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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark One)

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



For the quarterly period ended
March 31, 2003



OR



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



Commission File Number 0-511



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COBRA ELECTRONICS CORPORATION

(Exact name of
Registrant as specified in its Charter)



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|DELAWARE                 |  | 36-2479991                          
|------------------------ |  | ------------------------------------
|(State of incorporation) |  | (I.R.S. Employer Identification No.)



|6500 WEST CORTLAND STREET CHICAGO, ILLINOIS |  | 60707     
|------------------------------------------- |  | ----------
|(Address of principal executive offices)    |  | (Zip Code)



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



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



YES  x         NO ̈



Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).



YES ̈NO  x



Number of shares of Common Stock
of Registrant outstanding at May 8, 2003: 6,419,777



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1



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PART I FINANCIAL INFORMATION



Item 1. Financial Statements



Cobra Electronics Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)



|                                             |  | For the Three Months Ended (Unaudited) |       
|-------------------------------------------- |  | -------------------------------------- | ------
|                                             |  | March 31, 2003                         |       
|Net sales                                    |  | $                                      | 20,554
|Cost of sales                                |  |                                        | 15,440
|                                             |  |                                        |       
|Gross profit                                 |  |                                        | 5,114 
|                                            
|Selling, general and administrative expenses |  |                                        | 5,810 
|                                             |  |                                        |       
|Operating loss                               |  |                                        | (696  
|                                            
|Other income (expense):                      |  |                                        |       
|Interest expense                             |  |                                        | (30   
|Other, net                                   |  |                                        | (33   
|                                             |  |                                        |       
|Loss before taxes                            |  |                                        | (759  
|Tax benefit                                  |  |                                        | 306   
|                                             |  |                                        |       
|Net loss                                     |  | $                                      | (453  
|                                             |  |                                        |       
|                                            
|Net loss per common share:                   |  |                                        |       
|Basic                                        |  | $                                      | (0.07 
|Diluted                                      |  | $                                      | (0.07 
|                                            
|Weighted average shares outstanding:         |  |                                        |       
|Basic                                        |  |                                        | 6,420 
|Diluted                                      |  |                                        | 6,479 
|                                            
|Cash dividends                               |  |                                        | None  



See notes to condensed
consolidated financial statements.



2



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Cobra
Electronics Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(dollars in thousands)



|                                                                                                                          |  | As of March 31, 2003 (Unaudited) |         |   | As of December 31, 2002 (Unaudited) |  
|------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ----------------------------------- | -
|ASSETS:                                                                                                                   |  |                                  |         |   |                                     |  
|                                                                                                                         
|Current assets:                                                                                                           |  |                                  |         |   |                                     |  
|Cash                                                                                                                      |  | $                                | 6,851   |   |                                     | $
|Receivables, less allowance for claims and doubtful accounts of $1,005 at March 31,
2003, and $1,179 at December 31, 2002 |  |                                  | 18,577  |   |                                     |  
|Inventories, primarily finished goods                                                                                     |  |                                  | 17,976  |   |                                     |  
|Deferred income taxes                                                                                                     |  |                                  | 6,552   |   |                                     |  
|Other current assets                                                                                                      |  |                                  | 4,303   |   |                                     |  
|                                                                                                                          |  |                                  |         |   |                                     |  
|Total current assets                                                                                                      |  |                                  | 54,259  |   |                                     |  
|                                                                                                                          |  |                                  |         |   |                                     |  
|Property, plant and equipment, at cost:                                                                                   |  |                                  |         |   |                                     |  
|Land                                                                                                                      |  |                                  | 330     |   |                                     |  
|Building and improvements                                                                                                 |  |                                  | 4,362   |   |                                     |  
|Tooling and equipment                                                                                                     |  |                                  | 20,302  |   |                                     |  
|                                                                                                                          |  |                                  |         |   |                                     |  
|                                                                                                                          |  |                                  | 24,994  |   |                                     |  
|Accumulated depreciation                                                                                                  |  |                                  | (18,158 | ) |                                     |  
|                                                                                                                          |  |                                  |         |   |                                     |  
|Net property, plant and equipment                                                                                         |  |                                  | 6,836   |   |                                     |  
|                                                                                                                          |  |                                  |         |   |                                     |  
|                                                                                                                         
|Other assets:                                                                                                             |  |                                  |         |   |                                     |  
|Cash surrender value of officers life insurance policies                                                                 |  |                                  | 5,954   |   |                                     |  
|Other                                                                                                                     |  |                                  | 4,180   |   |                                     |  
|                                                                                                                          |  |                                  |         |   |                                     |  
|Total other assets                                                                                                        |  |                                  | 10,134  |   |                                     |  
|                                                                                                                          |  |                                  |         |   |                                     |  
|Total assets                                                                                                              |  | $                                | 71,229  |   |                                     | $
|                                                                                                                          |  |                                  |         |   |                                     |  



