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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)



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



For the quarterly period ended March 31, 2005



OR



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



Commission File Number 0-511



COBRA ELECTRONICS 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



Indicate by check
mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. YES x  NO ̈



Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES ̈NO x



Number of shares of Common Stock of Registrant outstanding at May 4, 2005: 6,444,815



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PART I FINANCIAL INFORMATION



Item 1. Financial Statements



Cobra Electronics Corporation and Subsidiaries

Condensed Consolidated Statements of Earnings

(in thousands, except per share amounts)



|                                                                |  |                                        |        |   |                             |   |        |  
|--------------------------------------------------------------- |  | -------------------------------------- | ------ | - | --------------------------- | - | ------ | -
|                                                                |  | For the Three Months Ended (Unaudited) |       
|                                                                |  | March 31,2005                          |        |   | (As adjusted) March 31,2004 |  
|Net sales                                                       |  | $                                      | 19,290 |   |                             | $ | 22,666 |  
|Cost of sales                                                   |  |                                        | 15,107 |   |                             |   | 17,525 |  
|                                                                |  |                                        |        |   |                             |   |        |  
|Gross profit                                                    |  |                                        | 4,183  |   |                             |   | 5,141  |  
|Selling, general and administrative expenses                    |  |                                        | 6,331  |   |                             |   | 5,919  |  
|                                                                |  |                                        |        |   |                             |   |        |  
|Operating loss                                                  |  |                                        | (2,148 | ) |                             |   | (778   | )
|Other income (expense):                                         |  |                                        |        |   |                             |   |        |  
|Life insurance proceeds receivable, net of cash surrender value |  |                                        | 7,244  |   |                             |   |       |  
|Gain on sale of land                                            |  |                                        | 1,916  |   |                             |   |       |  
|Interest expense                                                |  |                                        | (25    | ) |                             |   | (29    | )
|Other, net                                                      |  |                                        | (39    | ) |                             |   | (78    | )
|                                                                |  |                                        |        |   |                             |   |        |  
|Income (loss) before income taxes                               |  |                                        | 6,948  |   |                             |   | (885   | )
|Tax provision (benefit)                                         |  |                                        | 1,281  |   |                             |   | (321   | )
|                                                                |  |                                        |        |   |                             |   |        |  
|Net earnings (loss)                                             |  | $                                      | 5,667  |   |                             | $ | (564   | )
|                                                                |  |                                        |        |   |                             |   |        |  
|Net earnings (loss) per common share:                           |  |                                        |        |   |                             |   |        |  
|Basic                                                           |  | $                                      | 0.88   |   |                             | $ | (0.09  | )
|Diluted                                                         |  | $                                      | 0.86   |   |                             | $ | (0.09  | )
|Weighted average shares outstanding:                            |  |                                        |        |   |                             |   |        |  
|Basic                                                           |  |                                        | 6,445  |   |                             |   | 6,423  |  
|Diluted                                                         |  |                                        | 6,569  |   |                             |   | 6,630  |  



The accompanying notes are an integral
part of these condensed consolidated financial statements.



2



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Cobra Electronics Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)



|                                                                                                                      |  |                               |         |   |                                               |   |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | --------------------------------------------- | - | ------- | -
|                                                                                                                      |  | As ofMarch 31,2005(Unaudited) |         |   | (As adjusted)As ofDecember 31,2004(Unaudited) |  
|ASSETS:                                                                                                               |  |                               |         |   |                                               |   |         |  
|Current assets:                                                                                                       |  |                               |         |   |                                               |   |         |  
|Cash and cash equivalents                                                                                             |  | $                             | 5,983   |   |                                               | $ | 2,600   |  
|Receivables, less allowance for claims and doubtful accounts of $310 at March 31, 2005, and $270 at December 31, 2004 |  |                               | 16,208  |   |                                               |   | 27,181  |  
|Inventories, primarily finished goods                                                                                 |  |                               | 22,540  |   |                                               |   | 19,551  |  
|Deferred income taxes                                                                                                 |  |                               | 4,660   |   |                                               |   | 5,209   |  
|Loan receivable, less Horizon equity loss of $298 at March 31, 2005, and $274 at December 31, 2004                    |  |                               | 2,212   |   |                                               |   | 2,191   |  
|Life insurance proceeds receivable                                                                                    |  |                               | 11,204  |   |                                               |   |        |  
|Other current assets                                                                                                  |  |                               | 4,630   |   |                                               |   | 3,487   |  
|                                                                                                                      |  |                               |         |   |                                               |   |         |  
|Total current assets                                                                                                  |  |                               | 67,437  |   |                                               |   | 60,219  |  
|                                                                                                                      |  |                               |         |   |                                               |   |         |  
|Property, plant and equipment, at cost:                                                                               |  |                               |         |   |                                               |   |         |  
|Buildings and improvements                                                                                            |  |                               | 5,066   |   |                                               |   | 4,939   |  
|Tooling and equipment                                                                                                 |  |                               | 16,681  |   |                                               |   | 16,318  |  
|                                                                                                                      |  |                               |         |   |                                               |   |         |  
|                                                                                                                      |  |                               | 21,747  |   |                                               |   | 21,257  |  
|Accumulated depreciation                                                                                              |  |                               | (15,240 | ) |                                               |   | (14,792 | )
|Land                                                                                                                  |  |                               | 230     |   |                                               |   | 330     |  
|                                                                                                                      |  |                               |         |   |                                               |   |         |  
|Net property, plant and equipment                                                                                     |  |                               | 6,737   |   |                                               |   | 6,795   |  
|                                                                                                                      |  |                               |         |   |                                               |   |         |  
|Other assets:                                                                                                         |  |                               |         |   |                                               |   |         |  
|Cash surrender value of officers life insurance policies                                                             |  |                               | 3,007   |   |                                               |   | 7,024   |  
|Intangible assets                                                                                                     |  |                               | 8,321   |   |                                               |   | 8,182   |  
|Other assets                                                                                                          |  |                               | 108     |   |                                               |   |        |  
|                                                                                                                      |  |                               |         |   |                                               |   |         |  
|Total other assets                                                                                                    |  |                               | 11,436  |   |                                               |   | 15,206  |  
|                                                                                                                      |  |                               |         |   |                                               |   |         |  
|Total assets                                                                                                          |  | $                             | 85,610  |   |                                               | $ | 82,220  |  
|                                                                                                                      |  |                               |         |   |                                               |   |         |  



The accompanying notes are an integral
part of these condensed consolidated financial statements.



