SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

||X| |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2000
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||  | |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____ to ____
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Commission file number: 0-5860

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RECOTON CORPORATION(Exact name of Registrant as Specified in Its
Charter)

| | New York(State or Other Jurisdiction ofIncorporation or Organization) |  | 11-1771737(IRS EmployerIdentification No.)
| | --------------------------------------------------------------------- |  | ------------------------------------------

2950 Lake Emma Road, Lake Mary, Florida 32746(Address of principal executive offices, including zip code)Registrant's telephone number, including area code: (407) 333-8900Securities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act:Common Shares, $.20 par value(Title of Class)

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
reporting requirements for the past 90 days.
Yes  /X/  No  /_/

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   /_/

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing:
$119,076,209 based on the closing price on the Nasdaq Stock Market of $11.50 as of
February 28, 2001. For purposes of this computation, all executive officers and
directors of the registrant have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such persons are, in
fact, affiliates of the registrant.

Indicate the number of shares outstanding of each of the registrants
classes of common stock as of the latest practicable date: 11,764,590 Common
Shares as of March 15, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be filed with the Securities and
Exchange Commission (the Commission) with respect to the
registrants Annual Meeting of Shareholders to be held in 2001 (the
2001 Proxy Statement) are incorporated by reference into Part III of
this Form 10-K

PART I

This Annual Report on Form 10-K 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. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities Exchange Commission, press releases or other statements by the
Company. Statements contained in this Annual Report that are not historical
facts are forward-looking statements made pursuant to the safe harbor provisions
of the Act. Forward-looking statements may include, but are not limited to,
projections of revenue, income or loss and capital expenditures; statements
regarding future operations, financing needs and anticipated compliance with
financial covenants in loan agreements; plans for acquisition or sale of assets
or businesses and consolidation of operations of newly acquired businesses;
plans relating to products or services; assessments of materiality; and
predictions of future events and the effects of litigation, as well as
assumptions relating to these statements. In addition, when used in this
discussion, the words "anticipates," "believes," "estimates," "expects,"
"intends," "plans" and variations of such terms 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 Annual Report, other filings, press releases or other
statements by the Company. Statements in this Annual Report, particularly in
"Item 1. Business", "Item 3. Legal Proceedings", the "Notes to Consolidated
Financial Statements" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," describe certain factors, among
others, that could contribute to or cause such differences.

Other 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:

| |  | receptivity of consumers to new consumer electronics technologies;
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| |  | ability of the Company to introduce new products to meet
consumer needs and customer and consumer acceptance of the Company's new product
introductions;
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| |  | timing of introduction by others of new products for which
the Company sells accessories;
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| |  | ability to successfully identify, acquire and integrate new
businesses into the Company's operation;
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| |  | actions taken by the Company's competition;
| | - | -------------------------------------------

| |  | number and nature of customers and their product orders;
| | - | --------------------------------------------------------

| |  | ability to maintain adequate financing, to bear the
interest cost of such financing and to remain in compliance with financing
covenants;
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| |  | ability of suppliers to continue to provide products and
services at competitive prices;
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| |  | ability to maintain appropriate inventory levels, including
adequate levels to satisfy seasonal demands without having to utilize expedited
shipping arrangements;
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| |  | factors related to foreign manufacturing, sourcing and sales
(including Chinese and other foreign government regulations, trade and
importation concerns,effects of fluctuations in exchange rates and effects of
adoption of a uniform currency in certain European countries);
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| |  | changes in taxes due to changes in the mix of U.S. and
non-U.S. income;
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| |  | ability to maintain confidential information and obtain and
maintain proprietary rights;
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| |  | effects of any pending or threatened litigation;
| | - | ------------------------------------------------

| |  | the ability to obtain and maintain key personnel;
| | - | -------------------------------------------------

| |  | the operation of management information and computer systems
at the Company and at the Companys customers and vendors, including the
process of implementing the Companys new Enterprise Resource Planning
System;
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| |  | environmental and other legal regulations; and
| | - | ----------------------------------------------

| |  | other risk factors which may be detailed from time to time
in the Companys Securities and Exchange Commission filings.
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Readers are cautioned not to place undue reliance on any forward-looking
statements contained in this Annual Report, which speak only as of the date set
forth on the signature page. 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 unexpected events.

