99, $562 and ($535), respectively. During each of the third and fourth quarters of fiscal 2001 and the first, second and third quarters of fiscal 2002, operating expenses were overstated (understated) by $0, $0, $17, $136 and ($130), respectively.

Litigation. During the fourth quarter of fiscal 2001 and each of the first three quarters of fiscal 2002, the Company overestimated its provisions for certain litigation matters, thereby overstating cost of sales by $314, $176, $345 and $457 for each respective quarterly period. Also, the Company understated operating expenses by $497 in the first quarter of fiscal 2002 as a result of not recording a settlement offer in the period the Company offered it.

During the second, third and fourth quarters of 2001 and the first, second and third quarters of 2002, the Company understated (overstated) operating expenses by $189, $302, $196, $78 and $276 and ($300), respectively as a result of inappropriately deferring costs related to an insurance claim. The Company’s insurance company refused to defend the Company against a legal claim made against the Company. The Company took legal action against the insurance company and was unsuccessful. The Company was improperly capitalizing costs that were not probable of recovery.

Foreign currency translation. During the first three quarters of fiscal 2002, the Company did not properly account for a change in accounting for its Venezuelan subsidiary as operating in a non-highly inflationary economy. In fiscal 2001 and in prior years, Venezuela was deemed to be a highly-inflationary economy in accordance with certain technical accounting pronouncements. Effective January 1, 2002, it was deemed that Venezuela should cease to be considered a highly-inflationary economy, however, the Company did not account for this change. The Company incorrectly recorded the foreign currency translation adjustment in other income rather than as other comprehensive income. As a result, the Company understated other expenses, net, by $1,360 for the first quarter of fiscal 2002, overstated other income, net, by $71 for the second quarter of fiscal 2002 and understated other expenses, net, by $243 for the third quarter of fiscal 2002. Also the Company overstated operating expenses by $41, $54 and $88 for the first, second and third quarters of fiscal 2002, respectively.

was not properly pricing its inventory at the lower of cost or market in accordance with generally accepted accounting principles. As a result, the Company overstated (understated) cost of sales by $387, ($2) and $35, for the first, second and third quarters of fiscal 2002, respectively.

Sales incentives. During fiscal 2000 and 2001 and for the nine months ended August 31, 2002, the Electronics segment overestimated accruals for additional sales incentives (other trade allowances) that were not yet offered to its customers. As a result, for fiscal 2000 and 2001 and for the nine months ended August 31, 2002, the Company understated net sales by $1,884, $784 and $292, respectively.

Furthermore, during fiscal 2001 and for the nine months ended August 31, 2002, the Electronics segment was also not reversing earned and unclaimed sales incentives (i.e., cooperative advertising, market development and volume incentive rebate funds) upon the expiration of the established claim period. As a result, for fiscal 2001 and for the nine months ended August 31, 2002, the Company understated net sales by $126 and $555, respectively.

Gain on the Issuance of Subsidiary Shares. During the second quarter of fiscal 2002, the Company overstated the gain on issuance of subsidiary shares by $1,735 due to expenses related to this issuance being charged to additional paid in capital. This adjustment also reflects the impact of the other restatement adjustments on the calculation of the gain on the issuance of subsidiary shares of $179 that was originally recorded by the Company in the quarter ended May 31, 2002. As a result, the Company decreased the gain on issuance of subsidiary shares and increased the additional paid in capital by $1,556.

Income taxes. Income taxes were adjusted for the restatement adjustments discussed above for each period presented.

The Company also applied income taxes to minority interest amounts during all quarters of fiscal 2000 and 2001, as well as the first three quarters of fiscal 2002. As a result of all these adjustments, the Company overstated (understated) the provision for/recovery of income taxes by $(842), ($310) and $(455) for fiscal 2000, 2001 and the nine months ended August 31, 2002, respectively.

Operating expense reclassification. The Company reclassified certain costs as operating expenses, which were included as a component of warehousing and technical support and general and administrative costs, which should have been classified as a component of cost of sales. The effect of this reclassification on fiscal 2000 and 2001 was to increase cost of sales and decrease operating expenses by $17,962 and $20,024, respectively. The effect of this reclassification for the nine months ended August 31, 2002 was to understate cost of sales and overstate operating expenses by $15,488. This reclassification did not have any effect on previously reported net income or loss for any fiscal year or period presented herein. This reclassification reduced gross margin by 1.0, 1.6 and 1.9 percentage points for fiscal years November 30, 2000, 2001 and the nine months ended August 31, 2002, respectively.

(b) General Development of Business

Audiovox was incorporated in Delaware on April 10, 1987, as successor to a business founded in 1960 by John J. Shalam, our President, Chief Executive Officer and controlling stockholder. Its principal executive offices are located at 150 Marcus Boulevard, Hauppauge, New York 11788, and the telephone number is 631-231-7750.

The Company designs and markets a diverse line of products and provides related services throughout the world. These products and services include:

• handsets and accessories for wireless communications

• mobile entertainment and security products

• mobile electronic and accessories products and accessories

• consumer electronic products and accessories

The Company generally markets its products under the well-recognized Audiovox brand name, which it has used for over 38 years. The Company was a pioneer in the wireless industry, selling its first vehicle-installed wireless telephone in 1984 as a natural expansion of its automotive aftermarket products business. The Company’s extensive distribution network and its long-standing industry relationships have allowed the Company to benefit from growing market opportunities in the wireless industry and to exploit emerging niches in the consumer electronics business.

The Company operates in two primary markets:

• Wireless communications. The Wireless Company (Wireless), which accounts for approximately 66% of revenues, sells wireless handsets and accessories through domestic and international wireless carriers and their agents, independent distributors and retailers.

• Mobile and consumer electronics. The Electronics Group (Electronics), which accounts for approximately 34% of revenues, sells autosound, mobile video, mobile electronics and consumer electronics through domestic and international distribution channels primarily to mass merchants, power retailers, specialty retailers, new car dealers, original equipment manufacturers (OEMs), independent installers of automotive accessories and the U.S. military.

The business grew significantly in fiscal 2000, primarily because of increased sales of digital handsets, as the market continued to shift to digital technology from analog technology.

Prior to and including 2000, our wireless business increased as new subscribers came onto the carrier networks as a result of lower price-plans, the shift from analog to digital technologies and the shift from mobile to hand-held portable phones. Since 2000, several factors have affected the Company. New subscriber subscriptions slowed down, the consolidation within our wireless customer base created a more competitive market within a smaller number of customers and there was a slow down in the development of new technologies which slowed consumer demand for one technology to another.

The Electronics Group has been positively influenced by an increase in the sale of consumer electronic items such as FRS (Family Radio System) Radios and Mobile Video products.

The following table shows net sales by group and the increase in Electronics sales compared to a decrease in Wireless:

	2000 As Restated (1)		2001 As Restated (1)		2002		Percent Change 2000/2002
			(millions)

Wireless	$	1,394	$	979	$	727	(47.8	)%
Electronics	276		298		373		35.1	%
Total	$	1,670	$	1,277	$	1,100	(34.1	)%

(1) See Note 2 of Notes to Consolidated Financial Statements.

To remain flexible and limit our research and fixed costs, the Company does not manufacture its products. Instead, the Company has relationships with a broad group of suppliers who manufacture its products. The Company works directly with its suppliers in feature design, development and testing of all of its products and performs certain software installations or upgrades for wireless products and some assembly functions for its electronics products.

The Company’s product development efforts focus on meeting changing consumer demand for technologically-advanced, high-quality products, and the Company consults with customers throughout the design and development process. The Company stands behind all of its products by providing warranties and end-user service support.

Strategy

The Company’s objective is to leverage the well-recognized Audiovox brand name and its extensive distribution network to capitalize on the growing worldwide demand for wireless products and continue to provide innovative mobile and consumer electronics products in response to consumer demand. The key elements of the Company’s strategy are:

Enhance and capitalize on the Audiovox brand name. The Company believes that the “Audiovox” brand name is one of its greatest strengths. During the past 38 years, the Company has invested to establish the Audiovox name as a well-known consumer brand for communications and electronics products. The Company’s wireless handsets generally bear the Audiovox brand name or are co-branded with either a wireless carrier or brand name of our supplier. To further benefit from the Audiovox name, the Company continues to introduce new products using its brand name and licenses its brand name for selected consumer products.

Expand wireless technology offerings to increase market opportunities. The Company intends to continue to offer an array of technologically-advanced wireless products, including the planned introduction of wireless handsets with cameras and enhanced Internet capabilities. The Company’s wide selection of wireless products will allow it to satisfy different carrier demands, both domestically

and internationally.

Capitalize on niche market opportunities in the consumer electronics industry. The Company intends to continue to use its extensive distribution and supply networks to capitalize on niche market opportunities, such as navigation, mobile video, DVD’s and cruise controls, in the consumer electronics industry. The Company believes that focusing on high-demand, high-growth niche products results in better profit margins and growth potential for its electronics business.

Continue to expand international presence. During fiscal 2003, the Company intends to continue to expand its international business, both in the Wireless and Electronics Groups, as it plans to introduce new products compatible with international wireless technologies, such as GSM, CDMA and GPRS and expand the mobile video category.

Continue to outsource manufacturing to increase operating leverage. One of the key components of the Company’s business strategy is outsourcing the manufacturing of its products. This allows the Company to deliver the latest technological advances without the fixed costs associated with manufacturing.

Continue to provide value-added services to customers and suppliers. The Company believes that it provides key services, such as product design, development and testing, sales support, product repair and warranty and software upgrading, more efficiently than its customers and suppliers could provide for themselves. The Company intends to continue to develop its value-added services as the market evolves and customer needs change.

The Company’s industry segments are the Wireless Group and the Electronics Group. Net sales, income before provision for income taxes and total assets attributable to each segment for each of the last three years are set forth in Note 23 of the Company’s consolidated financial statements included herein.

(d) Narrative Description of Business

Wireless

Wireless, which accounts for approximately 66% of the Company’s revenues, markets wireless handsets and accessories through domestic and international wireless carriers and their agents, independent distributors and retailers.

Wireless products and technology

Wireless sells an array of digital handsets, hand-held computing devices and accessories in a variety of technologies, principally CDMA. In fiscal 2000, 2001 and 2002 digital products represented 78%, 89% and 96%, respectively, of Wireless’ total unit sales. Wireless generally markets its wireless products under the Audiovox brand name or co-brands its products with its carrier customers, such as Verizon Wireless and Bell Distribution, Inc. or with the brand name of the supplier.

In addition to handsets, Wireless sells a complete line of accessories that includes batteries, hands-free kits, battery eliminators, cases and data cables. In fiscal 2003, Wireless intends to continue to broaden its digital product offerings and introduce handsets with new features such as wireless handsets with cameras and enhanced Internet capabilities.

Wireless marketing and distribution

Wireless sells wireless products to wireless carriers and the carrier’s respective agents, distributors and retailers. In addition, a majority of its handsets are designed to meet carrier specifications. In fiscal 2000, the five largest wireless customers were Verizon Wireless, AllTel Communications, MCI Worldcom, Brightpoint, Inc. and Canadian Mobility. One of these customers accounted for 61.7% of Wireless’ net sales for fiscal 2000 and 50.5% of the 2000 consolidated net sales. In fiscal 2001, the five largest wireless customers were Verizon Wireless, PrimeCo Personal Communications LP, Sprint Spectrum LP, Bell Distribution Inc. and Brightpoint, Inc. One of these customers accounted for 44.8% of Wireless’ net sales and 35.0% of consolidated net sales for fiscal 2001. In fiscal 2002, the five largest wireless customers were Verizon Wireless, Bell Distribution, Inc., Sprint Spectrum LP, Telus Mobility and AllTel Communications. Three of these customers accounted for 36%, 11% and 10%, respectively, of Wireless’ net sales for fiscal 2002. All of these customers represented 71% of Wireless’ net sales and 47% of consolidated net sales during fiscal 2002.

In addition, Wireless promotes its products through trade and consumer advertising, participation at trade shows and direct personal contact by its sales representatives. Wireless also assists wireless carriers with their marketing campaigns by scripting telemarketing presentations, funding co-operative advertising campaigns, developing and printing custom sales literature, logistic services, conducting in-house training programs for wireless carriers and their agents and providing assistance in market development.

Wireless operates approximately seven retail facilities under the name Quintex. In addition, Wireless licenses the trade name Quintex® to ten outlets in selected markets in the United States. Wireless also serves as an agent (in activating cell phone numbers) for the following carriers in selected areas: Tmobile, Nextel, Suncom, NTelos, AT & T Wireless, Verizon Wireless, Sprint and Sprint Spectrum LP. For fiscal 2002, revenues from Quintex were 6.1% of total Wireless revenues and 4.1% of consolidated revenues.

Wireless’ policy is to ship its products within 24 hours of a requested shipment date from public warehouses in Florida, New York, California , New Jersey, Canada and Netherlands and from leased facilities located in New York and California.

Wireless product development, warranty and customer service

Although Wireless does not have its own manufacturing facilities, it works closely with both customers and suppliers in feature design, development and testing of its products. In particular, Wireless:

• with its wireless customers, determines future market feature requirements

• works with its suppliers to develop products containing those features

• participates in the design of the features and cosmetics of its wireless products

• tests products in its own facilities to ensure compliance with Audiovox standards

• supervises testing of the products in its carrier markets to ensure compliance with carrier specifications

Wireless’ Hauppauge facility is ISO-9001:1994 certified, which requires it to carefully monitor quality standards in all facets of its business.

Wireless believes customer service is an important tool for enhancing its brand name and its relationship with carriers. In order to provide full service to its customers, Wireless warranties its wireless products to the end-user for periods ranging from up to one year for portable handsets to up to three years for mobile car phones. To support its warranties, Wireless has approximately 1,950 independent warranty centers throughout the United States and Canada and has experienced technicians in its warranty repair stations at its headquarters facility. Wireless has experienced customer service representatives who interact directly with both end-users and its customers. These representatives are trained to respond to questions on handset operation and warranty and repair issues.

Wireless suppliers

Wireless purchases its wireless products from several manufacturers located in Pacific Rim countries, including Japan, China, South Korea, Taiwan and Malaysia. In selecting its suppliers, Wireless considers quality, price, service, market conditions and reputation. Wireless generally purchases its products under short-term purchase orders and does not enter into long-term contracts with its suppliers. Wireless considers its relations with its suppliers to be good. Wireless believes that alternative sources of supply are currently available, although there could be a time lag and increased costs if it were to have an unplanned shift to a new supplier. Approximately 56% of Wireless’ 2002 purchases were from Toshiba, a related party (see Related Party Transaction of Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.)

Wireless competition

The market for wireless handsets and accessories is highly competitive and is characterized by intense price competition, significant price erosion over the life of a product whose life cycle has continued to shorten, demand for value-added services, rapid technological development and industry consolidation of both customers and manufacturers. Currently, Wireless’ primary competitors for wireless handsets include Motorola, Nokia, Kyocera and Samsung.

Wireless also competes with numerous established and new manufacturers and distributors, some of whom sell the same or similar products directly to its customers. Historically, Wireless’ competitors have also included some of its own suppliers and customers. Many of Wireless’ competitors offer more extensive advertising and promotional programs than it does.

Wireless competes for sales to carriers, agents and distributors on the basis of its products and services and price. As its customers are requiring greater value-added logistic services, Wireless believes that competition will continually be required to support an infrastructure capable of providing these services. Wireless’ ability to continue to compete successfully will largely depend on its ability to perform these value-added services at a reasonable cost.