3



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Cobra Electronics Corporation and Subsidiaries

Condensed Consolidated Balance Sheets - Continued

(in thousands, except share data)



|                                                                                                   |  |                               |        |   |                                               |   |        |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------ | - | --------------------------------------------- | - | ------ | -
|                                                                                                   |  | As ofMarch 31,2005(Unaudited) |        |   | (As adjusted)As ofDecember 31,2004(Unaudited) |  
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                              |  |                               |        |   |                                               |   |        |  
|Current liabilities:                                                                               |  |                               |        |   |                                               |   |        |  
|Accounts payable                                                                                   |  | $                             | 5,187  |   |                                               | $ | 4,785  |  
|Accrued salaries and commissions                                                                   |  |                               | 629    |   |                                               |   | 1,074  |  
|Accrued advertising and sales promotion costs                                                      |  |                               | 2,105  |   |                                               |   | 2,470  |  
|Accrued product warranty costs                                                                     |  |                               | 1,137  |   |                                               |   | 1,277  |  
|Accrued income taxes                                                                               |  |                               | 1,148  |   |                                               |   | 1,790  |  
|Other accrued liabilities                                                                          |  |                               | 931    |   |                                               |   | 1,696  |  
|                                                                                                   |  |                               |        |   |                                               |   |        |  
|Total current liabilities                                                                          |  |                               | 11,137 |   |                                               |   | 13,092 |  
|                                                                                                   |  |                               |        |   |                                               |   |        |  
|Non-current liabilities:                                                                           |  |                               |        |   |                                               |   |        |  
|Deferred compensation                                                                              |  |                               | 5,774  |   |                                               |   | 5,564  |  
|Deferred income taxes                                                                              |  |                               | 2,788  |   |                                               |   | 3,206  |  
|Other long term liabilities                                                                        |  |                               | 396    |   |                                               |   | 399    |  
|                                                                                                   |  |                               |        |   |                                               |   |        |  
|Total non-current liabilities                                                                      |  |                               | 8,958  |   |                                               |   | 9,169  |  
|                                                                                                   |  |                               |        |   |                                               |   |        |  
|Total liabilities                                                                                  |  |                               | 20,095 |   |                                               |   | 22,261 |  
|                                                                                                   |  |                               |        |   |                                               |   |        |  
|Shareholders equity:                                                                              |  |                               |        |   |                                               |   |        |  
|Preferred stock, $1 par value, shares authorized-1,000,000; none issued                            |  |                               |       |   |                                               |   |       |  
|Common stock, $.33 1/3 par value, 12,000,000 shares authorized; 7,039,100 issued for 2005 and 2004 |  |                               | 2,345  |   |                                               |   | 2,345  |  
|Paid-in capital                                                                                    |  |                               | 19,650 |   |                                               |   | 19,650 |  
|Retained earnings                                                                                  |  |                               | 47,768 |   |                                               |   | 42,103 |  
|Accumulated other comprehensive loss                                                               |  |                               | (126   | ) |                                               |   | (17    | )
|                                                                                                   |  |                               |        |   |                                               |   |        |  
|                                                                                                   |  |                               | 69,637 |   |                                               |   | 64,081 |  
|Treasury stock, at cost (594,285 shares for 2005 and 2004)                                         |  |                               | (3,722 | ) |                                               |   | (3,722 | )
|Officers note receivable                                                                          |  |                               | (400   | ) |                                               |   | (400   | )
|                                                                                                   |  |                               |        |   |                                               |   |        |  
|Total shareholders equity                                                                         |  |                               | 65,515 |   |                                               |   | 59,959 |  
|                                                                                                   |  |                               |        |   |                                               |   |        |  
|Total liabilities and shareholders equity                                                         |  | $                             | 85,610 |   |                                               | $ | 82,220 |  
|                                                                                                   |  |                               |        |   |                                               |   |        |  



The accompanying notes are an integral
part of these condensed consolidated financial statements.



4



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Cobra Electronics Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)



|                                                                                          |  |                                        |         |   |                            |   |        |  
|----------------------------------------------------------------------------------------- |  | -------------------------------------- | ------- | - | -------------------------- | - | ------ | -
|                                                                                          |  | For the Three Months Ended (Unaudited) |        
|                                                                                          |  | March 31,2005                          |         |   | (As adjusted)March 31,2004 |  
|Cash flows from operating activities:                                                     |  |                                        |         |   |                            |   |        |  
|Net earnings (loss)                                                                       |  | $                                      | 5,667   |   |                            | $ | (564   | )
|Adjustments to reconcile net earnings (loss) to net cash flows from operating activities: |  |                                        |         |   |                            |   |        |  
|Equity loss in Horizon                                                                    |  |                                        | 24      |   |                            |   | 34     |  
|Depreciation and amortization                                                             |  |                                        | 850     |   |                            |   | 757    |  
|Deferred income taxes                                                                     |  |                                        | 132     |   |                            |   |       |  
|Gain on cash surrender value (CSV) life insurance                                       |  |                                        | 57      |   |                            |   | (20    | )
|Life insurance proceeds receivable                                                        |  |                                        | (11,204 | ) |                            |   |       |  
|CSV of ex-officers life insurance policy                                                 |  |                                        | 3,960   |   |                            |   |       |  
|Gain on sale of land                                                                      |  |                                        | (1,915  | ) |                            |   |       |  
|Changes in assets and liabilities:                                                        |  |                                        |         |   |                            |   |        |  
|Receivables                                                                               |  |                                        | 10,943  |   |                            |   | 4,502  |  
|Inventories                                                                               |  |                                        | (2,955  | ) |                            |   | 1,206  |  
|Other current assets                                                                      |  |                                        | (1,174  | ) |                            |   | (266   | )
|Intangible assets                                                                         |  |                                        | (543    | ) |                            |   | (1,098 | )
|Accounts payable                                                                          |  |                                        | 399     |   |                            |   | 957    |  
|Accrued income taxes                                                                      |  |                                        | (635    | ) |                            |   | (12    | )
|Accrued liabilities                                                                       |  |                                        | (1,689  | ) |                            |   | (2,345 | )
|Deferred compensation                                                                     |  |                                        | 209     |   |                            |   | 224    |  
|Other long term liabilities                                                               |  |                                        | (2      | ) |                            |   | 355    |  
|                                                                                          |  |                                        |         |   |                            |   |        |  
|Net cash flows provided by operating activities                                           |  |                                        | 2,124   |   |                            |   | 3,730  |  
|                                                                                          |  |                                        |         |   |                            |   |        |  
|Cash flows provided (used) in investing activities:                                       |  |                                        |         |   |                            |   |        |  
|Capital expenditures                                                                      |  |                                        | (385    | ) |                            |   | (638   | )
|Loan receivable                                                                           |  |                                        | (46     | ) |                            |   | (279   | )
|Premiums on CSV life insurance                                                            |  |                                        |        |   |                            |   | (5     | )
|Proceeds on sale of land                                                                  |  |                                        | 2,015   |   |                            |   |       |  
|                                                                                          |  |                                        |         |   |                            |   |        |  
|Net cash flows provided by (used) in investing activities                                 |  |                                        | 1,584   |   |                            |   | (922   | )
|                                                                                          |  |                                        |         |   |                            |   |        |  
|Effect of exchange rate changes on cash and cash equivalents                              |  |                                        | (325    | ) |                            |   | 209    |  
|                                                                                          |  |                                        |         |   |                            |   |        |  
|Net increase in cash                                                                      |  |                                        | 3,383   |   |                            |   | 3,017  |  
|Cash at beginning of period                                                               |  |                                        | 2,600   |   |                            |   | 4,736  |  
|                                                                                          |  |                                        |         |   |                            |   |        |  
|Cash at end of period                                                                     |  | $                                      | 5,983   |   |                            | $ | 7,753  |  
|                                                                                          |  |                                        |         |   |                            |   |        |  
|Supplemental disclosure of cash flow information:                                         |  |                                        |         |   |                            |   |        |  
|Cash paid during the period for:                                                          |  |                                        |         |   |                            |   |        |  
|Interest                                                                                  |  | $                                      | 25      |   |                            | $ | 29     |  
|Income taxes                                                                              |  | $                                      | 1,810   |   |                            | $ | 140    |  



The accompanying notes are an integral
part of these condensed consolidated financial statements.



