Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 
| **x** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended September 30, 2010**

 

**OR**

 
| **o** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For the transition period from              to              **

 

**Commission File Number 0-511**

 

**COBRAELECTRONICS CORPORATION**

(Exact name of Registrant as specified in its Charter)

 

| **DELAWARE**                             | ** ** | **36-2479991**                       |
|------------------------------------------|------------|--------------------------------------|
| (State of Incorporation)                 |       | (I.R.S. Employer Identification No.) |
|                                     |       |                                 |
| **6500 WEST CORTLAND STREET**            | ** ** | ** **                           |
| **CHICAGO, ILLINOIS**                    | ** ** | **60707**                            |
| (Address of principal executive offices) |       | (Zip Code)                           |

 

Registrant’s telephone number, including area code: **(773)889-8870**

 

Indicateby check mark whether the Registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months(or for such shorter periodthat the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  YES  x  NO  o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  YES  o  NO  o

 

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinition of “large accelerated filer”, “accelerated filer”, and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer o                       |   | Smaller reporting company x |
| (Do not check if a smallerreporting  company) |   |                        |

 

Indicateby check mark whether the Registrant is a shell company (as defined in Rule 12b-2ofthe Exchange Act). YES  o  NO x

 

Number of shares of CommonStock of Registrant outstanding as of November 5, 2010: 6,471,280

 

 

 

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**TABLE OF CONTENTS**

 
| ** **       | **Page No.**                                                                           |
|------------------|---------------------------------------------------------------------------------------------|
| **PART I**  | **FINANCIAL INFORMATION**                                                                   |   |
|             |                                                                                        |
| Item 1           | Financial Statements                                                                        | 3 |
| Item 2           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3           | Qualitative  and Quantitative Disclosures About Market Risk                                 | 24 |
| Item 4           | Controls and  Procedures                                                                    | 24 |
|             |                                                                                        |
| **PART II** | **OTHER  INFORMATION**                                                                      |   |
|             |                                                                                        |
| Item 1A          | Risk Factors                                                                                | 25 |
| Item 6           | Exhibits                                                                                    | 25 |
|             |                                                                                        |
| **SIGNATURE**    | 26                                                                                          |

 

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**CobraElectronics Corporation and Subsidiaries**

**ConsolidatedStatements of Operations - Unaudited**

**(InThousands, Except Per Share Amounts)**

** **
| ** **                                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net sales                                                                 |       | $                                | 28,909     |                            | $          | 27,405 |   | $ | 75,702 |   | $ | 72,461 |   |
| Cost of sales                                                             |       | 21,472                           |       | 20,777                          |       | 55,553 |   | 54,539 |   |
| Gross profit                                                              |       | 7,437                            |       | 6,628                           |       | 20,149 |   | 17,922 |   |
| Selling, general and administrative expense                               |       | 6,840                            |       | 7,393                           |       | 20,288 |   | 22,232 |   |
| Earnings (loss) from operations                                           |       | 597                              |       | (765                            | )          | (139 | ) | (4,310 | ) |
| Interest expense                                                          |       | (251                             | )          | (275                            | )          | (765 | ) | (615 | ) |
| Other income (expense)                                                    |       | 325                              |       | 422                             |       | (55 | ) | 845 |   |
| Earnings (loss) before income taxes                                       |       | 671                              |       | (618                            | )          | (959 | ) | (4,080 | ) |
| Tax (benefit) provision                                                   |       | (203                             | )          | (109                            | )          | (200 | ) | 7,945 |   |
| Net earnings (loss)                                                       |       | 874                              |       | (509                            | )          | (759 | ) | (12,025 | ) |
| Less: net earnings attributable to non-controlling  interest              |       | —                           |       | —                          |       | — |   | 2 |   |
| Net earnings (loss) attributable to Cobra                                 |       | $                                | 874        |                            | $          | (509 | ) | $ | (759 | ) | $ | (12,027 | ) |
|                                                                      |       |                             |       |                            |       |   |   |   |   |
| Net earnings (loss) per common share attributable  to Cobra shareholders: |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                     |       | $                                | 0.14       |                            | $          | (0.08 | ) | $ | (0.12 | ) | $ | (1.86 | ) |
| Diluted                                                                   |       | $                                | 0.14       |                            | $          | (0.08 | ) | $ | (0.12 | ) | $ | (1.86 | ) |
|                                                                      |       |                             |       |                            |       |   |   |   |   |
| Weighted average shares outstanding:                                      |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                     |       | 6,471                            |       | 6,471                           |       | 6,471 |   | 6,471 |   |
| Diluted                                                                   |       | 6,471                            |       | 6,471                           |       | 6,471 |   | 6,471 |   |

 

The accompanying notes are an integral partof these financial statements.

 

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**Cobra Electronics Corporation and Subsidiaries**

**Consolidated Balance Sheets - Unaudited**

**(In Thousands)**

 
| ** **                                                                            | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                            | ** ** | **2010**               | ** ** | **2009**              | ** ** |
| **ASSETS**                                                                            |       |                   |       |                  |       |
| Current assets:                                                                       |       |                   |       |                  |       |
| Cash                                                                                  |       | $                      | 1,362      |                  | $          | 1,405 |   |
| Receivables, net of allowance for doubtful  accounts of $131 in 2010 and $103 in 2009 |       | 18,249                 |       | 22,095                |       |
| Inventories, primarily finished goods, net                                            |       | 30,031                 |       | 26,198                |       |
| Other current assets                                                                  |       | 3,707                  |       | 3,961                 |       |
| Total current assets                                                                  |       | 53,349                 |       | 53,659                |       |
|                                                                                  |       |                   |       |                  |       |
| Property, plant and equipment, at cost:                                               |       |                   |       |                  |       |
| Buildings and improvements                                                            |       | 6,228                  |       | 5,707                 |       |
| Tooling and equipment                                                                 |       | 18,385                 |       | 17,746                |       |
|                                                                                  |       | 24,613                 |       | 23,453                |       |
|                                                                                  |       |                   |       |                  |       |
| Accumulated depreciation                                                              |       | (19,490                | )          | (18,318               | )          |
| Land                                                                                  |       | 230                    |       | 230                   |       |
| Property, plant and equipment, net                                                    |       | 5,353                  |       | 5,365                 |       |
|                                                                                  |       |                   |       |                  |       |
| Other assets:                                                                         |       |                   |       |                  |       |
| Cash surrender value of life insurance policies                                       |       | 4,537                  |       | 4,051                 |       |
| Deferred income taxes, non-current                                                    |       | 866                    |       | 1,717                 |       |
| Intangible assets                                                                     |       | 9,756                  |       | 10,769                |       |
| Other assets                                                                          |       | 180                    |       | 142                   |       |
| Total other assets                                                                    |       | 15,339                 |       | 16,679                |       |
|                                                                                  |       |                   |       |                  |       |
| Total assets                                                                          |       | $                      | 74,041     |                  | $          | 75,703 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

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**CobraElectronics Corporation and Subsidiaries**

**ConsolidatedBalance Sheets - Unaudited**

**(InThousands,  Except  Share Data)**

 
| ** **                                                                                                            | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                            | ** ** | **2010**               | ** ** | **2009**              | ** ** |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                        |       |                   |       |                  |       |
| Current liabilities:                                                                                                  |       |                   |       |                  |       |
| Current maturities of long-term bank debt                                                                             |       | $                      | 17,938     |                  | $          | 16,549 |   |
| Accounts payable                                                                                                      |       | 6,996                  |       | 7,427                 |       |
| Accrued salaries and commissions                                                                                      |       | 1,285                  |       | 902                   |       |
| Accrued advertising and sales promotion costs                                                                         |       | 1,101                  |       | 1,392                 |       |
| Accrued product warranty costs                                                                                        |       | 783                    |       | 857                   |       |
| Accrued income taxes                                                                                                  |       | 289                    |       | 73                    |       |
| Deferred income taxes, current                                                                                        |       | 874                    |       | 1,728                 |       |
| Other accrued liabilities                                                                                             |       | 2,939                  |       | 2,524                 |       |
| Total current liabilities                                                                                             |       | 32,205                 |       | 31,452                |       |
|                                                                                                                  |       |                   |       |                  |       |
| Non-current liabilities:                                                                                              |       |                   |       |                  |       |
| Long-term bank debt, net of current maturities                                                                        |       | —                 |       | 1,320                 |       |
| Deferred compensation                                                                                                 |       | 7,072                  |       | 6,772                 |       |
| Deferred income taxes                                                                                                 |       | 1,686                  |       | 1,935                 |       |
| Other long-term liabilities                                                                                           |       | 549                    |       | 961                   |       |
| Total non-current liabilities                                                                                         |       | 9,307                  |       | 10,988                |       |
| Total liabilities                                                                                                     |       | 41,512                 |       | 42,440                |       |
|                                                                                                                  |       |                   |       |                  |       |
| Commitments and contingencies                                                                                         |       | —                 |       | —                |       |
|                                                                                                                  |       |                   |       |                  |       |
| Shareholders’ equity:                                                                                            |       |                   |       |                  |       |
| Preferred stock, $1 par value 1,000,000 shares  authorized  None issued and outstanding                               |       | —                 |       | —                |       |
| Common stock, $.33 1/3 par value  12,000,000 shares authorized  7,039,100 shares issued  6,471,280 shares outstanding |       | 2,345                  |       | 2,345                 |       |
| Paid-in capital                                                                                                       |       | 20,752                 |       | 20,583                |       |
| Retained earnings                                                                                                     |       | 15,274                 |       | 16,033                |       |
| Accumulated other comprehensive loss                                                                                  |       | (2,033                 | )          | (1,889                | )          |
|                                                                                                                  |       | 36,338                 |       | 37,072                |       |
| Treasury stock, at cost (567,820 shares)                                                                              |       | (3,837                 | )          | (3,837                | )          |
| Total shareholders’ equity - Cobra                                                                               |       | 32,501                 |       | 33,235                |       |
| Non-controlling interest                                                                                              |       | 28                     |       | 28                    |       |
| Total equity                                                                                                          |       | 32,529                 |       | 33,263                |       |
| Total liabilities and shareholders’ equity                                                                       |       | $                      | 74,041     |                  | $          | 75,703 |   |

 

The accompanying notes arean integral part of these financial statements.