Wireless’ products compete primarily on the basis of value in terms of price, features and reliability. There have been, and will continue to be, several periods of extreme price competition in the wireless industry, particularly when one or more or its competitors has sought to sell off excess inventory by lowering its prices significantly or carriers canceling or modifying sales programs.

As a result of global competitive pressures, there have been significant consolidations in the domestic wireless industry including:

• Cricket and Leap Wireless

• Verizon Wireless: Bell Atlantic, AirTouch Communications, GTE Mobilnet, PrimeCo Personal Communications LP, Frontier, Ameritech and Vodafone

• Cingular Wireless: SBC Communications and Bell South

• VoiceStream: Expanded into major markets through acquisition of Omnipoint

• Telus and Clearnet

These consolidations may result in greater competition for a smaller number of large customers and may favor one or more of its competitors over Wireless.

Electronics Group

Electronics Industry

The mobile and consumer electronics industry is large and diverse and encompasses a broad range of products. There are many large manufacturers in the industry, such as Sony, RCA, Panasonic, Kenwood, Motorola and JVC, as well as large companies that specialize in niche products. The Electronics Group participates in selected niche markets such as autosound, mobile video, vehicle security and selected consumer electronics.

The introduction of new products and technological advancements drives growth in the electronics industry. For example, the transition from analog to digital technology is leading to the development of a new generation of consumer electronic products. Some of these products include digital satellite radio, portable DVD, home and mobile video systems, navigation systems and FRS radios.

Electronics products

The Company’s electronics products consist of two major categories, mobile electronics and consumer electronics.

Mobile electronics products include:

• autosound products, such as radios, speakers, amplifiers, CD changers and satellite radios

• mobile video products, including overhead and center console mobile entertainment systems, video cassette players and DVD players

• automotive security and remote start systems

• automotive power accessories

• navigation systems

Consumer electronics include:

• home and portable stereos

• FRS two-way radios

• LCD televisions

The Electronics Group markets its products under the Audiovox® brand name, as well as several other Audiovox-owned trade names that include Prestige®, Pursuit® and Rampage™ and Code Systems, Inc. Sales by the Company’s Malaysian, Venezuelan and American Radio subsidiaries fall under the Electronics Group. For the fiscal years ended November 30, 2000, 2001 and 2002, the Electronics

Group’s sales by product category were as follows:

	2000		2001		2002		Percent Change 2000/2002
			(millions)
	(As Restated)		(As Restated)
Mobile electronics	$	134.6	$	157.7	$	229.3	70.4	%
Sound	77.4		57.5		56.3		(27.3	)
Consumer electronics	60.5		80.3		86.5		43.0
Other	3.9		2.2		0.6		(82.1	)
Total	$	276.4	$	297.7	$	372.7	34.9	%

The increase in Electronic’s sales reflects new product introductions in the mobile and consumer electronics categories and a continuing trend in lower sound sales as automakers incorporate full-featured sound systems at the factory instead of as an aftermarket option.

In the future, the Electronics Group will continue to focus its efforts on new technologies to take advantage of market opportunities created by the digital convergence of data, communications, navigation and entertainment products.

Licensing

In the late 1990’s, the Company began to license its brand name for use on selected products, such as home and portable stereo systems. Actual sales of licensed products are not included in the Company’s sales figures. However, licensed customers have reported sales of $43.6 million in licensed goods in 2002 compared to $24.0 million in 2001 for which the Company received license fees. License sales promote the Audiovox brand name without adding any significant costs. License fees are recognized on a per unit basis upon sale to the end-user and are recorded in other income. License fees in 2002 approximated $922 compared to approximately $500 in 2001.

Electronics distribution and marketing

The Electronics Group sells its electronics products to:

• mass merchants

• chain stores

• specialty retailers

• distributors

• new car dealers

• the U.S. military

The Electronics Group also sells its products under OEM arrangements with domestic and/or international subsidiaries of automobile manufacturers such as Ford Corporation, Daimler Chrysler, General Motors Corporation and Nissan. OEM projects represent a significant portion of the Electronics Group sales, accounting

for approximately 14.0% of the Electronics Group’s sales in 2002 versus 17.1% in 2001. These projects require a close partnership with the customer as the Electronics Group develops products to their specific requirements. Three of the largest auto makers, General Motors, Daimler Chrysler and Ford require QS registration for all of their vendors. The Electronics Group’s Hauppauge facility is both QS 9000 and ISO 9001 registered. In addition, Audiovox Electronics is Q1 rated for the Ford Motor Company.

In fiscal 2000, the Electronics Group’s five largest customers were Nissan, Wal-Mart, Target, Gulf States Toyota and Circuit City. They represented 21.3% of the Electronics Group’s net sales and 3.5% of consolidated net sales. In fiscal 2001, the Electronics Group’s five largest customers were Wal-Mart, Target, Ford, KMart and Circuit City. They represented 27.0% of the Electronics Group’s net sales and 6.3% of consolidated net sales. In fiscal 2002, the Electronics Group’s five largest customers were Circuit City, Target, Walmart, Sam’s Wholesale Club and Gulf States Toyota. They represented 25% of the Electronics Group’s net sales and 8% of the consolidated net sales.

As part of the Electronics Group’s sales process, the Electronics Group provides value-added management services including:

• product design and development

• engineering and testing

• technical and sales support

• electronic data interchange (EDI)

• product repair services and warranty

• nationwide installation network

The Electronics Group has flexible shipping policies designed to meet customer needs. In the absence of specific customer instructions, the Electronics Group ships its products within 24 to 48 hours from the receipt of an order. The Electronics Group makes shipments from public warehouses in Virginia, Nevada, Florida, New Jersey, California and Venezuela and from leased facilities located in New York.

Electronics product development, warranty and customer service

The Electronics Group works closely with its customers and suppliers in the design, development and testing of its products. For the Electronics Group’s OEM automobile customers, the Electronics Group performs extensive validation testing to ensure that its products meet the special environmental and electronic standards of the manufacturer. The Electronics Group also performs final assembly of products in its Hauppauge location. The Electronics Group’s product development cycle includes:

• working with key customers and suppliers to identify consumer trends and potential demand

• working with the suppliers to design and develop products to meet those demands

• evaluating and testing the products in our own facilities to ensure compliance with our standards

• performing software design and validation testing

The Electronics Group provides a warranty to the end-users of its electronics products, generally ranging from 90 days up to the life of the vehicle for the original owner on some of its automobile-installed products. To support its warranties, the Electronics Group has independent warranty centers throughout

the United States, Canada, Venezuela and Malaysia. At its Hauppauge facility, the Electronics Group has a customer service group that provides product information, answers questions and serves as a technical hotline for installation help for both end-users and its customers.

The Electronics Group Hauppauge facility is QS-9000:1998 / ISO-9001:1994 certified, which requires it to carefully monitor quality standards in all facets of its business.

Electronics suppliers

The Electronics Group purchases its electronics products from manufacturers located in several Pacific Rim countries, including Japan, China, South Korea, Taiwan, Singapore and Malaysia. The Electronics Group also uses several manufacturers in the United States for cruise controls, mobile video and power amplifiers. In selecting its manufacturers, the Electronics Group considers quality, price, service, market conditions and reputation. The Electronics Group maintains buying offices or inspection offices in Taiwan, South Korea, China and Hong Kong to provide local supervision of supplier performance such as price negotiations, delivery and quality control. The Electronics Group generally purchases its products under short-term purchase orders and does not have long-term contracts with its suppliers. The Electronics Group believes that alternative sources of supply are currently available, although there could be a time lag and increased costs if it were to have an unplanned shift to a new supplier.

The Electronics Group considers relations with its suppliers to be good. In addition, the Electronics Group believes that alternative sources of supply are generally available within 120 days.

Electronics competition

The Electronics Group’s business is highly competitive across all of its product lines and competes with a number of well-established companies that manufacture and sell similar products. The Electronics Group’s mobile electronics products compete against factory-supplied radios (including General Motors, Ford and Daimler Chrysler), security and mobile video systems . The Electronics Group’s mobile electronics products also compete in the automotive aftermarket against major companies such as Sony, Panasonic, Kenwood, Motorola and Pioneer. The Electronics Group’s consumer electronics product lines compete against major consumer electronic companies, such as JVC, Sony, Panasonic, Motorola, RCA and AIWA. Brand name, design, features and price are the major competitive factors across all of its product lines.

(e) Financial Information About Foreign and Domestic Operations and Export Sales

The amounts of net sales and long-lived assets, attributable to each of the Company’s geographic segments for each of the last three fiscal years are set forth in Note 23 to the Company’s consolidated financial statements included herein. During fiscal 2000, 2001 and 2002, the Company exported approximately $246, $215 and $233 million, respectively, in product sales.

Trademarks

The Company markets products under several trademarks, including Audiovox®, Prestige®, Pursuit® and Rampage™ . The trademark Audiovox® is registered in approximately 67 countries. The Company believes that these trademarks are recognized by customers and are therefore significant in marketing its products.

Other Matters

Equity Investments

The Company has investments in unconsolidated joint ventures which were formed to market its products in specific market segments or geographic areas. The Company seeks to blend its financial and product resources with local operations to expand its distribution and marketing capabilities. The Company believes its joint ventures provide a more cost-effective method of focusing on specialized markets. The Company does not participate in the day-to-day management of these joint ventures.

The Company’s significant joint ventures are:

Venture	Percentage Ownership		Formation Date	Function

Audiovox Specialized Applications	50.0	%	1997	Distribution of products for van, RV and other specialized vehicles.
Bliss-Tel Company, Ltd.	20.0	%	1997	Distribution of wireless products and accessories in Thailand.

Employees

The Company employs approximately 1,000 people. The Company’s headcount has been relatively stable for the past several years, but will change based upon economic conditions within the two groups. The Company considers its relations with its employees to be good. No employees are covered by collective bargaining agreements.

Directors and Executive Officers of the Registrant

The directors and executive officers of the Company are listed below. All officers of the Company are elected by the Board of Directors to serve one-year terms. There are no family relationships among officers, or any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. Unless otherwise indicated, positions listed in the table have been held for more than five years.

Name	Age	Current Position

John J. Shalam	69	President, Chief Executive Officer and Chairman of the Board of Directors

Philip Christopher	54	Executive Vice President and a Director

Charles M. Stoehr	56	Senior Vice President, Chief Financial Officer and a Director

Name	Age	Current Position

Patrick M. Lavelle	51	Senior Vice President and a Director

Ann M. Boutcher	52	Vice President, Marketing and a Director

Richard A. Maddia	44	Vice President, IS and a Director

Paul C. Kreuch, Jr.*	64	Director

Dennis F. McManus*	52	Director

Irving Halevy*	86	Director

*Member of the Audit and Compensation Committees

John J. Shalam has served as President, Chief Executive Officer and as Director of Audiovox or its predecessor since 1960. Mr. Shalam also serves as President and a Director of most of Audiovox’s operating subsidiaries. Mr. Shalam is on the Board of Directors of the Electronics Industry Association and is on the Executive Committee of the Consumer Electronics Association.

Philip Christopher, our Executive Vice President, has been with Audiovox since 1970 and has held his current position since 1983. Before 1983, he served as Senior Vice President of Audiovox. Mr. Christopher is Chief Executive Officer of Audiovox’s wireless subsidiary, Audiovox Communications Corp. From 1973 through 1987, he was a Director of our predecessor, Audiovox Corp. Mr. Christopher serves on the Executive Committee of the Cellular Telephone Industry Association.

Charles M. Stoehr has been our Chief Financial Officer since 1979 and was elected Senior Vice President in 1990. Mr. Stoehr has been a Director of Audiovox since 1987. From 1979 through 1990, he was a Vice President of Audiovox.

Patrick M. Lavelle has been a Vice President of the Company since 1980 and was appointed Senior Vice President in 1991. He was elected to the Board of Directors in 1993. Mr. Lavelle is Chief Executive Officer and President of the Company’s subsidiary, Audiovox Electronics Corp. Mr. Lavelle is also a member of the Board of Directors and Executive Committee of the Consumer Electronics Association and serves as Chairmen of its Mobile Electronics Division.

Ann M. Boutcher has been our Vice President of Marketing since 1984. Ms. Boutcher’s responsibilities include the development and implementation of our advertising, sales promotion and public relations programs. Ms. Boutcher was elected to the Board of Directors in 1995.

Richard A. Maddia has been our Vice President of Information Systems since 1992. Prior thereto, Mr. Maddia was Assistant Vice President, MIS. Mr. Maddia’s responsibilities include development and maintenance of information systems. Mr. Maddia was elected to the Board of Directors in 1996.

Paul C. Kreuch, Jr. was elected to the Board of Directors in February 1997. Mr. Kreuch is a Managing Director of WJM Associates, Inc., a leading executive development firm. Prior career responsibilities include Executive Vice President of NatWest Bank, N.A. from 1993 to 1996, and, before that, President of National Westminster Bank, USA.

Dennis F. McManus was elected to the Board of Directors in March 1998. Mr. McManus is currently the Vice President - New Product Marketing at the LSSi Corporation. Prior to that Mr. McManus had been self-employed as a telecommunications consultant. Before that, he was employed by NYNEX Corp. for over 27 years, most recently as a Senior Vice President and Managing Director. Mr. McManus held this position from 1991 through December 31, 1997.

Irving Halevy served on the Board of Directors from 1987 to 1997 and was re-elected to the Board of Directors in 2001. Mr. Halevy is a retired professor of Industrial Relations and Management at Fairleigh Dickinson University where he taught from 1952 to 1986. He was also a panel member of the Federal Mediation and Conciliation Service.

All of our executive officers hold office at the discretion of the Board of Directors.

Cautionary Factors That May Affect Future Results

We have identified certain risk factors that apply to either Audiovox as a whole or one of our specific business units. You should carefully consider each of the following risk factors and all of the other information included or incorporated by reference in this Form 10-K. If any of these risks, or other risks not presently known to us or that we currently believe not to be significant, develop into actual events, then our business, financial condition, liquidity, or results of operations could be materially adversely affected. If that happens, the market price of our common stock would likely decline, and you may lose all or part of your investment.

We May Not Be Able to Compete Successfully in the Highly Competitive Wireless Industry.

The market for wireless handsets and accessories is highly competitive and is characterized by:

• intense price competition

• shorter product life cycles

• significant price erosion over the life of a product

• industry consolidation

• rapid technological development

• the demand by wireless carriers for value-added services provided by their suppliers

Our primary competitors for wireless handsets currently are Motorola, Nokia, Kyocera and Samsung. In addition, we compete with numerous other established and new manufacturers and distributors, some of whom sell the same or similar products directly to our customers. Historically, our competitors have also included some of our own suppliers and customers. Many of our competitors offer more extensive advertising and promotional programs than we do.

During the last decade, there have been several periods of extreme price competition, particularly when one or more or our competitors has sought to sell off excess inventory by lowering its prices significantly. In particular, when technologies changed in 2000 from analog to digital, several of our larger competitors lowered their prices significantly to reduce their inventories, which required us to similarly reduce our prices. These price reductions had a material adverse effect on our profitability. There can be no assurance that our competitors will not do this again, because, among other reasons, many of them have significantly greater financial resources than we do and can withstand substantial price competition. Since we sell products that tend to have low gross profit-margins, price competition has had, and may in the future have, a material adverse effect on our financial performance.

The Electronics Business Is Highly Competitive; Our Electronics Business Also Faces Significant Competition from Original Equipment Manufacturers (OEMs).