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Cobra Electronics Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the three month periods ended March 31, 2005 and 2004

(Unaudited)



The condensed consolidated financial statements included herein have been prepared by Cobra
Electronics Corporation (the Company or Cobra), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. The Condensed Consolidated Balance Sheet as of December 31, 2004 has been derived from the audited consolidated balance sheets as of that date. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys latest annual report on Form 10-K for the year ended December 31, 2004. In the opinion of management, the
information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. Due to the seasonality of the Companys business, the results of operations of any
interim period are not necessarily indicative of the results that may be expected for a fiscal year.



(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



BUSINESS  The Company designs and markets consumer electronics products, which it sells primarily under the Cobra brand name principally in the United States,
Canada and Europe. A majority of the Companys products are purchased from overseas suppliers, primarily in China, Hong Kong and the Philippines. The consumer electronics market is characterized by rapidly changing technology and certain
products may have limited life cycles. Management believes that it maintains strong relationships with its current suppliers and that, if necessary, other suppliers could be found. The extent to which a change in a supplier would have an adverse
effect on the Companys business depends on the timing of the change, the product or products that the supplier produces for the Company and the volume of that production. The Company also maintains insurance coverage that would, in certain
limited circumstances, reimburse the Company for lost profits resulting from a suppliers inability to fulfill its commitments to the Company.



PRINCIPLES OF CONSOLIDATION  The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. The
Companys loan receivable from Horizon Navigation, Inc. (Horizon) is accounted for by the equity method based on the percentage of common stock warrants to total common stock outstanding. Certain previously reported amounts have
been adjusted



6



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to reflect the Companys ownership percentage on a retroactive basis. Please refer to Note 8 in the annual report on Form 10-K for the year ended
December 31, 2004 for more information. All significant intercompany balances and transactions have been eliminated in consolidation.



TRANSLATION OF FOREIGN CURRENCIES  Assets and liabilities of consolidated foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at
quarter end. Revenues and expenses are translated at average exchange rates prevailing during the quarter. Gains or losses on foreign currency transactions and the related tax effects are reflected in net earnings. The resulting translation
adjustments are included in stockholders equity as accumulated comprehensive income.



USE OF ESTIMATES  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period that are largely based on
the current business conditions, including economic climate, revenue growth, sales returns rates, net realizable value of returned products and changes in certain working capital amounts. The Company believes its estimates and assumptions are
reasonable. However, actual results and the timing of the recognition of such amounts could differ from those estimates.



ACCOUNTS RECEIVABLE  The majority of the Companys accounts receivable are due from retailers and two-step distributors. Credit is extended based on an
evaluation of a customers financial condition, including the availability of credit insurance, and, generally, collateral is not required. Accounts receivable are due within various specific customer terms and are stated at amounts due from
customers net of an allowance for claims and doubtful accounts.



The Company
determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Companys previous loss history, the customers current ability to pay its obligation to the Company,
availability of credit insurance and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable against the allowance for claims and doubtful accounts when they are judged to be uncollectible, and
payments subsequently received on such receivables are credited to customer claims or bad debt expense.



INVENTORIES  Inventories are recorded at the lower of cost, on a first-in, first-out basis, or market.



ADVERTISING AND SALES PROMOTION EXPENSES  These costs reflect amounts provided to retailers and distributors for advertising and sales promotions and are expensed
as incurred. Customer programs, agreed to at the beginning of each year, are mainly variable programs dependent on sales and may be revised during the course of the year, based upon a customers projected sales and other factors, such as new
promotional opportunities.



COMPREHENSIVE INCOME (LOSS) The
Company reports comprehensive income under the provisions of Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.Comprehensive income is defined as the change in equity of a
business enterprise from transactions and other events from non-owner sources. Comprehensive income includes net earnings and other non-owner changes in equity that bypass the statement of earnings and are reported as a separate



7



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component of equity. For the quarters ended March 31, 2005 and 2004, other comprehensive income includes only one component, which is the change in the
foreign currency translation adjustment.



CONCENTRATION OF CREDIT RISK 
The Company places temporary cash investments with institutions of high credit quality. The Company has a broad customer base doing business in all regions of the United States as well as other areas of North America and Europe. In addition, the
Company maintains credit insurance for over 17% of its outstanding accounts receivable balances at March 31, 2005.



At March 31, 2005 and 2004, the Company had approximately $6.0 million and $7.8 million, respectively, on deposit with financial institutions, of which $5.9 million and
$7.7 million, respectively, was in excess of amounts insured by the Federal Deposit Insurance Corporation. The Company performs periodic evaluations of these institutions for relative credit standing and has not experienced any losses as a result of
this concentration. Consequently, no significant concentration of credit risk is considered to exist.



DEPRECIATION  Depreciation of buildings, improvements, tooling and equipment is computed using the straight-line method over the following estimated useful lives:



|                      |  |  |  |            
|--------------------- |  |  |  | -----------
|Classification        |  |  |  | Life       
|Buildings             |  |  |  | 30 years   
|Building improvements |  |  |  | 20 years   
|Motor vehicles        |  |  |  | 3-5 years  
|Equipment             |  |  |  | 5-10 years 
|Tools, dies and molds |  |  |  | 1.5-3 years



LONG-LIVED ASSETS  Long-lived
assets are reviewed for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable. If such a review indicates impairment, the carrying amount of such assets is reduced to an estimated fair value.



LOAN RECEIVABLE  The Company evaluates the collectibility of its loan
receivable from Horizon based on the Companys security interest in substantially all of Horizons assets and the anticipated revenue stream from royalties due to Horizon from the Company. In addition, an independent valuation specialist
performed a valuation analysis of the value of Cobras security interest in Horizons assets. On the basis of this analysis, management concluded that the value of the Companys security interest in Horizons assets was greater
than the outstanding loan receivable at March 31, 2005.