See notes to condensed
consolidated financial statements.



3



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Cobra
Electronics Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share data)



|                                                                                                   |  | As of March 31, 2003 (Unaudited) |        |   | As of December 31, 2002 (Unaudited) |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ----------------------------------- | -
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                              |  |                                  |        |   |                                     |  
|Current liabilities:                                                                               |  |                                  |        |   |                                     |  
|Accounts payable                                                                                   |  | $                                | 3,621  |   |                                     | $
|Accrued salaries and commissions                                                                   |  |                                  | 527    |   |                                     |  
|Accrued advertising and sales promotion costs                                                      |  |                                  | 1,196  |   |                                     |  
|Accrued product warranty costs                                                                     |  |                                  | 1,896  |   |                                     |  
|Other accrued liabilities                                                                          |  |                                  | 498    |   |                                     |  
|                                                                                                   |  |                                  |        |   |                                     |  
|Total current liabilities                                                                          |  |                                  | 7,738  |   |                                     |  
|                                                                                                   |  |                                  |        |   |                                     |  
|Non-current liabilities:                                                                           |  |                                  |        |   |                                     |  
|Deferred compensation                                                                              |  |                                  | 3,981  |   |                                     |  
|Deferred income taxes                                                                              |  |                                  | 3,673  |   |                                     |  
|                                                                                                   |  |                                  |        |   |                                     |  
|Total non-current liabilities                                                                      |  |                                  | 7,654  |   |                                     |  
|                                                                                                   |  |                                  |        |   |                                     |  
|Total liabilities                                                                                  |  |                                  | 15,392 |   |                                     |  
|                                                                                                   |  |                                  |        |   |                                     |  
|Shareholders equity:                                                                              |  |                                  |        |   |                                     |  
|Preferred stock, $1 par value, shares authorized1,000,000; none
issued                            |  |                                  |       |   |                                     |  
|Common stock, $.33 1/3 par value, 12,000,000 shares authorized; 7,039,100 issued for
2003 and 2002 |  |                                  | 2,345  |   |                                     |  
|Paid-in capital                                                                                    |  |                                  | 19,772 |   |                                     |  
|Retained earnings                                                                                  |  |                                  | 37,596 |   |                                     |  
|Accumulated other comprehensive income                                                             |  |                                  | 46     |   |                                     |  
|Treasury stock, at cost (619,323 shares for 2003 and 619,323 shares for
2002)                      |  |                                  | (3,922 | ) |                                     |  
|                                                                                                   |  |                                  |        |   |                                     |  
|Total shareholders equity                                                                         |  |                                  | 55,837 |   |                                     |  
|                                                                                                   |  |                                  |        |   |                                     |  
|Total liabilities and shareholders equity                                                         |  | $                                | 71,229 |   |                                     | $
|                                                                                                   |  |                                  |        |   |                                     |  



See notes to condensed
consolidated financial statements.