The market for electronics is highly competitive across all three of our product lines. We compete against many established companies who have substantially greater resources than us. In addition, we compete directly with OEMs, including divisions of well-known automobile manufacturers, in the autosound, auto security, mobile video and accessories industry. Most of these companies have substantially greater financial and other resources than we do. We believe that OEMs have increased sales pressure on new car dealers with whom they have close business relationships to purchase OEM-supplied equipment and accessories. OEMs have also diversified and improved their product lines and accessories in an effort to increase sales of their products. To the extent that OEMs succeed in their efforts, this success would have a material adverse effect on our sales of automotive entertainment and security products to new car dealers.

Wireless Carriers and Suppliers May Not Continue to Outsource Value-Added Services; We May Not Be Able to Continue to Provide Competitive Value-Added Services.

Wireless carriers purchase from us, rather than directly from our suppliers, because, among other reasons, we provide added services valued by our customers. In order to maintain our sales levels, we must continue to provide these value-added services at reasonable costs to our carrier-customers and suppliers, including:

• product sourcing

• product distribution

• marketing

• custom packaging

• warranty support

• programming wireless handsets

• testing for carrier system acceptance

Our success depends on the wireless equipment manufacturers, wireless carriers, network operators and resellers continuing to outsource these functions rather than performing them in-house. To encourage the use of our services, we must keep our prices reasonable. If our internal costs of supplying these services increase, we may not be able to raise our prices to pass these costs along to our customers and suppliers. As a result of the consolidations in the telecommunications industry, wireless carriers, which are the largest customers of our wireless business, may attempt to perform these services themselves. Alternatively, our

customers and suppliers may transact business directly with each other rather than through us. If our customers or suppliers begin to perform these services internally or do business directly with each other, it could have a material adverse effect on our sales and our profits.

Our Success Depends on Our Ability to Keep Pace with Technological Advances in the Wireless Industry.

Rapid technological change and frequent new product introductions characterize the wireless product market. Our success depends upon our ability to:

• identify the new products necessary to meet the demands of the wireless marketplace and

• locate suppliers who are able to manufacture those products on a timely and cost-effective basis.

As a result of the emergence of the digital market, which resulted in the reduction of selling prices of analog hand-held phones, we recorded analog inventory write-downs to market of $8.2 million and $13.5 million in 2000 and 2001, respectively. These write-downs had a material adverse effect on our profitability. As a result of increasing pricing pressures and a surplus of supply created by other manufacturers also attempting to sell off analog inventories, there was a drop off in demand for analog products. The write down was based upon the drop in demand, as carriers no longer promoted analog product and notified the Company that previous indications for orders of analog phones were no longer viable. Also during 2001, the Company recorded an additional inventory write-down to market of $7,150 associated with older digital products as newer products were being introduced.

During 2002, Wireless recorded inventory write-downs totaling of $13,823 pertaining to its digital inventory due to more current technological advances in the market. This write-down was made based upon open purchase orders from customers and selling prices subsequent to the balance sheet date as well as indications from customers based upon the then current negotiations. There can be no assurance that this will not occur again given the emergence of new technologies.

Since we do not make any of our own products and do not conduct our own research, we cannot assure you that we will be able to source the products that advances in technology require to remain competitive. Furthermore, the introduction or expected introduction of new products or technologies may depress sales of existing products and technologies. This may result in declining prices and inventory obsolescence. Since we maintain a substantial investment in product inventory, declining prices and inventory obsolescence could have a material adverse effect on our business and financial results. (See further discussions in Business Overview Page 37).

We Depend on a Small Number of Key Customers For a Large Percentage of Our Sales.

The wireless industry is characterized by a small number of key customers. In fiscal 2000, 75% of our wireless sales were to five customers, and for 2001 70% of our wireless sales were to five customers. Our five largest customers accounted for 71% of our wireless sales in fiscal 2002, one of which accounted for 36% of our wireless sales in fiscal 2002. The loss of one or more of these customers would have a material impact on our business.

We Do Not Have Long-term Sales Contracts with Any of Our Customers.

Sales of our wireless products are made by written purchase orders and are terminable at will by either party. The unexpected loss of all or a significant portion of sales to any one of our large customers could have a material adverse effect on our performance. Sales of our electronics products are made by purchase order and are terminated at will at the option of either party. We do not have long-term sales contracts with any of our customers. The unexpected loss of all or a significant portion of sales to any one of these customers could result in a material adverse effect on our performance.

We Could Lose Customers or Orders as a Result of Consolidation in the Wireless Telecommunications Carrier Industry.

As a result of global competitive pressures, there has been significant consolidation in the domestic wireless industry:

• Cricket and Leap Wireless

• Verizon Wireless: Bell Atlantic, AirTouch Communications, GTE Mobilnet, Prime Co Personal Communications LP, Frontier, Ameritech and Vodafone

• Cingular Wireless: SBC Communications and Bell South

• VoiceStream: Expanded into major markets through acquisition of Omnipoint

• Telus and Clearnet

Future consolidations could cause us to lose business if any of the new consolidated entities do not perform as they expect to because of integration or other problems. In addition, these consolidations will result in a smaller number of wireless carriers, leading to greater competition in the wireless handset market and may favor one or more of our competitors over us. This could also lead to fluctuations in our quarterly results and carrying value of our inventory. If any of these new entities orders less product from us or elects not to do business with us or changes current pricing in order to compete, it would have a material adverse effect on our business. In fiscal 2002, the five largest wireless customers were Verizon Wireless, Bell Distribution, Inc., Sprint Spectrum LP, Telus Mobility and AllTel Communications. Three customers each accounted for 36%, 11% and 10%, respectively, of Wireless’ net sales for fiscal 2002. All of these customers represented 71% of Wireless’ net sales and 47% of consolidated net sales during fiscal 2002.

Sales in Our Electronics Business Are Dependent on New Products and Consumer Acceptance.

Our electronics business depends, to a large extent, on the introduction and availability of innovative products and technologies. Significant sales of new products in niche markets, such as FRS two-way radios, known as FRS radios, portable DVD players and mobile video systems, have fueled the recent growth of our electronics business. If we are not able to continually introduce new products that achieve consumer acceptance, our sales and profit margins will decline.

Since We Do Not Manufacture Our Products, We Depend on Our Suppliers to Provide Us with Adequate Quantities of High Quality Competitive Products on a Timely Basis.

We do not manufacture our products. We do not have long-term contracts but have exclusive distribution arrangements with certain suppliers. The suppliers can only sell their products through the Company for a given geographic or designated market area. Most of our products are imported from suppliers under short-term purchase orders. Accordingly, we can give no assurance that:

• our supplier relationships will continue as presently in effect

• our suppliers will be able to obtain the components necessary to produce high-quality, technologically-advanced products for us

• we will be able to obtain adequate alternatives to our supply sources should they be interrupted

• if obtained, alternatively sourced products of satisfactory quality would be delivered on a timely basis, competitively priced, comparably featured or acceptable to our customers

• exclusive geographic or market area distribution agreements will be renewed

Because of the increased demand for wireless and consumer electronics products, there have been, and still could be, industry-wide shortages of components. As a result, our suppliers have not been able to produce the quantities of these products that we desire. Our inability to supply sufficient quantities of products that are in demand could reduce our profitability and have a material adverse effect on our relationships with our customers. If any of our supplier relationships were terminated or interrupted, we could experience an immediate or long-term supply shortage, which could have a material adverse effect on us. It is likely that our supply of wireless products would be interrupted before we could obtain alternative products.

Because We Purchase a Significant Amount of Our Products from Suppliers in Pacific Rim Countries, We Are Subject to the Economic Risks Associated with Changes in the Social, Political, Regulatory and Economic Conditions Inherent in These Countries.

We import most of our products from suppliers in the Pacific Rim. Countries in the Pacific Rim have experienced significant social, political and economic upheaval over the past several years. Because of the large concentrations of our purchases in Pacific Rim countries, particularly Japan, China, South Korea, Taiwan and Malaysia, any adverse changes in the social, political, regulatory and economic conditions in these countries may materially increase the cost of the products that we buy from our foreign suppliers or delay shipments of products, which could have a material adverse effect on our business. In addition, our dependence on foreign suppliers forces us to order products further in advance than we would if our products were manufactured domestically. This increases the risk that our products will become obsolete or face selling price reductions before we can sell our inventory.

We Plan to Expand the International Marketing and Distribution of Our Products, Which Will Subject Us to Additional Business Risks.

As part of our business strategy, we intend to increase our international sales, although we cannot assure you that we will be able to do so. Conducting business outside of the United States subjects us to significant additional risks, including:

• export and import restrictions, tax consequences and other trade barriers

• currency fluctuations

• greater difficulty in accounts receivable collections

• economic and political instability

• foreign exchange controls that prohibit payment in U.S. dollars

• increased complexity and costs of managing and staffing international operations

For instance, our international sales have been affected by political unrest and currency fluctuation in Venezuela. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

Fluctuations in Foreign Currencies Could Have a Material Adverse Impact on Our Business.

We cannot predict the effect of exchange rate fluctuations on our future operating results. Also, due to the short-term nature of our supply arrangements, the relationship of the U.S. dollar to foreign currencies will impact price quotes when negotiating new supply arrangements denominated in U.S. dollars. As a result, we could experience declining selling prices in our market without the benefit of cost decreases on purchases from suppliers or we could experience increasing costs without an ability to pass the costs to the customers. We cannot assure you that we will be able to effectively limit our exposure to foreign currencies. Foreign currency fluctuations could cause our operating results to decline and have a material adverse effect on our ability to compete. Many of our competitors manufacture products in the United States or outside the Pacific Rim, which could place us at a competitive disadvantage if the value of the Pacific Rim currencies increased relative to the currency in the countries where our competitors obtain their products.

Trade Sanctions Against Foreign Countries or Foreign Companies Could Have a Material Adverse Impact on Our Business.

As a result of trade disputes, the United States and foreign countries have occasionally imposed tariffs, regulatory procedures and importation bans on certain products, including wireless handsets that have been produced in foreign countries. Trade sanctions or regulatory procedures involving a country in which we conduct a substantial amount of business could have a material adverse effect on our operations. Some of the countries we purchase products from are: China, Japan, South Korea, Taiwan and Malaysia. China and Japan have been affected by such sanctions in the past. In addition, the United States has imposed, and may in the future impose, sanctions on foreign companies for anti-dumping and other violations of U.S. law. If sanctions were imposed on any of our suppliers or customers, it could have a material adverse effect on our operations.

We May Not Be Able to Sustain Our Recent Growth Rates or Maintain Profit Margins.

Sales of our wireless products, a large portion of our business that operates on a high-volume, low-margin basis, have varied significantly over the past several years, from approximately $423 million in fiscal 1998 to approximately $1.4 billion for fiscal 2000 back to approximately $727 million in 2002. Sales of our electronics products also increased significantly from approximately $182 million for fiscal 1998 to approximately $373 million for fiscal 2002. We may not be able to continue to achieve this overall revenue growth rate or maintain profit margins because, among other reasons, of increased competition and technological changes. This can be seen in the decline of our Wireless Group during 2000 from the changeover from analog to digital. In addition, we expect that our operating expenses will continue to increase as we seek to expand our business, which could also result in a reduction in profit margins if we do not concurrently increase our sales proportionately.

If Our Sales During the Holiday Season Fall below Our Expectations, Our Annual Results Could Also Fall below Expectations.

Seasonal consumer shopping patterns significantly affect our business. We generally make a substantial amount of our sales and net income during September, October and November, our fourth fiscal quarter. We expect this trend to continue. December is also a key month for us, due largely to the increase in promotional activities by our customers during the holiday season. If the economy faltered in these periods, if our customers altered the timing or frequency of their promotional activities or if the effectiveness of these promotional activities

declined, particularly around the holiday season, it could have a material adverse effect on our annual financial results.

A Decline in General Economic Conditions Could Lead to Reduced Consumer Demand for the Discretionary Products We Sell.

Consumer spending patterns, especially discretionary spending for products such as consumer electronics and wireless handsets, are affected by, among other things, prevailing economic conditions, wage rates, inflation, consumer confidence and consumer perception of economic conditions. A general slowdown in the U.S. economy or an uncertain economic outlook could have a material adverse effect on our sales. So far, the recent economic slowdown has not materially affected our business. In addition, our mobile electronics business is dependent on the level of car sales in our markets.

We Depend Heavily on Existing Management and Key Personnel and Our Ability to Recruit and Retain Qualified Personnel.

Our success depends on the continued efforts of John J. Shalam, Philip Christopher, C. Michael Stoehr and Patrick Lavelle, each of whom has worked with Audiovox for over two decades, as well as our other executive officers and key employees. We only have one employment contract, with Philip Christopher and none with any other executive officers or key employees. The loss or interruption of the continued full-time service of certain of our executive officers and key employees could have a material adverse effect on our business.

In addition, to support our continued growth, we must effectively recruit, develop and retain additional qualified personnel both domestically and internationally. Our inability to attract and retain necessary qualified personnel could have a material adverse effect on our business.

We Are Responsible for Product Warranties and Defects.

Even though we outsource manufacturing, we provide warranties for all of our products for which we have provided an estimated liability. Therefore, we are highly dependent on the quality of our suppliers. The warranties for our electronics products range from 90 days to the lifetime of a vehicle for the original owner. The warranties for our wireless products generally range from one to three years. In addition, if we are required to repair a significant amount of product, the value of the product could decline while we are repairing the product. In particular, in 1998, a software problem caused us to recall a specific line of analog handsets. After a $1 million reimbursement from the manufacturer for warranty costs, this recall resulted in a net pre-tax charge of $6.6 million to cover the decline in the selling price of the product during the period we were repairing the handsets. We cannot assure you that we will not have similar problems in the future.

Our Capital Resources May Not Be Sufficient to Meet Our Future Capital and Liquidity Requirements.

We believe that we currently have sufficient resources to fund our existing operations for the foreseeable future through our cash flows and borrowings under our credit facility. However, we may need additional capital to operate our business if:

• market conditions change

• our business plans or assumptions change

• we make significant acquisitions

• we need to make significant increases in capital expenditures or working capital

We cannot assure you that we would be able to raise additional capital on favorable terms, if at all. If we could not obtain sufficient funds to meet our capital requirements, we would have to curtail our business plans. We may also raise funds to meet our capital requirements by issuing additional equity, which could be dilutive to our stockholders, though there can be no assurance that we would be able to do this.

Restrictive Covenants in Our Credit Facility May Restrict Our Ability to Implement Our Growth Strategy, Respond to Changes in Industry Conditions, Secure Additional Financing and Make Acquisitions.

Our credit facility contains restrictive covenants that:

• require us to attain specified pre-tax income

• limit our ability to incur additional debt

• require us to achieve specific financial ratios

• restrict our ability to make capital expenditures or acquisitions

If our business needs require us to take on additional debt, secure financing or make significant capital expenditures or acquisitions, and we are unable to comply with these restrictions, we would be forced to negotiate with our lenders to waive these covenants or amend the terms of our credit facility. At May 31, 2001, November 30, 2001 and 2002, and the first quarter ended February 28, 2002, the Company was not in compliance with certain of its pre-tax income covenants. Furthermore, as of November 30, 2002, the Company was also not in compliance with the requirement to deliver audited financial statements 90 days after the Company’s fiscal year-end, and as of February 28, 2003, the requirement to deliver unaudited quarterly financial statements 45 days after the Company’s quarter end. The Company received a waiver for the November 30, 2001 pre-tax income violation subsequent to its issuance of the November 30, 2001 financial statements. In addition, the Company received waivers for the May 31, 2001 and February 28, 2002 violations.