Certain amounts of
callable and non-callable warrants to purchase shares of common stock of Horizon are issued to the Company each time the Company makes loans to Horizon in excess of specified amounts and the Company has assigned no value to these warrants. If the
Company converted all of its exercisable warrants at March 31, 2005, its ownership percentage would be 22.7%. Consequently, the Company adopted the equity method of accounting and adjusted prior period comparative financial statements during the
first quarter of 2005 to reflect its percentage share of Horizons net losses.



RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT EXPENDITURES  Research, engineering and product development expenditures are expensed as incurred.



8



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SHIPPING AND HANDLING COSTS  Shipping and handling costs are included in cost of goods sold, and the amounts
invoiced to customers relating to shipping and handling are included in net sales.



SOFTWARE RELATED TO PRODUCTS TO BE SOLD - The Company purchases and/or incurs costs in connection with the development of software to be used in products that the Company intends to sell. Such costs are capitalized and deferred as
intangible assets in accordance with SFAS No. 86, Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Such costs consist of expenditures incurred after technological feasibility of the software has been
established and a working model of the product developed and consist principally of coding and related costs. Such costs are charged to earnings based on the ratio of actual product sales during the reporting period to expected product sales over
the estimated product life cycle. Software related intangible assets are reviewed for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable. If such a review indicates impairment, the carrying
amount of such assets is reduced to an estimated fair value.



STOCK OPTIONS
 The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for the Plans. Accordingly, no compensation cost has been recognized as options are granted with an exercise price equal to the fair
market value of the Companys common stock on the date of grant. Had compensation cost been determined consistent with SFAS No. 123, Accounting for Stock-Based Compensation, which requires measuring compensation cost at the fair
value of the options granted, the Companys net earnings and net earnings per common share would have been adjusted to the pro forma amounts indicated below (in thousands, except per share amounts):



|                                                                                                                                            |  |                                   |       |   |                    |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | - | ------------------ | - | ----- | -
|                                                                                                                                            |  | Quarter Ended March 31(Unaudited) |      
|                                                                                                                                            |  | 2005                              |       |   | (As adjusted) 2004 |  
|Net earnings (loss), as reported                                                                                                            |  | $                                 | 5,667 |   |                    | $ | (564  | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                   | (21   | ) |                    |   | (29   | )
|                                                                                                                                            |  |                                   |       |   |                    |   |       |  
|Pro forma net earnings (loss)                                                                                                               |  | $                                 | 5,646 |   |                    | $ | (593  | )
|                                                                                                                                            |  |                                   |       |   |                    |   |       |  
|Net earnings (loss) per common share:                                                                                                       |  |                                   |       |   |                    |   |       |  
|Basic  as reported                                                                                                                         |  | $                                 | 0.88  |   |                    | $ | (0.09 | )
|Basic  pro forma                                                                                                                           |  |                                   | 0.88  |   |                    |   | (0.09 | )
|Diluted  as reported                                                                                                                       |  | $                                 | 0.86  |   |                    | $ | (0.09 | )
|Diluted  pro forma                                                                                                                         |  |                                   | 0.86  |   |                    |   | (0.09 | )



The fair value of each option, for
each quarter, is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: no dividends; expected volatility ranging from 42 to 45 percent; risk-free interest rate ranging from
4.1 to 4.7 percent; and expected lives of 10 years.



9



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INCOME TAXES  The Company provides for income taxes under the asset and liability method of accounting for deferred
income taxes. Deferred tax assets and liabilities are recorded based on the expected tax effects of future taxable income or deductions resulting from differences in the financial statement and tax bases of assets and liabilities. A valuation
allowance is recorded when necessary to reduce net deferred tax assets to the amount considered more likely than not to be realized. For the first quarter of 2005, income tax expense increased $1.6 million, however, the effective tax rate was 18.4%
compared to 36.3% in the first quarter of 2004. The lower effective tax rate reflected the net proceeds from life insurance which are non-taxable.



REVENUE RECOGNITION  Revenue from the sale of goods is recognized at the time of shipment, except for revenue from sales of products to certain of those customers
whose contractual terms specify FOB destination. Revenue from sales of products to these customers is recognized at the estimated time of receipt by the customer (estimated based on the average shipping time for all such customers), when title and
risk of loss would pass to the customer. Obligations for sales returns and allowances and product warranties are recognized at the time of sale on an accrual basis.



ERP SYSTEM COSTS  The Company capitalizes certain costs associated with ERP software developed or obtained for internal use in
accordance with Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. The Companys policy provides for the capitalization of external direct costs of materials and
services associated with developing or obtaining internal use ERP software. Costs associated with preliminary project activities and training are expensed as incurred. Capitalized costs related to ERP software developed or obtained for internal use
are amortized over a seven year period on a straight-line basis.



RECLASSIFICATION  Certain previously reported amounts have been reclassified to conform to the current period presentation.



NEW ACCOUNTING PRONOUNCEMENTS



In April 2005, the SEC announced the adoption of a new rule that amends the compliance dates for Financial Accounting Standards Boards Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement No. 123R). Under Statement No. 123R, the Company would have been required to implement the standard as of the beginning of the first interim or annual period that begins
after June 15, 2005, or in the interim reporting period ending September 30, 2005. The SECs new rule allows the Company to implement Statement No. 123R at the beginning of its next fiscal year, and accordingly, the Company will begin to
reflect the adjustment to earnings for the impact of this accounting pronouncement in the interim reporting period ending March 31, 2006.



(2) PURCHASE ORDERS AND COMMITMENTS



At March 31, 2005 and 2004, the Company had outstanding inventory purchase orders with suppliers totaling approximately $28.0 million and $19.0 million, respectively.



10



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(3) EARNINGS PER SHARE



|                                                                 |  |                                       |           |   |                             |   |           |  
|---------------------------------------------------------------- |  | ------------------------------------- | --------- | - | --------------------------- | - | --------- | -
|                                                                 |  | For the Three Months Ended(Unaudited) |          
|                                                                 |  | March 31,2005                         |           |   | (As adjusted) March 31,2004 |  
|Basic earnings (loss) per share:                                 |  |                                       |           |   |                             |   |           |  
|Net earnings (loss) available to common shareholders (thousands) |  | $                                     | 5,667     |   |                             | $ | (564      | )
|Weighted-average shares outstanding                              |  |                                       | 6,444,815 |   |                             |   | 6,422,528 |  
|                                                                 |  |                                       |           |   |                             |   |           |  
|Basic earnings (loss) per share                                  |  | $                                     | 0.88      |   |                             | $ | (0.09     | )
|                                                                 |  |                                       |           |   |                             |   |           |  
|Diluted earnings (loss) per share:                               |  |                                       |           |   |                             |   |           |  
|Weighted-average shares outstanding                              |  |                                       | 6,444,815 |   |                             |   | 6,422,528 |  
|Dilutive shares issuable in connection with stock option plans   |  |                                       | 613,848   |   |                             |   | 639,598   |  
|Less: shares purchasable with proceeds                           |  |                                       | (489,746  | ) |                             |   | (432,212  | )
|                                                                 |  |                                       |           |   |                             |   |           |  
|Total                                                            |  |                                       | 6,568,917 |   |                             |   | 6,629,914 |  
|                                                                 |  |                                       |           |   |                             |   |           |  
|Diluted earnings (loss) per share                                |  | $                                     | 0.86      |   |                             | $ | (0.09     | )
|                                                                 |  |                                       |           |   |                             |   |           |  



