Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

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

 

**For the quarterly period ended March 31, 2010**

 

**OR**

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

 

**For the transition period from              to              **

 

**Commission File Number 0-511**

 

**COBRAELECTRONICS CORPORATION**

(Exact name of Registrant as specified in its Charter)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Numberof shares of Common Stock of Registrant outstanding as of May 7, 2010:6,471,280

 

 

 

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**TABLE OF CONTENTS**

 
| ** **       | ** **                                                                                  | **Page No.** |
|------------------|---------------------------------------------------------------------------------------------|-------------------|
|             |                                                                                        |              |
| **PART I**  | **FINANCIAL INFORMATION**                                                                   |              |
|             |                                                                                        |              |
| Item 1           | Financial Statements                                                                        | 3                 |
| Item 2           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 17                |
| Item 3           | Qualitative and  Quantitative Disclosures About Market Risk                                 | 23                |
| Item 4           | Controls and  Procedures                                                                    | 23                |
|             |                                                                                        |              |
| **PART II** | **OTHER INFORMATION**                                                                       |              |
|             |                                                                                        |              |
| Item 1A          | Risk Factors                                                                                | 24                |
| Item 5           | Other Information                                                                           | 24                |
| Item 6           | Exhibits                                                                                    | 25                |
|             |                                                                                        |              |
| **SIGNATURE**    | 26                                                                                          |

 

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**CobraElectronics Corporation and Subsidiaries**

**ConsolidatedStatements of Operations - Unaudited**

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

 
| ** **                                                     | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                     | ** ** | **March 31,**               | ** ** |
| ** **                                                     | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| Net sales                                                      |       | $                                | 21,083     |   | $ | 19,085 |   |
| Cost of sales                                                  |       | 15,233                           |       | 14,023 |   |
| Gross profit                                                   |       | 5,850                            |       | 5,062 |   |
| Selling, general  and administrative expense                   |       | 6,886                            |       | 7,056 |   |
| Loss from  operations                                          |       | (1,036                           | )          | (1,994 | ) |
| Interest expense                                               |       | (263                             | )          | (150 | ) |
| Other expense                                                  |       | (25                              | )          | (257 | ) |
| Loss before  income taxes                                      |       | (1,324                           | )          | (2,401 | ) |
| Tax benefit                                                    |       | (7                               | )          | (786 | ) |
| Net loss                                                       |       | (1,317                           | )          | (1,615 | ) |
| Less: net  earnings attributable to non-controlling interest   |       | —                           |       | 1 |   |
| Net loss  attributable to Cobra                                |       | $                                | (1,317     | ) | $ | (1,616 | ) |
|                                                           |       |                             |       |   |   |
| Net loss per  common share attributable to Cobra shareholders: |       |                             |       |   |   |
| Basic                                                          |       | $                                | (0.20      | ) | $ | (0.25 | ) |
| Diluted                                                        |       | $                                | (0.20      | ) | $ | (0.25 | ) |
|                                                           |       |                             |       |   |   |
| Weighted average  shares outstanding:                          |       |                             |       |   |   |
| Basic                                                          |       | 6,471                            |       | 6,471 |   |
| Diluted                                                        |       | 6,471                            |       | 6,471 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**Cobra Electronics Corporation and Subsidiaries**

**Consolidated Balance Sheets - Unaudited**

**(In Thousands)**

 
| ** **                                                                            | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                            | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| **ASSETS**                                                                            |       |               |       |                  |       |
| Current  assets:                                                                      |       |               |       |                  |       |
| Cash                                                                                  |       | $                  | 955        |                  | $          | 1,405 |   |
| Receivables,  net of allowance for doubtful accounts of $106 in 2010 and $103 in 2009 |       | 17,056             |       | 22,095                |       |
| Inventories,  primarily finished goods, net                                           |       | 26,000             |       | 26,198                |       |
| Other  current assets                                                                 |       | 4,205              |       | 3,961                 |       |
| Total  current assets                                                                 |       | 48,216             |       | 53,659                |       |
| Property,  plant and equipment, at cost:                                              |       |               |       |                  |       |
| Buildings  and improvements                                                           |       | 5,904              |       | 5,707                 |       |
| Tooling  and equipment                                                                |       | 17,826             |       | 17,746                |       |
|                                                                                  |       | 23,730             |       | 23,453                |       |
| Accumulated  depreciation                                                             |       | (18,821            | )          | (18,318               | )          |
| Land                                                                                  |       | 230                |       | 230                   |       |
| Property,  plant and equipment, net                                                   |       | 5,139              |       | 5,365                 |       |
| Other  assets:                                                                        |       |               |       |                  |       |
| Cash  surrender value of life insurance policies                                      |       | 4,254              |       | 4,051                 |       |
| Deferred  income taxes, non-current                                                   |       | 1,379              |       | 1,717                 |       |
| Intangible  assets                                                                    |       | 10,041             |       | 10,769                |       |
| Other  assets                                                                         |       | 199                |       | 142                   |       |
| Total  other assets                                                                   |       | 15,873             |       | 16,679                |       |
| Total  assets                                                                         |       | $                  | 69,228     |                  | $          | 75,703 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

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**Cobra Electronics Corporation and Subsidiaries**

**Consolidated Balance Sheets - Unaudited**

**(In Thousands,  Except Share Data)**

 
| ** **                                                                                                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                           | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                        |       |               |       |                  |       |
| Current  liabilities:                                                                                                |       |               |       |                  |       |
| Current  maturities of long-term bank debt                                                                           |       | $                  | 12,840     |                  | $          | 16,549 |   |
| Accounts  payable                                                                                                    |       | 7,850              |       | 7,427                 |       |
| Accrued  salaries and commissions                                                                                    |       | 944                |       | 902                   |       |
| Accrued  advertising and sales promotion costs                                                                       |       | 996                |       | 1,392                 |       |
| Accrued  product warranty costs                                                                                      |       | 704                |       | 857                   |       |
| Accrued  income taxes                                                                                                |       | 146                |       | 73                    |       |
| Deferred  income taxes, current                                                                                      |       | 1,385              |       | 1,728                 |       |
| Other  accrued liabilities                                                                                           |       | 2,457              |       | 2,524                 |       |
| Total  current liabilities                                                                                           |       | 27,322             |       | 31,452                |       |
| Non-current  liabilities:                                                                                            |       |               |       |                  |       |
| Long-term  bank debt, net of current maturities                                                                      |       | 880                |       | 1,320                 |       |
| Deferred  compensation                                                                                               |       | 6,989              |       | 6,772                 |       |
| Deferred  income taxes                                                                                               |       | 1,771              |       | 1,935                 |       |
| Other  long-term liabilities                                                                                         |       | 951                |       | 961                   |       |
| Total  non-current liabilities                                                                                       |       | 10,591             |       | 10,988                |       |
| Total  liabilities                                                                                                   |       | 37,913             |       | 42,440                |       |
| Commitments  and contingencies                                                                                       |       | —             |       | —                |       |
| Shareholders’  equity:                                                                                          |       |               |       |                  |       |
| Preferred  stock, $1 par value 1,000,000 shares authorized None issued and outstanding                               |       | —             |       | —                |       |
| Common  stock, $.33 1/3 par value 12,000,000 shares authorized 7,039,100 shares  issued 6,471,280 shares outstanding |       | 2,345              |       | 2,345                 |       |
| Paid-in  capital                                                                                                     |       | 20,640             |       | 20,583                |       |
| Retained  earnings                                                                                                   |       | 14,716             |       | 16,033                |       |
| Accumulated  other comprehensive loss                                                                                |       | (2,576             | )          | (1,889                | )          |
|                                                                                                                 |       | 35,125             |       | 37,072                |       |
| Treasury  stock, at cost (567,820 shares)                                                                            |       | (3,837             | )          | (3,837                | )          |
| Total  shareholders’ equity - Cobra                                                                             |       | 31,288             |       | 33,235                |       |
| Non-controlling  interest                                                                                            |       | 27                 |       | 28                    |       |
| Total  equity                                                                                                        |       | 31,315             |       | 33,263                |       |
| Total  liabilities and shareholders’ equity                                                                     |       | $                  | 69,228     |                  | $          | 75,703 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