AAMP, Advent®, Ambico®, AR®/Acoustic Research®,
Discwasher®, GameShark®, Heco®, InterAct®, Jensen®, Linear
Research®, MacAudio®, Magnat®, NHT® (Now Hear This),
Performance®, Peripheral, Phase Linear®, Recoton®, Road
Gear, Ross, SoundQuest® and Stinger® are trademarks
of Recoton Corporation or its subsidiaries. Barbie®, Dale Earnhardt,
Jr.®, Microsoft X-Box®and Sprint® are marks of other companies
licensed for use in connection with specific products manufactured by or for
Recoton Corporation or its subsidiaries.

Item 1.   Business

The Company

Recoton Corporation (with its subsidiaries, sometimes referred to as Recoton or
the Company) is a global leader in the development and marketing of consumer
electronic accessories, audio products and gaming products. Recoton's more than
4,000 products include highly functional accessories for audio, video, car
audio, camcorder, multi-media/computer, home office and cellular and standard
telephone products, as well as 900MHz wireless technology products including
headphones and speakers; home, mobile and marine audio products including high
fidelity loudspeakers, home theater speakers and car audio speakers and
components; and accessories for video and computer games.

The Company classifies its business into three principal segments:

| |  | Consumer Electronics Accessories Business.This segment consists of the Accessories Division of Recoton
Corporation; Christie Design Corporation, a research and development subsidiary;
Recoton (Far East) Ltd., a Hong Kong distributor of Recoton products; AAMP of
Florida, Inc., a distributor of car audio installation products; and the
consumer electronics accessories business of Recoton Canada Ltd., a Canadian
distributor of Recoton products. Accessory products sold include indoor and
outdoor TV antennas; music, camcorder and photo storage cases; stereo
headphones; universal remote controls; other accessories for home and mobile
audio, camcorder, cellular and standard telephone, music, video, satellite,
digital, computer and home office products; and products utilizing 900 MHz and
other wireless technology. These products are marketed under numerous brand
names including Jensen, AR/Acoustic Research, Advent, Recoton,
Discwasher, Stinger, Ambicoand RoadGear and, under license,
Sprintfor telephone accessories. Approximately 36% of the Companys
revenues in 2000 were from net sales by this segment.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Audio Business. This segment consists of Recoton
Audio Corporation and its United States and European subsidiaries, which
primarily sell home and mobile audio and video products. Products for the home,
sold under the Jensen, Advent, AR/Acoustic ResearchandNHT (Now Hear This) brand names in the United States and under the
Magnat and
Heco brand names in Europe, include state-of-the-art designed
high-fidelity stereo and home theater loudspeaker systems. Products for the
automobile and marine aftermarket, sold primarily under the Jensen,
Advent, Linear Research, Road Gear and Phase Linear
brand names in the United States and Magnat and MacAudio brand
names in Europe, include speakers, subwoofers, amplifiers, cassette players,
equalizers, electronic crossovers, signal processors, CD players and changers,
video monitors and installation accessories. Approximately 37% of the
Companys revenues in 2000 were from net sales by this segment.
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| |  | Video and Computer Game Business. This
segment consists of STD Holding Limited and its Hong Kong and other Chinese
subsidiaries, including its manufacturing operations which produce accessories
to enhance the enjoyment of playing video and computer games as well as products
for other Recoton segments; InterAct Accessories, Inc., the Companys
distributor of computer and video game accessories in the United States, and the
video game business of Recoton Canada Ltd. that distributes computer and video
games accessories in Canada (which was, prior to 2000, part of the consumer
electronic accessories business). Products sold primarily under the
InterAct and Performance brands and, under license, the Game
Pro brand, include joysticks, controllers, game steering wheels, RF
modulators, memory cards and other accessories, including the Companys
popular GameShark, a device which assists game players to improve their
play. Approximately 27% of the Companys revenues in 2000 were from net
sales by this segment.
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For further information about these segments, see Note L of the
Notes to the Consolidated Financial Statements.