The Company has not received waivers for the November 30, 2002 violation of a particular pre-tax income covenant or delivery of audited financial statements 90 days after the Company’s fiscal year-end. Accordingly, as of November 30, 2001 and 2002, the Company’s outstanding domestic obligations of $86,525 and 36,883, have been classified as current on the accompanying consolidated financial statements, respectively. Management is in the process of requesting a waiver for the November 30, 2002 and February 28, 2003 violations. While the Company was able to obtain waivers for such violations in 2001 and the first quarter ended February 28, 2002, there can be no assurance that future negotiations with its lenders would be successful or that the Company will not violate covenants in the future, therefore, resulting in amounts outstanding to be payable upon demand. Subsequent to November 30, 2002, the Company repaid its obligation of $36,883 in full resulting in bank obligations outstanding at May 15, 2003 of $0. This credit agreement has no cross covenants with the other credit facilities described below.

Achieving pre-tax income is significantly dependant upon the timing of customer acceptance of new technologies, customer demand and the ability of our vendors to supply sufficient quantities to fulfill anticipated customer demand, among other factors.

There Are Claims of Possible Health Risks from Wireless Handsets.

Claims have been made alleging a link between the non-thermal electromagnetic field emitted by wireless handsets and the development of cancer, including brain cancer. The television program 20/20 on ABC reported that several of the handsets available on the market, when used in certain positions, emit radiation to the user’s brain in amounts higher than permitted by the Food and Drug Administration. The scientific community is divided on whether there is any risk associated with the use of wireless handsets and, if so, the magnitude of the risk. Unfavorable publicity, whether or not warranted, medical studies or findings or litigation could have a material adverse effect on our growth and financial results.

In the past, several plaintiffs’ groups have brought class actions against wireless handset manufacturers and distributors, including us, alleging that wireless handsets have caused cancer. To date, none of these actions has been successful. However, actions based on these or other claims may succeed in the future and have a material adverse effect on us.

Several Domestic and Foreign Governments Are Considering, or Have Recently Adopted, Legislation That Restricts the Use of Wireless Handsets While Driving.

Several foreign governments have adopted, and a number of U.S. state and local governments are considering or have recently enacted, legislation that would restrict or prohibit the use of a wireless handset while driving a vehicle or, alternatively, require the use of a hands-free telephone. For example, Ohio and New York have adopted statutes that restricts the use of wireless handsets or requires the use of a hands-free kit while driving. Widespread legislation that restricts or prohibits the use of wireless handsets while operating a vehicle could have a material adverse effect on our future growth.

Our Stock Price Could Fluctuate Significantly.

The market price of our common stock could fluctuate significantly in response to various factors and events, including:

• operating results being below market expectations

• announcements of technological innovations or new products by us or our competitors

• loss of a major customer or supplier

• changes in, or our failure to meet, financial estimates by securities analysts

• industry developments

• economic and other external factors

• period-to-period fluctuations in our financial results

• financial crises in foreign countries

• general downgrading of our industry sector by securities analysts

In addition, the securities markets have experienced significant price and volume fluctuations over the past several years that have often been unrelated to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our common stock.

Our Securities Will Continue to be Listed on the Nasdaq National Market Pursuant to Exceptions.

Following the Company’s hearing with the Nasdaq related to its late filing of certain annual and quarterly forms with the SEC, the Company was notified that it must become timely in its filings and continue in the future to be timely to insure its continued listing on the Nasdaq National Market.

John J. Shalam, Our President and Chief Executive Officer, Owns a Significant Portion of Our Common Stock and Can Exercise Control over Our Affairs.

Mr. Shalam beneficially owns approximately 54% of the combined voting power of both classes of common stock. This will allow him to elect our Board of Directors and, in general, to determine the outcome of any other matter submitted to the stockholders for approval. Mr. Shalam’s voting power may have the effect of delaying or preventing a change in control of Audiovox.

We have two classes of common stock: Class A common stock is traded on the Nasdaq Stock Market under the symbol VOXX, and Class B common stock, which is not publicly traded and substantially all of which is beneficially owned by Mr. Shalam. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Both classes vote together as a single class, except in certain circumstances, for the election and removal of directors and as otherwise may be required by Delaware law. Since our charter permits shareholder action by written consent, Mr. Shalam may be able to take significant corporate actions without prior notice and a shareholder meeting.

Item 2 - Properties

As of November 30, 2002, the Company leased a total of twenty-six operating facilities located in eleven states. The leases have been classified as operating leases, with the exception of one, which is recorded as a capital lease. Wireless utilizes ten of these facilities located in California, New York, Virginia, Pennsylvania and Canada. The Electronics Group utilizes 16 of these facilities located in California, Florida, Georgia, Massachusetts, New York, Ohio, Tennessee, Texas and Michigan. These facilities serve as offices, warehouses, distribution centers or retail locations for both Wireless and Electronics. Additionally, the Company utilizes public warehouse facilities located in Norfolk, Virginia and Sparks, Nevada for its Electronics Group and in Miami, Florida, Toronto, Canada, Farmingdale, New York, Rancho Dominguez, California and Tilburg, Netherlands for its Wireless Group. The Company also leases facilities in Venezuela for its Electronics Group.

Item 3 - Legal Proceedings

The Company is currently, and has in the past been, a party to routine litigation incidental to its business. From time to time, the Company receives notification of alleged violations of registered patent holders’ rights. The Company has either been indemnified by its manufacturers in these matters, obtained the benefit of

a patent license or has decided to vigorously defend such claims. On November 6, 2002, Audiovox Electronics Corporation (“AEC”) was served with a summons and complaint in an action for patent infringement that was instituted by Nissho Iwai American Corporation against AEC in the United State District Court for the Southern District of New York. The complaint seeks equitable relief and damages for alleged infringement of a patent. AEC has meritorious defenses to this claim and has decided to vigorously defend this action. However, the Company cannot be certain of the outcome of this matter.

Subsequent to November 30, 2002, the Company and Audiovox Communications Corp. (“ACC”), along with other manufacturers of wireless phones and cellular service providers, were named as defendants in two class action lawsuits alleging non-compliance with FCC ordered emergency 911 call processing capabilities. There are various procedural motions pending and no discovery has been conducted to date. These lawsuits have been consolidated and transferred to the United States District Court for the Northern District of Illinois. The Company and ACC intend to vigorously defend this matter. However, no assurances regarding the outcome of this matter can be given at this point in the litigation.

In July 2002, Audiovox Communications Corp. instituted suit against Northcoast Communications, LLC in the Supreme Court of the State of New York, County of Suffolk seeking recovery of the sum of $1,818 as the balance due it for cellular telephones sold and delivered. In its answer Northcoast interposed counterclaims including fraud, negligent misrepresentation and breach of contract seeking damages in excess of $10,000. The parties have recently served discovery demands and no depositions have been taken to date. Based on discussions with management and review of Audiovox’s documents, Northcoast’s counterclaims appear to be without merit and interposed to avoid payment of the underlying indebtedness.

The Company is the subject of an administrative agency investigation involving alleged reimbursement of a fixed nominal amount of federal campaign contributions during the years 1995 through 1996. The Company has fully cooperated with the investigation and believes that it has committed no wrongdoing.

The Company had previously reported that during 2001, ACC, along with other suppliers, manufacturers and distributors as well as wireless carriers of hand-held wireless telephones had been named as a defendant in five state court class action lawsuits (Pinney, Farina, Gilliam, Gimpelson and Naquin) alleging damages relating to risk of exposure to radio frequency radiation from the wireless telephones. These lawsuits were removed to their respective federal district courts and thereafter consolidated and transferred to a federal Multi-District Litigation Panel before the United States District Court for the District of Maryland. On March 5, 2003, Judge Catherine C. Blake of the United States District Court for the District of Maryland granted the defendants’ consolidated motion to dismiss these complaints. Plaintiffs have appealed to the United States Circuit Court of Appeals, Fourth Circuit. It is anticipated that the appeal will be heard in late 2003 or early 2004.

The Company does not expect the outcome of any pending litigation, separately and in the aggregate, to have a material adverse effect on its business, consolidated financial position or results of operations.

Item 4 - Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2002.

PART II

Item 5 - Market for the Registrant’s Common Equity and Related Stockholder Matters

Summary of Stock Prices and Dividend Data

The Class A Common Stock of Audiovox are traded on the Nasdaq Stock Market under the symbol VOXX. No dividends have been paid on the Company’s common stock. The Company is restricted by agreements with its financial institutions from the payment of common stock dividends while certain loans are outstanding (see Liquidity and Capital Resources of Management’s Discussion and Analysis). There are approximately 566 holders of record of our Class A Common Stock and

four holders of Class B Convertible Common Stock.

Class A Common Stock

Fiscal Period	High	Low	Average Daily Trading Volume

2001
First Quarter	14.13	7.38	373,083
Second Quarter	12.13	7.28	162,019
Third Quarter	12.10	8.37	82,509
Fourth Quarter	9.39	5.90	105,022

2002
First Quarter	8.25	6.00	117,420
Second Quarter	8.93	6.50	82,356
Third Quarter	9.05	5.95	91,708
Fourth Quarter	11.53	6.30	71,940

Item 6 - Selected Consolidated Financial Data

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements, the notes to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this report. The consolidated statements of operations data for each of the five fiscal years in the period ended November 30, 2002, and the consolidated balance sheet data as of the end of each such fiscal year, are derived from our audited consolidated financial statements (in thousands except per share data).

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Event” and Note 2, “Restatement of Consolidated Financial Statements”, and Note 26, “Unaudited Quarterly Financial Data - As Restated” of Notes to Consolidated Financial Statements for more detailed information regarding the restatement of our consolidated financial statements for the fiscal years ended November 30, 2000 and 2001 and restated unaudited quarterly data for fiscal quarters during the years ended November 30, 2000 and 2001 and the fiscal 2002 quarters ended February 28, 2002, May 31, 2002 and August 31, 2002, respectively. The Company did not restate fiscal years ended November 30, 1998 and 1999 as any restatement amounts applicable to those years were not material and were recorded in 2000.

	Years Ended November 30,
	1998		1999		2000		2001			2002
					As Restated		As Restated
Consolidated Statement of Operations Data

Net sales (1)(2)	$	606,108	$	1,149,537	$	1,670,291	$	1,276,591		$	1,100,382
Net income (loss) before extraordinary item and cumulative effect of a change in accounting for negative goodwill	2,972		27,246		25,303		(7,198		)	(14,280		)
Extraordinary item	—		—		2,189		—			—
Cumulative effect of a change in accounting for negative goodwill	—		—		—		—			240
Net income (loss)	2,972		27,246		27,492		(7,198		)	(14,040		)
Net income (loss) per common share before extraordinary item and cumulative effect:
Basic	0.16		1.43		1.19		(0.33		)	(0.65		)
Diluted	0.16		1.39		1.12		(0.33		)	(0.65		)
Net income (loss) per common share:
Basic	0.16		1.43		1.29		(0.33		)	(0.64		)
Diluted	0.16		1.39		1.22		(0.33		)	(0.64		)

Consolidated Balance Sheet Data

Total assets	$	287,816	$	486,220	$	517,586	$	544,497		$	551,235
Working capital	160,609		272,081		305,369		284,166			292,687
Long-term obligations, less current installments	33,724		122,798		23,468		10,040			18,250
Stockholders’ equity	177,720		216,744		330,766		323,220			309,513

(1) Effective March 1, 2002, the Company adopted Emerging Issues Task Force (EITF) Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer”. Upon adoption of this Issue, the Company reclassified its sales incentives offered to its customers from selling expenses to net sales. For purposes of comparability, these reclassifications have been reflected retroactively for all periods presented.

(2) In fiscal 2001, the Company adopted the provisions of EITF Issue No. 00-10, “Accounting for Shipping and Handling Fees and Costs”, which requires the Company to report all amounts billed to a customer related to shipping and handling as revenue. The Company has reclassified such billed amounts, which were previously netted in cost of sales, to net sales. Gross profit has remained

unchanged by this adoption. For purposes of comparability, these reclassifications have been reflected retroactively for all periods presented.

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as “may,” “believe,” “estimate,” “expect,” “plan,” “intend,” “project,” “anticipate,” “continues,” “could,” “potential,” “predict” and similar expressions may identify forward-looking statements. The Company has based these forward-looking statements on its current expectations and projections about future events, activities or developments. The Company’s actual results could differ materially from those discussed in or implied by these forward-looking statements. Forward-looking statements include statements relating to, among other things:

• growth trends in the wireless, automotive, mobile and consumer electronic businesses

• technological and market developments in the wireless, automotive, mobile and consumer electronics businesses

• liquidity

• availability of key employees

• expansion into international markets

• the availability of new consumer electronic products

These forward-looking statements are subject to numerous risks, uncertainties and assumptions about the Company including, among other things:

• the ability to keep pace with technological advances

• impact of future selling prices on Company profitability and inventory carrying value

• significant competition in the wireless, automotive and consumer electronics businesses

• quality and consumer acceptance of newly introduced products

• the relationships with key suppliers

• the relationships with key customers

• possible increases in warranty expense

• the loss of key employees

• foreign currency risks

• political instability

• changes in U.S. federal, state and local and foreign laws

• changes in regulations and tariffs

• seasonality and cyclicality

• inventory obsolescence and availability

• consolidations in the wireless and retail industries, causing a decrease in the number of carriers and retail stores that carry our products

• changes in global or local economic conditions

Restatement of Consolidated Financial Statements

The net effect of all of the restatement adjustments is as follows:

	Fiscal 2000		Fiscal 2001		First Quarter 2002			Second Quarter 2002			Third Quarter 2002
					(Unaudited)			(Unaudited)			(Unaudited)
Increase (decrease) income/(increase) decrease (loss) before extraordinary item and cumulative effect of a change in accounting for negative goodwill	$	263	$	1,011	$	(1,308	)	$	(782	)	$	751
Increase (decrease) net income/(increase) decrease net (loss)	263		1,011		(1,308		)	(782		)	751
Increase (decrease) net income/(increase) decrease net (loss) per common share - diluted	$	0.01	$	0.05	$	(0.06	)	$	(0.03	)	$	0.04

The following table provides additional information regarding these restatement adjustments:

Effects of Restatement Adjustments on Net Income or Net Loss
(in thousands)

	Increase (Decrease) in Net Income for the Fiscal Year Ended November 30, 2000			(Increase) Decrease in Net Loss for the Fiscal Year Ended November 30, 2001			Increase (Decrease) in Net Income for the Nine Months Ended August 31, 2002
							Unaudited
Restatement adjustments:
Revenue recognition	$	(779	)	$	779		—
Timing of revenue					(15	)	$	(103	)
Litigation				(373		)	427
Foreign currency translation	—			—			(1,491		)
Inventory pricing	—			—			420
Sales incentives	1,884			910			847
Gain on the issuance of subsidiary shares	—			—			(1,556		)
Operating expense reclassification to cost of sales (2)	—			—			—
Total adjustment to pre-tax income (loss)	1,105			1,301			(1,456		)
(Provision for) recovery of income taxes	(842		)	(310		)	204
Minority interest (1)	—			20			(87		)
Total effect on net income (loss)	$	263		$	1,011		$	(1,339	)

(1) This adjustment reflects the impact of the restatement adjustments on minority interest.

The following discussion addresses each of the restatement adjustments and the reclassification adjustment for the corrections of accounting errors. Any references to quarterly amounts are unaudited.

understated operating expenses by $497 in the first quarter of fiscal 2002 as a result of not recording a settlement offer in the period the Company offered it.