(4)
COMPREHENSIVE INCOME



Comprehensive income (loss) for the three months ended
March 31, 2005 and March 31, 2004 was as follows (in thousands):



|                                                         |  |                                        |       |   |                            |   |      |  
|-------------------------------------------------------- |  | -------------------------------------- | ----- | - | -------------------------- | - | ---- | -
|                                                         |  | For the Three Months Ended (Unaudited) |      
|                                                         |  | March 31, 2005                         |       |   | (As adjusted)March 31,2004 |  
|Net earnings (loss)                                      |  | $                                      | 5,667 |   |                            | $ | (564 | )
|Accumulated other comprehensive (loss) income:           |  |                                        |       |   |                            |   |      |  
|Foreign currency translation adjustments (no tax effect) |  |                                        | (109  | ) |                            |   | 14   |  
|                                                         |  |                                        |       |   |                            |   |      |  
|Accumulated other comprehensive (loss) income            |  |                                        | (109  | ) |                            |   | 14   |  
|                                                         |  |                                        |       |   |                            |   |      |  
|Total comprehensive income (loss)                        |  | $                                      | 5,558 |   |                            | $ | (550 | )
|                                                         |  |                                        |       |   |                            |   |      |  



11



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(5) FINANCIAL INSTRUMENTS



The Company operates globally with various manufacturing and distribution facilities and product sourcing locations around the world. The
Company may reduce its exposure to fluctuations in foreign exchange rates by creating offsetting positions through derivative financial instruments. The Company currently does not use derivative financial instruments for trading or speculative
purposes. The Company regularly monitors foreign exchange exposures and ensures hedge contract amounts do not exceed the amounts of the underlying exposures.



The Companys current hedging activity is limited to foreign currency purchases. The purpose of the Companys foreign currency hedging activities is to protect
the Company from the risk that eventual settlement of foreign currency transactions will be affected adversely by changes in exchange rates. The Company hedges these exposures by entering into various short-term foreign exchange forward contracts.
Under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the instruments are carried at fair value in the Condensed Consolidated Balance Sheets as a component of current liabilities. Changes in the fair value of
foreign exchange forward contracts that meet the applicable hedging criteria of SFAS No. 133 are recorded as a component of accumulated other comprehensive income and reclassified into earnings in the same period during which the hedged transaction
affects earnings. Changes in the fair value of foreign exchange forward contracts that do not meet the applicable hedging criteria of SFAS No. 133 are recorded currently in income as cost of sales. Foreign exchange forward contract activities
resulted in a $353,000 gain during the three months ended March 31, 2005.



(6) INTANGIBLE ASSETS



Intangible assets
consist of the following at March 31, 2005 and December 31, 2004 (in thousands):



|                              |  |                          |        |   |                             |   |        |  
|----------------------------- |  | ------------------------ | ------ | - | --------------------------- | - | ------ | -
|                              |  | March 31,2005(Unaudited) |        |   | December 31,2004(Unaudited) |  
|Internal use software         |  | $                        | 1,658  |   |                             | $ | 1,657  |  
|Less accumulated amortization |  |                          | (1,558 | ) |                             |   | (1,545 | )
|                              |  |                          |        |   |                             |   |        |  
|                              |  |                          | 100    |   |                             |   | 112    |  
|                              |  |                         
|ERP internal software system  |  |                          | 2,133  |   |                             |   | 1,808  |  
|Less accumulated amortization |  |                          | (35    | ) |                             |   |       |  
|                              |  |                          |        |   |                             |   |        |  
|                              |  |                          | 2,098  |   |                             |   | 1,808  |  
|                              |  |                         
|Trademarks and patents        |  |                          | 1,479  |   |                             |   | 1,486  |  
|Less accumulated amortization |  |                          | (467   | ) |                             |   | (455   | )
|                              |  |                          |        |   |                             |   |        |  
|                              |  |                          | 1,012  |   |                             |   | 1,031  |  
|                              |  |                         
|Software license              |  |                          | 450    |   |                             |   | 450    |  
|Less accumulated amortization |  |                          | (126   | ) |                             |   | (125   | )
|                              |  |                          |        |   |                             |   |        |  
|                              |  |                          | 324    |   |                             |   | 325    |  
|                              |  |                         
|Product software              |  |                          | 6,325  |   |                             |   | 6,123  |  
|Less accumulated amortization |  |                          | (1,538 | ) |                             |   | (1,217 | )
|                              |  |                          |        |   |                             |   |        |  
|                              |  |                          | 4,787  |   |                             |   | 4,906  |  
|                              |  |                          |        |   |                             |   |        |  
|Total                         |  | $                        | 8,321  |   |                             | $ | 8,182  |  
|                              |  |                          |        |   |                             |   |        |  



12



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Internal use software is generally amortized over its weighted average estimated life, which is 3 years. The
Companys new ERP internal software system is being amortized over its weighted average estimated life of seven years. Trademarks are generally amortized over their weighted average estimated life of 20 years and patents are amortized over
their weighted average estimated life of 17 years. The software license amortization is based on the number of units sold during the reporting period times the contract royalty rate, as the license waives royalties on sales of products using the
software, up to the cost of the license. Product software assets are amortized based on the percentage of revenues generated in each reporting period to the total revenues expected over the weighted average estimated product life cycle. Total
amortization expense for the three months ended March 31, 2005 and 2004 was $382,000 and $195,000, respectively. Management believes that the reported intangible assets values are without impairment and reflect the fair value of the Companys
intangible assets as of March 31, 2005.