Recoton's products are offered under a number of brand names, many of which are
recognized by consumers and which the Company believes are valued by its retail
customers. Recoton sells its products through consumer electronics retailers,
music and video retailers, office and computer products retailers, other
specialty retailers, mass merchants, drug store chains, home centers, e-commerce
retailers, direct mail merchants, TV shopping channels and warehouse clubs. The
Company also sells certain of its products to original equipment manufacturers.
As a result of its broad array of branded product offerings and its value-added
marketing services, such as customized merchandise planogramming, inventory
management and just-in-time delivery, Recoton believes that it is one of the few
companies that can act as a "one-stop shop" to retailers of consumer
electronics. Recoton believes that the combination of its diverse product
offerings, value-added marketing services and multiple brand names has led to
its holding leading market positions in key product areas, which serves as a
significant competitive advantage in the consumer electronic products
industry.

Recoton has grown as the consumer electronics industry has grown. Starting with
its formation in 1936 as a manufacturer of phonograph needles, the Company has
kept pace with the ever-changing needs of the consumer, expanding its product
offerings as the industry has evolved. From supporting the now-superseded or
fading technologies of phonographs, eight track cartridges, cassette tapes and
citizen band radios, it now provides products for current core technologies such
as digital versatile discs (DVD), compact discs, MP3 players and video and PC
games and emerging technologies such as digital and high definition television
(HDTV) and various mobile entertainment systems. It has also benefited from the
emergence of home-based offices and the desire to have the benefit of business
technologies such as computers and advanced telecommunications available for
home use. The Company's product offerings have expanded with the introduction of
each of these new technologies. As each new technology has emerged, Recoton has
found that the demand for its products has increased, with its new products
usually being additive to its business, rather than immediately replacing older
products. While consumers who acquire new systems desire additional products to
interconnect, accessorize or maximize their new purchases, many of the older
systems remain operational and consumers still need to maintain, upgrade or
integrate them.

Starting in 1989, Recoton realized that it could more easily satisfy these
burgeoning consumer needs through selective acquisitions as well as internal
growth. Since that time it has completed 14 acquisitions as part of its growth
strategy to expand its customer base, enter new geographic markets, broaden its
product offerings and obtain new technologies. Recoton has sought to maximize
the benefit of each acquisition by consolidating overhead expenses and
leveraging sales and marketing expertise, thereby making its products more
competitive. Two acquisitions have significantly changed the Company's focus. In
1995 it acquired STD Holding Limited, a Hong Kong-based manufacturer of video
and computer game accessories such as joysticks and controllers primarily
marketed under the brand name InterAct. As a result of this acquisition,
Recoton believes it is now the world's largest third party supplier of video
game accessories. In 1996 Recoton significantly enhanced its presence in the
international market with the acquisition of International Jensen Incorporated,
now known as Recoton Audio Corporation, a global developer and marketer of home
and car stereo speakers, car stereos including cassette and CD players and
amplifiers sold under many well recognized brand names including Advent,
AR/Acoustic Research, Jensen, Phase Linear and NHT (Now Hear This) in
the United States and Magnat and MacAudio in Germany. This
acquisition has made Recoton one of the world's largest marketers of home
speakers and mobile audio speakers and electronics.