Inventory pricing. During the first three quarters of fiscal 2002, the Company overstated (understated) cost of sales related to an inventory pricing error that occurred at its Venezuelan subsidiary. The Company was not aware of this pricing error until the fourth quarter of fiscal 2002 and, accordingly, was not properly pricing its inventory at the lower of cost or market in accordance with generally accepted accounting principles. As a result, the Company overstated (understated) cost of sales by $387, ($2) and $35, for the first, second and third quarters of fiscal 2002, respectively.

Sales incentives. During fiscal 2000 and 2001 and for the nine months ended August 31, 2002, the Electronics segment overestimated accruals for additional sales incentives (other trade allowances) that were not offered to its customers. As a result, for fiscal 2000 and 2001 and for the nine months ended August 31, 2002, the Company understated net sales by $1,884, $784 and $292, respectively.

Furthermore, during fiscal 2001 and for the nine months ended August 31, 2002,the Electronics segment was also not reversing earned and unclaimed sales incentives (i.e., cooperative advertising, market development and volume incentive rebate funds) upon the expiration of the established claim period. As a result, for fiscal 2001 and for the nine months ended August 31, 2002, the Company understated net sales by $126 and $555, respectively.

Company decreased the gain on issuance of subsidiary shares and increased the additional paid in capital by $1,556.

Income taxes. Income taxes were adjusted for the restatement adjustments discussed above for each period presented.

Business Overview

The Company markets its products under the Audiovox brand name as well as private labels through a large and diverse distribution network both domestically and internationally. The Company operates through two marketing groups: Wireless and Electronics. Wireless consists of Audiovox Communications Corp. (ACC), a 75%-owned subsidiary of Audiovox, and Quintex, which is a wholly-owned subsidiary of ACC. ACC markets wireless handsets and accessories primarily on a wholesale basis to wireless carriers in the United States and carriers overseas. Quintex is a small operation for the direct sale of handsets, accessories and wireless telephone service. Quintex also receives residual fees and activation commissions from the carriers. Residuals are paid by the carriers based upon a percentage of usage of customers activated by Quintex for a period of time (1-5 years). Quintex also sells a small volume of electronics products not related to wireless which are categorized as “other”.

The Electronics Group consists of three wholly-owned subsidiaries: Audiovox Electronics Corporation (AEC), American Radio Corp. and Code Systems, Inc. (Code) and three majority-owned subsidiaries, Audiovox Communications (Malaysia) Sdn. Bhd., Audiovox Holdings (M) Sdn. Bhd. and Audiovox Venezuela, C.A. The Electronics Group markets, both domestically and internationally, automotive sound and security systems, electronic car accessories, home and portable sound products, FRS radios, in-vehicle video systems, flat-screen televisions, DVD players and navigation systems. Sales are made through an extensive distribution network of mass merchandisers and others. In addition, the Company sells some of its products directly to automobile manufacturers on an OEM basis. American Radio Corp. is also involved on a limited basis in the wireless marketplace. Wireless related sales are categorized as “other”.

The Company allocates interest and certain shared expenses, including treasury, legal, human resources and information systems, to the marketing groups based upon both actual and estimated usage. General expenses and other income items that are not readily allocable are not included in the results of the two marketing groups.

From fiscal 1998 through 2002, several major events and trends have affected the Company’s results and financial conditions.

Wireless increased its handset sales from 3.3 million units in fiscal 1998 to an all-time high of 8.9 million units in fiscal 2000 as a result of the introduction of digital technology, reduced cost of service plans and expanded feature options which attracted more subscribers to the carriers systems. During 2001 through 2002, as a result of the change in technology from analog to digital, the consolidation of our carrier customer base and increased price competition from our competitors, the Company’s overall wireless growth was impacted. Further during this period, the addition of several new competitors had an effect on the Company’s sales. These factors resulted in a reduction of our net sales to 5.0 million units in 2002. This overall trend in our wireless business from 1998 was impacted by:

• the introduction of digital technology, which has allowed carriers to significantly increase subscriber capacity

• reduced cost of service and expanded feature options

• consolidation of carrier customers

• price competition

• increased competition

In fiscal 2000, 2001 and 2002, the Company recorded inventory write-downs to market of $8,152, $20,650 and $13,823, respectively. These write-downs were primarily due to increased pricing pressures, competition and changing technologies. Wireless’ gross profit margins were negatively impacted by 0.6, 2.1 and 1.8 percentage points, respectively, as a result of these write-downs. This trend of competition, price erosion, and changing technologies will continue to affect the overall wireless business segment.

In fiscal 2000, 2001 and 2002, Wireless recorded $8,265, $12,555 and $3,216, respectively, into income due to reversals of previously established sales incentive accruals. Wireless’ gross profit margins were positively impacted by 0.6, 1.3 and 0.4 percentage points, respectively, as a result of these reversals. See further discussion in critical accounting policies.

Sales by the Electronics Group were $175.1 million in 1998 and $372.7 million in 2002. During this period, the Company’s sales were impacted by the following items:

• the growth of our consumer electronic products business from $11.7 million in fiscal 1998 to $86.5 million in fiscal 2002 was a result of the introduction of new consumer goods

• the introduction of mobile video entertainment systems and other new technologies

• growth of OEM business

Both of the Company’s segments, Electronics and Wireless, are influenced by the introduction of new products and changes in technology (see Cautionary Factors That May Affect Future Results: Our success depends on our ability to keep pace with technological advances in the wireless industry).

During fiscal 2002, the Company introduced several new products in our Electronics segment, which included an extended line of portable DVD products for the consumer market, new flat panel TV’s and satellite radios. In our Wireless group, the technology has evolved to new 1X technology, color view screens for the phones, PDA’s with built-in wireless capabilities and certain 1X phones have the availability to utilize the new GPS locator systems. As a result of the continuous introduction of new products, the Company must sell existing older models prior to new product introduction or the value of the inventory may be impacted (See Critical Accounting Policies - Inventory, MD&A Discussions).

Gross margins in the Company’s electronics business have decreased to 16.1% for fiscal 2002 from 20.5% in 1998 due, in part, to a change in the product mix, partially offset by higher margins in mobile video products, other new technologies and products and the growth of the international business.

In fiscal 2000, 2001 and 2002, Electronics recorded $0, $132 and $588, respectively, into income upon the expiration of unclaimed sales incentive accruals. Electronics’ gross profit margins were positively impacted by 0.0, 0.1 and 0.2 percentage points, respectively, as a result of this.

The Company’s total operating expenses have increased at a slower rate than sales since 1998. Total operating expenses were $70.5 million in 1998 and $88.6 million in 2002. The Company has invested in management information systems and its operating facilities to increase its efficiency.

During the period 1998 to 2002, the Company’s financial position was improved by the 2.3 million share follow-on offering in which the Company received $96.6 million net proceeds and the sale of 25% of its previously 100%-owned subsidiary, ACC, to Toshiba for $27.2 million.

All financial information, except share and per share data, is presented in thousands.

Critical Accounting Policies and Estimates

General

The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America. As such, the Company is required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. These estimates and assumptions, which can be subjective and complex, affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. As a result, actual results could differ from such estimates and assumptions. The significant accounting policies which the Company believes are the most critical to aid in fully understanding and evaluating the reported consolidated financial results include the following:

Revenue Recognition

The Company recognizes revenue from product sales at the time of passage of title and risk of loss to the customer either at FOB Shipping Point or FOB Destination, based upon terms established with the customer. Any customer acceptance provisions are satisfied prior to revenue recognition. There are no further obligations on the part of the Company subsequent to revenue recognition except for returns of product from the Company’s customers. The Company does accept returns of products, if properly requested, authorized, and approved by the Company. The Company records an estimate of returns of products returned by its customers. Management continuously monitors and tracks such product returns and records the provision for the estimated amount of such future returns, based on historical experience and any notification the Company receives of pending returns. The Electronic segment’s selling price to its customers is a fixed amount that is not subject to refund or adjustment or contingent upon additional rebates. The Wireless segment has sales agreements with certain customers that provide for a rebate of the selling price if the particular product is subsequently sold at a lower price. The Wireless segment records an estimate of the rebate at the time of sale.

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 a review of their current credit information. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. The Company’s reserve for estimated credit losses at November 30, 2002 was $6,829. While such credit losses have historically been within management’s expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same credit loss rates that have been experienced in the past. Since the Company’s accounts receivable is concentrated in a relatively few number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of the Company’s accounts receivables and future operating results.

Sales Incentives

Both of the Company’s segments, Wireless and Electronics, offer sales incentives to its customers in the form of (1) co-operative advertising allowances; (2) market development funds and (3) volume incentive rebates. The Electronics segment also offers other trade allowances to its customers. The terms of the sales incentives vary by customer and are offered from time to time. Except for other trade allowances, all sales incentives require the customer to purchase the Company’s products during a specified period of time. All sales incentives require the customer to claim the sales incentive within a certain time period. Although all sales incentives require customers to claim the sales incentive within a certain time period (referred to as the “claim period”), the Wireless segment historically has settled sales incentives claimed after the claim period has expired if a customer demands payment. The sales incentive liabilities are settled either by the customer claiming a deduction against an outstanding account receivable owed to the Company by the customer or by the customer requesting a check from the Company. The Company is unable to demonstrate that an identifiable benefit of the sales incentives has been received as such, all costs associated with sales incentives are classified as a reduction of net sales. The following is a summary of the various sales incentive programs offered by the Company and the related accounting policies:

Co-operative advertising allowances are offered to customers as reimbursement towards their costs for print or media advertising in which our product is featured on its own or in conjunction with other companies’ products (e.g., a weekly advertising circular by a mass merchant). The amount offered is either based upon a fixed percentage of the Company’s sales revenue or is a fixed amount per unit sold to the customer during a specified time period. Market development funds are offered to customers in connection with new product launches or entering into new markets. Those new markets can be either new geographic areas or new customers. The amount offered for new product launches is based upon a fixed percentage of the Company’s sales revenue to the customer or is a fixed amount per unit sold to the customer during a specified time period. The Company accrues the cost of co-operative advertising allowances and market development funds at the later of when the customer purchases our products or when the sales incentive is offered to the customer.

Volume incentive rebates offered to customers require that minimum quantities of product be purchased during a specified period of time. The amount offered is either based upon a fixed percentage of the Company’s sales revenue to the customer or is a fixed amount per unit sold to the customer. Certain of the volume incentive rebates offered to customers include a sliding scale of the amount of the sales incentive with different required minimum quantities to be purchased. The customer’s achievement of the sales threshold and consequently the measurement of the total rebate for the Wireless segment cannot be reasonably estimated. Accordingly, the Wireless segment recognizes a liability for the maximum potential amount of the rebate with the exception of certain volume incentive rebates that include very aggressive tiered levels of volume purchases, as the underlying revenue transactions that result in progress by the customer toward earning the rebate or refund on a program by program basis are recognized. The Electronics segment makes an estimate of the ultimate amount of the rebate their customers will earn based upon past history with the customer and other facts and circumstances. The Electronics segment has the ability to estimate these volume incentive rebates, as there does not exist a relatively long period of time for a particular rebate to be claimed, the Electronics segment does have historical experience with these sales incentive programs and the Electronics segment does have a large volume of relatively homogenous transactions. Any changes in the estimated amount of volume incentive rebates are recognized immediately using a cumulative catch-up adjustment.

With respect to the accounting for co-operative advertising allowances, market development funds and volume incentive rebates, there was no impact upon the adoption of EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of Vendor’s Products)”, as the Company’s accounting policy prior to March 1, 2002 was consistent with its accounting policy after the adoption of EITF 01-9.

Other trade allowances are additional sales incentives that the Company provides to the Electronics segment customers subsequent to the related revenue being recognized. In accordance with EITF 01-9, the Company records the provision for these additional sales incentives at the later of when the sales incentive is offered or when the related revenue is recognized. Such additional sales incentives are based upon a fixed percentage of the selling price to the customer, a fixed amount per unit, or a lump-sum amount.

For the fiscal years ended November 30, 2000, 2001 and 2002, reversals of previously established sales incentive liabilities amounted to $9,348, $14,369 and $4,716, respectively. These reversals include unearned sales incentives and unclaimed sales incentives. Unearned sales incentives are volume incentive rebates where the customer did not purchase the required minimum quantities of product during the specified

time. Volume incentive rebates for both segments are reversed into income in the period when the customer did not purchase the required minimum quantities of product during the specified time. Unearned sales incentives for fiscal years ended November 30, 2000, 2001 and 2002 amounted to $4,167, $9,051 and $1,354, respectively. Unclaimed sales incentives are sales incentives earned by the customer but the customer has not claimed payment of the earned sales incentive from the Company. Unclaimed sales incentives for fiscal years ended November 30, 2000, 2001 and 2002 amounted to $5,181, $5,318 and $3,362, respectively.

The accrual for earned but unclaimed sales incentives is reversed by Wireless only when management is able to conclude, based upon an individual judgment of each sales incentive, that it is remote that the customer will claim the sales incentive. The methodology applied for determining the amount and timing of reversals for the Wireless segment is disciplined, consistent and rational. The methodology is not systematic (formula based), as the Company makes an estimate as to when it is remote that the sales incentive will not be claimed. Reversals by the Wireless segment of unclaimed sales incentives have historically occurred in varying periods up to 12 months after the recognition of the accrual. In deciding on whether to reverse the sales incentive liability into income, the Company makes an assessment as to the likelihood of the customer ever claiming the funds after the claim period has expired and considers the specific facts and circumstances pertaining to the individual sales incentive. The factors considered by management in making the decision to reverse accruals for unclaimed sales incentives include (i) past practices of the customer requesting payments after the expiration of the claim period; (ii) recent negotiations with the customer for new sales incentives; (iii) subsequent communications with the customer with regard to the status of the claim; and (iv) recent activity in the customer’s account.

The Electronics segment reverses earned but unclaimed sales incentives upon the expiration of the claim period. The Company believes that the reversal of earned but unclaimed sales incentives for Electronics upon the expiration of the claim period is a disciplined, rational, consistent and systematic method of reversing unclaimed sales incentives. For the Electronics segment, the majority of sales incentive programs are calendar-year programs. Accordingly, the program ends on the month following the fiscal year-end and the claim period expires one year from the end of the program.

The accrual for sales incentives at November 30, 2001 and 2002 was $8,474 and $12,151, respectively. The Company’s sales incentive liability may prove to be inaccurate, in which case the Company may have understated or overstated the provision required for these arrangements. Therefore, although the Company makes its best estimate of its sales incentive liability, many factors, including significant unanticipated changes in the purchasing volume of its customers and the lack of claims made by customers of offered and accepted sales incentives, could have significant impact on the Company’s liability for sales incentives and the Company’s reported operating results.

Inventories

The Company values its inventory at the lower of the actual cost to purchase and/or the current estimated market value of the inventory less expected costs to sell the inventory. The Company regularly reviews inventory quantities on-hand and records a provision for excess and obsolete inventory based primarily on open purchase orders from customers and selling prices subsequent to the balance sheet date as well as indications from customers based upon the then current negotiations. As demonstrated in recent years, demand for the Company’s products can fluctuate significantly. A significant sudden increase in the demand for the Company’s products

could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on-hand. In addition, the Company’s industry is characterized by rapid technological change and frequent new product introductions that could result in an increase in the amount of obsolete inventory quantities on-hand. In such situations, the Company generally does not obtain price protection from its vendors, however, on occasion, the Company has received price protection which reduces the cost of inventory. Since price protection reduces the cost of inventory, as the Company sells the inventory for which it has received price protection, the amount is reflected as a reduction to cost of sales. There can be no assurances that the Company will be successful in negotiating such price protection from its vendors in the future.