4



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Cobra
Electronics Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)



|                                                                               |  | For the Three Months Ended (Unaudited) |       
|------------------------------------------------------------------------------ |  | -------------------------------------- | ------
|                                                                               |  | March 31, 2003                         |       
|Cash flows from operating activities:                                          |  |                                        |       
|Net loss                                                                       |  | $                                      | (453  
|Adjustments to reconcile net loss to net cash flows from operating
activities: |  |                                        |       
|Depreciation and amortization                                                  |  |                                        | 942   
|Loss on cash surrender value (CSV) of life insurance                           |  |                                        | 16    
|Changes in assets and liabilities:                                             |  |                                        |       
|Receivables                                                                    |  |                                        | 6,207 
|Inventories                                                                    |  |                                        | 2,980 
|Other current assets                                                           |  |                                        | (461  
|Other assets                                                                   |  |                                        | (587  
|Accounts payable                                                               |  |                                        | (671  
|Deferred compensation                                                          |  |                                        | 196   
|Accrued liabilities                                                            |  |                                        | (3,036
|                                                                               |  |                                        |       
|Net cash flows from operating activities                                       |  |                                        | 5,133 
|                                                                               |  |                                        |       
|Cash flows used in investing activities:                                       |  |                                        |       
|Long-term loan receivable                                                      |  |                                        | (850  
|Capital expenditures                                                           |  |                                        | (257  
|CSV life insurance premiums                                                    |  |                                        | (4    
|                                                                               |  |                                        |       
|Net cash flows used in investing activities                                    |  |                                        | (1,111
|                                                                               |  |                                        |       
|Cash flows from financing activities:                                          |  |                                        |       
|Net repayments under the line-of-credit agreement                              |  |                                        |      
|Transactions related to exercise of options, net                               |  |                                        |      
|                                                                               |  |                                        |       
|Net cash flows used in financing activities                                    |  |                                        |      
|                                                                               |  |                                        |       
|Net increase (decrease) in cash                                                |  |                                        | 4,022 
|Cash at beginning of period                                                    |  |                                        | 2,829 
|                                                                               |  |                                        |       
|Cash at end of period                                                          |  | $                                      | 6,851 
|                                                                               |  |                                        |       
|Supplemental disclosure of cash flow information                               |  |                                        |       
|Cash paid during the period for:                                               |  |                                        |       
|Interest                                                                       |  | $                                      | 30    
|Taxes                                                                          |  | $                                      | 530   



See notes to condensed
consolidated financial statements.



5



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Cobra
Electronics Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the three month periods ended March 31, 2003 and 2002

(Unaudited)



The
condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. The Condensed Consolidated Balance Sheets as of December 31, 2002 has been derived from the audited consolidated balance sheets as of that date. These condensed financial statements should
be read in conjunction with the financial statements and the notes thereto included in the Companys latest annual report on Form 10-K for the year ended December 31, 2002. In the opinion of management, the information contained herein reflects
all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. Due to the seasonality of the Companys business, the results of operations of any interim period are not necessarily
indicative of the results that may be expected for a fiscal year.



(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



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



Principles of ConsolidationThe condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.



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



6



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



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



DepreciationDepreciation of buildings, improvements, tooling and equipment is computed using either straight-line or units of production methods
over the following estimated useful lives:



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



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



Research, Engineering and Product
Development ExpendituresResearch, engineering and product development expenditures are expensed as incurred.



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



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



7



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|                                                                                                                                            |  | Quarter Ended March 31 (Unaudited) |      
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | -----
|                                                                                                                                            |  | 2003                               |      
|Net loss, as reported                                                                                                                       |  | $                                  | (453 
|Deduct: Total stock-based employee compensation expense determined under fair value
based method for all awards, net of related tax effects |  |                                    | (51  
|                                                                                                                                            |  |                                    |      
|Pro forma net loss                                                                                                                          |  | $                                  | (504 
|                                                                                                                                            |  |                                    |      
|Net loss per common share:                                                                                                                  |  |                                    |      
|                                                                                                                                           
|Basicas reported                                                                                                                           |  | $                                  | (0.07
|Basicpro forma                                                                                                                             |  |                                    | (0.08
|                                                                                                                                           
|Dilutedas reported                                                                                                                         |  | $                                  | (0.07
|Dilutedpro forma                                                                                                                           |  |                                    | (0.08



The fair value of each
option, for each quarter, is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: no dividends; expected volatility ranging from 43 to 45 percent; risk-free interest rate
ranging from 4.3 to 6.8 percent; and expected lives of 5 or 10 years.