The
products which Recoton sells, most of which are accessories or other products
purchased after a consumer has purchased a home or mobile entertainment system,
game system or information system, usually carry a higher margin for the
retailer than the hardware which comprises the basic system. Retailers therefore
have an incentive to aggressively market these types of products. For this and
other reasons, Recoton has seen a growth in the floor space which retailers
devote to the sale of accessories. The Company anticipates continuation of this
trend as the consumer electronics industry is entering a new phase based on
digitalization of many of the prevailing technologies. Recoton believes that
DVDs are becoming the prevailing media for at-home movie viewing and will
continue to grow as the superior viewing opportunities of digital television
become prevalent. Recoton also anticipates a growing trend for add-on high
quality speakers as digital television monitors, which are often sold without
speakers or only with modest speaker capability, become the core of the home
entertainment system. The Company recognizes the emergence of digital satellite
radio as a new method of receiving high quality commercial-free audio in the
vehicles as they travel from coast to coast. The Company will be creating a
number of three band (AM/FM/SAT) receivers, under the Jensen brand, to work with
the soon-to-be introduced Sirius Satellite Radio system. The Company believes
that additional growth opportunities will emerge through the convergence of
consumer electronics and the computer, in both the home and car environment, and
the growth of personal communications equipment such as cell phones.

Recent Developments

In
October 2000, the Company refinanced its existing senior indebtedness through
credit facilities aggregating approximately $275 million. As part of this
refinancing, the Company entered into a loan agreement for a $235 million
facility syndicated by Heller Financial, Inc. (Heller) and General Electric
Capital Corporation (the Senior Loan Agreement) consisting of:

| |  | a $185 million three year revolving loan and letter of credit
facility bearing interest at 2.50% over LIBOR or 0.75% over the greater of the
prime rate or the federal funds rate plus .50% prime, with the amount of
borrowing availability dependant upon the Companys eligible receivables
and inventory;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a three year term loan in the principal amount of $20 million
with interest at 2.75% over LIBOR or 1.00% over the greater of the prime rate or
the federal funds rate plus .50%, amortized over three
years with eleven quarterly installments of $500,000 each and a balloon payment
of $14.5 million due on the third anniversary;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a two year term loan in the principal amount of $15 million
with interest at 5.00% over LIBOR or 3.25% over the greater of the prime rate or
the federal funds rate plus .50%, amortized over two years
with eight equal quarterly principal repayments of $1.875 million each; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a term loan of $15 million with interest at 3.00% over the greater of the prime rate or
the federal funds rate plus .50%,
to be paid on the second anniversary to the extent that the advance value of the
collateral exceeds the revolving loan by more than $45 million, with any balance
generally due in 12 equal monthly installments (subject to later payment under
certain conditions) ending on the third anniversary.
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The Company also entered into a loan agreement (the "Subordinated Loan
Agreement") with its existing senior lenders for a $15 million three-year term
loan subordinated to the senior loan, with interest at 5.75% over the greater of the prime rate or
the federal funds rate plus .50%. The
Company's German subsidiaries entered into a 50 million Deutsche Mark factoring
facility (equal to approximately $24 million at December 31, 2000) with interest at 2.5% over
European LIBOR which in part supports a $13 million letter of credit issued to
Heller as security for the loans under the Senior Loan Agreement.

The borrowings under the Senior Loan Agreement and the Subordinated Loan
Agreement were secured by substantially all the assets of Recoton and its United
States and Canadian subsidiaries, and by 65% of the capital stock of the other
first tier foreign subsidiaries pursuant to certain guarantees, security
agreements and pledge agreements.

Modifications were made to the existing 1999 Security Purchase Agreement with
the Company's senior subordinated creditors to reflect the subordination of the
rights of the holders of notes issued pursuant to that agreement and the
continuation of certain agreements previously set forth in the September 8, 1999
Master Restructuring Agreement entered into with the Company's then-existing
creditors including an increased rate of interest (see discussion below) and a
cash payment of $875,000.

For
further information on these recent developments, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note D to the Consolidated Financial Statements.

