Forward-Looking Statements

Certain information in this Quarterly Report on Form 10-Q would constitute forward-looking statements, including but not limited to, information relating to the future performance and financial condition of the Company, the plans and objectives of the Company's management and the Company's assumptions regarding such performance and plans that are forward-looking in nature and involve certain risks and uncertainties. Actual results could differ materially from such forward-looking information.

We begin Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") with an overview of the business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. In the next section, we discuss our results of operations for the three and nine months ended November 30, 2008 compared to the three and nine months ended November 30, 2007. We then provide an analysis of changes in our balance sheets and cash flows, and discuss our financial commitments in the sections entitled "Liquidity and Capital Resources". We conclude this MD&A with a discussion of "Related Party Transactions" and "Recent Accounting Pronouncements".

Unless specifically indicated otherwise, all amounts and percentages presented in our MD&A below are exclusive of discontinued operations and are in thousands, except share and per share data.

Business Overview

Audiovox Corporation ("Audiovox", "We", "Our", "Us" or "Company") is a leading international distributor and value added service provider in the accessory, mobile and consumer electronics industries. We conduct our business through eight wholly-owned subsidiaries: American Radio Corp., Audiovox Accessories Corp. ("AAC"), Audiovox Consumer Electronics, Inc. ("ACE"), Audiovox Electronics Corporation ("AEC"), Audiovox German Holdings GmbH ("Audiovox Germany"), Audiovox Venezuela, C.A., Entretenimiento Digital Mexico, S. de C.V. ("Audiovox Mexico") and Code Systems, Inc. ("Code"). We market our products under the Audiovox® brand name and other brand names, such as Acoustic Research®, Advent®, Ambico®, Car Link®, Chapman®, Code-Alarm®, Discwasher®, Energizer®, Heco®, Incaar®, Jensen®, Mac Audio®, Magnat®, Movies2Go®, Oehlbach®, Phase Linear®, Prestige®, Pursuit®, RCA®, RCA Accessories™, Recoton®, Road Gear®, Spikemaster® and Terk®, as well as private labels through a large domestic and international distribution network. We also function as an OEM ("Original Equipment Manufacturer") supplier to several customers and presently have one reportable segment (the "Electronics Group"), which is organized by product category. We previously announced our intention to acquire synergistic businesses with gross profit margins higher than our core business, leverage our overhead, penetrate new markets and to expand our core business and distribution channels.

The Company is organized by product category as follows:

Electronics products include:

· mobile multi-media video products, including in-dash, overhead, headrest and portable mobile video systems,

· autosound products including radios, speakers, amplifiers and CD changers,

· satellite radios including plug and play models and direct connect models,

· automotive security and remote start systems,

· automotive power accessories,

· car to car portable navigation systems,

· rear observation and collision avoidance systems,

· Liquid Crystal Display ("LCD") flat panel televisions,

· home and portable stereos,

· two-way radios,

· digital multi-media products such as personal video recorders and MP3 products,

· camcorders,

· clock-radios,

· digital voice recorders,

· home speaker systems,

· portable DVD players, and

· digital picture frames.

Accessories products include:

·
· High-Definition Television ("HDTV") Antennas,

· Wireless Fidelity ("WiFi") Antennas,

· High-Definition Multimedia Interface ("HDMI") accessories,

· home electronic accessories such as cabling,

· other connectivity products,

· power cords,

· performance enhancing electronics,

· TV universal remotes,

· flat panel TV mounting systems,

· iPod specialized products,

· wireless headphones,

· rechargeable battery backups (UPS) for camcorders, cordless phones and portable video (DVD) batteries and accessories,

· power supply systems and

· electronic equipment cleaning products.

We believe our product groups have expanding market opportunities with certain levels of volatility related to both domestic and international markets, new car sales, increased competition by manufacturers, private labels, technological advancements, discretionary consumer spending, energy and material costs and general economic conditions. Also, all of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future.