The Company has, on occasion, performed upgrades on certain inventory on behalf of its vendors. The reimbursements the Company receives to perform these upgrades are reflected as a reduction to the cost of inventory and is recognized as a reduction to cost of sales as the related inventory is sold. Additionally, the Company’s estimates of excess and obsolete inventory may prove to be inaccurate, in which case the Company may have understated or overstated the provision required for excess and obsolete inventory. In the future, if the Company’s inventory is determined to be overvalued, it would be required to recognize such costs in its cost of goods sold at the time of such determination. Likewise, if the Company does not properly estimate the lower of cost or market of its inventory and it is therefore determined to be undervalued, it may have over-reported its cost of goods sold in previous periods and would be required to recognize such additional operating income at the time of sale. Therefore, although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of the Company’s inventory and its reported operating results. During the year ended November 30, 2002, the Company recorded inventory write-downs to market of $13,823 as a result of the recent reduction of selling prices primarily related to digital hand-held phones and other wireless products in anticipation and the introduction of new digital technologies as well as the overall decrease in demand for wireless products. At November 30, 2002, Wireless had on hand 640,084 units of previously written-down inventory, which approximated $94,264. It is reasonably possible that additional write-downs to market may be required in the future, given the continued emergence of new technologies. (See Cautionary Factors That May Affect Future Results: Our success depends on our ability to keep pace with technological advances in the wireless industry).

Warranties

The Company offers warranties of various lengths depending upon the specific product. The Company’s standard warranties require the Company to repair or replace defective product returned to the Company by both end users and its customers during such warranty period at no cost to the end users or customers. The Company records an estimate for warranty related costs based upon its actual historical return rates and repair costs at the time of sale, which are included in cost of sales. The estimated liability for future warranty expense amounted to $9,143 at November 30, 2002, which has been included in accrued expenses and other current liabilities. While the Company’s warranty costs have historically been within its expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same warranty return rates or repair costs that have been experienced in the past. A significant increase in product return rates, or a significant increase in the costs to repair the Company’s products, could have a material adverse impact on its operating results for the period or periods in which such returns or additional costs materialize.

Income Taxes

The Company has accounted for, and currently accounts for, income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes”. This Statement establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting of income taxes.

The realization of tax benefits of deductible temporary differences and operating loss or tax credit carryforwards will depend on whether the Company will have sufficient taxable income of an appropriate character within the carryback and carryforward period permitted by the tax law to allow for utilization of the deductible amounts and carryforwards. Without sufficient taxable income to offset the deductible amounts and carryforwards, the related tax benefits will expire unused. The Company has evaluated both positive and negative evidence in making a determination as to whether it is more likely than not that all or some portion of the deferred tax asset will not be realized. Effective May 29, 2002, the Company’s ownership in the Wireless Group was decreased to 75% (see Note 3). As such, the Company no longer files a consolidated U.S. Federal tax return. As a result, the realizability of the Wireless Group’s deferred tax assets are assessed on a stand-alone basis. The Company’s Wireless Group has incurred cumulative losses in recent years, and therefore based upon these cumulative losses and other material factors (including the Wireless Group’s inability to reasonably and accurately estimate future operating and taxable income based upon the volatility of their historical operations), the Company has determined that it is more likely than not that some of the benefits of the Wireless Group’s deferred tax assets and carryforwards will expire unused. Accordingly, the Company has recorded an additional valuation allowance of $13,090 during fiscal year ended November 30, 2002 related to the Wireless Group’s deferred tax assets.

Furthermore, the Company provides tax reserves for Federal, state and international exposures relating to potential tax examination issues, planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes and timing and is a subjective critical estimate.

Results of Operations

The following table sets forth for the periods indicated certain statements of operations data for the Company expressed as a percentage of net sales:

	Percentage of Net Sales Years Ended November 30,
	2000		2001		2002
	As Restated		As Restated
Net sales (a):
Wireless
Wireless products	81.4	%	74.3	%	63.7	%
Activation commissions	1.7		2.1		2.2
Residual fees	0.1		0.2		0.2
Other	0.2		0.1		0.1
Total Wireless	83.4		76.7		66.1
Electronics
Mobile electronics	8.1		12.4		20.8
Sound	4.6		4.5		5.1
Consumer electronics	3.6		6.3		7.9
Other	0.2		0.1		0.1
Total Electronics	16.6		23.6		33.9
Total net sales	100.0		100.0		100.0
Cost of sales	(92.9	)	(94.4	)	(93.2	)
Gross profit	7.1		5.6		6.8
Selling	(1.7	)	(2.4	)	(2.7	)
General and administrative	(2.8	)	(3.6	)	(5.0	)
Warehousing and technical support	(0.2	)	(0.3	)	(0.4	)
Total operating expenses	(4.7	)	(6.3	)	(8.1	)
Operating income (loss)	2.4		(0.7	)	(1.3	)
Interest and bank charges	(0.4	)	(0.5	)	(0.4	)
Equity in income in equity investments	0.2		0.3		0.2
Gain on sale of investments	0.1		—		—
Gain on hedge of available-for-sale securities	0.1		—		—
Gain on issuance of subsidiary shares	—		—		1.3
Other, net	0.1		—		(0.4	)
Income (loss) before provision for (recovery of) income taxes, minority interest, extraordinary item and cumulative effect	2.5		(0.9	)	(0.6	)
Provision for (recovery of) income taxes	0.9		(0.3	)	1.2
Minority interest	(0.1	)	0.1		0.4
Extraordinary item	0.1		—		—
Cumulative effect	—		—		—
Net income (loss)	1.6	%	(0.6	)%	(1.3	)%

(a) Effective March 1, 2002, the Company adopted Emerging Issues Task Force (EITF) Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer”. Upon adoption of this Issue, the Company reclassified its sales incentives offered to its customers from selling expenses to net sales. Previously reported operating income (loss) has remained unchanged by this adoption. For purposes of comparability, these reclassifications have been reflected retroactively for all periods presented.

The net sales and percentage of net sales by product line and marketing group for the fiscal years ended November 30, 2000, 2001 and 2002 are reflected in the following table. Certain reclassifications and recaptionings have been made to the data for periods prior to fiscal 2002 in order to conform to fiscal 2002 presentation.

	Fiscal Years Ended November 30,
	2000				2001				2002
	As Restated				As Restated
Net sales:

Wireless
Products	$	1,359,366	81.4	%	$	948,921	74.3	%	$	700,658	63.7	%
Activation commissions	28,983		1.7		26,879		2.1		24,393		2.2
Residual fees	1,852		0.1		2,396		0.2		2,187		0.2
Other	3,619		0.2		692		0.1		420		0.1
Total Wireless	1,393,820		83.4		978,888		76.7		727,658		66.1

Electronics
Mobile electronics	134,563		8.1		157,706		12.4		229,327		20.8
Sound	77,412		4.6		57,456		4.5		56,281		5.1
Consumer electronics	60,547		3.6		80,380		6.3		86,472		7.9
Other	3,949		0.2		2,160		0.1		644		0.1
Total Electronics	276,471		16.6		297,702		23.3		372,724		33.9
Total	$	1,670,291	100.0	%	$	1,276,591	100.0	%	$	1,100,382	100.0	%

Fiscal 2001 (As Restated) Compared to Fiscal 2002

Consolidated Results

Net sales for fiscal 2002 were $1,100,382, a 13.8% decrease from net sales of $1,276,591 in fiscal 2001. Wireless Group sales were $727,658 in fiscal year 2002, a 25.7% decrease from sales of $978,888 in fiscal 2001. Unit sales of wireless handsets decreased 29.3% to approximately 4,950,000 units in fiscal 2002 from approximately 7,000,000 units in fiscal 2001. However, the average selling price of the Company’s handsets increased to $136 per unit in fiscal 2002 from $127 per unit in fiscal 2001 as a result of new product introductions. Wireless sales were impacted by late introductions of new products by its vendor, delays in acceptances testing by our customers and slower growth in the wireless industry.

Electronics Group sales were $372,724 in fiscal 2002, a 25.2% increase from sales of $297,702 in fiscal 2001. This increase was largely due to increased sales in the mobile video and consumer electronics product lines as newer digital video products were offered to our customers. Offsetting some of this increase were sound sales, which continue to decline given the change in the marketplace as fully-featured sound systems are being incorporated into vehicles at the factory rather than being sold in the aftermarket. This declining trend in sound systems is expected to continue except in the satellite radio product line. Sales by the Company’s international subsidiaries decreased 21.5% in fiscal 2002 to approximately $21,971 due to a 39.2% decrease in Venezuela due to political and economic instability and a 7.4% decrease in Malaysia as a result of lower OEM sales. Sales were also impacted by increased sales incentives of $23,035, primarily in the Wireless Group.

Gross profit margin for fiscal 2002 was 6.8%, compared to 5.6% in fiscal 2001. However, this increase in profit margin resulted primarily from lower inventory write-downs to market of $7,612 in 2002 compared to 2001. During fiscal 2002, there was no significant impact to our gross profit margins on the subsequent sale of previously written-down inventory. There was also a change in the mix of sales from Wireless product sales to Electronics product sales, which carry a higher gross margin. Wireless margins were impacted by late product introductions by its suppliers. This trend of late product introductions continues to have a major effect on the gross margins of the Wireless Group. Margins declined to 16.1% from 16.5% in the Electronics Group. Consolidated gross margins were also adversely impacted by increased sales incentives, principally in the Wireless Group. Further trends in the operations will be discussed in detail in each individual marketing group MD&A discussion.

Operating expenses increased $8,049 to $88,675 in fiscal 2002, compared to $80,626 in fiscal 2001. As a percentage of net sales, operating expenses increased to 8.1% in fiscal 2002 from 6.3% in fiscal 2001. Major components of this increase were compensation expenses of $3,200 related to the sale of ACC shares to Toshiba and the impact of Code acquisition (Note 6 of Notes to Consolidated Financial Statements) of $1,852. Additionally, bad debt expenses increased $2,948 principally in the Wireless Group as a result of economic conditions in South America and increased insurance expense, particularly with general liability insurance, of $1,167. This increase in operating expenses was partially offset by reductions in employee benefits expense of $1,332 due to reduced bonuses and lower health care costs. Operating loss for fiscal 2002 was $14,076, compared to operating loss of $9,236 in 2001.

Net loss for fiscal 2002 was $14,040 compared to net loss of $7,198 in fiscal 2001. Loss per share for fiscal 2002 was $0.64, basic and diluted compared to $0.33 for fiscal 2001, basic and diluted.

Wireless Results

The following table sets forth for the fiscal years indicated certain statements of operations data for Wireless expressed as a percentage of net sales:

	2001					2002
	As Restated
Net sales:
Wireless products	$	948,921		96.9	%	$	700,658		96.3	%
Activation commissions	26,879			2.8		24,393			3.3
Residual fees	2,396			0.2		2,187			0.3
Other	692			0.1		420			0.1
Total net sales	978,888			100.0		727,658			100.0

Gross profit	21,980			2.2		14,291			2.0

Operating expenses
Selling	13,108			1.3		11,148			1.5
General and administrative	16,077			1.6		21,522			3.0
Warehousing and technical support	2,761			0.3		2,593			0.4
Total operating expenses	31,946			3.2		35,263			4.9

Operating loss	(9,966		)	(1.0	)	(20,972		)	(2.9	)
Other expense	(7,690		)	(0.8	)	(3,934		)	(0.5	)

Pre-tax loss	$	(17,656	)	(1.8	)%	$	(24,906	)	(3.4	)%

Wireless is composed of ACC and Quintex, both subsidiaries of the Company.

Net sales were $727,658 in fiscal 2002, a decrease of $251,230, or 25.7%, from fiscal 2001. Unit sales of wireless handsets decreased by 2,050,000 units in fiscal 2002, or 29.3%, to approximately 4,950,000 units from 7,000,000 units in fiscal 2001. This decrease was attributable to decreased sales of digital handsets due to delayed new product introductions, longer testing cycles required by our customers and overall lower demand for wireless products. In addition, there was a $20,845 of a net increase in sales incentives expense compared to 2001 due to increased sales incentive programs and a reduction in the reversals for unclaimed sales incentives. In connection with the introduction of the new 1X phones, one sales incentive program with a large customer resulted in an increase of $18,000 in sales incentives. The reversals for unclaimed sales incentives decreased by $2,374 in fiscal 2002 compared to fiscal 2001 for Wireless due to more of the Company’s larger customers claiming earned sales incentives as compared to prior periods. These sales incentive programs are expected to continue and will either increase or decrease based upon competition and customer demands. The average selling price of handsets, however, increased to $136 per unit in fiscal 2002 from $127 per unit in fiscal 2001. This increase was due to higher selling prices of the newly-introduced 1X digital products. Gross profit margins remained essentially unchanged at 2.0% vs. 2.2% in 2001 due to the sales of new, higher margin products and lower inventory write-downs, offset by increased sales incentive programs. The Company expects due to market conditions, competition and customer concentration, it

could experience increased sales incentives expense in the future. Inventory write-downs were $20,650 in 2001 compared to $13,823 in 2002. The write-downs recorded in 2002 were a result of the reduction of selling prices primarily related to older model, digital hand-held phones and other wireless products in anticipation of newer digital technologies. At November 30, 2002, the Company had on hand approximately 640,084 units of previously written-down inventory which, after write-down, had an extended value of $94,264. The new technology that was introduced during the second quarter of 2002 was 1XXT and GPS phones. In addition to inventory write-downs recorded in previous quarters, the Company determined the valuation of the older technology digital models on hand as of November 30, 2002 by reviewing open purchase orders from customers and selling prices subsequent to the balance sheet date as well as indications from customers based upon current negotiations. The Company plans to sell these items to its existing customers during the next year. A majority of the units that were previously written-down in fiscal 2001 have been sold. The remaining balance of inventory previously written-down in fiscal 2001 is not material and will be sold in the next fiscal year. None of this inventory was scrapped. The Company expects that, due to market conditions and customer consolidation, it could experience additional write-downs in the future. Gross margins were favorably impacted by reimbursement from a vendor for software upgrades performed on inventory sold of $1,615 and $1,331 for fiscal 2001 and 2002, respectively. Without this reimbursement, gross margins would have been lower by 0.1% and 0.2% for fiscal 2001 and 2002, respectively. The Company has received price protection of $4,550 and $32,643 for fiscal 2001 and 2002, respectively, from a vendor for certain inventory, of which $4,550 and $27,683 was recorded as a reduction to cost of sales, as related inventory was sold. The other $4,960 in price protection for 2002 has been reflected as a reduction to the remaining inventory cost. Without this price protection, gross profit margins would have been lower by 0.5% and 4.5% for fiscal 2001 and 2002, respectively. The Company has an agreement with its vendor for additional future price protection with respect to specific inventory items, if needed.