Income TaxesThe Company provides for income taxes under the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recorded based on the expected tax effects of future
taxable income or deductions resulting from differences in the financial statement and tax bases of assets and liabilities. A valuation allowance is recorded when necessary to reduce net deferred tax assets to the amount considered more likely than
not to be realized.



Revenue RecognitionRevenue from the
sale of goods is recognized at the time of shipment. Obligations for sales returns and allowances and product warranties are recognized at the time of sale on an accrual basis.



(2) PURCHASE ORDERS AND COMMITMENTS



At March 31, 2003 and 2002, the Company had outstanding inventory purchase
orders with suppliers totaling approximately $24.1 million and $36.1 million, respectively. The decrease reflected stricter inventory management at March 31, 2003 in light of an uncertain economic environment.



8



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(3) EARNINGS PER SHARE



|                                                               |  | For the Three Months Ended (Unaudited) |          
|-------------------------------------------------------------- |  | -------------------------------------- | ---------
|                                                               |  | March 31, 2003                         |          
|Loss:                                                          |  |                                        |          
|Loss available to common shareholders (thousands)              |  | $                                      | (453     
|                                                              
|Basic loss per share:                                          |  |                                        |          
|                                                              
|Weighted-average shares outstanding                            |  |                                        | 6,419,777
|                                                               |  |                                        |          
|Basic loss per share                                           |  | $                                      | (0.07    
|                                                               |  |                                        |          
|                                                              
|Diluted loss per share:                                        |  |                                        |          
|                                                              
|Weighted-average shares outstanding                            |  |                                        | 6,419,777
|Dilutive shares issuable in connection with stock option plans |  |                                        | 441,400  
|Less: shares purchasable with proceeds                         |  |                                        | (382,040 
|                                                               |  |                                        |          
|Total                                                          |  |                                        | 6,479,137
|                                                               |  |                                        |          
|Diluted loss per share                                         |  | $                                      | (0.07    
|                                                               |  |                                        |          



(4) COMPREHENSIVE INCOME



Comprehensive loss for
the three months ended March 31, 2003 and March 31, 2002 was as follows (in thousands):



9



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|                                                                                     |  | For the Three Months Ended (Unaudited) |     
|------------------------------------------------------------------------------------ |  | -------------------------------------- | ----
|                                                                                     |  | March 31, 2003                         |     
|Net loss                                                                             |  | $                                      | (453
|                                                                                    
|Other comprehensive income: Foreign currency translation adjustments (no tax
effect) |  |                                        | 11  
|                                                                                     |  |                                        |     
|                                                                                    
|Other comprehensive income, net of tax                                               |  |                                        | 11  
|                                                                                     |  |                                        |     
|                                                                                    
|Total comprehensive loss                                                             |  | $                                      | (442
|                                                                                     |  |                                        |     



(5) NEW ACCOUNTING
PRONOUNCEMENTS



In April 2003, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment on Statement 133 on Derivative Instruments and Hedging Activities, which is effective for all contracts entered
into or modified after June 30, 2003. SFAS No. 149 clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company does not expect that SFAS No. 149 will have an impact on its financial statements.



(6) FINANCIAL INSTRUMENTS



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



The Companys current hedging activity is limited to foreign currency
purchases. The purpose of the Companys foreign currency hedging activities is to protect the Company from the risk that eventual settlement of foreign currency transactions will be affected adversely by changes in exchange rates. The Company
hedges these exposures by entering into various short-term foreign exchange forward contracts. Under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the instruments are carried at fair value in the Condensed
Consolidated Balance Sheets as a component of current liabilities. Changes in the fair value of foreign exchange forward contracts



10



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that meet the applicable hedging criteria of SFAS No. 133 are recorded as a component of accumulated other
comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. Changes in the fair value of foreign exchange forward contracts that do not meet the applicable hedging criteria of SFAS No.
133 are recorded currently in income as cost of sales. Hedging activities did not have a material impact on results of operations or financial condition during the three months ended March 31, 2003.