We have recently integrated and continue to integrate the following acquisitions, discussed below, into our existing business structure:

In December 2007, the Company completed the acquisition of certain assets and liabilities of Thomson's U.S., Canada, Mexico, China and Hong Kong consumer electronics audio/video business for a total cash purchase price of approximately $3,188 (net of license fee below), plus a net asset payment of $11,093, transaction costs of $921 and a fee related to the RCA® brand in connection with future sales for a stated period of time. The purpose of this acquisition was to control the RCA trademark for the audio video field of use and to expand our core product offerings in certain developing markets. Contemporaneous with this transaction, the Company entered into a license agreement with Multimedia Device Ltd., a Chinese manufacturer, to market certain product categories acquired in the acquisition for an upfront fee of $10,000, the purchase of certain inventory and future royalty payments.

In November 2007, AAC completed the acquisition of all of the outstanding stock of Technuity, Inc., an emerging leader in the battery and power products industry and the exclusive licensee of the Energizer® brand in North America for rechargeable batteries and battery packs for camcorders, cordless phones, digital cameras, DVD players and other power supply devices, for a total cash purchase price of $20,373 (net of cash acquired), plus a working capital credit of $317, transaction costs of $1,131 and a maximum contingent earn out payment of $1,000, if certain sales and gross margin targets are met. The purpose of this acquisition was to further strengthen our accessory product lines and core offerings, to be the exclusive licensee of the Energizer® brand in North America for rechargeable batteries and power supply systems, and to increase the Company's market share in the consumer electronics accessory business.

In August 2007, Audiovox Germany completed the acquisition of certain assets of Incaar Limited, a U.K. business that specializes in rear seat electronics systems, for a total purchase price of $350, plus transaction costs of $51 and a maximum contingent earn out payment of $400, if certain earnings targets are met. The purpose of this acquisition was to add the experience, concepts and product development of an Original Equipment Manufacturer ("OEM") business to our European operations.

In March 2007, Audiovox Germany completed the stock acquisition of Oehlbach, a European market leader in the accessories business, for a total cash purchase price of $6,661, plus transaction costs of $200 and a contingent earn out payment, not to exceed 1 million Euros. The purpose of this acquisition was to add electronics accessory product lines to our European business.

In January 2007, we completed the acquisition of certain assets and liabilities of Thomson's Americas consumer electronics accessory business for a total cash purchase price of approximately $50,000, plus a working capital payment of $7,617, plus a five year fee estimated to be $4,685 related to the RCA brand in connection with future sales and approximately $2,414 of transaction costs. The purpose of this acquisition was to expand our market presence in the accessory business. The acquisition included the rights to the RCA brand for consumer electronics accessories as well as the Recoton, Spikemaster, Ambico and Discwasher brands for use on any product category and the Jensen, Advent, Acoustic Research and Road Gear brands for consumer electronics accessories.

We continue to monitor economic and industry conditions in order to evaluate potential synergistic business acquisitions that would allow us to leverage overhead, penetrate new markets and expand our core business and distribution channels.

During the second quarter of fiscal year 2009, the Company approved a plan to reduce operating costs, which is primarily comprised of a world wide reduction in employees of approximately 8% of the Company's total workforce, or approximately 70 employees. For the nine months ended November 30, 2008 we have reduced our workforce by approximately 80 employees. These workforce reductions were primarily in the United States and Asia. We have incurred charges in connection with the plan of approximately $947 for the nine months ended November 30, 2008, comprised largely of cash payments associated with one-time severance benefits. As a result of the plan, the company anticipates a cost savings in salary and compensation expenses of approximately $6,042 on an annualized basis. The Company anticipates additional cost savings in non-employee related overhead.