Operating expenses increased $3,317 in fiscal 2002 from fiscal 2001. As a percentage of net sales operating expenses increased to 4.8% during fiscal 2002 compared to 3.3% in fiscal 2001. Selling expenses decreased $1,960 in fiscal 2002 from fiscal 2001, primarily in commissions of $2,246 from reduced sales in Mexico, $587 from reduced sales in Europe and the balance from lower over-all commissionable sales. Travel and entertainment decreased $126 due to a reduction in the sales force and less international travel. These decreases were partially offset by increases in advertising and trade show expense of $498 primarily due to increased sales promotions and broadcast media advertising of $274. Numerous other individually insignificant fluctuations account for the remaining net change in selling expenses. General and administrative expenses increased $5,445 in fiscal 2002 from fiscal 2001, primarily in salaries of $2,818 due to $3,200 bonus payments associated with the Toshiba transaction (Note 3), insurance expense of $681 due to increased insurance premiums for general liability coverage, occupancy costs of $128 due to increased rent, real estate taxes and utilities, bad debt expense of $2,853 primarily due to two accounts in Venezuela and Argentina as a result of the political and economic conditions and one account in the United States for slow payment. The Company does not consider this a trend in the overall accounts receivable. Depreciation and amortization increased $236 due to purchase of additional testing equipment as new 1X product is being introduced. These increases were partially offset by decreases in travel and entertainment of $193 due to less salesmen traveling as a result of lower sales and a reduced budget for travel and entertainment, employee benefits of $634 as a result of reduction in profit bonus and reductions in health plan costs due to improved claim experience and licenses of $466 due to a non-recurring licensing fee. Warehousing and technical support expenses decreased $168 in fiscal 2002 from fiscal 2001, primarily in direct labor, taxes and benefits of $130 and overseas buying offices of $107 due to lower expenses in the buying offices in South Korea as

a result of reduced sales. These decreases were partially offset by an increase in travel of $69 due to increased travel for product compliance testing. Numerous other individually insignificant fluctuations in various categories account for the remaining net change in operating expenses. Pre-tax loss for fiscal 2002 was $24,906, compared to $17,656 for fiscal 2001.

Management believes that the wireless industry is extremely competitive and that this competition could affect gross margins and the carrying value of inventories in the future as new competitors enter the marketplace. This pressure from increased competition is further enhanced by the consolidation of many of Wireless’ customers into a smaller group, dominated by only a few, large customers. Also, timely delivery and carrier acceptance of new product could affect our quarterly performance. These new products require extensive testing and software development which could delay entry into the market and affect our sales in the future. In addition, given the anticipated emergence of new technologies in the wireless industry, the Company will need to sell existing inventory quantities of current technologies to avoid further write-downs to market.

Electronics Results

The following table sets forth for the fiscal years indicated certain statements of income data for the Electronics Group expressed as a percentage of net sales:

	2001					2002
	As Restated

Net sales:
Mobile electronics	$	157,706		53.0	%	$	229,327		61.5	%
Sound	57,456			19.3		56,281			15.1
Consumer electronics	80,380			27.0		86,472			23.2
Other	2,160			0.7		644			0.2
Total net sales	297,702			100.0		372,724			100.0

Gross profit	49,088			16.5		60,037			16.1

Operating expenses
Selling	14,449			4.9		15,944			4.3
General and administrative	19,547			6.6		23,300			6.2
Warehousing and technical support	1,134			0.3		1,137			0.3
Total operating expenses	35,130			11.8		40,381			10.8

Operating income	13,958			4.7		19,656			5.3
Other expense	(178		)	(0.1	)	(1,927		)	(0.5	)

Pre-tax income	$	13,780		4.6	%	$	17,729		4.8	%

Net sales were $372,724 in fiscal 2002, a 25.2% increase from net sales of $297,702 in fiscal 2001. Mobile and consumer electronics’ sales increased over last year, partially offset by a decrease in Sound

and other. Mobile electronics increased $71,621 (45.4%) during 2002 from 2001. Sales of Mobile Video within the Mobile Electronics category increased over 59% in fiscal 2002 from fiscal 2001 as a result of the introduction of new video digital product, satellite radio and navigation products. Consumer Electronics increased $6,092 (7.6%) to $86,472 in fiscal 2002 from $80,380 in fiscal 2001, primarily in sales of video-in-a-bag and portable DVD players. These increases were partially offset by a decrease in the sound category, particularly AV and Prestige audio lines. Given change in the marketplace, fully-featured sound systems are being incorporated into vehicles at the factory rather than being sold in the aftermarket. This declining trend in sound systems is expected to continue except in the satellite radio product line. There was also an increase in sales incentives of $2,190 due to an increase in sales as compared to the prior year in the consumer goods category, which requires more promotion support. As many sales incentive programs are based on a percentage of sales, the increase in sales resulted in an increase in sales incentives. Net sales in the Company’s Malaysian subsidiary decreased from last year by approximately $933 (7.4%) primarily from lower OEM business. The Company’s Venezuelan subsidiary experienced a decrease of $5,823 (39.2%) in sales from last year, primarily from lower OEM business and the impact of economic and political instability in the country.

Gross profit margins decreased to 16.1% in fiscal 2002 from 16.5% in fiscal 2001 despite an increase in sales. The gross margin decreased in Sound, partially offset by an increase in Mobile Electronics and international operations. Also affecting margins was the integration of Code Systems into the Electronics Group (see Note 6). During 2002, the Company was in the process of converting Code from their own domestic manufacturing to having products produced by overseas vendors. As a result, Code’s gross margins were significantly lower than other product lines in the Electronics Group. Lower margins from Code were partially offset by higher margins in new models of consumer and mobile electronics. This integration of Code has been completed.

Operating expenses increased $5,251 in fiscal 2002, a 14.9% increase from operating expenses in fiscal 2001. As a percentage of net sales, operating expenses decreased to 10.8% during fiscal 2002 compared to 11.8% in fiscal 2001. Selling expenses increased $1,495 during fiscal 2002, primarily in commissions of $911 due to increased commissionable sales in the video and consumer goods product categories, which has a different commission rate structure and grew faster than other product groups, salaries of $598 primarily due to Code, a new company, newly hired international salesmen and travel and entertainment of $144 due to increased travel to support increased business both in the Segment’s core business and its two subsidiaries, American Radio and Code. These increases were partially offset by decreases of $262 in advertising and trade shows. General and administrative expenses increased $3,753 from fiscal 2001, mostly in salaries of $1,713 primarily due to Code, increased bonuses due to sales increases and increased head count, travel and entertainment of $234 due to additional business and acquisitions, office expenses of $122 due to increased use of employment agencies, for additional staff to support sales growth, equipment repair of $101 due to increased maintenance of office equipment, insurance expense of $378 due to higher premiums on general liability and Ocean Cargo as shipments and sales have increased, professional fees of $589 due to litigation expenses related to royalties and other matters and increased use of consulting services related to a new customer’s navigation system, occupancy costs of $260 due to relocation of the display department to another separate facility, bad debt expense of $311 due to non-payment by an international customer, which is not indicative of a trend, and depreciation and amortization of $163 due to general expansion of the facilities to support the growing operations. These increases were partially offset by decreases in equipment rentals of $111 due to the elimination of certain office machines. Warehousing and technical support expenses remained essentially unchanged at $1,137 in fiscal 2002 from fiscal 2001 compared to $1,134

in fiscal 2002. Pre-tax income for fiscal 2002 was $17,729, compared to $13,780 for fiscal 2001.

The Company believes that the Electronics Group has an expanding market with a certain level of volatility related to both domestic and international new car sales and general economic conditions. Also, all of its products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future.

Other Income and Expense

Interest expense and bank charges decreased $1,703 during fiscal 2002 from fiscal 2001, primarily due to lower interest rates on lower borrowing levels.

Equity in income of equity investees decreased by approximately $1,807 for fiscal 2002 compared to fiscal 2001. The majority of the decrease was due to a decrease in the equity income of ASA due to a general slow down in the market for their products. Other expenses increased as a result of foreign exchange translation in our Venezuelan subsidiary as a result of the devaluation of the Venezuelan currency against the U.S. Dollar and the effects of the change from hyper-inflationary accounting for foreign exchange translation to non-hyper-inflationary accounting in fiscal 2002. During fiscal 2001, the Company accounted for foreign exchange translation in its Venezuelan subsidiary under hyper-inflationary method. The foreign exchange losses were $333 in 2001 and $2,819 in 2002.

In addition, the Company recorded an other-than-temporary impairment for investment in common stock of Shintom Co., Ltd. of $1,158. The Company also recognized a gain of $14,269 on the sale of ACC shares to Toshiba (Note 3).

Provision for Income Taxes

The effective tax rate for 2001 was a (benefit) of (31.6%) as compared to the effective tax rate for 2002 which was an expense of 202.0%. The increase in the effective tax rate is principally due to the increase in valuation allowance, relating to various deferred tax assets. Effective May 29, 2002, the Company’s ownership in the Wireless Group was decreased to 75% (see Note 3). As such, the Company now files two consolidated U.S. Federal tax returns, one for the Wireless Group and one for the Electronics Group. As a result, the realizability of the Wireless Group’s deferred tax assets are assessed on a stand-alone basis. The Company’s Wireless Group has incurred cumulative losses in recent years and therefore based upon these cumulative losses and other material factors (including the Wireless Group’s inability to reasonably and accurately estimate future operating and taxable income based upon the volatility of their historical operations), the Company has determined that it is more likely than not that some of the benefits of the Wireless Group’s deferred tax assets and carryforwards will expire unused, accordingly, the Company has recorded an additional valuation allowance of $13,090 during fiscal year ended November 30, 2002 related to the Wireless Group’s deferred tax assets. The increase in the valuation allowance relates principally to the deferred tax assets of the Wireless segment, which has recorded cumulative losses in recent years, and to certain state net operating losses which the Company has determined are more likely than not to expire unused.

Fiscal 2000 (As Restated) Compared to Fiscal 2001 (As Restated)

Consolidated Results

Net sales for fiscal 2001 were $1,276,591, a 23.6% decrease from net sales of $1,670,291 in fiscal 2000. Wireless Group sales were $978,888 in fiscal year 2001, a 29.8% decrease from sales of $1,393,820 in fiscal 2000. Unit sales of wireless handsets decreased 21.4% to approximately 7,000,000 units in fiscal 2001 from approximately 8,909,000 units in fiscal 2000. The average selling price of the Company’s handsets decreased to $127 per unit in fiscal 2001 from $150 per unit in fiscal 2000 due to the introduction of newer digital models and the change of technology from analog to digital.

Electronics Group sales were $297,702 in fiscal 2001, an 7.7% increase from sales of $276,471 in fiscal 2000. This increase was largely due to increased sales in the mobile video and consumer electronics product lines. Offsetting some of this increase were sound sales, which continue to decline given the change in the marketplace as fully-featured sound systems are being incorporated into vehicles at the factory, rather than being sold in the aftermarket. This declining trend in sound is expected to continue except in the satellite radio product line. Sales by the Company’s international subsidiaries increased 6.2% in fiscal 2001 to approximately $28.0 million, primarily due to a 41.7% increase in Venezuela due to increasing OEM sales, partially offset by a 17.8% decrease in Malaysia from declining OEM sales. Sales were impacted by decreased sales incentives of $4,288, primarily in the Wireless Group. Without this decrease in sales incentives, sales would have decreased 23.3% in 2001 from 2000.

Gross profit margin for fiscal 2001 was 5.6%, compared to 7.1% in fiscal 2000. This decline in profit margin resulted primarily from $20,650 of inventory write-downs to market and margin reductions in Wireless attributable to increased sales of digital products, which have lower margins offset by the reimbursement of $4,550 received from a manufacturer for software upgrades. A portion of the write-down of $13,500 was related to the analog write-down which was recorded in the second quarter. A majority of the analog product was sold to customers in Latin America at a price higher than the write-down and had a favorable impact on the Wireless Group’s gross profit for the third quarter. This improved reported third quarter consolidated margins of 10.8% by 0.6% from 10.2% and 0.8% for the Wireless segment which reported margins 5.9% as compared to 5.1% without the recovery. Due to specific technical requirements of individual carrier customers, carriers place large purchase commitments for digital handsets with Wireless, which results in a lower selling price which then lowers gross margins. Consolidated gross margins were also favorably impacted by decreased sales incentives, principally in the Wireless Group, as there were fewer incentive programs.

Operating expenses increased $1,630 in fiscal 2001, compared to fiscal 2000. As a percentage of net sales, operating expenses increased to 6.3% in fiscal 2001 from 4.7% in fiscal 2000. Major components of this increase were professional fees, salaries and commissions. Operating loss for fiscal 2001 was $9,237, compared to operating income of $39,629 in 2000.

During 2000, the Company also recorded an extraordinary gain of $2,189 in connection with the extinguishment of debt.

Net loss for fiscal 2001 was $7,198 compared to net income of $27,492 in fiscal 2000. Loss per share was $(0.33), basic and diluted for fiscal 2001 compared to $1.19, basic, and $1.12, diluted, and $1.29, basic and $1.22, diluted after extraordinary item, in fiscal 2000.

Wireless Results

The following table sets forth for the fiscal years indicated certain statements of operations data for Wireless expressed as a percentage of net sales:

	2000					2001
	As Restated					As Restated
Net sales:
Wireless products	$	1,359,366		97.5	%	$	948,921		96.9	%
Activation commissions	28,983			2.1		26,879			2.8
Residual fees	1,852			0.1		2,396			0.2
Other	3,619			0.3		692			0.1
Total net sales	1,393,820			100.0		978,888			100.0

Gross profit	69,365			5.0		21,980			2.2

Operating expenses
Selling	13,609			1.0		13,108			1.3
General and administrative	15,183			1.1		16,077			1.6
Warehousing and technical support	2,691			0.2		2,761			0.3
Total operating expenses	31,483			2.3		31,946			3.2

Operating income (loss)	37,882			2.7		(9,966		)	(1.0	)
Other expense	(7,663		)	(0.5	)	(7,690		)	(0.8	)

Pre-tax income (loss)	$	30,219		2.2	%	$	(17,656	)	(1.8	)%

Net sales were $978,888 in fiscal 2001, a decrease of $414,932, or 29.8%, from fiscal 2000. Unit sales of wireless handsets decreased by 1,909,000 units in fiscal 2001, or 21.4%, to approximately 7,000,000 units from 8,909,000 units in fiscal 2000. This decrease was attributable to decreased sales of both analog and digital handsets which was due to delayed digital product acceptances by our customers, the change in technology from analog to digital and overall slower sales. The average selling price of handsets decreased to $127 per unit in fiscal 2001 from $150 per unit in fiscal 2000. During 2000, Wireless adjusted the carrying value of its analog inventory by recording write-downs to market of $8,152. During 2001, the Company recorded total inventory write-downs to market of $20,650. During the second quarter of 2001, the Company recorded an additional inventory write down of $13,500 also pertaining to its analog inventory. (See Consolidated Results, Page 46). As a result of increasing pricing pressures and a surplus of supply created by other manufacturers also attempting to sell off analog inventories, there was a drop off in demand for analog products during the second quarter. The write down was based upon the drop in demand, as carriers no longer promoted analog product and notified the Company that previous indications for orders of analog phones were no longer viable, and the continued decline in analog selling prices. There was a decrease in sales incentives of $5,850 due to lower sales and the changeover to digital products from analog products.

During the fourth quarter of 2001, the Company recorded an inventory write-down of $7,150 pertaining

to its digital inventory due to older technology which is to be replaced during fiscal 2002. This write-down was made based upon open purchase orders from customers and selling prices subsequent to the balance sheet date as well as indications from customers based upon the then current negotiations. During the quarter ended November 30, 2001, the Company recorded a reduction to cost of sales of approximately $4,550 for reimbursement from a manufacturer for upgrades performed in 2001 on certain digital phones which partially offset the decline in margins. Without this reimbursement, gross margins would have been lower by 0.5%. There were no upgrades performed in 2000. During 2001 and 2000, Wireless recorded $4,550 and $0 of price protection. Without this price protection, gross margins would have been lower by 0.5% in 2001. As of November 30, 2001, the Company had 871,000 units of inventory previously written-down with an extended value, after write-down, of $118,500. The Company sold all but 3,500 units during fiscal 2002.