(7) INTANGIBLE ASSETS



Intangible assets are included in Other assets in the Condensed
Consolidated Balance Sheets and consist of the following at March 31, 2003 and December 31, 2002 (in thousands):



|                                             |  | March 31, 2003 (Unaudited) |        |   | December 31, 2002 (Unaudited) |  
|-------------------------------------------- |  | -------------------------- | ------ | - | ----------------------------- | -
|Internal use software                        |  | $                          | 1,549  |   |                               | $
|Less accumulated amortization                |  |                            | (1,325 | ) |                               |  
|                                             |  |                            |        |   |                               |  
|                                             |  |                            | 224    |   |                               |  
|                                            
|Trademarks                                   |  |                            | 852    |   |                               |  
|Less accumulated amortization                |  |                            | (238   | ) |                               |  
|                                             |  |                            |        |   |                               |  
|                                             |  |                            | 614    |   |                               |  
|                                            
|Patents and technology and software licenses |  |                            | 1,303  |   |                               |  
|Less accumulated amortization                |  |                            | (123   | ) |                               |  
|                                             |  |                            |        |   |                               |  
|                                             |  |                            | 1,180  |   |                               |  
|                                            
|Product software                             |  |                            | 1,304  |   |                               |  
|                                             |  |                            |        |   |                               |  
|Total                                        |  | $                          | 3,322  |   |                               | $
|                                             |  |                            |        |   |                               |  



These assets are
generally amortized over their estimated lives ranging from 3 years to 20 years. The product software and technology license assets will be amortized when GPS sales commence based on the percentage of revenues generated in each reporting period to
the total revenues expected over the GPS product life cycle. The software license asset will be amortized when GPS sales commence according to units sold during the contract period based on the contract royalty rate as the software license waives
royalties on the initial sale of products using the software, up to the cost of the software license. Total amortization expense for the three months ended March 31, 2003 was $75,000 and for the three months ended March 31, 2002 was $99,000.



11



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(8) GOVERNMENT RULINGS



On July 19, 2002, the Federal Communications Commission
(FCC) issued new rules limiting the emissions of radar detectors in the frequency band used by VSAT satellite communications providers. The new FCC rules prohibit the manufacture and import of non-compliant radar detectors on or after
August 28, 2002 and the sale of these non-compliant radar detectors in the U.S. on or after October 27, 2002.



All of Cobras current line of radar detectors are compliant with the FCCs new rules. However, prior years models of Cobras 6 Bandand 9 Bandradar detectors that remain in the inventory of Cobra or its customers were no longer permitted to be sold on or after October 27, 2002. Radar detectors currently in use by consumers are not affected by this ruling.



As of March 31, 2003, Cobra had approximately $1.9 million of non-compliant
radar detectors in inventory. Management believes that there are opportunities to sell these products at or above cost, either outside of the U.S. or after modifications are made to ensure they are compliant with FCC regulations.



(9) CONTINGENCIES



The Company warrants to the purchaser of its products that it will repair or
replace, without charge, defective products. Consequently, it maintains a warranty reserve, which reflects historical warranty returns rates by product category multiplied by the most recent six months of unit sales of that model and the unit
standard cost of the model. A rollforward of the warranty reserve is as follows (in thousands):



|                                                    |  | Three months ended March 31, 2003 (Unaudited) |        |   | Year ended December 31, 2002 (Unaudited) |  
|--------------------------------------------------- |  | --------------------------------------------- | ------ | - | ---------------------------------------- | -
|                                                    |  |                                              
|                                                    |  |                                              
|Accrued product warranty costs, beginning of period |  | $                                             | 2,137  |   |                                          | $
|Warranty expense                                    |  |                                               | 802    |   |                                          |  
|Warranty expenditures                               |  |                                               | (1,043 | ) |                                          |  
|                                                    |  |                                               |        |   |                                          |  
|Accrued product warranty costs, end of period       |  | $                                             | 1,896  |   |                                          | $
|                                                    |  |                                               |        |   |                                          |  