(7)
CONTINGENCIES



The Company warrants to the consumer who purchases its products
that it will repair or replace, without charge, defective products within a specified time period, generally one year. The Company also has a return policy for its customers that allow them to return, to the Company, products returned to them by
their customers for full or partial credit based on when the Companys customer last purchased these products. Consequently, it maintains a warranty reserve, which reflects historical warranty returns rates by product category multiplied by the
most recent six months of unit sales of that model and the unit cost of the model. A roll-forward of the warranty reserve is as follows (in thousands):



|                                                    |  |                                               |       |   |                                        |   |        |  
|--------------------------------------------------- |  | --------------------------------------------- | ----- | - | -------------------------------------- | - | ------ | -
|                                                    |  | Three months ended March 31, 2005 (Unaudited) |       |   | Year endedDecember 31, 2004(Unaudited) |  
|Accrued product warranty costs, beginning of period |  | $                                             | 1,277 |   |                                        | $ | 1,524  |  
|Warranty provision                                  |  |                                               | 385   |   |                                        |   | 3,448  |  
|Warranty expenditures                               |  |                                               | (525  | ) |                                        |   | (3,695 | )
|                                                    |  |                                               |       |   |                                        |   |        |  
|Accrued product warranty costs, end of period       |  | $                                             | 1,137 |   |                                        | $ | 1,277  |  
|                                                    |  |                                               |       |   |                                        |   |        |  



13



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(8) LOAN RECEIVABLE



On January 8, 2003, the Company entered into a loan agreement with Horizon, a California corporation and vendor to the Company, that was
subsequently modified on February 6, 2003. The outstanding loan receivable balance as of March 31, 2005 was $2,510,000 including approximately $260,000 of accrued interest. Net of the loss attributable to the application of the equity method of
accounting, the loan receivable balance as of March 31, 2005 was $2,212,000. Horizon may borrow up to $2,000,000 per annum, at Cobras discretion, up to an aggregate amount of $6,000,000 at December 31, 2005. The loan accrues interest at a
variable rate at a fixed margin above the prime rate. The loan agreement provides that the interest will be added to the principal amount of the loan. The outstanding principal amount, together with all accrued and unpaid interest is due on December
31, 2005. The loan is secured by substantially all of the assets of Horizon. In addition, an independent valuation specialist performed a valuation analysis of the value of Cobras security interest in Horizons assets as of December 31,
2004. On the basis of this analysis, management concluded that the value of the Companys security interest in Horizons assets was greater than the outstanding loan receivable amount at March 31, 2005.



Certain amounts of callable and non-callable warrants to purchase shares of common stock of
Horizon are issued to the Company each time the Company makes loans to Horizon in excess of specified amounts and the Company has assigned no value to these warrants. If the Company converted all of its exercisable warrants at March 31, 2005, its
ownership percentage would be 22.7%.As a result, during the first quarter of 2005, the Company adopted the equity method of accounting for Horizon, recognizing a $24,000 pre-tax loss for its percentage share of Horizons first quarter
loss.



Additionally, the Company has applied step by step accounting for its
quarterly percentage share of Horizons losses since the inception of its loan to Horizon in the first quarter of 2003, thereby resulting in recognition of $34,000 of pre-tax loss in the first quarter of 2004 and a cumulative percentage pre-tax
loss of $274,000, which is reflected in the Companys adjusted financial statements at December 31, 2004.



(9) OTHER INCOME



The $9.1 million increase in other income resulted primarily from two significant one-time events. During the first quarter of 2005, the Company recorded a $7.2 million
gain (that is non-taxable, except for alternative minimum tax), associated with the payment of a death benefit from life insurance maintained by the company to fund a deferred compensation program for a former executive, Jerry Kalov. The Company
recorded an $11.2 million life insurance receivable to account for the proceeds, which was received in April 2005. The Company maintains insurance policies on the lives of certain current and former senior executives to provide a funding mechanism
to pay retirement benefits under deferred compensation plans and recoup the cost through death benefits. The Company also recorded a $1.9 million gain from the sale of unimproved property located adjacent to its office and warehouse facility in
Chicago.



14



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



ANALYSIS OF RESULTS OF OPERATIONS



Executive Summary



The Company had net earnings, after accounting for certain non-operating gains, of $5.7
million, or $0.86 per diluted share in the first quarter of 2005 compared to a net loss of $564,000 or ($0.09) per diluted share, in the first quarter of 2004. Net sales for the first quarter of 2005 declined to $19.3 million, compared to net sales
of $22.7 million in the first quarter of 2004, due to a shift to the second quarter of new product reset shipments to one of the Companys larger customers and mobile navigation product returns and discounts that resulted from retailer
overestimation of fourth quarter 2004 demand. Gross margin decreased to 21.7% in the first quarter of 2005 compared to 22.7% in the first quarter of 2004. Operating expenses increased $412,000 over the first quarter of 2004 as a result of expenses
associated with the Companys new ERP system and compliance with Section 404 of the Sarbanes-Oxley Act of 2002.



During the first quarter, the Company also recorded a $7.2 million gain associated with payment of a death benefit from life insurance maintained by the Company to fund a
deferred compensation program for a former executive, Jerry Kalov. The Company recorded a $1.9 million gain from the sale of unimproved property located adjacent to its office and warehouse facility in Chicago.



The declining trend in the two-way radio market is expected to continue in 2005, although at
a slower rate of decline. The Company anticipates that this revenue decline will be offset by increased sales in Detection products, mobile navigation, Citizens Band radios and marine products and increased sales in Europe. The Company also expects
improvements in gross margins and operating margins, resulting in higher net earnings in 2005 versus 2004.



First Quarter 2005 vs. First Quarter 2004



For the quarter ended March 31, 2005, the Company reported net earnings, after certain non-operating gains, of $5.7 million, or $0.86 per
diluted share compared to a net loss of $564,000, or $(0.09) per diluted share, in the first quarter of 2004. The higher net earnings compared to the net loss in 2004 resulted primarily from a $7.2 million gain on insurance and a $1.9 million gain
on the sale of land, partially offset by an operating loss of $2.1 million.



Net sales for the first quarter of 2005 decreased to $19.3 million from net sales of $22.7 million in the first quarter of 2004. One key factor in the decline of net sales was a significant shift of new product reset shipments to one of the
Companys largest customers from the first quarter of 2005 to the second quarter. The other key factor was mobile navigation product returns and discounts that resulted from retailer overestimation of fourth quarter demand. Partially offsetting
the decrease in net sales were $2.0 million in net sales of Citizens Band radios and Detection products to one customer that the Company did not sell to in the first quarter of 2004.



Gross margin decreased in the first quarter of 2005 to 21.7% from 22.7%, primarily attributable to the losses associated with the mobile
navigation product returns and discounts, partially offset by a $353,000 gain on forward exchange contracts and a reversal of $298,000 in previously accrued funds from 2004 for customer pricing programs compared to a similar reversal of $42,000 from
2003 in the first quarter of 2004.



15



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Net selling, general and administrative expenses increased $412,000 in the first quarter of 2005 from the same period a
year ago and increased as a percentage of net sales to 32.8% from 26.1%. This increase represented additional expenses associated with the Companys new ERP system and consulting for compliance with Section 404 of the Sarbanes-Oxley Act of
2002. Additionally, variable selling expenses for the first quarter of 2005 included a reversal of $142,000 in accrued unused program funds from 2004 as compared to a similar reversal of $88,000 from 2003 in the first quarter of 2004.