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**Cobra Electronics Corporation and Subsidiaries**

**Consolidated Statement of Cash Flows - Unaudited**

**(In Thousands)**

 
| ** **                                                                      | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                      | ** ** | **March 31,**               | ** ** |
| ** **                                                                      | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| Cash  flows from operating activities:                                          |       |                             |       |   |   |
| Net  loss attributable to Cobra                                                 |       | $                                | (1,317     | ) | $ | (1,616 | ) |
| Adjustments  to reconcile net loss to net cash flows from operating activities: |       |                             |       |   |   |
| Depreciation  and amortization                                                  |       | 950                              |       | 978 |   |
| Deferred  income taxes                                                          |       | (67                              | )          | (1,040 | ) |
| (Gain)  loss on cash surrender value (CSV) of life insurance                    |       | (69                              | )          | 279 |   |
| Stock-based  compensation                                                       |       | 56                               |       | 59 |   |
| Non-controlling  interest                                                       |       | —                           |       | 1 |   |
| Changes  in assets and liabilities:                                             |       |                             |       |   |   |
| Receivables                                                                     |       | 4,841                            |       | 3,791 |   |
| Inventories                                                                     |       | (275                             | )          | (620 | ) |
| Other  assets                                                                   |       | (460                             | )          | (617 | ) |
| Accounts  payable                                                               |       | 597                              |       | 1,042 |   |
| Accrued  income taxes                                                           |       | 73                               |       | (10 | ) |
| Accrued  liabilities                                                            |       | (447                             | )          | (1,328 | ) |
| Deferred  compensation                                                          |       | 217                              |       | 168 |   |
| Deferred  income                                                                |       | (35                              | )          | (12 | ) |
| Other  long-term liabilities                                                    |       | (15                              | )          | 98 |   |
| Net  cash provided by operating activities                                      |       | 4,049                            |       | 1,173 |   |
| Cash  flows from investing activities:                                          |       |                             |       |   |   |
| Property,  plant and equipment                                                  |       | (172                             | )          | (231 | ) |
| Premiums  on CSV life insurance                                                 |       | (135                             | )          | — |   |
| Intangible  assets                                                              |       | (131                             | )          | (140 | ) |
| Net  cash used in investing activities                                          |       | (438                             | )          | (371 | ) |
| Cash  flows from financing activities:                                          |       |                             |       |   |   |
| Bank  borrowings                                                                |       | (4,149                           | )          | (874 | ) |
| Net  cash used in financing activities                                          |       | (4,149                           | )          | (874 | ) |
| Effect  of exchange rate changes on cash and cash equivalents                   |       | 88                               |       | (573 | ) |
| Net  decrease in cash                                                           |       | (450                             | )          | (645 | ) |
| Cash  at beginning of period                                                    |       | 1,405                            |       | 1,985 |   |
| Cash  at end of period                                                          |       | $                                | 955        |   | $ | 1,340 |   |
| Supplemental  disclosure of cash flow information:                              |       |                             |       |   |   |
| Cash  paid during the period for:                                               |       |                             |       |   |   |
| Interest                                                                        |       | $                                | 268        |   | $ | 139 |   |
| Income  taxes, net of refunds                                                   |       | $                                | 1          |   | $ | 87 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

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**Cobra Electronics Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements**

**For the three months ended March 31, 2010 and 2009**

**(Unaudited)**

 

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

 

**(1)   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

*Business* — Cobradesigns and markets consumer electronics products, which it sells primarilyunder the Cobra brand name principally in the United States, Canada and Europe.Effective October 20, 2006, the Company acquired Performance ProductsLimited (“PPL”) which sells its products under the Snooper tradename,principally in the United Kingdom, as well as elsewhere in Europe. A majorityof the Company’s products are purchased from overseas suppliers, primarily inChina, Hong Kong and South Korea. The consumer electronics market ischaracterized by rapidly changing technology and certain products may havelimited life cycles. Management believes that it maintains strong relationshipswith its current suppliers and that, if necessary, other suppliers could befound. The extent to which a change in a supplier would have an adverse effecton the Company’s business depends on the timing of the change, the product orproducts that the supplier produces for the Company and the volume of thatproduction. The Company also maintains insurance coverage that would, incertain limited circumstances, reimburse the Company for lost profits resultingfrom a supplier’s inability to fulfill its commitments to the Company.

 

*Principlesof Consolidation* — The consolidated financial statements include theaccounts of the Company and its subsidiaries. The consolidated entities arecollectively referred to as the “Company”. All intercompany balances and transactions have been eliminated inconsolidation.

 

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**(2)   SEGMENTINFORMATION**

 

The Company operates intwo business segments (1) Cobra Consumer Electronics (“Cobra”) and (2) PerformanceProducts Limited (“PPL”). The Cobra segment is comprised of Cobra ElectronicsCorporation, Cobra Hong Kong Limited (“CHK”) and Cobra Electronics EuropeLimited (“CEEL”). The Company has separate sales departments and distributionchannels for each segment, which provide segment exclusive product lines to allcustomers for that segment. Currently, there are no intersegment sales.

 

The financial informationby business segment for the three months ended March 31, 2010 and 2009 areas follows:

 
| ** **                                                   | ** ** | **2010**            | ** ** | **2009** | ** ** |
|--------------------------------------------------------------|------------|---------------------|------------|----------|------------|
| ** **                                                   | ** ** | **COBRA**           | ** ** | **PPL**  | ** ** | **TOTAL** | ** ** | **COBRA** | ** ** | **PPL** | ** ** | **TOTAL** | ** ** |
| ** **                                                   | ** ** | **(In  Thousands)** | ** ** |
| Net  sales                                                   |       | $                   | 17,555     |     | $          | 3,528 |   | $ | 21,083 |   | $ | 17,248 |   | $ | 1,837 |   | $ | 19,085 |   |
| Cost  of sales                                               |       | 12,963              |       | 2,270    |       | 15,233 |   | 12,987 |   | 1,036 |   | 14,023 |   |
| Gross  profit                                                |       | 4,592               |       | 1,258    |       | 5,850 |   | 4,261 |   | 801 |   | 5,062 |   |
| Selling,  general and administrative expense                 |       | 5,801               |       | 1,085    |       | 6,886 |   | 6,077 |   | 979 |   | 7,056 |   |
| (Loss)  earnings from operations                             |       | (1,209              | )          | 173      |       | (1,036 | ) | (1,816 | ) | (178 | ) | (1,994 | ) |
| Interest  expense                                            |       | (263                | )          | —   |       | (263 | ) | (150 | ) | — |   | (150 | ) |
| Other  income (expense)                                      |       | 33                  |       | (58      | )          | (25 | ) | (234 | ) | (23 | ) | (257 | ) |
| (Loss)  earnings before income taxes                         |       | (1,439              | )          | 115      |       | (1,324 | ) | (2,200 | ) | (201 | ) | (2,401 | ) |
| Tax  provision (benefit)                                     |       | 35                  |       | (42      | )          | (7 | ) | (713 | ) | (73 | ) | (786 | ) |
| Net  (loss) earnings                                         |       | (1,474              | )          | 157      |       | (1,317 | ) | (1,487 | ) | (128 | ) | (1,615 | ) |
| Less:  net earnings attributable to non-controlling interest |       | —              |       | —   |       | — |   | — |   | 1 |   | 1 |   |
| Net  (loss) earnings attributable to Cobra                   |       | $                   | (1,474     | )        | $          | 157 |   | $ | (1,317 | ) | $ | (1,487 | ) | $ | (129 | ) | $ | (1,616 | ) |

 

Therehave been no differences in the basis of segmentation or the basis ofmeasurement.