 

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** **

**Cobra Electronics Corporation and Subsidiaries**

**Consolidated Statement of Cash Flows - Unaudited**

**(In Thousands)**

 
| ** **                                                                      | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                      | ** ** | **September 30,**          | ** ** |
| ** **                                                                      | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| Cash flows from operating activities:                                           |       |                            |       |   |   |
| Net loss attributable to Cobra                                                  |       | $                               | (759       | ) | $ | (12,027 | ) |
| Adjustments to reconcile net loss to net cash  flows from operating activities: |       |                            |       |   |   |
| Depreciation and amortization                                                   |       | 3,042                           |       | 2,947 |   |
| Deferred income taxes - valuation charge                                        |       | —                          |       | 10,543 |   |
| Deferred income taxes                                                           |       | (231                            | )          | (2,390 | ) |
| Gain on cash surrender value (CSV) of life  insurance                           |       | (221                            | )          | (594 | ) |
| (Gain) loss on sale of fixed assets                                             |       | (7                              | )          | 1 |   |
| Stock-based compensation                                                        |       | 169                             |       | 173 |   |
| Non-controlling interest                                                        |       | —                          |       | 2 |   |
| Changes in assets and liabilities:                                              |       |                            |       |   |   |
| Receivables                                                                     |       | 3,750                           |       | (1,851 | ) |
| Inventories                                                                     |       | (3,930                          | )          | (2,547 | ) |
| Other assets                                                                    |       | (1,491                          | )          | (1,027 | ) |
| Income tax refunds                                                              |       | 1,079                           |       | 863 |   |
| Accounts payable                                                                |       | (314                            | )          | 3,146 |   |
| Accrued income taxes                                                            |       | 169                             |       | (412 | ) |
| Accrued liabilities                                                             |       | 223                             |       | (556 | ) |
| Deferred compensation                                                           |       | 510                             |       | 362 |   |
| Deferred income                                                                 |       | 49                              |       | (17 | ) |
| Other long-term liabilities                                                     |       | (445                            | )          | 56 |   |
| Net cash provided by (used in) operating  activities                            |       | 1,593                           |       | (3,328 | ) |
| Cash flows from investing activities:                                           |       |                            |       |   |   |
| Property, plant and equipment                                                   |       | (979                            | )          | (739 | ) |
| Premiums on CSV life insurance                                                  |       | (266                            | )          | (274 | ) |
| Intangible assets                                                               |       | (461                            | )          | (607 | ) |
| Net cash used in investing activities                                           |       | (1,706                          | )          | (1,620 | ) |
| Cash flows from financing activities:                                           |       |                            |       |   |   |
| Bank borrowings                                                                 |       | 69                              |       | 4,194 |   |
| Net cash provided by financing activities                                       |       | 69                              |       | 4,194 |   |
| Effect of exchange rate changes on cash and cash  equivalents                   |       | 1                               |       | (1 | ) |
| Net decrease in cash                                                            |       | (43                             | )          | (755 | ) |
| Cash at beginning of period                                                     |       | 1,405                           |       | 1,985 |   |
| Cash at end of period                                                           |       | $                               | 1,362      |   | $ | 1,230 |   |
|                                                                            |       |                            |       |   |   |
| Supplemental disclosure of cash flow information:                               |       |                            |       |   |   |
| Cash paid during the period for:                                                |       |                            |       |   |   |
| Interest                                                                        |       | $                               | 673        |   | $ | 602 |   |
| Income taxes (refunds) paid, net                                                |       | $                               | (1,059     | ) | $ | (483 | ) |

 

The accompanying notes arean integral part of these financial statements.

 

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**Cobra Electronics Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements**

**For the three and nine months ended September 30, 2010 and 2009**

**(Unaudited)**

 

The consolidated financialstatements included herein have been prepared by Cobra Electronics Corporation(the “Company”), without audit, pursuant to the rules and regulations ofthe Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen omitted pursuant to such rules and regulations, although the Companybelieves that the disclosures contained herein are adequate to make theinformation presented not misleading. The Consolidated Balance Sheet as of December 31, 2009 has beenderived from the audited consolidated balance sheet as of that date.  These consolidated financial statementsshould be read in conjunction with the consolidated financial statements andthe notes thereto included in the Company’s latest Annual Report onForm 10-K for the year ended December 31, 2009.  In the opinion of management, the informationcontained herein reflects all adjustments necessary to make the results ofoperations for the interim period a fair statement of such operations. Due tothe seasonality of the Company’s business, the results of operations of anyinterim period are not necessarily indicative of the results that may beexpected for a fiscal year.

 

**(1)   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

*Business* — Cobra designs and marketsconsumer electronics products, which it sells primarily under the Cobra brandname principally in the United States, Canada and Europe. Performance ProductsLimited (“PPL”), a wholly-owned subsidiary of the Company, sells its productsunder the Snooper tradename in the United Kingdom, as well as elsewhere inEurope. A majority of the Company’s products are purchased from overseassuppliers, primarily in China, Hong Kong and South Korea. The consumerelectronics market is characterized by rapidly changing technology and certainproducts may have limited life cycles. Management believes that it maintainsstrong relationships with its current suppliers and that, if necessary, othersuppliers could be found. The extent to which a change in a supplier would havean adverse effect on the Company’s business depends on the timing of thechange, the product or products that the supplier produces for the Company andthe volume of that production. The Company also maintains insurance coveragethat would, in certain limited circumstances, reimburse the Company for lostprofits resulting from a supplier’s inability to fulfill its commitments to theCompany.

 

*Principles of Consolidation* — The consolidatedfinancial statements include the accounts of the Company and its subsidiaries.The consolidated entities are collectively referred to as the “Company”.  All intercompany balances and transactionshave been eliminated in consolidation.

 

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**(2)   SEGMENTINFORMATION**

 

TheCompany operates in two business segments (1) Cobra Consumer Electronics (“Cobra”)and (2) Performance Products Limited (“PPL”). The Cobra segment iscomprised of Cobra Electronics Corporation, Cobra Hong Kong Limited and CobraElectronics Europe Limited (“CEEL”). The Company has separate sales departmentsand distribution channels for each segment, which provide segment exclusiveproduct lines to all customers for that segment. Currently, there are nointersegment sales.

 

Thefinancial information by business segment for the three months and nine monthsended September 30, 2010 and 2009 follows:

 

**Three months - 2010 vs. 2009**

 
| ** **                                                    | ** ** | **2010**                | ** ** | **2009** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                                    | ** ** | **COBRA**               | ** ** | **PPL**  | ** ** | **TOTAL** | ** ** | **COBRA** | ** ** | **PPL** | ** ** | **TOTAL** | ** ** |
| ** **                                                    | ** ** | **(In Thousands)** | ** ** |
| Net sales                                                     |       | $                       | 25,178     |     | $          | 3,731 |   | $ | 28,909 |   | $ | 24,556 |   | $ | 2,849 |   | $ | 27,405 |   |
| Cost of sales                                                 |       | 18,613                  |       | 2,859    |       | 21,472 |   | 18,682 |   | 2,095 |   | 20,777 |   |
| Gross profit                                                  |       | 6,565                   |       | 872      |       | 7,437 |   | 5,874 |   | 754 |   | 6,628 |   |
| Selling, general and administrative expense                   |       | 5,692                   |       | 1,148    |       | 6,840 |   | 6,323 |   | 1,070 |   | 7,393 |   |
| Earnings (loss) from operations                               |       | 873                     |       | (276     | )          | 597 |   | (449 | ) | (316 | ) | (765 | ) |
| Interest expense                                              |       | (251                    | )          | —   |       | (251 | ) | (275 | ) | — |   | (275 | ) |
| Other (expense) income                                        |       | (48                     | )          | 373      |       | 325 |   | 357 |   | 65 |   | 422 |   |
| Earnings (loss) before income taxes                           |       | 574                     |       | 97       |       | 671 |   | (367 | ) | (251 | ) | (618 | ) |
| Tax benefit                                                   |       | (82                     | )          | (121     | )          | (203 | ) | (51 | ) | (58 | ) | (109 | ) |
| Net earnings (loss)                                           |       | 656                     |       | 218      |       | 874 |   | (316 | ) | (193 | ) | (509 | ) |
| Less: net earnings attributable to non- controlling  interest |       | —                  |       | —   |       | — |   | — |   | — |   | — |   |
| Net earnings (loss) attributable to Cobra                     |       | $                       | 656        |     | $          | 218 |   | $ | 874 |   | $ | (316 | ) | $ | (193 | ) | $ | (509 | ) |

