Audiovox 2006 Annual Report Download - page 112

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Audiovox Specialized Applications, LLC and Subsidiary
(A Limited Liability Company)
Notes to Financial Statements
2006 2005 2004
Net product sales................................. $ 210,000 $ 573,000 $ 638,000
Royalty revenue ................................. 649,000 871,000 2,103,000
Purchases ....................................... 1,248,000 1,404,000 1,302,000
The Company has a royalty agreement with Audiovox whereby the Company earns a 3%royalty
on the member’s purchases of certain mobile video product from a third party. The related revenue
has been included in net sales on the income statement.
At November 30, 2006 and 2005, amounts included in trade receivables and accounts payable
resulting from the above transactions are as follows:
2006 2005
Trade receivables ............................ $108,136 $262,039
Accounts payable............................ 541,559 138,821
On August 13, 2003, the Company acquired certain assets from Audiovox. The aggregate
purchase price was $3,600,000, of which approximately $596,000 and $3,004,000 were allocated to
working capital and trademark rights respectively. In May 2004, the Company completed its final
allocation of the aggregate purchase price and increased working capital by approximately $356,000
with a corresponding decrease to the trademark rights. Audiovox has sublicensed its rights in relation
to the trademark to the Company and cannot terminate these rights under the terms of the acquisition
agreement. The Company has accounted for the trademark rights as an indefinite lived intangible
asset which is subject to the provision of SFAS 142 as described in Note 1.
At November 30, 2006, the Company leases warehouse, manufacturing, and office facilities from
Irions Investments, LLC, an entity related through common ownership, for approximately $39,000 per
month, plus the payment of property taxes, normal maintenance, and insurance on the property under
an agreement which expires September 2009, with one five-year option to extend, at the Company’s
discretion.
The Company leases certain equipment from unrelated parties under agreements that require
monthly payments totaling approximately $1,500 and expire through July 2009.
The total rental expense included in the income statements for the years ended
November 30, 2006, 2005, and 2004 is approximately $507,000, $576,000, and $505,000, respectively, of
which approximately $476,000, $521,000, and $368,000, respectively was paid to Irions Investments,
LLC.
The total approximate minimum rental commitment at November 30, 2006 under the leases is due
as follows:
Related Party Other Total
During the year ending November 30,
2007...................................................... $ 482,000 $18,000 $ 500,000
2008...................................................... 497,000 11,000 508,000
2009...................................................... 426,000 9,000 435,000
$1,405,000 $38,000 $1,443,000
Note 7. Employee Benefit Plans
The Company has profit-sharing and 401(k) plans for the benefit of all eligible employees. The
Company’s contributions are discretionary and are limited to amounts deductible for federal income
12