 

**(3) INCOME TAXES**

 

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

 

Dueto the operating results for 2009, the expected continuation of a globalrecession and the absence of tax planning strategies to generate a sufficientlevel of taxable income, management concluded the full realization of thedeferred tax assets within a reasonable time horizon did not satisfy the *more likely than not* realization criteria.Accordingly, the Company established a $9.6 million deferred tax valuationallowance for its U.S. operation in the second quarter of 2009. The valuationallowance is a non-cash charge that does not preclude the Company from fullyrealizing the net deferred tax assets in the future. The deferred tax valuationallowance totaled $8.4 million at March 31, 2010 and December 31,2009.

 

*The Worker, Homeownership, and Business Assistance Act of2009,* enacted November 6, 2009, allows eligible businesses a one-timeelection to carry back net operating losses (“NOL”) from 2008 or 2009 (but notboth) for three, four or five years rather than the standard two years. Asresult of this one-time opportunity, the Company carried back $4.3 millionof 2009’s NOL to prior periods and generated a significant portion of theexpected federal tax refund approximating $1.0 million.  The available NOL carryforward for the 2008tax year totals $1.2 million.

 

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Theprovision (benefit) for income taxes for the three months ended March 31,2010 and 2009 consists of:

 
| ** **          | ** ** | **2010**                | ** ** | **2009** | ** ** |
|---------------------|------------|-------------------------|------------|----------|------------|
| ** **          | ** ** | **(In Thousands)** | ** ** |
| Current  provision: |       |                    |       |     |       |
| U.S.                |       | $                       | 45         |     | $          | 227 |   |
| Foreign             |       | 117                     |       | 28       |       |
|                |       | 162                     |       | 255      |       |
| Deferred  benefit:  |       |                    |       |     |       |
| U.S.                |       | —                  |       | (940     | )          |
| Foreign             |       | (169                    | )          | (101     | )          |
|                |       | (169                    | )          | (1,041   | )          |
| Total  benefit      |       | $                       | (7         | )        | $          | (786 | ) |

 

Areconciliation of the deferred tax amounts to the Consolidated Balance sheetfollows:

 
| ** **                                    | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                    | ** ** | **(In Thousands)** | ** ** |
|                                          |       |               |       |                  |       |
| Future  tax benefit - U.S.                    |       | $                  | 2,142      |                  | $          | 2,114 |   |
| Valuation  allowance - U.S.                   |       | (2,142             | )          | (2,114                | )          |
| Current  deferred tax asset                   |       | —             |       | —                |       |
|                                          |       |               |       |                  |       |
| Future  tax benefit - U.S.                    |       | 6,267              |       | 6,320                 |       |
| Valuation  allowance - U.S.                   |       | (4,888             | )          | (4,603                | )          |
| Non-current  deferred tax asset               |       | 1,379              |       | 1,717                 |       |
|                                          |       |               |       |                  |       |
| Future  tax liability - Foreign               |       | (6                 | )          | (11                   | )          |
| Valuation  allowance - U.S.                   |       | (1,379             | )          | (1,717                | )          |
| Current  deferred tax liability               |       | (1,385             | )          | (1,728                | )          |
|                                          |       |               |       |                  |       |
| Non-current  deferred tax liability - Foreign |       | (1,771             | )          | (1,935                | )          |
|                                          |       |               |       |                  |       |
| Net  deferred tax liability                   |       | $                  | (1,777     | )                     | $          | (1,946 | ) |

 

**(4) FINANCING ARRANGEMENTS**

 

OnFebruary 15, 2008, the Company entered into a Loan and Security Agreement(as amended, the “Loan Agreement”) with The PrivateBank and Trust Company, aslender and agent, and RBS Citizens, N.A., as lender, for a $5.7 millionterm loan facility and a $40 million revolving credit facility, both ofwhich mature on October 19, 2011. Borrowings under the term loan were usedto pay off the balance and close the term loan from the Company’s previouscredit agreement.  Borrowings under thenew revolving credit facility were used to pay off and close the previousrevolving credit facility and for general corporate purposes.  The Loan Agreement replaced the Company’sprevious credit agreement.

 

OnAugust 13, 2009, the Company entered into an amendment to the LoanAgreement. Pursuant to the amendment, the lenders waived the failure of theCompany to comply as of June 30, 2009 with the financial covenants setforth in the Loan Agreement relating to Total Debt to EBITDA Ratio (as definedin the Loan Agreement) and Fixed Charge Coverage Ratio (as defined in the LoanAgreement). In addition, the amendment decreased the maximum principal amount availableto be borrowed by the Company pursuant to the revolving credit facility underthe Loan Agreement from $40 million to $28 million.  The Company paid an amendment fee of$159,150, as well as certain fees and expenses, in connection with the executionof the amendment.  The amendment alsoamended the covenants set forth in the Loan Agreement to provide for thefollowing financial covenants: minimum fixed charge coverage at revised levelsfrom those contained in the Loan Agreement; minimum cumulative EBITDA; andminimum tangible net worth. Due to the continued impact of the global economicdownturn and the preference of retail and distribution customers to defer thirdquarter purchases to the fourth quarter, the Company did not satisfy thefinancial covenants under the Loan 

 

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Agreementfor the third quarter of 2009.  On November 2,2009, the Company and the lenders under the Loan Agreement entered into anamendment to the Loan Agreement. Pursuant to the amendment, which was effective as of October 24,2009, the lenders waived the covenant violations. The Company paid an amendmentfee of $50,000, as well as certain fees and expenses of the lenders, inconnection with execution of the amendment. As a result of three key accounts deferring sales to early 2010, theCompany violated the minimum cumulative EBITDA loan covenant for the fourthquarter of 2009 but was in compliance with the fixed charge coverage andtangible net worth covenants.  On March 12,2010, the Company and the lenders under the Loan Agreement entered into anamendment to the Loan Agreement. Pursuant to the amendment, which was effective as of March 9, 2010,the lenders waived the covenant violation. The Company paid an amendment fee of$50,000, as well as certain fees and expenses of the lenders, in connectionwith execution of the amendment. The amendment also decreased the maximumprincipal amount available to be borrowed by the Company pursuant to therevolving credit facility under the Loan Agreement from $28 million to$23 million and eliminated the minimum cumulative EBITDA covenant.Commencing December 31, 2010, the loan commitment will be further reducedto $20 million. The amendment provides for two financial covenants, fixedcharge coverage and tangible net worth. The fixed charge coverage covenantrequires that the Company maintain a Fixed Charge Coverage Ratio of 1.0 for thethree quarter period ending March 31, 2010 and for the four quarter periodending June 30, 2010 and a Fixed Charge Coverage Ratio of 1.1 for eachrolling four quarter period thereafter. As of March 31, 2010, the Fixed Charge Coverage Ratio for thenine-month period ending on that date was 1.54. The tangible net worth covenantrequires the Company to maintain tangible net worth as of the end of eachquarter to $13.4 million, an amount based on 90 percent of the Company’stangible net worth as of June 30, 2009, plus 50 percent ofconsolidated net income (but with no reduction for net losses) for each quarterthat preceded that quarter being measured, excluding any gains or lossesassociated with the cash surrender value of life insurance.  As of March 31, 2010, the Company hadtangible net worth of $15.6 million as compared to a minimum requirement of$14.3 million. The Company was in compliance with all debt covenants as ofMarch 31, 2010.