 

**Nine months - 2010 vs. 2009**

 
| ** **                                                    | ** ** | **2010**                | ** ** | **2009** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                                    | ** ** | **COBRA**               | ** ** | **PPL**  | ** ** | **TOTAL** | ** ** | **COBRA** | ** ** | **PPL** | ** ** | **TOTAL** | ** ** |
| ** **                                                    | ** ** | **(In Thousands)** | ** ** |
| Net sales                                                     |       | $                       | 64,945     |     | $          | 10,757 |   | $ | 75,702 |   | $ | 65,170 |   | $ | 7,291 |   | $ | 72,461 |   |
| Cost of sales                                                 |       | 47,889                  |       | 7,664    |       | 55,553 |   | 49,728 |   | 4,811 |   | 54,539 |   |
| Gross profit                                                  |       | 17,056                  |       | 3,093    |       | 20,149 |   | 15,442 |   | 2,480 |   | 17,922 |   |
| Selling, general and administrative expense                   |       | 16,912                  |       | 3,376    |       | 20,288 |   | 19,199 |   | 3,033 |   | 22,232 |   |
| Earnings (loss) from operations                               |       | 144                     |       | (283     | )          | (139 | ) | (3,757 | ) | (553 | ) | (4,310 | ) |
| Interest expense                                              |       | (764                    | )          | (1       | )          | (765 | ) | (615 | ) | — |   | (615 | ) |
| Other (expense) income                                        |       | (291                    | )          | 236      |       | (55 | ) | 511 |   | 334 |   | 845 |   |
| Loss before income taxes                                      |       | (911                    | )          | (48      | )          | (959 | ) | (3,861 | ) | (219 | ) | (4,080 | ) |
| Tax provision (benefit)                                       |       | 26                      |       | (226     | )          | (200 | ) | 8,152 |   | (207 | ) | 7,945 |   |
| Net (loss) earnings                                           |       | (937                    | )          | 178      |       | (759 | ) | (12,013 | ) | (12 | ) | (12,025 | ) |
| Less: net earnings attributable to non- controlling  interest |       | —                  |       | —   |       | — |   | — |   | 2 |   | 2 |   |
| Net (loss) earnings attributable to Cobra                     |       | $                       | (937       | )        | $          | 178 |   | $ | (759 | ) | $ | (12,013 | ) | $ | (14 | ) | $ | (12,027 | ) |

 

There have been no differences in the basisof segmentation or the basis of measurement.

 

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**(3) INCOME TAXES**

 

Deferredincome taxes are determined based on the estimated future tax effects ofdifferences between the financial statement and tax bases of assets andliabilities given the enacted tax laws for each applicable tax jurisdiction.The deferred income tax provisions and benefits are based on changes to theassets or liabilities from year to year. Valuation allowances related todeferred taxes are recorded based on the *morelikely than not* realization criteria. The Company reviews the needfor a valuation allowance on a quarterly basis for each of its taxjurisdictions. When evaluating the recoverability of future tax benefits, theCompany considers the historic operating results, projected operating resultsand available tax planning strategies, if any.

 

Dueto the Company’s operating results for 2009, the expected continuation of aglobal recession and the absence of tax planning strategies to generate asufficient level of taxable income, management concluded the full realizationof the deferred tax assets within a reasonable time horizon did not satisfy the*more likely than not* realizationcriteria. Accordingly, the Company established a $9.6 million deferred taxvaluation allowance for its U.S. operations in the second quarter of 2009. Thevaluation allowance is a non-cash charge that does not preclude the Companyfrom fully realizing the net deferred tax assets in the future. The deferredtax valuation allowance totaled $8.5 million at September 30, 2010 and$8.4 million at December 31, 2009.

 

The*Worker,Homeownership, and Business Assistance Act of 2009,* enactedNovember 6, 2009, allowed eligible businesses a one-time election to carryback net operating losses (“NOL”) from 2008 or 2009 (but not both) for three,four or five years rather than the standard two years. As result of thisone-time opportunity, the Company carried back $5.0 million of 2009’s NOLto prior periods and generated a federal tax refund of $1.0 million. Theavailable NOL carryforward for the 2008 tax year totals $1.1 million.

 

Theprovision for income taxes for the three and nine months ended September 30,2010 and 2009 consists of:

 
| ** **                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                    | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                    | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                    | ** ** | **(In Thousands)**          | ** ** |
|                          |       |                             |       |                            |       |   |   |   |   |
| Current (benefit) provision:  |       |                             |       |                            |       |   |   |   |   |
| U.S.                          |       | $                                | (97        | )                               | $          | (38 | ) | $ | (8 | ) | $ | 2 |   |
| Foreign                       |       | (66                              | )          | 77                              |       | 60 |   | (210 | ) |
|                          |       | (163                             | )          | 39                              |       | 52 |   | (208 | ) |
|                          |       |                             |       |                            |       |   |   |   |   |
| Deferred (benefit) provision: |       |                             |       |                            |       |   |   |   |   |
| U.S.                          |       | —                           |       | —                          |       | — |   | 8,134 |   |
| Foreign                       |       | (40                              | )          | (148                            | )          | (252 | ) | 19 |   |
|                          |       | (40                              | )          | (148                            | )          | (252 | ) | 8,153 |   |
|                          |       |                             |       |                            |       |   |   |   |   |
| Total (benefit) provision     |       | $                                | (203       | )                               | $          | (109 | ) | $ | (200 | ) | $ | 7,945 |   |

 

**(4)  FINANCING ARRANGEMENTS**

 

On July 16, 2010, theCompany entered into the Credit Agreement (the “Credit Agreement”) among theCompany, Harris N.A., as administrative agent (the “Administrative Agent”), andthe lenders party thereto from time to time (the “Lenders”). The CreditAgreement provides for a $25.0 million revolving loan facility, which willmature on July 16, 2013. Borrowings under the Credit Agreement were used (i) torepay amounts outstanding under the Company’s term loan and revolving creditfacility under the Loan and Security Agreement (as amended, the “TerminatedLoan Agreement”) dated as of February 15, 2008 among the Company, thelenders party thereto and The PrivateBank and Trust Company, as a lender andadministrative agent and (ii) for general corporate purposes. Pursuant to the terms of the Credit Agreement, the Company is required to makemandatory prepayments on the amounts outstanding thereunder in the event thatthe Company receives proceeds under certain circumstances or in connection withother specified events.

 

Borrowings under the CreditAgreement bear interest at either the base rate or the LIBOR lending rate (eachas defined in the Credit Agreement), as applicable, plus the applicable marginset forth in the Credit Agreement.  The Company will also pay certain feesand expenses, including a (i) commitment fee equal to 0.50 percent perannum on the unused portion of the Lenders’ aggregate revolving commitment and(ii) a letter of credit fee equal to the product of the applicable marginset forth in the Credit Agreement times the face amount of the standby lettersof credit and the commercial letters of credit outstanding at such time. The Credit Agreement contains customary covenants, including but not limited tofinancial covenants requiring the Company to maintain a Fixed Charge CoverageRatio (as defined in the Credit Agreement) of 1.10 to 1.00 for the periods setforth in the Credit Agreement. The Company’s Fixed Charge Coverage Ratio forthe third quarter of 2010 exceeded the required minimum ratio of 1.10 to 1.00.

 

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As a condition to theextension of the loans and the issuance of the letters of credit under theCredit Agreement, the Company has granted a security interest to theAdministrative Agent, for the benefit of the Lenders, in substantially all theassets of the Company except (i) life insurance policies not collaterallyassigned to the Lenders, (ii) any equipment subject to liens permittedunder the Credit Agreement if such equipment is also subject to an agreementprohibiting the pledge of such equipment to the Lenders, (iii) depositaccounts used exclusively by the Company for payroll and employee retireebenefit purposes and (iv) the Company’s interest in the outstanding votingequity securities of any of its directly-owned foreign subsidiaries to theextent such interests exceed 65 percent of the outstanding voting equitysecurities of such foreign subsidiary.

 

AtSeptember 30, 2010, the Company had interest bearing debt outstanding of$17.9 million borrowed under the revolving credit facility.  As of September 30, 2010, creditavailability was approximately $4.4 million under the revolving creditfacility, based on the borrowing base formula that includes 85 percent ofeligible accounts receivables, the lesser of 65 percent of lower of cost ormarket of eligible inventory or 85 percent of the appraised net orderlyliquidation value of eligible inventory, and 65 percent of commercial lettersof credit issued for the purchase of inventory, subject to certain limitationsand reserves established at the lenders discretion. The weighted averageinterest rate for the three months ending September 30, 2010 and 2009(which includes the amortization charges associated with the terminatedinterest rate swap, refer to Note 6, *Derivatives* foradditional information) was 6.0 percent and 5.4 percent, respectively. On a yearto date basis, the weighted average interest rate for the nine months ending September 30,2010 and 2009 (which includes the amortization charges associated with theterminated interest rate swap) was 6.5 percent and 4.2 percent, respectively.