The $9.1 million increase in other income resulted primarily from two significant one-time
events. During the first quarter of 2005, the Company recorded a $7.2 million gain (that is non-taxable, except for alternative minimum tax), associated with the payment of a death benefit from life insurance maintained by the Company to fund a
deferred compensation program for a former executive, Jerry Kalov. The Company maintains insurance policies on the lives of certain current and former senior executives to provide a mechanism to pay retirement benefits under deferred compensation
plans and recoup the cost through death benefits. The Company also recorded a $1.9 million gain from the sale of unimproved property located adjacent to its office and warehouse facility in Chicago. Other income was reduced by a $24,000 loss for the
initial recognition of the Companys pro-rated share of Horizons loss as a result of adopting the equity method of accounting. Additionally, the Company has applied step by step accounting for its quarterly pro-rated share of
Horizons losses since the inception of its loan to Horizon in the first quarter of 2003, thereby resulting in recognition of $34,000 of additional pre-tax loss in the first quarter of 2004 and a cumulative pro-rated pre-tax loss of $274,000,
which is reflected in the Companys financial statements as of December 31, 2004.



For the first quarter of 2005, income tax expense increased $1.6 million, however, the effective tax rate was 18.4% compared to 36.3% in the first quarter of 2004. The lower effective tax rate reflected the non-taxable effect of the gain on
life insurance.



LIQUIDITY AND CAPITAL
RESOURCES



The Company is party to a revolving credit agreement for $45
million with three financial institutions, which extends until January 31, 2006. As of March 31, 2005, the Company obtained a waiver letter and amendment to cover an increase in the permitted quarterly loss before interest and taxes and decreases in
the required rolling twelve months earnings before interest and taxes for the first quarter and for the balance of the year. Absent such waivers and amendment, the Company would have been in violation of the relevant loan covenants. Borrowings and
letters of credit issued under the agreement are secured by substantially all of the assets of the Company, with the exception of real property and the cash surrender value of certain life insurance policies owned by the Company. Loans outstanding
under the credit agreement, as amended, bear interest, at the Companys option, at 25 basis points below the prime rate or at LIBOR plus 175 basis points.



At March 31, 2005, the Company had no interest bearing debt outstanding and approximately $19.4 million available under this credit line based on asset advance
formulas.



16



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The credit agreement specifies that the Company may not pay cash dividends and contains certain financial and other
covenants, including a requirement that James R. Bazet continue as CEO of the Company.



Net cash flows generated from operating activities were $2.1 million during the first quarter of 2005 primarily due to a large reduction in accounts receivable of $10.9 million as a result of high collections activity and the lower sales
volume in the current quarter. Partially offsetting this inflow was an increase in inventory of $3.0 million, a decrease in accrued liabilities of $1.7 million, and the net loss from operations of $1.4 million, after excluding the non-operating
gains mentioned above. The increase in inventory was due to the timing of receipts and lower than anticipated sales in mobile navigation. The decrease in accrued liabilities reflected payments made for income taxes, management bonuses and
promotional programs that were accrued for in 2004.



Working capital
requirements are seasonal, with demand for working capital being higher later in the year as customers begin purchasing for the holiday selling season. The Company believes that cash generated from operations and from borrowings under its credit
agreement will be sufficient in 2005 to fund its working capital needs.



Investing activities generated cash of $1.6 million in the first quarter of 2005, principally from the sale of unimproved property located adjacent to its office and warehouse facility in Chicago.



The Company believes that for the foreseeable future, it will be able to continue to fund its
operations with cash generated from operations using existing or similar future bank credit agreements to fund its seasonal working capital needs.



At March 31, 2005 and 2004, the Company had outstanding inventory purchase orders with suppliers totaling approximately $28.0 million and $19.0 million, respectively.



CRITICAL ACCOUNTING POLICIES



The Companys significant accounting policies are discussed in the notes to the
condensed consolidated financial statements. The application of certain of these policies requires significant judgments or an historical based estimation process that can affect the results of operations and financial position of the Company as
well as the related footnote disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable. If actual amounts ultimately differ from previous estimates, the revisions are included in the
Companys results of operations for the period in which the actual amounts become known.



Critical accounting policies generally consist of those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumption
conditions. The accounting policies and estimates that can have a significant impact upon the operating results, financial position and footnote disclosures of the Company are as follows:



Revenue Recognition Revenue from the sale of goods is recognized at the time of shipment, except for revenue from sales of products
to certain of those customers whose contractual terms specify FOB destination. Revenue from sales of products to these customers is recognized at the estimated time of receipt



17



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by the customer (estimated based on the average shipping time for all such customers), when title and risk of loss would pass to the customer. Obligations
for sales returns and allowances and product warranties are recognized at the time of sale on an accrual basis as described below.



Sales Returns Reserve The Company has a policy that allows its customers to return product that was returned to them by their customers. The reserve reflects the
sales, cost of sales and gross profit impact of expected returns and related stock adjustments, as well as reducing accounts receivable and increasing inventory for the amount of expected returns. The amount of the reserve is determined by
multiplying the sales and cost of sales by product category for the current quarter by historical return rates adjusted for any known changes in key variables affecting these return rates. Thus, judgments must be made regarding whether current
return rates will approximate anticipated return rates. This reserve will vary based on the changes in sales, gross margin and historical, as well as anticipated, return rates from quarter to quarter.



Warranty Reserve The Company generally provides a one year consumer warranty for its
products and also allows its customers to return product that has been returned by their customers. Consequently, the Company maintains a warranty reserve, which reflects historical return rates by product category multiplied by the most recent six
months of unit sales of that model and the unit standard cost of the model. The Company uses the most recent six months of unit sales in the estimate, as historical experience tells the Company that most returns will occur within six months of the
Companys original sale date. Therefore, judgments must be made based on historical returns rates and how the returned product will be disposed, either by liquidation or return to vendors for credit on new purchases. This reserve may vary based
upon the level of sales and changes in historical return rates from quarter to quarter as well as estimated costs of disposal, either liquidation prices or the credit given by vendors.



Liquidation Reserve The Company maintains a reserve representing the write-down of returned product to net realizable value. Returned
inventory is either sold to various liquidators or returned to vendors for credit against similar, new models and depends upon the estimated future demand for the models. Judgments are made as to whether various models are to be liquidated or
returned to vendor and, for the former, the liquidation prices expected to be received. This reserve can fluctuate significantly from quarter to quarter depending upon quantities of returned inventory on hand and the estimated liquidation price or
vendor credit per unit.



Advertising and Sales Promotion Accrual The
reserve reflects amounts provided to retailers and distributors for advertising and sales promotions. Customer programs, agreed to at the beginning of each year, are mainly variable programs dependent on sales and may be revised during the course of
the year, based upon a customers projected sales and other factors, such as new promotional opportunities. Accruals are made monthly for each customer by multiplying the customers estimated program accrual percentage by the
customers actual sales. Therefore, this accrual will vary depending on a given quarters sales and the sales mix of customers from quarter to quarter. In addition, should a customer significantly exceed or fall short of their



18



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planned program sales, adjustments may need to be made to the customers estimated program accrual percentage due to certain minimum and/or maximum
sales thresholds in the customers programs. Adjustments may also be necessary periodically for unused customer funds.