Industry Overview

The
consumer electronics market is large and diverse. It initially included products
such as phonographs, radios, home stereos and televisions. As a result of the
development of a variety of innovative technologies, it has evolved to include
compact disc players and recorders, camcorders, video cassette recorders,
digital video disk players, cellular and cordless telephones, personal
computers, video game systems, in-car entertainment systems, home theaters,
internet appliances and other home entertainment and home office
technologies.

The
consumer electronics market continues to experience rapid and frequent changes.
Advances in technologies for mature products such as televisions, camcorders and
telephones are leading to innovations resulting in such advances as digital and
high definition television, flat screen television and DVD systems, which
deliver ultra-high quality pictures and stereo sound, as well as digital cameras
and camcorders. In addition, there are new over-the-air delivery systems for
television and audio products, such as direct satellite broadcast systems (DBS)
and digital satellite-to-vehicle radio services. The Consumer Electronics
Association (CEA) estimates that sales of consumer electronic products have been
growing at an average of three to five percent a year since 1991. The industry
sales for year 2001 are projected by CEA to be $95.6 billion, up by
approximately 6.1% from the estimated record sales of $90.1 billion in
2000.

The
expansion of the consumer electronics market has resulted from changes in
consumer tastes, lifestyles and work habits. The emergence of home based work
and the increasing popularity of telecommuting have driven the demand for
computers, personal digital assistants (PDAs) and telecommunications equipment
for home offices. Additionally, personal computers, fax machines and other
office technologies are increasingly being used for reasons not related to work.
The strong growth in enhanced home theater and in-car entertainment listening
and viewing environments has driven the demand for multimedia and video game
products. Many consumer electronic accessories are necessary to maintain and
operate consumer electronic products while others are used to expand, upgrade or
enhance the functionality of particular products.

The
nature of retail marketing for consumer electronics products has been evolving
in recent years. Traditional department stores have withdrawn from the market
while other types of retailers, such as large national consumer electronics
superstores, mass merchants, music and video retailers, office and computer
retailers, home centers and direct mail specialty retailers, have become more
prevalent. Simultaneously, more smaller convenience stores such as food and drug
store chains are now carrying consumer electronics products and accessories. In
addition, internet retailers are beginning to market consumer electronic
accessory products. The Company expects these trends towards both larger "big
box" discount stores and smaller size convenience-oriented local stores to
continue.

As
the market for core technologies is rapidly changing, the market for accessories
and other aftermarket products is rapidly expanding. This is due to several
reasons. Each new technology invites the consumer to purchase new accessories.
Consumers who acquire new systems desire additional products to interconnect,
accessorize or maximize their new purchases. New digital technologies dictate
that consumers purchase higher quality accessories such as superior cables in
order to get the best sight and sound quality from their digital equipment. In
addition, many of the older systems remain operational and consumers still
desire to maintain or enhance them and integrate them with the newer systems.
Gross profit margins realized by retailers on accessories are typically higher
than those on electronics components, while inventory costs and floor space
required to display and sell accessories are substantially less than for
equipment. Retailers recognize that having accessories available can encourage
add-on sales to a consumer electronics purchase, lead to impulse purchases and
encourage repeat visits by consumers.

The
Company believes that retailers are increasing their efforts to market
accessories and other aftermarket products such as speakers, multimedia products
and electronic game products. Retailers are increasing floor space allocated to
these products, enhancing their in-store staffing and merchandising and spending
more on advertising and promotion for these products. The Company believes that
in order to achieve greater purchasing and operating economies and to reduce
costs, retailers are consolidating their relationships with suppliers that sell
a broad assortment of consumer electronics accessories, provide timely product
availability and offer strong merchandising support.

Products

Recoton
offers a broad line of over 4,000 consumer electronics products for home and
mobile aftermarket use. Its products are offered under a number of
well-recognized brand names. These products are positioned, packaged and priced
to appeal to a broad range of retailers and consumers.