 

Asamended, the Loan Agreement requires lockbox agreements, which provide for all Companyreceipts to be swept daily to reduce borrowings outstanding under the revolvingcredit facility.  These agreements,combined with the existence of a material adverse change (“MAC”) clause in theLoan Agreement, result in the revolving credit facility being classified as acurrent liability.  The Company does notexpect to repay, or be required to repay, within one year, the balance of itsrevolving credit facility, which has a final expiration date of October 19,2011. The MAC clause, which is a common requirement in commercial creditagreements, allows the lender to require the loan to become due if there hasbeen a material adverse change in the Company’s financial condition, operationsor other status.

 

Intereston amounts borrowed under the Loan Agreement is based on the prime rate plus anapplicable margin, or LIBOR plus an applicable margin, with the applicablemargin being determined based on the Total Debt to EBITDA Ratio for the priorfour quarters, with the further requirement that qualifying for a reductionfrom the currently stipulated applicable margin requires that the Companyachieve the designated Total Debt to EBITDA Ratio for two consecutive quarters.The applicable margin based on the Total Debt to EBITDA Ratio of the Company asof March 31, 2010 was 2.0 percent for prime rate loans and 4.5 percent forLIBOR loans. Availability under the revolving credit facility is calculatedbased on a borrowing base formula that includes 75 percent of eligible accountsreceivable, the lesser of 60 percent of lower of cost or market value ofeligible inventory or 85 percent of the appraised orderly liquidation value ofeligible inventory, and 60 percent of commercial letters of credit issued forthe purchase of inventory, subject to certain limitations and to reservesestablished at the lenders’ discretion, including but not limited to anavailability reserve of $2.5 million through September 30, 2009,  $3.0 million through April 21, 2010and $2.5 million thereafter. The Loan Agreement requires an inventoryappraisal, when deemed necessary by the lender, the results of which could leadto a reduction in the credit availability based on inventory.  The inventory appraisal conducted as of June 30,2009 did not affect credit availability. The revolving credit facilitycontinues to be subject to an unused line fee of 0.5 percent and the term loanunder the Loan Agreement is subject to quarterly principal payments by theCompany of $310,000 for the quarter ending September 30, 2009 and $440,000for each quarter thereafter through September 30, 2011. The term of theLoan Agreement continues to extend until October 19, 2011.  Borrowings under the Loan Agreement aresecured by substantially all of the assets of the Company, including 65.0percent of the equity in the non-U.S. subsidiaries.

 

At March 31, 2010,the Company had interest bearing debt outstanding of $13.7 million, consistingof the $2.6 million term loan and $11.1 million borrowed under the revolvingcredit facility.  As of March 31,2010, credit availability was approximately $2.7 million under the revolvingcredit facility, based on the borrowing base formula in effect at thattime.  The weighted average interest ratefor the three months ending March 31, 2010 and 2009 were 6.9 percent and3.5 percent, respectively.  The Companyentered into an interest rate swap on March 31, 2009, which fixed theinterest rate on the term loan and a portion of the revolving credit facilityat 3.47 percent.

 

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**(5)   ****FAIR VALUE OF FINANCIALINSTRUMENTS**

 

TheCompany’s financial instruments include cash, cash surrender value (“CSV”) oflife insurance policies, accounts receivable, accounts payable, short-termdebt, long-term debt and letters of credit. The carrying values of cash,accounts receivable and accounts payable approximate their fair value becauseof the short-term maturity of these instruments. The carrying amounts of theCompany’s bank borrowings under its Loan Agreement approximate fair valuebecause the interest rates are reset periodically to reflect current marketrates. The letters of credit approximate fair value due to the short-termnature of the instrument. The contract value/fair value of the letters ofcredit was $3.3 million at March 31, 2010 and $2.7 million at December 31,2009. The carrying value of the CSV for the life insurance approximates fairvalue and is based on the market value of the underlying investments, which mayincrease or decrease due to fluctuations in the overall financial markets.

 

TheCompany has a derivative contract for an interest rate swap that is valued on arecurring basis using quoted market prices. This financial instrument is exchange-tradedand is classified within Level 2 of the fair value hierarchy because theexchange is not deemed to be an active market. The derivative was classified asa long-term liability on the balance sheet. Refer to Note 6, *Derivatives*, for additional information.

 

The following tableprovides the fair value information for the Company’s interest rate swap as of March 31,2010 and December 31, 2009:

 
| ** **          | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **          | ** ** | ** **                   | ** ** | **Fair Value**             | ** ** | ** ** | ** ** | **Fair Value** | ** ** |
| ** **          | ** ** | ** **                   | ** ** | ** **                      | ** ** | **Significant** | ** ** | ** ** | ** ** | ** ** | ** ** | **Significant** | ** ** |
| ** **          | ** ** | ** **                   | ** ** | ** **                      | ** ** | **Other Observable** | ** ** | ** ** | ** ** | ** ** | ** ** | **Other Observable** | ** ** |
| ** **          | ** ** | **Carrying**                 | ** ** | **Total**                       | ** ** | **Inputs** | ** ** | **Carrying** | ** ** | **Total** | ** ** | **Inputs** | ** ** |
| **Liabilities**     | ** ** | **Amount**                   | ** ** | **Fair Value**             | ** ** | **(Level 2)** | ** ** | **Amount** | ** ** | **Fair Value** | ** ** | **(Level 2)** | ** ** |
| ** **          | ** ** | **(In Thousands)**      | ** ** |
| Interest  rate swap |       | $                            | 408        |                            | $          | 408 |   | $ | 408 |   | $ | 420 |   | $ | 420 |   | $ | 420 |   |
|                     |            |                              |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(6) ****  ****DERIVATIVES**

 

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

 

TheCompany’s current hedging activity is limited to foreign currency purchases andan interest rate swap. The purpose of the foreign currency hedging activitiesis to protect the Company from the risk that eventual settlement of foreign currencytransactions will be adversely affected by changes in exchange rates. Thepurpose of the interest rate swap is to fix the interest rate for the term ofthe revolving credit facility and term loan, thereby protecting the Companyfrom future interest rate increases.  Theinterest rate swap represents a cash flow hedge and is recorded at fair valueand classified as a non-current liability. Changes in the recorded fair value of the interest rate swap arerecorded to other comprehensive income. At March 31, 2009, the existing contract applicable to the termloan with a value of $250,000 was terminated and replaced with a contractapplicable to the term loan and a portion of the revolving loan valued at$377,000. The $250,000 value of the terminated liability will be amortizedthrough September 30, 2011.

 

TheCompany hedges foreign exchange exposures by entering into various short-termforward foreign exchange contracts. The instruments are carried at fair valuein its Consolidated Balance Sheets as a component of current liabilities.  Changes in the fair value of foreign exchangeforward contracts that meet the applicable hedging criteria are recorded as acomponent of other comprehensive income and reclassified into earnings in thesame period during which the hedged transaction affects earnings.  Changes in the fair value of foreign exchangeforward contracts that do not meet the applicable hedging criteria are recordedcurrently in income as cost of sales. Hedging activities did not have amaterial impact on results of operations or financial condition during thethree month periods ending March 31, 2010 and 2009.

 

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AtMarch 31, 2010, the Company did not have any open foreign exchangecontracts. The carrying value of the interest rate swap totaled $408,000 at March 31,2010 and $420,000 at December 31, 2009.