 

In connection with the newCredit Agreement, the Company wrote-off the deferred financing costs associatedwith the Terminated Loan Agreement and recognized a non-cash pre-tax charge of$349,000 in the third quarter of 2010. Financing costs for the new Credit Agreement totaling $513,000 werecapitalized in the third quarter of 2010 and will be amortized over the loanterm. Additionally, in connection with the refinancing, the Company terminatedan interest rate swap agreement in exchange for a $381,000 cash payment by theCompany on July 16, 2010.  With theelimination of the interest rate swap, the fair value of the Company’s debt isno longer affected by changes in the interest rate market and future changes inthe applicable interest rate will affect the interest expense incurred on theCompany’s outstanding indebtedness.

 

**(5)   FAIRVALUE OF FINANCIAL INSTRUMENTS**

 

TheCompany’s financial instruments include cash, cash surrender value (“CSV”) oflife insurance policies, accounts receivable, accounts payable, short-termdebt, long-term debt and letters of credit. The carrying values of cash,accounts receivable and accounts payable approximated their fair value becauseof the short-term maturity of these instruments. The carrying amounts of theCompany’s bank borrowings under its Credit Agreement approximate fair valuebecause the interest rates are reset periodically to reflect current marketrates. The letters of credit approximated fair value due to the short-termnature of the instrument. The contract value/fair value of the letters ofcredit was $2.7 million at September 30, 2010 and December 31, 2009.The carrying value of the CSV for the life insurance approximated fair valueand was based on the market value of the underlying investments, which mayincrease or decrease due to fluctuations in the overall financial markets.

 

TheCompany’s hedging activity is limited to foreign currency purchases and aninterest rate swap. The Company engages in foreign currency hedging to minimizethe risk that the eventual settlement of foreign currency transactions would beadversely affected by changes in exchange rates. The Company did not have anyopen foreign exchange contracts at September 30, 2010 and 2009. Thepurpose of the interest rate swap, which was terminated on July 16, 2010,was to fix the interest rate for the term of the loan and protect the Companyfrom future interest rate increases.

 

TheCompany occasionally hedges foreign exchange exposures by entering into variousshort-term forward foreign exchange contracts. The instruments are carried atfair value in its Consolidated Balance Sheets as a component of currentliabilities. Changes in the fair value of foreign exchange forward contractsthat meet the applicable hedging criteria are recorded as a component of othercomprehensive income and reclassified into earnings in the same period duringwhich the hedged transaction affected earnings. Changes in the fair value of foreign exchange forward contracts that donot meet the applicable hedging criteria are recorded currently in income ascost of sales. Hedging activities did not have a material impact on results ofoperations or financial condition during the three and nine month periodsending September 30, 2010 and 2009.

 

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Untilit was terminated on July 16, 2010, the Company had a derivative contractfor an interest rate swap that was valued on a recurring basis using quotedmarket prices. This financial instrument was exchange-traded and was classifiedwithin Level 2 of the fair value hierarchy because the exchange is notdeemed to be an active market. The derivative was classified as a long-termliability on the balance sheet. Refer to Note 6, *Derivatives*, for additional information.The following table provides the fair value information for the Company’sinterest rate swap as of September 30, 2010 and December 31, 2009: 

 
| ** **         | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|--------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **         | ** ** | ** **                       | ** ** | **Fair Value**             | ** ** | ** ** | ** ** | **Fair Value** | ** ** |
| ** **         | ** ** | ** **                       | ** ** | ** **                      | ** ** | **Significant** | ** ** | ** ** | ** ** | ** ** | ** ** | **Significant** | ** ** |
| ** **         | ** ** | ** **                       | ** ** | ** **                      | ** ** | **Other Observable** | ** ** | ** ** | ** ** | ** ** | ** ** | **Other Observable** | ** ** |
| ** **         | ** ** | **Total**                        | ** ** | **Carrying**                    | ** ** | **Inputs** | ** ** | **Carrying** | ** ** | **Total** | ** ** | **Inputs** | ** ** |
| **Liabilities**    | ** ** | **Amount**                       | ** ** | **Fair Value**             | ** ** | **(Level 2)** | ** ** | **Amount** | ** ** | **Fair Value** | ** ** | **(Level 2)** | ** ** |
| ** **         | ** ** | **(In Thousands)**          | ** ** |
| ** **         | ** ** | ** **                       | ** ** |
| Interest rate swap |       | $                                | —     |                            | $          | — |   | $ | — |   | $ | 420 |   | $ | 420 |   | $ | 420 |   |
|                    |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(6)   DERIVATIVES**

 

TheCompany transacts business globally with various manufacturing and distributionfacilities.  The Company may reduce itsexposure to fluctuations in foreign exchange rates by creating offsettingpositions through derivative financial instruments. The Company currently doesnot use derivative financial instruments for trading or speculativepurposes.  The Company regularly monitorsforeign exchange exposures and ensures hedge contract amounts do not exceed theamounts of the underlying exposures.

 

Prior to its termination on July 16, 2010, the Company maintainedan interest rate swap to fix the interest rate for the term of the revolvingcredit facility and term loan under the Terminated Loan Agreement, therebyprotecting the Company from future interest rate increases.  The interest rate swap represented a cashflow hedge and was recorded at fair value and classified as a non-currentliability. Changes in the recorded fair value of the interest rate swap wererecorded to other comprehensive income. At March 31, 2009, the existing contract applicable to the termloan with a value of $250,000 was terminated and replaced with a contract applicableto the term loan and a portion of the revolving loan valued at $377,000. Thevalue of the interest rate swap liability terminated in March 2009 will beamortized into interest expense through September 30, 2011.  In connection with the refinancing ofborrowings under the Terminated Loan Agreement, the Company paid $381,000 onJuly 16, 2010 to terminate the related interest rate swap agreement. Thetermination cost of the interest rate swap in July 2010 will be amortizedinto interest expense through March 31, 2014. The interest amortizationfor the Company’s terminated interest rate swaps reclassified from AccumulatedOther Comprehensive Income into interest income (expense) during the three andnine months ending September 30, 2010 and 2009 follows**:**

** **
| ** **                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **Income Statement Location** | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                              | ** ** | **(In Thousands)**          | ** ** |
|                                    |       |                             |       |                            |       |   |   |   |   |
| Interest (expense) income               |       | $                                | (23        | )                               | $          | 42 |   | $ | 38 |   | $ | 85 |   |
|                                         |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

Thecarrying value of the interest rate swap totaled $0 at September 30, 2010and $420,000 at December 31, 2009. The fair value of outstandingderivative contracts designated as hedging instruments recorded as liabilitiesin the accompanying balance sheet were as follows:

 
| ** **                    | ** ** | ** **                           | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|--------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| **Liability Derivative** | ** ** | **Balance Sheet Location** | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                    | ** ** | ** **                           | ** ** | **(In Thousands)** | ** ** |
|                          |       |                                 |       |                    |       |                  |       |
| Interest rate swap            |       | Non-current liability                |       | $                       | —     |                  | $          | 420 |   |
|                               |            |                                      |            |                         |            |                       |            |  |  |

 

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Theeffective portion of the gain (loss) on outstanding derivatives recognized inOther Comprehensive Income (“OCI”) for the three and nine months endingSeptember 30, 2010 and 2009 follows:

 
| ** **         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **         | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **         | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **         | ** ** | **(In Thousands)**          | ** ** |
|               |       |                             |       |                            |       |   |   |   |   |
| Interest rate swap |       | $                                | 112        |                            | $          | (26 | ) | $ | 86 |   | $ | (140 | ) |
|                    |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

**(7)   EARNINGS(LOSS) PER SHARE**

 

Basicearnings (loss) per share excludes any dilution and is computed by dividing netearnings (loss) available to common shareholders by the weighted-average numberof common shares outstanding for the period. Diluted earnings (loss) per sharereflect the potential dilution that could occur if securities or othercontracts to issue common stock resulted in the issuance of  common stock. If the common stock equivalents have an anti-dilutive effect, they areexcluded from the computation of diluted earnings (loss) per share.  The earnings (loss) per share for the threeand nine months ending September 30, 2010 and 2009 follows:

 
| ** **                                                          | ** ** | **Three Months Ended**                          | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                          | ** ** | **September 30,**                                    | ** ** | **September 30,**          | ** ** |
| ** **                                                          | ** ** | **2010**                                                  | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                          | ** ** | **(In Thousands, Except Share Data)** | ** ** |
| Net earnings (loss) available to Cobra  shareholders                |       | $                                                         | 874        |                            | $          | (509 | ) | $ | (759 | ) | $ | (12,027 | ) |
| Weighted-average shares outstanding                                 |       | 6,471,280                                                 |       | 6,471,280                       |       | 6,471,280 |   | 6,471,280 |   |
| Basic earnings (loss) per share                                     |       | $                                                         | 0.14       |                            | $          | (0.08 | ) | $ | (0.12 | ) | $ | (1.86 | ) |
| Weighted-average shares outstanding                                 |       | 6,471,280                                                 |       | 6,471,280                       |       | 6,471,280 |   | 6,471,280 |   |
| Dilutive shares issuable in connection with stock  option plans (a) |       | —                                                    |       | —                          |       | — |   | — |   |
| Less: shares purchasable with option proceeds                       |       | —                                                    |       | —                          |       | — |   | — |   |
| Total                                                               |       | 6,471,280                                                 |       | 6,471,280                       |       | 6,471,280 |   | 6,471,280 |   |
| Diluted earnings (loss) per share                                   |       | $                                                         | 0.14       |                            | $          | (0.08 | ) | $ | (0.12 | ) | $ | (1.86 | ) |

 