Deferred Compensation Obligations under the deferred compensation plans (most of which are non-qualified defined benefit plans) and annual deferred compensation
expense are determined by a number of assumptions. Key assumptions in the determination of obligations under the plans and annual deferred compensation expenses include the discount rate and anticipated compensation for each individual covered by
the plans, which in part is dependent upon the anticipated future profitability of the Company. The rate is also dependent on rates used for qualified defined benefit plans. The discount rate used approximates the fixed rate of return the Company
earns on the cash surrender value of an insurance policy purchased to fund payments to the retired president and CEO, which represented approximately half of the total obligation of the plans at December 31, 2004. This discount rate was 7% in both
2005 and 2004. The compensation increase assumptions are based on historical experience and anticipated future performance.



Net Realizable Value Reserve The Company maintains a reserve to write-down certain inventory, except for that covered by the liquidation reserve discussed above,
below cost, as necessary. The reserve includes models where it is determined that net realizable value is less than cost. Thus, judgments must be made about which slow-moving, excess or non-current models are to be included and the estimated net
realizable value thereof. This reserve will vary depending upon the specific models selected, the estimated net realizable value for each model and quantities of each model that are determined will be sold below cost from quarter to quarter.



Software related to products to be sold The Company purchases and/or
incurs costs in connection with the development of software to be used in products that the Company intends to sell. Such costs are capitalized and deferred as intangible assets in accordance with SFAS No. 86, Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed. Such costs consist of expenditures incurred after technological feasibility of the software has been established and a working model of the product developed and consist principally of coding
and related costs. Such costs are charged to earnings based on the ratio of actual product sales during the reporting period to expected product sales over the life of the product life cycle.



The above listing is not intended to be a comprehensive list of all of the Companys
accounting policies. In most cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States. See Note 1 to Cobras condensed consolidated financial
statements included under Item 1, which is incorporated herein by reference, for a complete description of the Companys significant accounting policies.



NEW ACCOUNTING PRONOUNCEMENTS



In April 2005, the SEC announced the adoption of a new rule that amends the compliance dates for Financial Accounting



19



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Standards Boards Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement No. 123R). Under Statement No.
123R, the Company would have been required to implement the standard as of the beginning of the first interim or annual period that begins after June 15, 2005, or in the interim reporting period ending September 30, 2005. The SECs new rule
allows the Company to implement Statement No. 123R at the beginning of its next fiscal year, and accordingly, the Company will begin to reflect the adjustment to earnings for the impact of this accounting pronouncement in the interim reporting
period ending March 31, 2006.



Item 3. Qualitative and Quantitative
Disclosures About Market Risk



The Company is subject to market risk
associated principally with changes in interest rates and foreign exchange rates. The Company does not have any interest rate exposure at March 31, 2005, as there is no outstanding debt. Debt incurred is priced at interest rates that float with the
market and therefore the fair value of the Companys debt is not significantly affected by changes in market interest rates.



The Companys suppliers are located in foreign countries, principally in Asia. In the first quarter of 2005, approximately 15.5% of the Companys sales were
outside the United States, principally in Europe and Canada, compared to 10.5% in the first quarter of 2004. The Company minimizes its foreign currency exchange rate risk by conducting all of its transactions in U.S. dollars, except for some of the
billings of its European business, which are conducted in euros. The Company does not use derivative financial or commodity instruments for trading or speculative purposes; however, forward contracts are occasionally used for hedging some euro
denominated transactions for the Companys European business. Please refer to Note 5 in the financial statements, which are incorporated herein by reference. A 10% movement in the U.S. dollar/euro exchange rate on the forward contracts
outstanding at March 31, 2005 would result in approximately a $430,000 annual increase or decrease in cost of sales and cash flows.



Forward-Looking Statements



This report contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 found at Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the SEC,
press releases, or otherwise. Statements contained in this report that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. Forward-looking statements
may include, but are not limited to, projections of revenue, earnings or loss and capital expenditures, statements regarding future operations, anticipated financing needs, compliance with financial covenants in loan agreements, liquidity, plans for
acquisitions or sales of assets or businesses, plans relating to products or services, assessments of materiality, expansion into international markets, growth trends in the consumer electronics business, technological and market developments in the
consumer electronics business, the availability of new consumer electronics products and



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predictions of future events, as well as assumptions relating to these statements. In addition, when used in this report, the words anticipates,
believes, should, estimates, expects, intends, plans and variations thereof and similar expressions are intended to identify forward-looking statements.



Forward-looking statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements contained in this report or
in other Company filings, press releases, or otherwise. Factors that could contribute to or cause such differences include, but are not limited to, unanticipated developments in any one or more of the following areas:



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



| |  |  | ability of the Company to introduce new products to meet consumer needs, including timely introductions as new consumer technologies are introduced, and customer and consumer
acceptance of these new product introductions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pressure for the Company to reduce prices for older products as newer technologies are introduced;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | significant competition in the consumer electronics business, including introduction of new products and changes in pricing;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | factors related to foreign manufacturing, sourcing and sales (including foreign government regulation, trade and importation concerns and effects of fluctuation in exchange rates);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ability of the Company to maintain adequate financing, to bear the interest cost of such financing and to remain in compliance with financing covenants;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in law; and
| | - |  | -------------------



| |  |  | other risk factors, which may be detailed from time to time in the Companys SEC filings.
| | - |  | -----------------------------------------------------------------------------------------



Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the
date set forth on the signature page hereto. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after such date or to reflect
the occurrence of anticipated or unanticipated events.



Item 4. Controls and
Procedures



The Company has established disclosure controls and procedures
to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Companys
disclosure controls and procedures have also been designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Companys management,
including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.



As of March 31, 2005, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the
Companys principal executive officer and principal financial officer, of



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the effectiveness of the Companys disclosure controls and procedures. Based on this evaluation, the principal executive officer and principal financial
officer of the Company have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective as of March 31, 2005.



There has been no change in the Companys internal control over financial reporting that
occurred during the first quarter of 2005 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II

OTHER INFORMATION



Item 6. Exhibits



a) Exhibits



|                                                                                        |  | 
|--------------------------------------------------------------------------------------- |  | 
|                                                                                       
|Exhibit 10.30 2005 Executive Bonus Structure                                           
|                                                                                       
|Exhibit 31.1 Rule 13a  14(a)/15d  14(a) Certification of the Chief Executive Officer.
|                                                                                       
|Exhibit 31.2 Rule 13a  14(a)/15d  14(a) Certification of the Chief Financial Officer.
|                                                                                       
|Exhibit 32.1 Section 1350 Certification of the Chief Executive Officer.                
|                                                                                       
|Exhibit 32.2 Section 1350 Certification of the Chief Financial Officer.                



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SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



COBRA ELECTRONICS CORPORATIONBy

/s/    MICHAEL SMITHMichael Smith Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)




Dated: May 13, 2005



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INDEX TO EXHIBITS



|              |  |                                                                           
|------------- |  | --------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                   
|              | 
|10.30         |  | 2005 Executive Bonus Structure                                            
|              | 
|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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