 

Thefair value of outstanding derivative contracts designated as hedginginstruments recorded as liabilities in the accompanying balance sheet were asfollows:

 
| ** **               | ** ** | ** **                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------|------------|----------------------------|------------|--------------------|------------|-----------------------|------------|
| **Liability Derivative** | ** ** | **Balance Sheet Location** | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **               | ** ** | ** **                 | ** ** | **(In thousands)** | ** ** |
| Interest  rate swap      |       | Non-current liability      |       | $                  | 408        |                  | $          | 420 |   |
|                          |            |                            |            |                    |            |                       |            |  |  |

 

Theeffective portion of the gain (loss) on outstanding derivatives recognized inOther Comprehensive Income (“OCI”) for the three-month periods ending March 31,2010 and 2009 follows:

 
| ** **          | ** ** | **2010**           | ** ** | **2009** | ** ** |
|---------------------|------------|--------------------|------------|----------|------------|
| ** **          | ** ** | **(In Thousands)** | ** ** |
| Interest  rate swap |       | $                  | 12         |     | $          | (201 | ) |
|                     |            |                    |            |          |            |  |  |

 

Theeffective portion of the gain reclassified from Accumulated Comprehensive OtherIncome into Income during the three months ending Mach 31, 2010 and 2009follows**:**

 
| **Income Statement Location** | ** ** | **2010**           | ** ** | **2009** | ** ** |
|-----------------------------------------|------------|--------------------|------------|----------|------------|
| ** **                              | ** ** | **(In Thousands)** | ** ** |
| Interest  expense                       |       | $                  | 33         |     | $          | — |   |
|                                         |            |                    |            |          |            |  |  |

 

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

 

Basicearnings (loss) per share excludes any dilution and is computed by dividing netearnings (loss) available to common shareholders by the weighted-average numberof common shares outstanding for the period. Diluted earnings (loss) per sharereflect the potential dilution that could occur if securities or othercontracts to issue common stock resulted in the issuance of common stock.  If the common stock equivalents have ananti-dilutive effect, they are excluded from the computation of dilutedearnings (loss) per share.  The loss pershare for the three months ending March 31, 2010 and 2009 follows:

 
| ** **                                                          | ** ** | **2010**                                                  | ** ** | **2009**  | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------|------------|
| ** **                                                          | ** ** | **(In Thousands, Except Share Data)** | ** ** |
| Basic  loss per share:                                              |       |                                                      |       |      |       |
| Net  loss available to Cobra shareholders                           |       | $                                                         | (1,317     | )         | $          | (1,616 | ) |
| Weighted-average  shares outstanding                                |       | 6,471,280                                                 |       | 6,471,280 |       |
|                                                                |       |                                                      |       |      |       |
| Basic  loss per share                                               |       | $                                                         | (0.20      | )         | $          | (0.25 | ) |
|                                                                |       |                                                      |       |      |       |
| Weighted-average  shares outstanding                                |       | 6,471,280                                                 |       | 6,471,280 |       |
| Dilutive  shares issuable in connection with stock option plans (a) |       | —                                                    |       | —    |       |
| Less:  shares purchasable with option proceeds                      |       | —                                                    |       | —    |       |
| Total                                                               |       | 6,471,280                                                 |       | 6,471,280 |       |
|                                                                |       |                                                      |       |      |       |
| Diluted  loss per share                                             |       | $                                                         | (0.20      | )         | $          | (0.25 | ) |

 

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| (a) | Stock  options to purchase 447,780 shares for the three months ending March 31,  2010 and 509,296 shares for the three months ending March 31, 2009 were  not included in the calculation for the dilutive loss per share since the  exercise price was above market price |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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

 

Comprehensiveincome (loss) is defined as the change in equity of a business enterprise fromtransactions and other events from non-owner sources. Comprehensive income(loss) includes net earnings (loss) and other non-owner changes in equity thatbypass the statement of operations and are reported in a separate component ofequity.  For the three months ending March 31,2010 and 2009, other comprehensive income (loss) includes the foreign currencytranslation adjustment and an interest rate swap.  The cumulative balance of the comprehensiveloss at March 31, 2010 and December 31, 2009 follows:

 
| ** **                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                               | ** ** | **(In Thousands)** | ** ** |
| Foreign  currency translation adjustment |       | $                  | (2,284     | )                     | $          | (1,585 | ) |
| Interest  rate swap - gross              |       | (292               | )          | (304                  | )          |
| Total                                    |       | $                  | (2,576     | )                     | $          | (1,889 | ) |

 

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Asummary of the Comprehensive Loss for the three-month periods ending March 31,2010 and 2009 follows:

 
| ** **                                                       | ** ** | **2010**           | ** ** | **2009** | ** ** |
|------------------------------------------------------------------|------------|--------------------|------------|----------|------------|
| ** **                                                       | ** ** | **(In Thousands)** | ** ** |
| Net  loss attributable to Cobra                                  |       | $                  | (1,317     | )        | $          | (1,616 | ) |
| Foreign  currency translation adjustment (no tax effect)         |       | (699               | )          | (383     | )          |
| Interest  rate swap and foreign exchange (net of applicable tax) |       | 12                 |       | (201     | )          |
| Total  comprehensive loss                                        |       | $                  | (2,004     | )        | $          | (2,200 | ) |

 

**(9)   COMMITMENTSAND CONTINGENCIES**

 

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

 

AtMarch 31, 2010 and December 31, 2009, the Company had outstandinginventory purchase orders with suppliers totaling approximately $19.9 millionand $17.7 million, respectively.

 

**(10)   OTHERCURRENT ASSETS**

 

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

 
| ** **                            | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                            | ** ** | **(In Thousands)** | ** ** |
| Prepaid  assets                       |       | $                  | 1,592      |                  | $          | 1,523 |   |
| Tax  refunds and receivables          |       | 1,068              |       | 1,060                 |       |
| Vendor  and miscellaneous receivables |       | 1,545              |       | 1,378                 |       |
|                                  |       | $                  | 4,205      |                  | $          | 3,961 |   |

 

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

 

TheCompany warrants to the consumer who purchases its products that it will repairor replace, without charge, defective products within a specified time period,generally one year. The Company also has a return policy for its customers thatallows customers to return to the Company products returned to them by theircustomers for full or partial credit based on when the Company’s customer lastpurchased these products.  Consequently,it maintains a warranty reserve, which reflects historical warranty returnrates by product category multiplied by the most recent six months of unitsales of that model and the unit standard cost of the model.  A roll-forward of the warranty reservefollows:

 
| ** **                                           | ** ** | **Three Months**   | ** ** | **Year**              | ** ** |
|------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **Ended**          | ** ** | **Ended**             | ** ** |
| ** **                                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| ** **                                           | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                           | ** ** | **(In Thousands)** | ** ** |
| Accrued  product warranty costs, beginning of period |       | $                  | 857        |                  | $          | 897 |   |
| Warranty  provision                                  |       | 423                |       | 2,459                 |       |
| Warranty  expenditures                               |       | (576               | )          | (2,499                | )          |
| Accrued  product warranty costs, end of period       |       | $                  | 704        |                  | $          | 857 |   |

 

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

 
| ** **                                | ** ** | **Three Months**   | ** ** | **Year**              | ** ** |
|-------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **Ended**          | ** ** | **Ended**             | ** ** |
| ** **                                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| ** **                                | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                | ** ** | **(In Thousands)** | ** ** |
| Liquidation  reserve, beginning of period |       | $                  | 648        |                  | $          | 623 |   |
| Liquidation  provision                    |       | 371                |       | 2,650                 |       |
| Liquidation  of models                    |       | (319               | )          | (2,625                | )          |
| Liquidation  reserve, end of period       |       | $                  | 700        |                  | $          | 648 |   |

 