----

| (a) | Stock options to purchase  342,780 shares for the three and nine months ending September 30, 2010  and 447,780 shares for the three and nine months ending September 30,  2009 were not included in the calculation for the dilutive loss per share  since the exercise price was above market price. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**(8)   COMPREHENSIVE INCOME (LOSS)**

 

Comprehensiveincome (loss) is defined as the change in equity of a business enterprise fromtransactions and other events from non-owner sources. Comprehensive income(loss) includes net earnings (loss) and other non-owner changes in equity thatbypass the statement of operations and are reported in a separate component ofequity.  For the three and nine monthsending September 30, 2010 and 2009, other comprehensive income (loss)included the foreign currency translation adjustment and an interest rateswap.  The cumulative balance of thecomprehensive loss at September 30, 2010 and December 31, 2009follows:

 
| ** **                              | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                              | ** ** | **(In Thousands)** | ** ** |
|                                    |       |                    |       |                  |       |
| Foreign currency translation adjustment |       | $                       | (1,815     | )                     | $          | (1,585 | ) |
| Interest rate swap - gross              |       | (218                    | )          | (304                  | )          |
| Total                                   |       | $                       | (2,033     | )                     | $          | (1,889 | ) |

 

Asummary of the comprehensive income (loss) for the three and nine months ended September 30,2010 and 2009 follows:

 
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                       | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                       | ** ** | **(In Thousands)**          | ** ** |
|                                                             |       |                             |       |                            |       |   |   |   |   |   |   |   |   |
| Net earnings (loss) attributable to Cobra                        |       | $                                | 874        |                            | $          | (509 | ) | $ | (759 | ) | $ | (12,027 | ) |
| Foreign currency translation adjustment (no tax  effect)         |       | 828                              |       | (95                             | )          | (230 | ) | 937 |   |
| Interest rate swap and foreign exchange (net of  applicable tax) |       | 112                              |       | (26                             | )          | 86 |   | (140 | ) |
| Total comprehensive income (loss)                                |       | $                                | 1,814      |                            | $          | (630 | ) | $ | (903 | ) | $ | (11,230 | ) |

 

**(9)   COMMITMENTSAND CONTINGENCIES**

 

TheCompany is subject to various unresolved legal actions which arise in thenormal course of its business.  None ofthese matters are expected to have a material adverse effect on the Company’sfinancial position or results of operations. However, the ultimate resolution of these matters cannot be determinedat this time.

 

AtSeptember 30, 2010 and December 31, 2009, the Company had outstandinginventory purchase orders with suppliers totaling approximately $24.5 millionand $17.7 million, respectively.

 

**(10)   OTHERCURRENT ASSETS**

 

Thefollowing table summarizes the components of other current assets at September 30,2010 and December 31, 2009:

 
| ** **                           | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                           | ** ** | **(In Thousands)** | ** ** |
|                                 |       |                    |       |                  |       |
| Prepaid assets                       |       | $                       | 1,904      |                  | $          | 1,523 |   |
| Tax refunds and receivables          |       | 187                     |       | 1,060                 |       |
| Vendor and miscellaneous receivables |       | 1,616                   |       | 1,378                 |       |
|                                 |       | $                       | 3,707      |                  | $          | 3,961 |   |

 

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**(11)**  **PRODUCT WARRANTY COSTS ANDINVENTORY VALUATION RESERVES**

 

The Company warrants to theconsumer who purchases its products that it will repair or replace, withoutcharge, defective products within a specified time period, generally one year.The Company also has a return policy that allows its customers to return to theCompany products returned to them by their customers for full or partial creditbased on when the Company’s customer last purchased these products.  Consequently, it maintains a warrantyreserve, which reflects historical warranty return rates by product categorymultiplied by the most recent six months of unit sales of that model and theunit standard cost of the model.  Aroll-forward of the warranty reserve follows:

 
| ** **                                           | ** ** | **Nine Months**    | ** ** | **Year**              | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **Ended**               | ** ** | **Ended**             | ** ** |
| ** **                                           | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
| ** **                                           | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                                           | ** ** | **(In Thousands)** | ** ** |
|                                                 |       |                    |       |                  |       |
| Accrued product warranty costs, beginning of  period |       | $                       | 857        |                  | $          | 897 |   |
| Warranty provision                                   |       | 1,626                   |       | 2,459                 |       |
| Warranty expenditures                                |       | (1,700                  | )          | (2,499                | )          |
| Accrued product warranty costs, end of period        |       | $                       | 783        |                  | $          | 857 |   |

 

TheCompany maintains a liquidation reserve representing the write-down of returnedproduct from its customers to its net realizable value.  Returned inventory is either sold to variousliquidators or returned to vendors for partial credit against similar, newmodels. The decision to sell or return products to vendors depends upon theestimated future demand for the models. Judgments are made as to whether various models are to be liquidated orreturned to the vendor, taking into consideration the liquidation pricesexpected to be received and the amount of the vendor credit.  The amount of the reserve is determined bycomparing the cost of each unit returned to the estimated amount to be realizedupon each unit’s disposition, either from returning the unit to the vendor forpartial credit towards the cost of new, similar product or liquidating theunit.  This reserve can fluctuatesignificantly from quarter to quarter depending upon quantities of returnedinventory on-hand and the estimated liquidation price or vendor credit perunit.  A roll-forward of the liquidationreserve follows:

 
| ** **                               | ** ** | **Nine Months**    | ** ** | **Year**              | ** ** |
|------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **Ended**               | ** ** | **Ended**             | ** ** |
| ** **                               | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
| ** **                               | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                               | ** ** | **(In Thousands)** | ** ** |
|                                     |       |                    |       |                  |       |
| Liquidation reserve, beginning of period |       | $                       | 648        |                  | $          | 623 |   |
| Liquidation provision                    |       | 1,596                   |       | 2,650                 |       |
| Liquidation of models                    |       | (1,592                  | )          | (2,625                | )          |
| Liquidation reserve, end of period       |       | $                       | 652        |                  | $          | 648 |   |

 

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TheCompany maintains a net realizable value (“NRV”) reserve to write-down, asnecessary, certain finished goods, except for those goods covered by thepreviously discussed liquidation reserve, below cost.  The reserve includes models where it isdetermined that the estimated realizable value is less than cost. Thus,judgments must be made about which slow-moving, excess or non-current modelsare included in the reserve and the NRV of such models.  The estimated NRV of each model is the perunit price that is estimated to be received if the model were sold in themarketplace. This reserve will vary depending upon the specific models selected,the estimated NRV for each model and quantities of each model that aredetermined will be sold below cost from quarter to quarter.  A roll-forward of the NRV reserve follows:

 
| ** **                                  | ** ** | **Nine Months**    | ** ** | **Year**              | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **Ended**               | ** ** | **Ended**             | ** ** |
| ** **                                  | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
| ** **                                  | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                                  | ** ** | **(In Thousands)** | ** ** |
| ** **                                  | ** ** | ** **              | ** ** |
| Net realizable reserve, beginning of period |       | $                       | 238        |                  | $          | 109 |   |
| NRV provision                               |       | 323                     |       | 427                   |       |
| NRV write-offs                              |       | (269                    | )          | (298                  | )          |
| Net realizable reserve, end of period       |       | $                       | 292        |                  | $          | 238 |   |

 

**(12)  OTHER INCOME (EXPENSE)**

 

Thefollowing table shows the components of other income (expense) for the threeand nine month periods ending September 30, 2010 and 2009:

 
| ** **              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **              | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **              | ** ** | **(In Thousands)**          | ** ** |
| ** **              | ** ** | ** **                       | ** ** |
| Interest income         |       | $                                | —     |                            | $          | 1 |   | $ | — |   | $ | 5 |   |
| CSV income              |       | 400                              |       | 475                             |       | 221 |   | 594 |   |
| Foreign exchange income |       | 327                              |       | 26                              |       | 188 |   | 277 |   |
| Other expense           |       | (402                             | )          | (80                             | )          | (464 | ) | (31 | ) |
|                    |       | $                                | 325        |                            | $          | 422 |   | $ | (55 | ) | $ | 845 |   |

 

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**Item 2.  Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

**ANALYSIS OF RESULTS OF OPERATIONS**

 

***Executive Summary- Third Quarter***

 

Pre-taxincome for the third quarter of 2010 totaled $671,000 compared to a pre-taxloss of $618,000 for the year ago period, an improvement of nearly $1.3million. Key factors contributing to the significant improvement were:

 

·                  Net sales increased $1.5 million, or 5.5percent primarily because of higher sales in both the Cobra and PPL segments

·                  Gross margin increased 1.5 points to 25.7percent as a result of an improved product mix and gross margin increases forseveral major product categories in the Cobra segment.

·                  Selling, general and administrative expensesdecreased $553,000 or 7.5 percent, driven by lower Cobra segment fixedexpenses, which declined 13.5 percent, primarily due to management’s effort toreduce fixed costs.

 

Asa result of the above, earnings from operations increased by $1.4 million to$597,000 in the third quarter of 2010 as compared to a loss from operations of$765,000 in the third quarter of 2009.

 

However,other income decreased by $97,000 primarily because of the write-off of deferredloan fees related to the term loan and revolving credit facility that wasreplaced by a new revolving credit facility in July 2010 and lower cashsurrender value (CSV) of life insurance income, offset in part by higherforeign exchange gains.