Consumer Electronics Accessories

Recoton
sells a broad line of consumer electronic accessory products to interconnect,
accessorize and maximize the enjoyment of various consumer electronics products
and systems. These include indoor and outdoor TV antennas; audio, CD/audio
and/or cassette accessories; DVD accessories; camcorder and video accessories;
music, camcorder and photo carrying and storage cases; cellular and other
telephone accessories; headphones; satellite and digital accessories; mobile
audio accessories; remote controls; and computer and home office accessories,
including surge protection devices, connection cables, disc and disc drive
cleaning products, dust covers, copy holders and mouse and wrist pads. The
Company markets these accessory products under many brand names, including
Advent, AR/Acoustic Research, InterAct, Jensen, Peripheral, Road Gear, Ross,
Sound Quest, and Stinger, depending on the product category. The
Company is licensed to sell telephone accessories under the Sprint brand
name. Recoton also sells a proprietary line of wireless products, including
stereo headphones, amplified speaker systems, video broadcast systems and
portable indoor/outdoor weather-resistant speakers. These patented products,
sold under the Advent and Jensen brand names, use 900 MHz and other FM
frequencies to transmit pictures and sound signals from a TV, VCR, cable box,
satellite box, computer, stereo or sound system through walls, floors and
ceilings to stereo headphones, amplified indoor/outdoor loudspeakers or other
television sets within 150 feet. Recoton believes that it is a leading supplier
of consumer electronics accessories.

Audio Products

Recoton sells audio products for home and aftermarket car, boat and other mobile
use. Products for home use include technologically advanced high-fidelity stereo
and home theater loudspeaker systems sold primarily under the Advent,
AR/Acoustic Research, Jensen and NHT (Now Hear This) brand names
domestically and the Magnat and Heco brand names in Europe. Mobile
products include speakers, CD players and changers, MP3 players, cassette
radios, receivers, subwoofers, amplifiers, equalizers, video monitors, DVD
players, VCRs and tuners, car installation accessories and marine audio
products, sold primarily under the Advent, Jensen, Linear Research, Road
Gear and
Phase Linear brand names domestically and the Magnat and
MacAudio brand names in Europe. Each of the Company's speaker brands is
positioned to reach a different target consumer, from entry level to audiophile.
Recoton believes it is a leading marketer of high-fidelity speakers and other
audio products for the home and mobile markets.

Video and Computer Game Products

Recoton designs, manufactures and sells video and computer game accessories, one
of the fastest growing sectors of the consumer electronics industry. These
include controllers, joysticks, steering wheels and other accessories, including
the popular GameShark devices that are used to enhance a player's enjoyment of
video and computer games and are available for all platforms. GameShark
contains hundreds of codes to give the players tips on how to improve their
performance with many of the most popular games. The Company's steering wheels
include the best-selling V-3® and Force Feedback V-4® steering wheels.
These products are sold primarily under the Company's InterAct and
Performance brand names. The Company has recently entered into a license
agreement with Microsoft to sell some of its products under the Microsoft
X-Box brand and an endorsement license with Dale Earnhardt, Jr. for
certain products. The Company believes that it is the largest third-party
supplier of accessory products for video games.

Customers and Distribution

The
Company seeks to provide consumers with access to its products globally through
multiple distribution channels and at multiple price points. These distribution
channels include consumer electronics retailers, music and video retailers,
office and computer product retailers, other specialty retailers, mass
merchants, drug store chains, home centers, e-commerce retailers, direct mail
merchants, TV shopping channels and warehouse clubs. Recoton has a strong and
diverse customer base of more than 1,000 retail customers which it believes have
more than 30,000 storefronts.

Recoton also sells private label or branded accessories products to original
equipment manufacturers (OEM). These products include video, CD and telephone
accessories, loudspeakers and wireless products. Recoton also operates two
factory outlet stores, located in Florida and Arizona.