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TheCompany maintains a net realizable value (“NRV”) reserve to write-down, asnecessary, certain finished goods, except for those goods covered by thepreviously discussed liquidation reserve, below cost.  The reserve includes models where it is determinedthat the estimated realizable value is less than cost. Thus, judgments must bemade about which slow-moving, excess or non-current models are to be includedin the reserve and the NRV of such models. The estimated NRV of each model is the per unit price that is estimatedto be received if the model were sold in the marketplace. This reserve willvary depending upon the specific models selected, the estimated NRV for eachmodel and quantities of each model that are determined will be sold below cost fromquarter to quarter.  A roll-forward ofthe NRV reserve follows:

 
| ** **                                   | ** ** | **Three Months**   | ** ** | **Year**              | ** ** |
|----------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **Ended**          | ** ** | **Ended**             | ** ** |
| ** **                                   | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| ** **                                   | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                   | ** ** | **(In Thousands)** | ** ** |
| Net  realizable reserve, beginning of period |       | $                  | 238        |                  | $          | 109 |   |
| NRV  provision                               |       | 77                 |       | 427                   |       |
| NRV  write-offs                              |       | (81                | )          | (298                  | )          |
| Net  realizable reserve, end of period       |       | $                  | 234        |                  | $          | 238 |   |

 

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

 

Thefollowing table shows the components of other income (expense) for thethree-month periods ending March 31, 2010 and 2009:

 
| ** **           | ** ** | **2010**           | ** ** | **2009** | ** ** |
|----------------------|------------|--------------------|------------|----------|------------|
| ** **           | ** ** | **(In Thousands)** | ** ** |
| Interest  income     |       | $                  | —     |     | $          | 4 |   |
| CSV  income (loss)   |       | 69                 |       | (279     | )          |
| Exchange  loss       |       | (49                | )          | (26      | )          |
| Other  (loss) income |       | (45                | )          | 44       |       |
|                 |       | $                  | (25        | )        | $          | (257 | ) |

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

**ANALYSISOF RESULTS OF OPERATIONS**

 

***ExecutiveSummary***

 

Pre-tax loss for thefirst quarter of 2010 totaled $1.3 million compared to the pre-tax loss of $2.4million for the year ago period. Key factors contributing to the pre-tax losswere:

 

·      Net sales increased $2.0 million, or 10.5 percent,principally due to Citizens Band radios, marine radios and satellite navigationsales.

·      Gross profit increased by $788,000 due to highersales.  Gross margin increased by 1.2percent to 27.7 percent due to favorable product mix.

·      Selling, general and administrative expenses decreased$170,000, or 2.4 percent, due to management’s effort to reduce spending andlower fixed costs.

·      Interest expense increased by $113,000 due to higherinterest rates.

·      Other expenses decreased by $232,000 mainly due tocash surrender value (CSV) of life insurance income.

 

The combined impact ofthe foregoing factors was a $1.1 million decrease in the pre-tax loss in thefirst quarter of 2010 from the first quarter of 2009.

 

Theeffective tax rate for first quarter of 2010 was 0.5 percent compared to 32.7percent for the first quarter of 2009. The lower effective tax rate for 2010 as compared to 2009 is due to thecontinuing impact of the U.S. deferred tax valuation allowance initiated in2009.

 

***Outlook***

 

TheCompany anticipates returning to profitability in 2010, as it drives thebusiness forward with new products, new distribution and new marketingchannels.  The improvement in the Company’sresults for the first quarter of 2010 was built on this strategic thrust.  Due to the tenuous nature of the economicrecovery, particularly in Europe, the Company will maintain its focus oncontaining expenses and managing working capital.

 

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***EBITDA***

 

The following table showsthe reconciliation of net loss to *EBITDA* and *EBITDA As Defined* for three months ending March 31,2010 and 2009:

 
| ** **                | ** ** | **2010**           | ** ** | **2009**   | ** ** |
|---------------------------|------------|--------------------|------------|------------|------------|
| ** **                | ** ** | **(In Thousands)** | ** ** |
| **Net loss**              | ** ** | **$**              | **(1,317** | **)**      | **$**      | **(1,616** | **)** |
| Depreciation/amortization |       | 950                |       | 978        |       |
| Interest  expense         |       | 263                |       | 150        |       |
| Income  tax provision     |       | (7                 | )          | (786       | )          |
| **EBITDA**                | ** ** | **(111**           | **)**      | **(1,274** | **)**      |
| Stock  option expense     |       | 56                 |       | 59         |       |
| CSV  (income) loss        |       | (69                | )          | 279        |       |
| Non-controlling  interest |       | —             |       | 1          |       |
| Other  non-cash items     |       | 569                |       | 53         |       |
| **EBITDA As Defined**     | ** ** | **$**              | **445**    | ** ** | **$**      | **(882** | **)** |

 

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

 

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

 

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***First  Quarter 2010 Compared to First  Quarter******2009***

 

The following tablecontains sales and pre-tax loss after eliminating intercompany accounts by businesssegment for the quarter ending March 31, 2010 and 2009:

 
| ** **           | ** ** | ** **         | ** ** | ** **        | ** ** | ** **   | ** ** | ** **  | ** ** | **2010 vs. 2009** | ** ** |
|----------------------|------------|--------------------|------------|-------------------|------------|--------------|------------|-------------|------------|-------------------|------------|
| ** **           | ** ** | **2010**           | ** ** | **2009**          | ** ** | **Increase** | ** ** |
| ** **           | ** ** | **(In Thousands)** | ** ** |
| ** **           | ** ** | **Net**            | ** ** | **Pre-tax**       | ** ** | **Net**      | ** ** | **Pre-tax** | ** ** | **Net**           | ** ** | **Pre-tax** | ** ** |
| **Business Segment** | ** ** | **Sales**          | ** ** | **Profit (Loss)** | ** ** | **Sales**    | ** ** | **Loss**    | ** ** | **Sales**         | ** ** | **Profit** | ** ** |
| Cobra                |       | $                  | 17,555     |              | $          | (1,439       | )          | $           | 17,248     |              | $          | (2,200 | ) | $ | 307 |   | $ | 761 |   |
| PPL                  |       | 3,528              |       | 115               |       | 1,837        |       | (201        | )          | 1,691             |       | 316 |   |
| Total  Company       |       | $                  | 21,083     |              | $          | (1,324       | )          | $           | 19,085     |              | $          | (2,401 | ) | $ | 1,998 |   | $ | 1,077 |   |

 

**CobraBusiness Segment**

 

Cobranet sales increased $307,000, or 1.8 percent, in the first quarter of 2010 to$17.6 million compared to $17.3 million in the first quarter of 2009.  Higher sales of Citizens Band and two-wayradios and sales of the mobile navigation product for the professional driver,introduced in the second half of 2009, more than offset lower detectionsales.  The increase in Citizens Bandradio sales reflected a pick up in buying by professional drivers as theybenefitted from a gradual improvement in truck shipment tonnage.  Two-way radio sales were higher because of anexclusive supply agreement with a major retailer that began in the secondquarter of 2009 as well as increased promotional activities at certain majorretailers that helped drive sales.  The lowerdetection sales were due to load-in shipments in the prior year’s quarter fortwo major retailers, one of which was a new detection customer at the beginningof 2009 while the other switched over to new models in the first quarter of2009.

 

Grossprofit increased $331,000 to $4.6 million for the first quarter of 2010 whilegross margin increased to 26.2 percent from 24.7 percent in the prior year’squarter.  The improved gross margin wasdue to a more favorable product mix as consumers, particularly professionaldrivers, began increasing purchases, including purchases of higher marginproducts.  Also contributing to the grossmargin improvement were reductions in the costs of certain models withoutcorresponding declines in selling prices and lower sales  of older products that would require priceconcessions to accelerate sell-through.