 

In the third quarter of2010, the Company recorded a tax benefit of $203,000, primarily for thevaluation allowance release related to a federal tax refund of $128,000resulting from a provision in th*e Worker, Homeownership, and Business Assistance Actof 2009,* enacted November 6, 2009, which allowed for aone-time election to carry back net operating losses from either 2008 or 2009for up to an extra three years, as well as for a tax benefit related to the U.K. tax rate changing from28% to 27% for future periods.

 

Thenet income for the three month period ending September 30, 2010 increasedby $1.4 million to $874,000, or $0.14 per share, compared to a $509,000 loss,or $0.08 per share, for the three month period ending September 30, 2009.

 

***Executive Summary- Nine Months***

 

Pre-taxloss for the first nine months of 2010 totaled $959,000 compared to a pre-taxloss of $4.1 million for the comparable prior year period. Key factorscontributing to the significant improvement were:

 

·                  Net sales increased $3.2 million, or 4.5percent, as higher PPL segment sales more than offset lower sales for the Cobrasegment, mainly sales of domestic detection and at CEEL.

·                  Gross margin increased 1.9 points to 26.6percent as a result of an improved product mix and gross margin increases forseveral major product categories in the Cobra segment.

·                  Selling, general and administrative expensesdecreased $1.9 million, or 8.7 percent, driven by lower Cobra segment fixedexpenses, which declined 12.9 percent, primarily due to management’s effort toreduce fixed costs.

·                  Interest expense increased $150,000,whileother expenses increased by $900,000, mainly due to lower cash surrender value(CSV) of life insurance and foreign exchange income as well as the write-off ofdeferred loan fees noted above.

 

Thecombined impact of the foregoing factors was a $3.1 million decrease in thepre-tax loss in the first nine months of 2010 from the same period in 2009.

 

Thetax benefit for the first nine months of 2010 amounted to $200,000 compared toa $7.9 million provision for the prior year period. The $7.9 million provisionincluded a charge for a full valuation allowance on the deferred tax assets ofthe Company’s U.S. operations.

 

Thenet loss for the nine month period ending September 30, 2010 was $759,000,or $0.12 loss per share, compared to the $12.0 million loss, or $1.86 loss pershare, for the year ago period.

 

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***Outlook***

 

The Company anticipates remaining profitable in the fourthquarter.  Early indicators of holidaysales remain favorable, although cautious, and the Company is working withdistributor and retail partners to make Cobra and Snooper products the choicefor consumers this holiday season.  Asnoted in prior guidance, Cobra anticipates returning to profitability in 2010,excluding the one-time charges associated with the refinancing of our seniordebt and absent material other expenses in the fourth quarter due to foreign exchangevolatility or declines in the cash surrender value of life insurance, as theCompany drives business forward through new products and new distribution andmarketing channels.  The improvement inthe Company’s results for the first nine months of 2010 was built on thisstrategic thrust and it is continuing into the fourth quarter of 2010.  The Company intends to maintain its focus oncontaining expenses and managing working capital for the remainder of 2010.

 

***EBITDA***

 

Thefollowing table shows the reconciliation of net earnings (loss) to *EBITDA* and *EBITDA As Defined*for the three and nine months ending September 30, 2010 and 2009:

 
| ** **                     | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **2010**                                                 | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                     | ** ** | **(In Thousands)**                                  | ** ** |
|                           |       |                                                     |       |                                                    |       |   |   |   |   |
| **Net earnings (loss)**        | ** ** | **$**                                                    | **874**    | ** **                                              | **$**      | **(509** | **)** | **$** | **(759** | **)** | **$** | **(12,027** | **)** |
| Depreciation/amortization      |       | 1,135                                                    |       | 973                                                     |       | 3,042 |   | 2,947 |   |
| Interest expense               |       | 251                                                      |       | 275                                                     |       | 765 |   | 615 |   |
| Income tax (benefit) provision |       | (203                                                     | )          | (109                                                    | )          | (200 | ) | 7,945 |   |
| **EBITDA**                     | ** ** | **2,057**                                                | ** ** | **630**                                                 | ** ** | **2,848** | ** ** | **(520** | **)** |
| Stock option expense           |       | 56                                                       |       | 56                                                      |       | 169 |   | 173 |   |
| CSV income                     |       | (400                                                     | )          | (475                                                    | )          | (221 | ) | (594 | ) |
| Non-controlling interest       |       | —                                                   |       | —                                                  |       | — |   | 2 |   |
| Other non-cash items           |       | (128                                                     | )          | 233                                                     |       | 949 |   | 121 |   |
| **EBITDA As Defined**          | ** ** | **$**                                                    | **1,585**  | ** **                                              | **$**      | **444** | ** ** | **$** | **3,745** | ** ** | **$** | **(818** | **)** |

 

*EBITDA* represents earnings before interest, taxes,depreciation and amortization. *EBITDA As Defined*represents*EBITDA* plus the applicable adjustmentsrequired to agree with the *EBITDA*measurement for compliance with the financial covenants of the Company’slenders.  The Company believes *EBITDA* is a useful performance indicator and is frequentlyused by management, securities analysts and investors to judge operatingperformance between time periods and among other companies.  The Company uses *EBITDA AsDefined* to assess operating performance and ensure compliance withfinancial covenants.

 

*EBITDA*and *EBITDA As Defined*are non-GAAP performance indicators that should be used in conjunction withGenerally Accepted Accounting Principles (“GAAP”) performance measurements suchas net sales, operating profit and net income to evaluate the Company’soperating performance.  *EBITDA* and *EBITDA As Defined*are not alternatives to net income or cash flow from operations determined inaccordance with GAAP.  Furthermore*, EBITDA*and *EBITDA As Defined*may not be comparable to the calculation of similarly titled measures reportedby other companies.

 

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***Third Quarter — 2010 vs. 2009***

 

Thefollowing table contains sales and pre-tax profit (loss) by business segmentfor the three month period ending September 30, 2010 and 2009:

 
| ** **                | ** ** | ** **              | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** | **2010 vs. 2009** | ** ** |
|---------------------------|------------|-------------------------|------------|-------------|------------|--------------|------------|-------------|------------|-----------------------------|------------|
| ** **                | ** ** | **2010**                | ** ** | **2009**    | ** ** | **Increase** | ** ** |
| ** **                | ** ** | **(In Thousands)** | ** ** |
| ** **                | ** ** | **Net**                 | ** ** | **Pre-tax** | ** ** | **Net**      | ** ** | **Pre-tax** | ** ** | **Net**                     | ** ** | **Pre-tax** | ** ** |
| **Business Segment** | ** ** | **Sales**               | ** ** | **Profit**  | ** ** | **Sales**    | ** ** | **Loss**    | ** ** | **Sales**                   | ** ** | **Profit** | ** ** |
|                      |       |                    |       |        |       |         |       |        |       |                        |       |   |   |
| Cobra                     |       | $                       | 25,178     |        | $          | 574          |       | $           | 24,556     |                        | $          | (367 | ) | $ | 622 |   | $ | 941 |   |
| PPL                       |       | 3,731                   |       | 97          |       | 2,849        |       | (251        | )          | 882                         |       | 348 |   |
| Total Company             |       | $                       | 28,909     |        | $          | 671          |       | $           | 27,405     |                        | $          | (618 | ) | $ | 1,504 |   | $ | 1,289 |   |

 

**CobraBusiness Segment**

 

Cobra net sales increased $622,000, or 2.5 percent,in the third quarter of 2010 to $25.2 million compared to $24.6 million in thethird quarter of 2009 primarily as a result of higher domestic sales and salesat CEEL, which were partially offset by lower two-way radio sales to Cobra’sCanadian distributor.  Domestically,Citizen Band radio sales increased because of the launch of the new 50thAnniversary Limited Edition model and the positive effect on discretionary spending by professionaldrivers of higher truck freightvolumes resulting from a slowly improving economy.  Partially offsetting the higher Citizen Bandradio sales were lower detection sales, primarily due to a decline in sales ofhigher-price point models, which reflected consumer preference for lower costmodels in the current economic climate. CEEL sales increased primarily because of higher radar detector sales into Russiaand the United Arab Emirates.

 

Gross profit increased $691,000, or 11.8 percent,to $6.6 million for the third quarter of 2010, while gross margin improved 2.2points to 26.1 percent from 23.9 percent in the prior year’s quarter.  The improvement in gross margin resultedmainly from an increase in gross margin for domestic sales due to a morefavorable product mix, as the proportion of sales of higher margin Citizen Bandradios increased in the current quarter compared to the prior year’s quarter,and higher gross margins for Citizens Band radios, detection and two-wayradios, offset in part by lower gross margin at CEEL.  Grossmargin for Citizens Band radios increased because of sales of the new50th Anniversary Limited Edition model, while detection gross margin increasedprimarily because of a more favorable customer mix and two-way radio grossmargin increased primarily because of lower costs.  CEEL’s gross margin declined due to anunfavorable foreign exchange adjustment to inventory (as the euro weakened 9.3percent during the current quarter) and higher net realizable value expense.

 

Selling, general and administrative expensesdeclined $631,000, or 10.0 percent, to $5.7 million for the current quarterfrom $6.3 million in the prior year’s quarter and, as a percentage of netsales, were 22.6 percent and 25.7 percent, respectively. This decline wasprimarily due to lower fixed expenses, which decreased $655,000 or 13.5percent.  Of the decrease, $309,000 wasin fixed sales and marketing expenses mainly lower trade show, publicrelations and media expenses, with the remainder of the decrease in fixedgeneral and administrative expenses, mainly lower deferred compensation,severance costs and professional fees.