The following table sets forth the workforce reduction charges recorded in the following line items in the Consolidated Statement of Operations:

                                Three and Nine Months Ended
                                     November 30, 2008

Selling                        $                         107
General & administrative                                 676
Engineering and tech support                             164
Total costs                    $                         947

Reportable Segments

We have determined that we operate in one reportable segment, the Electronics Group, based on review of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). The characteristics of our operations that are relied on in making and reviewing business decisions include the similarities in our products, the commonality of our customers, suppliers and product developers across multiple brands, our unified marketing and distribution strategy, our centralized inventory management and logistics, and the nature of the financial information used by our Executive Officers. Management reviews the financial results of the Company based on the performance of the Electronics Group.

Critical Accounting Policies and Estimates

As disclosed in our Form 10-K for the fiscal year ended February 29, 2008, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; sales incentives; accounts receivable reserves; inventory reserves, goodwill and other intangible assets; warranties, stock-based compensation, income taxes and the fair value measurements of financial assets and liabilities. Since February 29, 2008, there have been no changes in our critical accounting policies or changes to the assumptions and estimates related to them, except for the accounting for the fair value measurements of financial assets and liabilities and the related disclosures, which is further discussed in footnote 5, Fair Value Measurements, included in this Form 10-Q for the three and nine months ended November 30, 2008.

The Company evaluates its goodwill and indefinite lived intangible assets for goodwill impairment triggering events at each reporting period in accordance with FAS No. 142. The Company's stock price has been trading below its book value and tangible book value for over four consecutive quarters. The Company attributes this low stock price to both the overall market conditions and company specific factors, including low trading volume of the Company's stock. As of November 30, 2008, the Company believes that based on operations to date and measures implemented, the amounts used in the discount cash flow model used in its February 29, 2008 annual impairment test are reasonable. Based on our evaluation, there was no impairment of goodwill or indefinite lived intangible assets in the third quarter ended November 30, 2008. Due to the recent economic volatility, including fluctuations in interest rates, growth rates and changes in demand for our products, there could be a change in the valuation of goodwill and indefinted lived intangible assets when the Company conducts its annual impairment test.

Results of Operations

As you read this discussion and analysis, refer to the accompanying consolidated statements of operations, which present the results of our operations for the three and nine months ended November 30, 2008 and 2007. We analyze and explain the differences between periods based on the specific line items of the consolidated statements of operations.

Three months ended November 30, 2008 compared to the three months ended November 30, 2007

The following tables set forth, for the periods indicated, certain statements of operations data for the three months ended November 30, 2008 and 2007.

Net Sales

                      Three Months Ended November 30,            $             %
                        2008                   2007            Change      Change

Electronics       $        151,972       $        138,959     $ 13,013         9.4 %
Accessories                 43,670                 44,604         (934 )      (2.1 )
Total net sales   $        195,642       $        183,563     $ 12,079         6.6 %

Electronic sales, which represented 77.7% of our net sales for the three months ended November 30, 2008 compared to 75.7% for the three months ended November 30, 2007 increased $13,013, or 9.4%, primarily due to sales generated from the recently acquired RCA Audio/Video operations and increases in electronic sales of the Company's international operations in Mexico and Venezuela. This increase was partially offset by the absence of sales in select categories as the Company discontinued non-profitable product lines such as portable navigation and flat screen televisions. Additionally, sales increases were offset by declines in our mobile and audio/video categories primarily due to the weakening U.S. economy.

Accessories sales, which represented 22.3% of our net sales for the three months ended November 30, 2008 compared to 24.3% for the three months ended November 30, 2007, decreased $934 or 2.1% as a result of the overall decline of the U.S. economy. This decrease was partially offset by sales of $3,089 generated from the recently acquired Technuity operations.

Sales incentive expense increased $168 to $6,682 for the three months ended November 30, 2008 compared to the prior year period as a result of an increase in sales to those accounts that require sales incentive support. The increase in sales incentive expense also includes a $65 decrease in reversals. The decrease in sales incentive reversals was primarily due to an increase of $75 in unearned sales incentives partially offset by a $140 decrease in unclaimed sales incentives, respectively, as a result of large retail customers not reaching their minimum sales targets and increased customer claims of their sales incentive funds. We believe the reversal of earned but unclaimed sales incentives upon the expiration of the claim period is a disciplined, rational, consistent and systematic method of reversing unclaimed sales incentives. These sales incentive programs are expected to continue and will either increase or decrease based upon competition and customer demands.