 

Selling,general and administrative expenses declined $276,000, or 4.5 percent, to $5.8million in the current quarter from $6.1 million in the first quarter of 2009,and as a percentage of net sales was 33.0 percent and 35.2 percent,respectively.  The decline was due to adecrease in fixed selling, general and administrative costs that more thanoffset the increase in variable selling costs, which increased $135,000 or 12.7percent, primarily due to higher domestic sales volume.  Fixed costs decreased $411,000, or 8.2percent due to cost savings measures implemented by management, includingheadcount reductions.

 

Interestexpense increased by $113,000 to $263,000 in the first quarter of 2010 due tohigher interest rates for the first three months of 2010 as compared to2009.  Other income was $33,000 for thefirst quarter of 2010 compared to other expense of $234,000 in the prior year’squarter. This favorable swing was primarily due to $69,000 of CSV income forthe first quarter of 2010 compared to $279,000 of CSV expense for the firstquarter of 2009. The CSV of life insurance policies is affected by the marketvalue of the underlying investments and adverse market conditions may result ina non-cash expense.

 

Asa result of the above, the Cobra segment had a pre-tax loss of $1.4 million inthe first quarter of 2010 compared to pre-tax loss of $2.2 million in the firstquarter of 2009.

 

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***PerformanceProducts Limited (“PPL”) Business Segment***

 

PPL’s net sales increased$1.7 million or 92.1 percent, to $3.5 million in the first quarter of 2010compared to $1.8 million reported for the year ago quarter.  Most of the increase was due to higher salesof satellite navigation products, mostly due to strong demand for theTruckmateTM personal navigation device with dedicated routing within the UK andEurope for trucks, buses, motor homes and other large vehicles.  Also contributing to the sales increase were strong sales of outdoor leisure GPSproducts.

 

Gross profit was $1.3million in the current quartercompared to $801,000 in the prior year’s quarter, while gross margin was 35.7percent and 43.6 percent, respectively. The decline in gross margin was mainlydue to an unfavorable sales mix and more sales to PPL’s expanding distributionchannels outside of its core UK market where separate fees are not charged fordownloads.

 

Selling, general andadministrative expenses were $106,000, or 10.8 percent, higher than the first quarter of 2009 and duemainly to foreign exchange, as local currency spending increased by only 2.1percent.  As a percentage of net sales,selling, general and administrative expenses decreased to 30.8 percent in 2010from 53.3 percent in the first quarter of 2009 due to the effect of highersales in 2010 as compared to the first quarter of 2009.

 

PPL had other expense of$58,000 in the first quarter of 2010 compared to other expense of $23,000 inthe prior year’s quarter. The decrease was mainly due to a higher foreignexchange loss in the first quarter of 2010 as compared to the first quarter of2009.

 

As a result of the above,the PPL segment had pre-tax income of $115,000 for the first quarter of 2010 compared to $201,000 of pre-tax lossfor the first quarter of 2009.

 

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**LIQUIDITY AND CAPITALRESOURCES**

 

At March 31, 2010, theCompany had interest bearing debt outstanding of $13.7 million, consisting ofthe $2.6 million term loan and $11.1 million borrowed under the revolvingcredit facility. As of March 31, 2010, credit availability wasapproximately $2.7 million under the revolving credit facility, based on theborrowing base formula in effect at that time. The Company was in compliance with all debt covenants as of March 31,2010.

 

For the three monthsended March 31, 2010, net cash flows provided by operating activities totaled$4.0 million.  Significant net cashinflows from operations and non-cash add-backs included a decrease in accountsreceivable of $4.8 million, non-cash depreciation and amortization of $950,000and an increase in accounts payable of $597,000. The decrease in accountsreceivable was primarily due to collections on sales from the fourth quarter of2009. The increase in accounts payable was mainly due to inventory and capitalexpenditures.  Partially offsetting theseinflows was the net loss of $1.3 million, a decrease in accrued liabilities,mainly lower promotional and warranty costs due to the sales decline from theprior quarter, totaling $447,000, and an increase of $460,000 in other assets,mainly prepayments and vendor receivables.

 

Working capitalrequirements are seasonal, with demand for working capital being higher laterin the year as customers begin purchasing for the holiday selling season.  The Company believes that cash generated fromoperations and from borrowings under its Loan Agreement will be sufficient in2010 to fund its working capital needs.

 

Net cash used ininvesting activities for the first three months of 2010 totaled $438,000.  $131,000 was due to an increase in intangibleassets, $172,000 was used for PP&E expenditures, primarily tooling andmachinery and equipment, and $135,000 was due to the premiums payments for lifeinsurance.

 

Net cash used byfinancing activities in the first three months of 2010 totaled $4.1 million andwas used to reduce bank debt.  TheCompany is not expected to pay a dividend in 2010.  The cash used in 2010 for financingactivities will most likely be limited to debt reduction.

 

A failure to comply,absent a waiver from lenders, with the covenants contained in the LoanAgreement in future periods could result in any outstanding indebtedness underthe Loan Agreement becoming immediately due and payable and in the inability toborrow additional funds under the Loan Agreement.  The Company believes that for the foreseeablefuture, it will be able to continue to fund its operations and seasonal workingcapital requirements with cash generated from operations and borrowings underthe Loan Agreement or similar future credit agreement.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

Critical accountingpolicies and estimates generally consist of those that reflect significantjudgments and uncertainties and could potentially result in materiallydifferent results under different assumptions. For a description of the Company’s critical accounting polices and estimatesrefer to the Company’s Annual Report on Form 10-K for the year ended December 31,2009.  The application of certain ofthese policies requires significant judgments or a historical based estimationprocess that can affect the results of operations and financial position of theCompany as well as the related footnote disclosures.  The Company bases its estimates on historicalexperience and other assumptions that it believes are reasonable.  If actual amounts ultimately differ fromprevious estimates, the revisions are included in the Company’s results ofoperations for the period in which the actual amounts become known.

 

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**FORWARD-LOOKING STATEMENTS**

 

This report containsforward-looking statements within the meaning of that term in the PrivateSecurities Litigation Reform Act of 1995 found at Section 27A of theSecurities Act of 1933 and Section 21E of the Exchange Act.  Additional written or oral forward-lookingstatements may be made by the Company from time to time in filings with theSEC, press releases, or otherwise. Statements contained in this report that arenot historical facts are forward-looking statements made pursuant to the safeharbor provisions of the Private Securities Litigation Reform Act.  Forward-looking statements may include, butare not limited to, projections of revenue, income or loss and capital expenditures,statements regarding future operations, anticipated financing needs, compliancewith financial covenants in loan agreements, liquidity, plans for acquisitionsor sales of assets or businesses, plans relating to products or services,assessments of materiality, expansion into international markets, growth trendsin the consumer electronics business, technological and market developments inthe consumer electronics business, the availability of new consumer electronicsproducts and predictions of future events, as well as assumptions relating tothese statements. In addition, when used in this report, the words “anticipates,”“believes,” “should,” “estimates,” “expects,” “intends,” “plans” and variationsthereof and similar expressions are intended to identify forward-lookingstatements.

 

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

 

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

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

·      pressure for the Company to reduce pricesfor older products as newer technologies are introduced;

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

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

·      ability of the Company to maintainadequate financing, to bear the interest cost of such financing and to remainin compliance with financing covenants;

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

·      changes in law;

·      ability to successfully integrateacquisitions;

·      and other risk factors, which may bedetailed from time to time in the Company’s SEC filings.