 

Interest expense decreased $24,000 in the thirdquarter of 2010 from the prior year period due to the lower level of debtoutstanding and a lower effective interest rate. Other expense increased$405,000 from the year ago period mainly due to a $75,000 decrease in CSVincome from the prior year quarter and a $349,000 write-off of deferred loanfees related to an existing term loan and revolving credit facility that wasreplaced by a new agreement in July 2010.

 

As a result of the above, the Cobra segment had apre-tax income of $574,000 in the third quarter of 2010 compared to a pre-taxloss of $367,000 in the third quarter of 2009.

 

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***Performance Products Limited (“PPL”) Business Segment***

 

PPL’snet sales increased $882,000 or 31.0 percent, to $3.7 million in the thirdquarter of 2010 compared to the year ago quarter. The increase was primarilydue to higher satellite navigation sales, especially those with routing designed specifically for trucks and motorhomes, and outdoor leisure products, which were not sold in the third quarterof 2009.  Offsetting some of the highersatellite navigation and outdoor leisure product sales were lower download feerevenue in the current quarter compared to the prior year’s quarter because oflower subscription renewals and the growth in product sales outside of theU.K., where download fees are not charged due to the competitive environment.

 

Gross profit increased $118,000, or 15.6 percent,to $872,000 for the third quarter of 2010, while gross margin decreased 3.1points to 23.4 percent from 26.5 percent in the prior year’s quarter.  The decrease in gross margin was dueprimarily to foreign exchange losses, unfavorable freight and dutyabsorption and a 25.0 percent decline in download fees, which have a 100percent gross margin.

 

Selling, general and administrative expensesincreased $78,000, or 7.3 percent, to $1.2 million for the current quarter from$1.1 million in the prior year’s quarter but, as a percentage of net sales,were 30.8 percent and 37.6 percent, respectively. The increase in selling, generaland administrative expenses was due primarily to marketing expenditures toincrease product placement and a write-off of an accounts receivable from onecustomer.

 

Otherincome for the third quarter of 2010 increased $308,000 compared to the thirdquarter of 2009, principally due to higher foreign exchange income.

 

Asa result of the above, the PPL segment had a pre-tax income of $97,000 for the third quarter of 2010 compared toa pre-tax loss of $251,000 for thethird quarter of 2009.

 

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***Nine Months - 2010 vs. 2009***

 

Thefollowing table contains sales and pre-tax profit (loss) by business segmentfor the nine month period ending September 30, 2010 and 2009:

 
| ** **                | ** ** | ** **              | ** ** | ** **  | ** ** | ** **                   | ** ** | ** **  | ** ** | **2010 vs. 2009** | ** ** |
|---------------------------|------------|-------------------------|------------|-------------|------------|------------------------------|------------|-------------|------------|-----------------------------|------------|
| ** **                | ** ** | **2010**                | ** ** | **2009**    | ** ** | **Increase (Decrease)** | ** ** |
| ** **                | ** ** | **(In Thousands)** | ** ** |
| ** **                | ** ** | **Net**                 | ** ** | **Pre-tax** | ** ** | **Net**                      | ** ** | **Pre-tax** | ** ** | **Net**                     | ** ** | **Pre-tax** | ** ** |
| **Business Segment** | ** ** | **Sales**               | ** ** | **Loss**    | ** ** | **Sales**                    | ** ** | **Loss**    | ** ** | **Sales**                   | ** ** | **Profit** | ** ** |
|                      |       |                    |       |        |       |                         |       |        |       |                        |       |   |   |
| Cobra                     |       | $                       | 64,945     |        | $          | (911                         | )          | $           | 65,170     |                        | $          | (3,861 | ) | $ | (225 | ) | $ | 2,950 |   |
| PPL                       |       | 10,757                  |       | (48         | )          | 7,291                        |       | (219        | )          | 3,466                       |       | 171 |   |
| Total Company             |       | $                       | 75,702     |        | $          | (959                         | )          | $           | 72,461     |                        | $          | (4,080 | ) | $ | 3,241 |   | $ | 3,121 |   |

 

**CobraBusiness Segment**

 

Cobranet sales decreased $225,000, or 0.3 percent, in the first nine months of 2010to $64.9 million compared to $65.2 million for the year ago period.Domestically, net sales increased $311,000 due to higher sales of Citizen Band,two-way and marine radios.  Citizen Bandradio sales were significantly higher due to more discretionary spending byprofessional drivers as a slowly improving economy increased truck freightvolumes as well as sales of the new 50th Anniversary Limited Edition model. Higher two-way radio sales were due to a large promotional sale whilehigher marine radio sales resulted mainly from the sales of two newfloating handheld marine radios (one with Bluetooth® technology), which wereintroduced in late 2009.  Partiallyoffsetting these increases were significantly lower detection sales, primarilydue to a decline in sales of higher-price point models, which reflectedconsumer preference for lower cost models in the current economic climate andthe fact that two major customers had load-in shipments in the prior yearperiod. The increase in domestic sales was offset by lower two-way radio salesinto Canada.

 

Gross profit for the first nine months of 2010increased $1.6 million to $17.1 million, while gross margin improved 2.6 pointsto 26.3 percent from 23.7 percent for the first nine months of 2009, mainlyfrom an increase in gross margin for domestic sales.  This increase was mainly due to a morefavorable product mix, as the proportion of sales of higher margin Citizen Bandradios increased in the current period compared to the prior year’s period, andhigher two-way radio gross marginbecause of lower costs and decreased net realizable value expense.

 

Selling, general and administrative expenses forthe first nine months of 2010 declined $2.3 million, or 11.9 percent, to $16.9million from $19.2 million for the first nine months of 2009 and, as apercentage of net sales were 26.0 percent and 29.5 percent, respectively.  Most of the $2.3 million decrease was infixed expenses, which fell $1.9 million, or 12.9 percent, primarily because oflower severance costs (related to headcount reductions in the first quarter of2009), public relations and trade show expenses and professional fees.

 

Interest expense for the first nine months of 2010increased $149,000 compared to the prior year period due to higher interestrates.  Other expense increased $800,000mainly due to $373,000 of lower CSV income compared to the prior year periodand a $349,000 write-off of deferred loan fees.

 

As a result of the above, the Cobra segment had apre-tax loss of $911,000 for the first nine months of 2010 compared to apre-tax loss of $3.9 million for the prior year period.

 

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***Performance Products Limited (“PPL”) Business Segment***

 

PPL’snet sales increased $3.5 million or 47.5 percent, to $10.8 million for thefirst nine months of 2010 compared to $7.3 million reported for the year agoperiod. Much of the increase was due to higher satellite navigation sales,which increased 85.0 percent because of strong sales of units with routing, designed specifically for trucks and motorhomes, as well as strong sales of outdoor leisure products, one of PPL’snewer categories.  Partially offsettingthese increases were a decline in download fees in the current period versuslast year due to the growth in product sales outside of the U.K., wheredownload fees are not charged due to the competitive environment.

 

Gross profit increased $613,000, or 24.7 percent,to $3.1 million for the first nine months of 2010, while gross margin decreased5.2 points to 28.8 percent from 34.0 percent in the prior year’s quarter.  The decrease in gross margin was dueprimarily to foreign exchange losses, unfavorable freight and dutyabsorption and a 26.0 percent decrease in download fees, which have a 100percent gross margin.

 

Selling, general and administrative expensesincreased $343,000, or 11.3 percent, to $3.4 million in the current period from$3.0 million in the prior year’s period but, as a percentage of net sales, were31.4 percent and 41.6 percent, respectively. The increase was due primarily to higher advertising,marketing and professional fees, as well as a write-off of the accountsreceivable from one customer.

 

Otherincome for the first nine months of 2010 decreased $98,000 compared to theprior year’s period mainly due to a $102,000 decline in foreign exchange gain.

 

Asa result of the above, the PPL segment had a pre-tax loss of $48,000 for the first nine months of 2010 comparedto a pre-tax loss of $219,000 for theprior year period.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

 

TheCompany recently refinanced its bank debt and replaced a $23.0 millionrevolving asset-based facility and a $2.2 million term loan with a $25.0million revolving asset-based facility. This new Credit Agreement provides a lower cost credit facility andgreater liquidity due to the borrowing base formula.  Refer to Note 4, *FinancingArrangements*, for additional information.

 

AtSeptember 30, 2010, the Company had interest bearing debt outstanding of$17.9 million borrowed under the revolving credit facility.  As of September 30, 2010, creditavailability was approximately $4.4 million under the revolving creditfacility.  For the nine months ended September 30,2010, net cash flows provided by operating activities totaled $1.6 million.Significant net cash inflows from operations and non-cash add-backs included adecrease in accounts receivable of $3.8 million, non-cash depreciation andamortization of $3.0 million, receipt of $1.1 million in income tax refunds,and an increase in deferred compensation of $510,000. The decrease in accountsreceivable was primarily due to normal collections of year-end and quarter-endreceivables and lower sales in the third quarter of 2010 compared to sales inthe fourth quarter of 2009. The income tax refunds were mainly due to the *Worker, Homeownership and Business Assistance Act of 2009*that permitted a five-year carry back of net operating losses. Partiallyoffsetting these inflows was a net loss of $759,000; an increase in inventoriesof $3.9 million, primarily due to a seasonal build-up for the second half of2010; a decrease in accounts payable and long-term liabilities of $314,000 and$445,000, respectively; and an increase in other assets of $1.5 million, mainlydeferred loan fees, vendor receivables and prepayments.