Gross Profit

                             Three Months Ended November 30,           $            %
                               2008                  2007           Change      Change

Gross profit              $        38,958       $        34,991     $ 3,967        11.3 %
Gross margin percentage              19.9 %                19.1 %

The Company's gross margin improved 80 basis points as price increases instituted in the second quarter to offset increased warehouse, shipping, warranty and product costs took effect. Gross margins were also impacted by the increased sales of consumer electronics products during the quarter, which have a lower gross margin than mobile or accessory products.

Operating Expenses and Operating Loss

                                              Three Months Ended November 30,           $               %
                                                2008                  2007            Change        Change

Operating Expenses:
Selling                                    $         8,370       $         9,828     $  (1,458 )       (14.8 ) %
General and administrative                          16,500                16,948          (448 )        (2.6 )
Engineering and technical support                    2,436                 2,600          (164 )        (6.3 )
Operating expenses                                  27,306                29,376        (2,070 )        (7.0 )

Operating income                                    11,652                 5,615         6,037         107.5

Operating expenses decreased $2,070 or 7.0%, to $27,306 for the three months ended November 30, 2008, from $29,376 for the three months ended November 30, 2007. As a percentage of net sales, operating expenses decreased to 14.0% for the three months ended November 30, 2008, from 16.0% for the three months ended November 30, 2007. The decrease in total operating expenses is primarily due to our expense and workforce reduction programs partially offset by $4,335 of costs related to the recently acquired Technuity and RCA Audio/Video operations.

The following table sets forth, for the periods indicated, total operating expenses from our core business and the incremental operating expenses related to the recently acquired Technuity and RCA Audio/Video businesses.

                                                 Three Months Ended November 30,           $               %
                                                   2008                  2007            Change        Change

Core operating expenses                       $        22,971       $        29,103     $  (6,132 )       (21.1 ) %
Operating expenses from acquired businesses             4,335                   273         4,062       1,487.9
Total operating expenses                      $        27,306       $        29,376     $  (2,070 )        (7.0 ) %

Selling expenses decreased $1,458, or 14.8%, to $8,370 for the three months ended November 30, 2008 from $9,828 for the three months ended November 30, 2007, primarily due to workforce reductions, decreased commissions as a result of lower commissionable sales, a decline in travel and entertainment expenses as a result of expense control programs, and a decline in trade show expense as the Company has reviewed the amount of trade shows it attends. These decreases were partially offset by $922 of selling expenses for the three months ended November 30, 2008 related to the recently acquired Technuity and RCA Audio/Video operations.

General and administrative expenses decreased $448 or 2.6%, to $16,500 for the three months ended November 30, 2008 from $16,948 for the three months ended November 30, 2007 primarily due to workforce reductions as well as a decrease in general office expenses which were partially offset by $3,055 of expenses for the three months ended November 30, 2008 for the recently acquired operations of Technuity and RCA Audio/Video, increased professional fees as a result of intellectual property costs, and a $262 increase in bad debt reserves.

Engineering and technical support expenses decreased $164, or 6.3%, to $2,436 for the three months ended November 30, 2008 from $2,600 for the three months ended November 30, 2007 due to workforce reductions, partially offset by $358 of expenses for the three months ended November 30, 2008 related to the recently acquired Technuity and RCA Audio/Video operations.

Other Income (Expense)

                                               Three Months Ended November 30,            $               %
                                                2008                    2007            Change        Change

Interest and bank charges                  $         (453 )       $           (723 )   $     270         (37.3 ) %
Equity in income or (share in losses) of
equity investees                                     (484 )                  1,011        (1,495 )      (147.9 )
Other, net                                            (10 )                    816          (826 )      (101.2 )
Total other income (loss), net             $         (947 )       $          1,104     $  (2,051 )      (185.8 ) %

Interest and bank charges represent expenses for bank obligations of Audiovox Corporation and Audiovox Germany and interest for a capital lease. The decrease in interest and bank charges is primarily due to a reduction in the average monthly outstanding bank obligations of Audiovox Germany during the period.