|(10) |  | LONG-TERM LOAN RECEIVABLE
|---- |  | -------------------------



On February 6, 2003, the Company entered into a loan agreement with Horizon Navigation, Inc. (Horizon), a California corporation and vendor to
the Company. The outstanding loan receivable balance as of March 31, 2003 was $850,000 and is included in Other assets on Cobras Condensed Consolidated Balance Sheets. Horizon may borrow up to $2,000,000 per annum, up to an
aggregate amount of $6,000,000 at December 31, 2005. The loan accrues interest at a variable rate at a fixed margin above the prime rate. The loan agreement provides that the interest will be added to the principal amount of the loan. The
outstanding principal amount, together with all accrued and unpaid interest, will be due on December 31, 2005. The loan is collateralized by all of the assets of Horizon. Certain amounts of callable and non-callable warrants to purchase shares of
common stock of Horizon are issued to the Company each time the Company makes loans to Horizon in excess of specified amounts.



12



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



ANALYSIS OF RESULTS OF OPERATIONS



First Quarter 2003 vs. First Quarter
2002:



For the first quarter ended March 31, 2003, the
Company reported a net loss of $453,000, or $(0.07) per diluted share, compared to net loss of $236,000, or $(0.04) per diluted share, in the first quarter of 2002. The higher net loss from 2002 resulted from lower sales and higher operating
expenses as discussed below.



Net sales for the first quarter of
2003 decreased to $20.6 million, from net sales of $21.0 million in the first quarter of 2002. The drop in net sales was due in part to retailer reluctance to build inventories in an uncertain economic climate. In addition, the Company chose not to
do business with two accounts that represented $1.8 million in sales one year ago. Partially offsetting this decline were strong sales of the Companys new Harley-Davidson Limited Edition Citizens Band radio and a $500,000 increase in European
and other international sales.



Gross margin increased in the
first quarter of 2003 to 24.9% from 22.6%, primarily as a result of improved inventory management in all major product categories as the Company transitioned from older models to new models.



Net selling, general and administrative expenses increased $737,000 in the
first quarter of 2003 from the same period a year ago. The main contributor to this increase was the fact that the Company recorded a $420,000 one time benefit in the first quarter of 2002 by reducing its bad debt reserve as a result of an increase
in its customer receivable accounts covered by credit insurance. Also contributing to an increase in operating expenses were higher product design expense and investments in Global Positioning System engineering resources as well as higher costs for
the Companys growing European operations.



The $62,000
decline in interest expense resulted from lower average debt levels and lower average interest rates. The increase in other expense was due to lower vendor royalty income, higher losses on investments for the cash surrender value of life insurance
policies, and additional bank loan fees.



For the first quarter
of 2003, the Company had an income tax benefit of $306,000 compared to a $156,000 tax benefit for the prior years quarter. The effective tax rate was 40.3% for the first quarter of 2003 and 39.8% for the year ago quarter.



LIQUIDITY AND CAPITAL RESOURCES



On January 31, 2002, the Company executed a new three-year revolving credit
agreement permitting borrowings up to $55 million with three financial institutions. Borrowings and letters of credit issued under the agreement are secured by substantially all of the assets of the Company, with the exception of real property and
the cash surrender value of certain life insurance policies owned by the Company. The credit agreement was amended as of February 18, 2003 to address certain covenant violations then existing and decrease the earnings requirements for each calendar
quarter through March 31, 2004 and to provide for increased permitted capital expenditures in 2003. Loans outstanding under the amendment bear interest, at the Companys option, at the



13



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prime rate or at LIBOR plus 200 basis points. The amendment also increased the fee on letters of credit
from 1.0% to 1.25%. The credit agreement specifies that the Company may not pay cash dividends and contains certain financial and other covenants, including a requirement that James R. Bazet continue as CEO of the Company. At March 31, 2003, the
Company had approximately $19.0 million available under the credit agreement based on asset advance formulas.