 

Workingcapital requirements are seasonal, with demand for working capital being higherlater in the year as customers begin purchasing for the holiday sellingseason.  The Company believes that cashgenerated from operations and from borrowings under its Credit Agreement willbe sufficient in 2010 to fund its working capital needs.

 

Netcash used in investing activities for the first nine months of 2010 totaled$1.7 million. Property, plant and equipment additions amounted to $979,000,mainly for building, leasehold improvements and tooling, while intangible assetadditions amounted to $461,000.

 

Netcash provided by financing activities in the first nine months of 2010 totaled$69,000 and was due to additional bank debt from the prior year end. TheCompany is not expected to pay a dividend in 2010.  The cash used in 2010 for financing activitieswill most likely be limited to debt reduction.

 

Afailure to comply, absent a waiver from lenders, with the covenants containedin the Credit Agreement in future periods could result in any outstandingindebtedness under the Credit Agreement becoming immediately due and payableand in the inability to borrow additional funds under the CreditAgreement.  The Company believes that,for the foreseeable future, it will be able to continue to fund its operationsand seasonal working capital requirements with cash generated from operationsand borrowings under the Credit Agreement.

 

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**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

Criticalaccounting policies and estimates generally consist of those that reflectsignificant judgments and uncertainties and could potentially result inmaterially different results under different assumptions.  For a description of the Company’s criticalaccounting policies and estimates refer to the Company’s Annual Report onForm 10-K for the year ended December 31, 2009. The application ofcertain of these policies requires significant judgments or a historical basedestimation process that can affect the results of operations and financialposition of the Company as well as the related footnote disclosures.  The Company bases its estimates on historicalexperience and other assumptions that it believes are reasonable.  If actual amounts ultimately differ fromprevious estimates, the revisions are included in the Company’s results ofoperations for the period in which the actual amounts become known.

 

**FORWARD-LOOKING STATEMENTS**

 

Thisreport contains forward-looking statements within the meaning of that term inthe Private Securities Litigation Reform Act of 1995 found at Section 27Aof the Securities Act of 1933 and Section 21E of the Exchange Act.  Additional written or oral forward-lookingstatements may be made by the Company from time to time in filings with theSEC, press releases or otherwise. Statements contained in this report that arenot historical facts are forward-looking statements made pursuant to the safeharbor provisions of the Private Securities Litigation Reform Act.  Forward-looking statements may include, but arenot limited to, projections of revenue, income or loss and capitalexpenditures, statements regarding future operations, anticipated financingneeds, compliance with financial covenants in loan agreements, liquidity, plansfor acquisitions or sales of assets or businesses, plans relating to productsor services, assessments of materiality, expansion into international markets,growth trends in the consumer electronics industry, technological and marketdevelopments in the consumer electronics industry, the availability of newconsumer electronics products and predictions of future events, as well asassumptions relating to these statements. In addition, when used in thisreport, the words “anticipates,” “believes,” “should,” “estimates,” “expects,” “intends,”“plans” and variations thereof and similar expressions are intended to identifyforward-looking statements.

 

Forward-lookingstatements are inherently subject to risks and uncertainties, some of whichcannot be predicted or quantified based on current expectations.  Consequently, future events and actualresults could differ materially from those set forth in, contemplated by orunderlying the forward-looking statements contained in this report or in otherCompany filings, press releases, or otherwise. Factors that could contribute to or cause such differences include, butare not limited to, unanticipated developments in any one or more of thefollowing areas:

 

·                  global economic and market conditions,including continuation of or changes in the current economic environment;

·                  ability of the Company to introduce newproducts to meet consumer needs, including timely introductions as new consumertechnologies are introduced, and customer and consumer acceptance of these newproduct introductions;

·                  pressure for the Company to reduce prices forolder products as newer technologies are introduced;

·                  significant competition in the consumerelectronics industry, including introduction of new products and changes inpricing;

·                  factors related to foreign manufacturing,sourcing and sales (including foreign government regulation, trade andimportation, and health and safety concerns, and effects of fluctuation inexchange rates);

·                  ability of the Company to maintain adequatefinancing, to bear the interest cost of such financing and to remain incompliance with financing covenants;

·                  impairment of intangible assets due to marketconditions and/or the Company’s operating results;

·                  changes in law;

·                  ability to successfully integrateacquisitions; and

·                  other risk factors, which may be detailedfrom time to time in the Company’s SEC filings.

 

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Readersare cautioned not to place undue reliance on any forward-looking statementscontained in this report, which speak only as of the date set forth on thesignature page hereto.  The Companyundertakes no obligation to publicly release the result of any revisions tothese forward-looking statements that may be made to reflect events orcircumstances after such date or to reflect the occurrence of anticipated orunanticipated events.

 

**Item 3.  Qualitative andQuantitative Disclosures About Market Risk**

 

Marketrisks related to changes in foreign currency exchange and interest rates areinherent to the Company’s operations. Changes to these factors could causefluctuations in the Company’s net earnings, cash flows and the fair values offinancial instruments subject to market risks. The Company identifies theserisks and periodically mitigates the financial impact with hedging. With theelimination of the interest rate swap in July 2010, the Company is nowsubject to interest rate risk on the portion of the debt that was subject tothis hedge previously. Consequently, future changes in the applicable interestrate will affect the interest expense incurred by the Company’s on itsoutstanding indebtedness.

 

Otherthan the elimination of the interest rate swap in July 2010, there havebeen no material changes in the Company’s market risk since December 31,2009.

 

**Item 4.  Controls and Procedures**

 

TheCompany has established disclosure controls and procedures to ensure thatinformation required to be disclosed in the reports that the Company files orsubmits under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in SEC rules and forms.  The Company’s disclosure controls andprocedures have also been designed to ensure that information required to bedisclosed in the reports that the Company files or submits under the ExchangeAct is accumulated and communicated to the Company’s management, including theprincipal executive officer and principal financial officer, to allow timelydecisions regarding required disclosure.

 

Asof September 30, 2010, the Company carried out an evaluation, under thesupervision and with the participation of the Company’s management, includingthe Company’s principal executive officer and principal financial officer, ofthe effectiveness of the Company’s disclosure controls and procedures.  Based on this evaluation, the principalexecutive officer and principal financial officer of the Company have concludedthat the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act) wereeffective as of September 30, 2010.

 

There has been no change in the Company’s internal control over financialreporting that occurred during the first nine months of 2010 that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

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**PART II**

**OTHER INFORMATION**

 

**Item 1A. Risk Factors**

 

Therehave been no material changes to the risk factors as previously disclosed underItem 1A in our Annual Report on Form 10-K for the year endedDecember 31, 2009.

 

**Item 6. Exhibits**

 
| a)     | Exhibit 10.1  Employment Agreement between Cobra Electronics Corporation and Sally Washlow  dated as of July 28, 2010.                                                                                                                                                                                                           |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                       |
| b)     | Exhibit 10.2  Credit Agreement dated as of July 16, 2010 among Cobra Electronics Corporation,  Harris N.A, as administrative agent, and the lenders party thereto from time  to time — Filed as Exhibit 10.1 to the Registrant’s Current Report on  Form 8-K dated July 16, 2010 (File No. 0-511). |
|   |                                                                                                                                                                                                                                                                                                                                       |
| c)     | Exhibit 31.1  Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive  Officer.                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                       |
| d)     | Exhibit 31.2  Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial  Officer.                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                       |
| e)     | Exhibit 32.1  Section 1350 Certification of the Chief Executive Officer.                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                       |
| f)     | Exhibit 32.2  Section 1350 Certification of the Chief Financial Officer.                                                                                                                                                                                                                                                         |

 

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**SIGNATURE**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                           | COBRA  ELECTRONICS CORPORATION |
|--------------------------------|--------------------------------|
|                           |                           |
|                           | By                             | **/s/ Michael Smith** |
|                           |                           |   |
| ** **                     | ** **                     | **Michael Smith** |
| ** **                     | ** **                     | **Senior Vice President and** |
| ** **                     | ** **                     | **Chief Financial Officer** |
| ** **                     | ** **                     | **(Duly Authorized Officer and Principal Financial  Officer)** |
| ** **                     | ** **                     |
| Dated:  November 12, 2010 | ** **                     |

 

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**INDEX TOEXHIBITS**

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                                               |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.1        |       | Employment  Agreement between Cobra Electronics Corporation and Sally Washlow dated as of  July 28, 2010.                                                                                                                                                                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.2        |       | Credit  Agreement dated as of July 16, 2010 among Cobra Electronics Corporation,  Harris N.A, as administrative agent, and the lenders party thereto from time  to time — Filed as Exhibit 10.1 to the Registrant’s Current Report on  Form 8-K dated July 16, 2010 (File No. 0-511). |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 31.1        |       | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Executive Officer.                                                                                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 31.2        |       | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Financial Officer.                                                                                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 32.1        |       | Section 1350  Certification of the Chief Executive Officer.                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 32.2        |       | Section 1350  Certification of the Chief Financial Officer.                                                                                                                                                                                                                                                         |

 

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