Equity in income of equity investee decreased due to decreased equity income of Audiovox Specialized Applications, Inc (ASA) as a result of decreased sales due to the weakening U.S. economy and price competition in the LCD television market, which required ASA to take a markdown of its inventory totaling $1,022 for the third quarter ending November 30, 2008.

Other income decreased due to a decline in interest income as a result of a decline in our short-term investment holdings due to cash utilized for acquisitions as well as current working capital requirements.

Income Tax Benefit/Provision

The effective tax rate for the three months ended November 30, 2008 was a provision of 37.1% compared to a provision of 30.3% in the prior period. For the three months ended November 30, 2008, the effective tax rate is higher than the statutory rate due to changes in anticipated earnings for fiscal 2009 and by discrete tax items related to return to provision adjustments and the quarterly FIN No. 48 adjustments. For the three months ended November 30, 2007, the effective tax rate was lower than the statutory rate due to the investment in tax exempt securities.

Net (Loss) Income

The following table sets forth, for the periods indicated, selected statement of
operations data beginning with operating (loss) income from continuing
operations to reported net (loss) income and basic and diluted net (loss) income
per common share.

                                                                 Three Months Ended November 30,
                                                                  2008                  2007

Operating income                                               $    11,652         $         5,615
Other income (loss), net                                              (947 )                 1,104
Income from continuing operations before income taxes               10,705                   6,719
Income tax expense                                                   4,180                   2,039
Net income                                                     $     6,525         $         4,680

Net income per common share:
Basic                                                          $      0.29         $          0.20
Diluted                                                        $      0.29         $          0.20

Net income for the three months ended November 30, 2008 was $6,525 compared to a net income of $4,680 in the prior year period. Net income per share for the three months ended November 30, 2008 was $0.29 (diluted) as compared to net income per share of $0.20 (diluted) for the prior year period. Net loss was favorably impacted by sales incentive reversals of $806 ($491 after taxes) and $871 ($531 after taxes) for the three months ended November 30, 2008 and 2007, respectively.

Nine months ended November 30, 2008 compared to the nine months ended November 30, 2007

The following tables set forth, for the periods indicated, certain statement of operations data for the nine months ended November 30, 2008 and 2007.

Net Sales

                     Nine Months Ended November 30,            $             %
                       2008                  2007            Change      Change

Electronics       $       377,353       $       341,205     $ 36,148        10.6 %
Accessories               110,080               118,880       (8,800 )      (7.4 ) %
Total net sales   $       487,433       $       460,085     $ 27,348         5.9 %

Electronics sales, which represented 77.4% of our net sales for the nine months ended November 30, 2008 compared to 74.2% in the prior year period, increased $36,148 or 10.6% primarily due to sales generated from the recently acquired RCA Audio/Video operations, increases in the electronics sales of the Company's international operations in Mexico and Venezuela, and increases in our OEM business. These increases were partially offset by declines in our mobile audio and video product lines as a result of an overall decline in the U.S. economy, lower consumer demand for electronics products and a decline in vehicle sales.

Accessories sales, which represented 22.6% of our net sales for the nine months ended November 30, 2008 compared to 25.8% in the prior year period, decreased $8,800 or 7.4% primarily due to a decline in demand for consumer electronics products as a result of the overall decline in the U.S. economy. This decrease was partially offset by sales of $4,856 generated from the recently acquired Technuity operations.

Sales incentive expense decreased $2,826 to $17,232 for the nine months ended November 30, 2008 compared to the prior year period as a result of a decrease in sales to those accounts that require sales incentive support. The decrease in sales incentive expense was partially offset by a $264 decrease in reversals. The decrease in sales incentive reversals was primarily due to a decrease of $158 in unearned sales incentives as a result of large retail . . .