Audiovox 2003 Annual Report Download - page 68

equal to the fair market value of the shares as calculated in accordance with
the agreement. Pursuant to the agreement, the put right is only exercisable if
ACC terminates the distribution agreement or if another strategic investor
acquires a direct or indirect equity ownership interest in excess of 20% in the
Company. The call right is only exercisable if Toshiba elects to terminate the
distribution agreement after its initial five (5) year term.
Additionally in connection with the transaction, ACC entered into an
employment agreement with the President and Chief Executive Officer (the
Executive) of ACC through May 29, 2007. Under the agreement, ACC is required to
pay the Executive an annual base salary of $500 in addition to an annual bonus
equal to 2% of ACC's annual earnings before income taxes. Audiovox Corp., under
the employment agreement, was required to establish and pay a bonus of $3,200 to
key employees of ACC, including the Executive, to be allocated by the Executive.
The bonus was for services previously rendered in connection with the Toshiba
purchase of additional shares of ACC, and, accordingly, the bonus has been
included in general and administrative expenses in the accompanying statements
of operations for the year ended November 30, 2002. The Executive was required
to utilize all or a portion of the bonus allocated to him to repay the remaining
outstanding principal and accrued interest owed by the Executive to the Company
pursuant to the unsecured promissory note in favor of Audiovox Corp. During the
year ended November 30, 2002, the Executive was paid $1,800 less the amount
outstanding under the promissory note of $651.
As a result of the issuance of ACC's shares, the Company recognized a gain,
net of expenses of $1,735, of $14,269 ($8,847 after provision for deferred
taxes). The gain on the issuance of the subsidiary's shares has been recognized
in the accompanying consolidated statements of operations.
Inventory on hand at November 30, 2002 and November 30, 2003 purchased from
Toshiba approximated $138,467 and $22,405, respectively. At November 30, 2002,
the Company recorded receivables from Toshiba aggregating approximately $12,219
primarily for price protection and software upgrades. At November 30, 2003, the
Company recorded receivables from Toshiba aggregating approximately $709,
primarily for software upgrades.
At November 30, 2003, the Company had inventory on hand in the amount of
$18,841, which were purchased from Toshiba and have been recorded in inventory
and accounts payable on the accompanying consolidated balance sheet. The payment
terms are such that the payable is non−interest bearing and is payable in
accordance with the terms established in the distribution agreement, which is 30
days. On occasion, the Company is entitled to receive price protection in the
event the selling price to its customers is less than the purchase price from
Toshiba. The Company will record such price protection, if necessary, at the
time of the sale of the units. The Company had no other amounts outstanding to
Toshiba at November 30, 2003.
Impact of Inflation and Currency Fluctuation
Inflation has not had a significant impact on the Company's financial
position or operating results other than the effect of our 80%−owned Venezuelan
subsidiary ceasing to be considered a highly− inflationary economy in fiscal
2002. Venezuela was no longer deemed a hyper−inflationary economy as of the
first quarter of fiscal 2002. On January 22, 2003, and as a result of the
National Civil Strike, the Venezuelan government suspended trading of the
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