Operating expenses increased to $31,946 in fiscal 2001 from $31,483 in fiscal 2000. As a percentage of net sales, operating expenses increased to 3.3% during fiscal 2001 compared to 2.3% in fiscal 2000. Selling expenses decreased $501 in fiscal 2001 from fiscal 2000, primarily in advertising of $776 due to discounted advertising costs and reimbursement from various carriers . This decrease was partially offset by an increase in commissions of $268. Commissions increased by $268 from fiscal 2000 to fiscal 2001, which was not consistent with the change in sales. This increase was primarily due to a higher analog commission on sales of analog products sold in Mexico. As analog programs were canceled with the major wireless carriers in the United States, the Company offered a higher commission to sell the analog models quickly. General and administrative expenses increased $895 in fiscal 2001 from fiscal 2000. Professional fees increased $1,164 due to litigation expenses. Office salaries increased by approximately $158, and travel expense increased by approximately $54 during fiscal 2001 from fiscal 2000, primarily due to increased travel by senior executives and engineers for meetings with overseas vendors regarding new product developments. The increase in travel expense was offset by a reduction in travel expenses resulting from the closing of certain small Quintex retail locations. Corporate allocations increased $967 for additional support for the growing business for MIS and computer services. The increase was offset by a decrease in bad debt expense by $1,317, primarily due to a significant bad debt recorded in fiscal 2000 (one customer that ultimately went out of business) that did not recur to the same extent in 2001. The Company does not expect the decrease to continue given the volatility in the marketplace and the overall downturn in economic conditions. Warehousing and technical support expenses increased $70 in fiscal 2001 from fiscal 2000, primarily in travel of $105 by our engineering department for product testing and compliance. Numerous other individually insignificant fluctuations in warehousing and technical support accounted for the remaining net decrease of $35. Pre-tax loss for fiscal 2001 was $17,656, a decrease of $47,875 from fiscal 2000.

Management believes that the wireless industry is extremely competitive and that this competition could affect gross margins and the carrying value of inventories in the future as new competitors enter the marketplace. This pressure from increased competition is further enhanced by the consolidation of many of Wireless’ customers into a smaller group, dominated by only a few, large customers. Also, timely delivery and carrier acceptance of new product could affect our quarterly performance. Our suppliers have to continually add new products in order for Wireless to improve its margins and gain market share. These new products require extensive testing and software development which could delay entry into the market and affect our sales in the future. (See Business Overview, page 37.) In addition, given the anticipated emergence of new technologies in the wireless industry, the Company will need to sell existing inventory quantities of current technologies to avoid further write-downs to market.

Electronics Results

The following table sets forth for the fiscal years indicated certain statements of income data for the Electronics Group expressed as a percentage of net sales:

	2000					2001
	As Restated					As Restated

Net sales:
Mobile electronics	$	134,563		48.7	%	$	157,706		53.0	%
Sound	77,412			28.0		57,456			19.3
Consumer electronics	60,547			21.9		80,380			27.0
Other	3,949			1.4		2,160			0.7
Total net sales	276,471			100.0		297,702			100.0

Gross profit	49,960			18.1		49,088			16.5

Operating expenses
Selling	13,114			4.8		14,449			4.9
General and administrative	17,618			6.4		19,547			6.6
Warehousing and technical support	639			0.2		1,134			0.3
Total operating expenses	31,371			11.4		35,130			11.8

Operating income	18,589			6.7		13,958			4.7
Other expense	(1,937		)	(0.7	)	(178		)	(0.1	)

Pre-tax income	$	16,652		6.0	%	$	13,780		4.6	%

Net sales were $297,702 in fiscal 2001, an 7.7% increase from net sales of $276,471 in fiscal 2000, net of reversals of $1,814 and $1,083 for sales incentive programs in 2001 and 2000, respectively. Mobile and consumer electronics’ sales increased over last year, partially offset by a decrease in sound. Mobile electronics increased $23,143 (17.2%) during 2001 from 2000. Sales of mobile video within the mobile electronics category increased over 27% in fiscal 2001 from fiscal 2000. Consumer electronics increased 32.8% to $80,380 in fiscal 2001 from $60,547 in fiscal 2000. These increases were due to the introduction of new product lines in both categories. These increases were partially offset by a decrease in the sound category, particularly SPS, AV, private label and Prestige audio lines. Given the change in the marketplace, fully-featured sound systems are being incorporated into vehicles at the factory rather than being sold in the aftermarket. This declining trend in sound systems is expected to continue except in the satellite radio product line. There was also an increase in sales incentives of $1,562 primarily due to the increase in mobile video sales.

Gross profit margins decreased to 16.5% in fiscal 2001 from 18.1% in fiscal 2000, primarily in Prestige Audio and international operations, partially offset by a decrease in AV, Private Label and Security. During fiscal 2001, there was a decrease in sales incentive expense of $1,814, due to changes in the estimated amount due under accrued sales incentive programs.

Operating expenses increased by $3,759 in fiscal 2001, a 12.0% increase from operating expenses of $31,371 in fiscal 2000. As a percentage of net sales, operating expenses increased to 11.8% during fiscal 2001 compared to 11.3% in fiscal 2000. Selling expenses increased $1,335 during fiscal 2001, primarily in commissions and advertising. Commissions increased by approximately $1,266 from fiscal 2000 to fiscal 2001. The increase in commissions was not consistent with the increase in sales due to a change in the mix of consumer goods and mobile video products sold which have varying commission rates. Advertising and trade show expense increased by approximately $581 from fiscal 2000 to fiscal 2001 as more products were sold in the consumer and mobile electronics category which require more advertising to create a demand among end users. These new products include mobile video, portable DVD’s, navigation systems and mobile security products. These increases were partially offset by a decrease in salesmen salaries of $578 due to the restructuring of salesmen’s base salaries and the downsizing of some sales offices. General and administrative expenses increased $1,929 from fiscal 2000, mostly in office salaries, insurance, bad debt, depreciation and amortization. Office salaries increased approximately $450 from fiscal 2000 to fiscal 2001 primarily due to additional employees hired to support the growth of the Electronics business. Insurance expense increased approximately $248 due to an increase in insurance rates, primarily in ocean cargo and general liability. Depreciation and amortization expense increased approximately $123 from fiscal 2000 to fiscal 2001 as a result of a full year of depreciation on fixed asset additions incurred in the prior year. Bad debt expense increased by approximately $333 from fiscal 2000 to fiscal 2001 due to two specific bad debts that occurred in fiscal 2001 that did not occur in fiscal 2000. The Company does not expect the increase to continue given that these were two specific customers, with which the Company no longer does business. Other increases were in professional fees of $105 due to legal expenses and increased corporate allocation of $1,093 for additional support for the growing business. These increases were partially offset by a decrease in temporary help of $303, as new employees were hired to support the growing business. Warehousing and technical support expenses increased $495 in fiscal 2001 from fiscal 2000, primarily due to direct labor. Direct labor expense increased by approximately $560 as a result of increased sales. This was partially offset by a decrease of $62 in engineering department travel. Pre-tax income for fiscal 2001 was $13,780, a decrease of $2,872 from fiscal 2000.

The Company believes that the Electronics Group has an expanding market with a certain level of volatility related to both domestic and international new car sales and general economic conditions. Also, certain of its products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future.

Other Income and Expense

Interest expense and bank charges decreased $388 during fiscal 2001 from fiscal 2000, primarily due to decreased interest rates on similar borrowing levels.

Equity in income of equity investees increased by approximately $1,014 for fiscal 2001 compared to fiscal 2000. The majority of the increase was due to increases in the equity income of ASA due to increased sales in the specialized vehicle market. Other expenses increased as a result of foreign exchange translation in our Venezuelan subsidiary as a result of the devaluation of the Venezuelan currency against the U.S. Dollar (see Note 2(d)).

Provision for Income Taxes

The effective tax expense rate for 2000 was 37.4%. The effective tax benefit rate in 2001 was 31.6%. The decrease in the effective tax rate is due to the Company having a loss in 2001 for federal purposes combined with state tax expense on certain profitable subsidiaries.

Liquidity and Capital Resources

The Company has historically financed its operations primarily through a combination of available borrowings under bank lines of credit and debt and equity offerings. As of November 30, 2002, the Company had working capital (defined as current assets less current liabilities) of $292,687, which includes cash of $2,758 compared with working capital of $284,166 at November 30, 2001, which includes cash of $3,025.

Operating activities provided approximately $24,070 in fiscal 2002 as compared to a cash usage of $74,076 in fiscal 2001, primarily from a decrease in accounts receivable of $48,555 due to lower sales and better cash collections, an increase in accounts payable, accrued expenses and other current liabilities due to new trade terms from vendor, offset by an increase in inventory due to cancellation of certain orders in the Electronics Group and new products in Wireless slated for shipment in 2003.

Investing activities provided approximately $20,090, primarily from proceeds from the issuance of subsidiary shares, partially offset by the purchase of certain assets of Code-Alarm, Inc.

Financing activities used approximately $44,198, primarily for repayments to bank institutions.

The Company’s Board of Directors approved the repurchase of 1,563,000 shares of the Company’s Class A common stock in the open market under a share repurchase program (the Program). As of November 30, 2001 and 2002, 909,537 and 1,072,737 shares, respectively, were repurchased under the Program at an average price of $8.12 and $7.93 per share, respectively, for an aggregate amount of $7,386 and $8,511, respectively.

In February 2000, the Company completed a follow on offering of 3,565,000 Class A common shares at a price to the public of $45.00 per share. Of the 3,565,000 shares sold, the Company offered 2,300,000 shares and 1,265,000 shares were offered by selling shareholders. Audiovox received approximately $96,573 after deducting expenses. The Company used these net proceeds to repay a portion of amounts outstanding under their revolving credit facility, any portion of which can be reborrowed at any time. The Company did not receive any of the net proceeds from the sale of shares by the selling shareholders.

The Company’s principal source of liquidity is its revolving credit agreement which expires July 27, 2004 and cash flows from operations. Subsequent to year-end, the Company requested a reduction of available credit from $250,000 to $200,000. This is a result of excess bank availability being reduced to limit paid fees on unused portions of bank availability. The credit agreement was amended on March 13, 2003 and provides for $200,000 of available credit, including $15,000 for foreign currency borrowings. The continued availability of this financing is dependent upon the Company’s operating results and borrowing base which would be negatively impacted by a decrease in demand for the Company’s products.

Under the credit agreement, the Company may obtain credit through direct borrowings and letters of credit. The obligations of the Company under the credit agreement are guaranteed by certain of the Company’s subsidiaries and is secured by accounts receivable and inventory. As of November 30, 2002, availability under this line of credit is subject to certain conditions, based upon a formula taking into account the amount and quality of its accounts receivable and inventory. At November 30, 2002, the amount of unused available credit is $102,491. The credit agreement also allows for commitments up to $50,000 in forward exchange

contracts. In addition, the Company guarantees the borrowings of one of its equity investees at a maximum of $300.

The credit agreement contains several covenants requiring, among other things, minimum levels of pre-tax income and minimum levels of net worth. Additionally, the agreement includes restrictions and limitations on payments of dividends, stock repurchases and capital expenditures.

At May 31, 2001, November 30, 2001 and 2002, and the first quarter ended February 28, 2002, the Company was not in compliance with certain of its pre-tax income covenants. Furthermore, as of November 30, 2002, the Company was also not in compliance with the requirement to deliver audited financial statements 90 days after the Company’s fiscal year-end, and as of February 28, 2003, the requirement to deliver unaudited quarterly financial statements 45 days after the Company’s quarter end. The Company received a waiver for the November 30, 2001 pre-tax income violation subsequent to its issuance of the November 30, 2001 financial statements. In addition, the Company received waivers for the May 31, 2001 and February 28, 2002 violations.

The Company also has revolving credit facilities in Malaysia to finance additional working capital needs. As of November 30, 2002, the available line of credit for direct borrowing, letters of credit, bankers’ acceptances and other forms of credit approximately $5,000. The Malaysian credit facilities are partially secured by the Company under three standby letters of credit of $1,300, $800 and $800 and are payable on demand or upon expiration of the standby letters of credit which expire on December 31, 2002, August 31, 2003 and August 31, 2003, respectively. The obligations of the Company under the Malaysian credit facilities are secured by the property and building in Malaysia owned by Audiovox Communications Sdn. Bhd.

The Company also has a revolving credit facility in Brazil to finance additional working capital needs. The Brazilian credit facility is secured by the Company under a standby letter of credit in the amount of $200, which expires on January 15, 2003 and is payable on demand or upon expiration of the standby letter of credit. At November 30, 2002, outstanding obligations under the credit facility were 172 Brazilian Bolivars ($47), and interest on the credit facility ranged from 19% to 29%.

Total debt as a percent of total capitalization was 20% at November 30, 2002 as compared with 33% at November 30, 2001, primarily as a result of lower outstanding indebtedness.

At November 30, 2002, the Company had additional outstanding standby letters of credit aggregating $640 which expire in July 2004.

The Company has certain contractual cash obligations and other commercial commitments which will impact its short and long-term liquidity. At November 30, 2002, such obligations and commitments are as follows:

	Payments Due By Period
Contractual Cash Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		Over 5 Years
Capital lease obligations	$	14,206	$	554	$	1,666	$	1,157	$	10,829
Operating leases	6,680		1,983		2,359		1,449		889
Total contractual cash obligations	$	20,886	$	2,537	$	4,025	$	2,606	$	11,718

	Amount of Commitment Expiration per period
Other Commercial Commitments	Total Amounts Committed		Less than 1 Year		1-3 Years	4-5 Years	Over 5 years
Lines of credit	$	40,248	$	40,248	—	—	—
Standby letters of credit	3,740		3,740		—	—	—
Guarantees	300		300		—	—	—
Commercial letters of credit	8,129		8,129		—	—	—
Total commercial commitments	$	52,417	$	52,417	—	—	—

The Company regularly reviews its cash funding requirements and attempts to meet those requirements through a combination of cash on hand, cash provided by operations, available borrowings under bank lines of credit and possible future public or private debt and/or equity offerings. At times, the Company evaluates possible acquisitions of, or investments in, businesses that are complementary to those of the Company, which transaction may require the use of cash. The Company believes that its cash, other liquid assets, operating cash flows, credit arrangements, access to equity capital markets, taken together, provide adequate resources to fund ongoing operating expenditures. In the event that they do not, the Company may require additional funds in the future to support its working capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity and/or debt financings as well as from other sources. No assurance can be given that additional financing will be available in the future or that if available, such financing will be obtainable on terms favorable to the Company when required.

In February 2003, the Company entered into an agreement to buy a building for expansion purposes

for $3,480, made a deposit of $348 and expects to close in the very near term.

In May 2003, the Company entered into an asset purchase agreement to buy certain assets of Recoton Corporation. In accordance with the agreement, the Company made a deposit of $2,000, which is currently being held in escrow. The Company is awaiting final approval of this purchase from a bankruptcy court. This purchase would amount to approximately $40,000 plus the assumption of $5,000 in debt, not including related acquisition costs. The Company anticipates using its existing cash and available financing to fund this acquisition.

Related Party Transactions

The Company has entered into several related party transactions which are described below.

Leasing Transactions

During 1998, the Company entered into a 30-year capital lease for a building with its principal stockholder and chief executive offi