 

Readers are cautioned notto place undue reliance on any forward-looking statements contained in thisreport, which speak only as of the date set forth on the signature page hereto.  The Company undertakes no obligation topublicly release the result of any revisions to these forward-lookingstatements that may be made to reflect events or circumstances after such dateor to reflect the occurrence of anticipated or unanticipated events.

 

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**Item3.  Qualitative and QuantitativeDisclosures About Market Risk**

 

Market risks related tochanges in foreign currency exchange risks and interest rates are inherent tothe Company’s operations. Changes to these factors could cause fluctuations inthe Company’s net earnings, cash flows and the fair values of financialinstruments subject to market risks.  TheCompany identifies these risks and mitigates the financial impact with hedgingand interest rate swaps.

 

There have been nomaterial changes in the Company’s market risk since December 31, 2009.

 

**Item 4. Controls and Procedures**

 

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

 

As of March 31,2010, the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Company’s principalexecutive officer and principal financial officer, of the effectiveness of theCompany’s disclosure controls and procedures. Based on this evaluation, the principal executive officer and principalfinancial officer of the Company have concluded that the Company’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) were effective as of March 31, 2010.

 

There has been nochange in the Company’s internal control over financial reporting that occurredduring the first three months of 2010 that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

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**PART II**

**OTHER INFORMATION**

 

**Item 1A.  Risk Factors**

 

There have been nomaterial changes to the risk factors as previously disclosed under Item 1Ain our Annual Report on Form 10-K for the year ended December 31,2009.

 

**Item 5.  Other Information**

 

On May 11, 2010, theCompany held an annual meeting of its shareholders (the “Annual Meeting”).  Of the 6,471,280 shares of the Company’scommon stock entitled to vote at the Annual Meeting, 5,487,942 shares werepresent in person or by proxy at the Annual Meeting, which constituted aquorum. Set forth below are the matters acted upon by the shareholders at theAnnual Meeting and the final voting results of each such matter.

 

*Proposal One*— *Election of Directors*.  In accordance with the voting results listedbelow, each nominee to serve as a Class III director was elected for athree-year term expiring at the 2013 Annual Meeting.

 

| **Nominee**    | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** | **Broker Non-Votes** | ** ** |
|----------------|------------|---------------|------------|--------------------|------------|----------------------|------------|
| John  S. Lupo  |       | 3,436,975     |       | 279,643            |       | 1,771,324            |       |
| Ian  R. Miller |       | 2,851,006     |       | 865,612            |       | 1,771,324            |       |

 

*Proposal Two* — *Ratification of theAppointment of Grant Thornton LLP as Independent Registered Public Accountantsfor the Year Ending December 31, 2010. *In accordance with the voting results listed below, theappointment of Grant Thornton LLP to serve the Company’s independent registeredpublic accounting firm for the year ending December 31, 2010 was ratified.

 

| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Votes** | ** ** |
|---------------|------------|-------------------|------------|-----------------|------------|----------------------|------------|
| 5,278,376     |       | 75,701            |       | 133,864         |       | 0                    |       |

 

*Proposal Three**— Approval of the CobraElectronics Corporation 2010 Equity Incentive Plan*.  In accordance with the voting results listedbelow, the Cobra Electronics Corporation 2010 Equity Incentive Plan (the “Plan”)was approved.

 

| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Votes** | ** ** |
|--------------------|------------|------------------------|------------|-----------------|------------|---------------------------|------------|
| 2,507,236          |       | 1,182,607              |       | 26,773          |       | 1,771,324                 |       |

 

The Plan becameeffective on May 11, 2010 and will terminate on the date of the firstannual meeting of the Company’s shareholders to occur on or after May 11,2020, unless terminated earlier by the Board of Directors. The Plan replacesthe 2000 Stock Option Plan (which expired March 31, 2010) and the 2002Outside Directors Stock Option Plan.

 

All officers, employees and non-employee directors ofthe Company and its subsidiaries and persons expected to become officers,employees or non-employee directors of the Company and its subsidiaries areeligible to receive awards under the Plan. There are approximately 150 employees of the Company who are currentlyeligible to participate under the Plan. There are also five non-employee directors of the Company who are currentlyeligible to participate under the Plan.

 

Awards under the Plan include non-qualified andincentive stock options, stock-settled stock appreciation rights, restrictedstock, unrestricted stock, restricted stock units and performance units, any orall of which may be made contingent upon the achievement of performancecriteria. Subject to adjustment for stock splits and other changes incapitalization, (i) the maximum number of shares available under the Planfor restricted stock, unrestricted stock, restricted stock unit awards andperformance unit awards settled with stock (i.e., all awards other thanstock options and stock appreciation rights) is 800,000; (ii) the maximumnumber of shares with respect to which options or stock appreciation rights ora combination thereof may be granted during any fiscal year to any person is300,000; (iii) the maximum number of shares with respect to whichperformance-based restricted stock or restricted stock units may be grantedduring any fiscal year to any person is 100,000; and (iv) the maximumamount that may be payable with respect to performance units granted during anyfiscal year of the Company to any person is $1,000,000.

 

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The Stock Option Plan Committee, which is made upentirely of independent directors, is responsible for interpreting, construingand administering the Plan.  The StockOption Plan Committee has the authority to determine the participants in thePlan, the form, amount and timing of any awards (subject to Plan limits), theperformance goals, if any, and all other terms and conditions pertaining to anyaward.

 

The foregoingdescription of the Plan is qualified in its entirety by reference to the Plandocument, which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Qand incorporated herein.

 

**Item6.  Exhibits**

 
| a)     | Exhibit 10.1 2010 Executive Incentive Payment Plan.                                                                                                                                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                    |
| b)     | Exhibit 10.2 Cobra Electronics Corporation 2010 Equity Incentive  Plan.                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                    |
| c)     | Exhibit 10.3 Fifth Amendment to Loan and Security Agreement and  Waiver, effective April 9, 2010, among Cobra Electronics Corporation,  The PrivateBank and Trust Company as lender and administrative agent for  itself and other lenders and RBS Citizens, N.A., as lender. |
|   |                                                                                                                                                                                                                                                                                    |
| d)     | Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of  the Chief Executive Officer.                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                    |
| e)     | Exhibit 31.2  Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial  Officer.                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                    |
| f)     | Exhibit 32.1  Section 1350 Certification of the Chief Executive Officer.                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                    |
| g)     | Exhibit 32.2  Section 1350 Certification of the Chief Financial Officer.                                                                                                                                                                                                      |

 

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**SIGNATURE**

 

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

 
|   |   | COBRA  ELECTRONICS CORPORATION |
|--------|--------|--------------------------------|
|   |   |                           |   |
|   |   | By                             | **/s/ Michael Smith** |
|   |   |                           |   |
|   |   |                           | **Michael Smith** |
|   |   |                           | **Senior Vice President and  Chief Financial Officer** |
|   |   |                           | **(Duly Authorized Officer and Principal Financial  Officer)** |

 

 

Dated:May 14, 2010

 

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## **INDEX TO EXHIBITS**

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                            |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description of Document**                                                                                                                                                                                                                                           |
|        |       |                                                                                                                                                                                                                                                                  |
| 10.1        |       | 2010 Executive Incentive Payment Plan.                                                                                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                                                                  |
| 10.2        |       | Cobra Electronics Corporation 2010 Equity Incentive Plan.                                                                                                                                                                                                             |
|        |       |                                                                                                                                                                                                                                                                  |
| 10.3        |       | Fifth Amendment to Loan and Security Agreement and Waiver, effective  April 9, 2010, among Cobra Electronics Corporation, The PrivateBank and  Trust Company as lender and administrative agent for itself and other lenders  and RBS Citizens, N.A., as lender. |
|        |       |                                                                                                                                                                                                                                                                  |
| 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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