Net cash flows generated cash of $5.1 million during the first quarter of 2003 primarily due to decreases in accounts receivable and inventory, which were partially offset by a decrease in accrued
liabilities. The lower accounts receivable reflected higher collections activity and lower sales volume in the current quarter. The decrease in inventory represented improved management of product transitions. Accrued liabilities decreased due to
lower required accruals for commissions, sales promotion costs, product warranty and income taxes, reflecting cash payouts from 2002 and lower sales volume in the current quarter.



Working capital requirements are seasonal, with demand for working capital being higher later in the year as customers begin
purchasing for the holiday selling season. The Company believes that cash generated from operations and from borrowings under its credit agreement will be sufficient in 2003 to fund its working capital needs.



Investing activities required cash of $1.1 million in 2003, principally
related to a loan to Horizon (see note 10) as well as the purchase of tooling.



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



For a discussion of the Companys critical
accounting policies, please refer to its Annual Report on Form 10-K for the year ended December 31, 2002.



In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment on Statement 133 on Derivative
Instruments and Hedging Activities, which is effective for all contracts entered into or modified after June 30, 2003. SFAS No. 149 clarifies financial accounting and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company does not expect that
SFAS No. 149 will have an impact on its financial statements.



Item 3. Qualitative and Quantitative Disclosures About Market Risk



The Company is subject to market risk associated principally with changes in interest rates and foreign exchange rates. The Company does not have any
interest rate exposure at March 31, 2003, as there is no outstanding debt. However, debt incurred is priced at interest rates that float with the market, which therefore minimizes interest rate exposure.



The Companys suppliers are located in foreign countries, principally in
Asia. The Company made approximately 10.8% of its sales outside the United States, principally in Europe and Canada, in the first quarter of 2003. The Company



14



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minimizes its foreign currency exchange rate risk by conducting all of its transactions in U.S. dollars,
except for some of the billings of its European business, which are conducted in euros. The Company does not use derivative financial or commodity instruments for trading or speculative purposes; however, forward contracts are occasionally used for
hedging some euro denominated transactions for the Companys European business. Please refer to note 6 in the financial statements, which is incorporated herein by reference.



Forward-Looking Statements



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



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



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

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

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

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

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

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

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

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



15



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



Item 4. Controls and Procedures



Within the 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Companys management, including the Companys President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures pursuant to Rule 13a-14 under the Exchange Act. Based upon this evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls
and procedures were effective as of the date of the evaluation.



There have been no significant changes in the Companys internal controls, or in other factors that could significantly affect these internal controls, subsequent to the date of the Companys evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.





16



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PART II

OTHER INFORMATION



Items 1,2,3,4 and 5



Not Applicable



Item 6. Exhibits and Reports on Form 8-K



|a) |  | Exhibits
|-- |  | --------



Exhibit 99-1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



Exhibit 99-2 Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|b) |  | Reports on Form 8-K
|-- |  | -------------------



On February 25, 2003, the Company filed a current report on Form 8-K relating to the Companys Amendment to the Loan and Security
Agreement dated as of January 31, 2002.



17



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SIGNATURE



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



COBRA ELECTRONICS CORPORATIONBy

/s/ Michael SmithMichael Smith Senior Vice President and Chief Financial Officer (Duly Authorized Officer and
Principal Financial Officer)




Dated: May 15, 2003



18



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CERTIFICATIONS





I, James R. Bazet, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Cobra Electronics Corporation;
|-- |  | ------------------------------------------------------------------------------------

|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weakness in internal controls; and
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|Date: May 15, 2003
|                  



19



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I, Michael Smith, certify
that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Cobra Electronics Corporation;
|-- |  | ------------------------------------------------------------------------------------

|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weakness in internal controls; and
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|Date: May 15, 2003
|                  



20



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INDEX TO
EXHIBITS



|Exhibit Number |  | Description of
Document                                                                                                
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------
|              
|99-1           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|              
|99-2           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.



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