During the past few years, Recoton expanded its sales outside of the U.S.,
especially in Europe and Canada. The Company also sells Asian-sourced products
to OEM customers around the world. Recoton views its international customer base
as an important source for continued growth. See Note L of the Notes to
Consolidated Financial Statements for information with respect to the Company's
operations by geographic area.

Recoton normally sells its products on a purchase order basis and does not
ordinarily have long term contracts with its customers. The Company's sales are
reliant to a great extent on its ability to influence the allocation of retail
shelf space by retailers far in advance of the placement and shipment of orders
for its products. Because it is the Company's practice to maintain sufficient
inventory of finished goods and components to fill orders promptly, the Company
does not believe the level of backlog is significant and does not consider it to
be an important predictor of future performance.

Wal-Mart Stores and Best Buy are significant customers of the Company. Net sales
to Wal-Mart Stores, including its Wal-Mart and Sam's operations, were
approximately $120.5 million, or 17% of net sales, in 1998, $119.3 million, or
17% of net sales, in 1999 and $120.9 million, or 19% of net sales, in 2000. Net
sales to Best Buy were approximately $71.6 million, or 11% of net sales, in
2000. No other customer represented greater than 10% of the Company's net sales
in 1998, 1999 or 2000.

Sales, Marketing and Support

Recoton develops strong relationships with a broad array of retailers as part of
its marketing strategy. The Company seeks to establish "partnership"
relationships with its customers by offering them "one stop shopping" for a wide
variety of consumer electronics products. Recoton aims to attract and support
customers who are consolidating their vendor relationships to achieve greater
purchasing and operating economies. The Company markets its products through
multiple retail channels. Recoton offers extensive marketing, inventory
management and customer support services. These services include consumer
support programs, distinctive packaging, drop shipping, electronic data
interchange, extensive product promotion, in-store inventory management,
pre-ticketing services and in-store product displays and training.

The
Company further supports its products by advertising in leading trade and
consumer publications, participating in trade shows and engaging in a wide
variety of regional promotions and sales incentive programs. Recoton also
advertises and provides support for both its customers and consumers through
numerous Internet web sites, including www.recoton.com, which is the Company's
homepage, and RCOT.com, which is the Company's financial page. In addition, the
Company's InterAct subsidiary maintains its www.gameshark.com website, which the
Company believes is one of the most popular sites for video gamers.

Recoton utilizes a worldwide network of sales executives, regional managers,
independent sales representatives and exclusive distributors. The Company
compensates its independent sales representatives on a commission basis.
Regional sales personnel work in the field with the Company's customers and
independent sales representative organizations. Recoton also maintains a
toll-free support center to aid consumers in the U.S. and Canada.

In
order to meet customer needs for just-in-time delivery, the Company generally
carries significant inventory in the products which it offers. This increases
its capital requirements. Consistent with the needs to supply products to its
customers, inventories are closely controlled and maintained at levels related
to product cycles and responsive to normal delivery requirements of customers.
Recoton generally bills customers at normal trade terms. With the exception of
its inventory and billing practices, the Company does not have any extraordinary
working capital requirements.

Acquisitions

A
significant part of Recoton's historic growth strategy has been to expand its
business through the pursuit of strategic acquisitions. Through 14 acquisitions
since 1989, Recoton has:

| |  | obtained new products and technologies, as it did with
stereo headphones when it acquired Calibron, Inc. in 1989, antennas when it
acquired assets of All Channel Products Inc. in 1989, maintenance products when
it acquired assets of Discwasher Inc. in 1991, camcorder and video accessories
when it acquired Ambico, Inc. in 1992, remote controls when it acquired assets
of Infrared Research Laboratories, Inc. in 1994, mobile audio installation
products when it acquired assets of Ampersand (Ampco Industries, Inc.) in 1995,
video and computer game accessories when it acquired STD in 1995 and car audio
accessories when it acquired AAMP of Florida, Inc. in 1997;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | significantly expanded its presence in specific product
lines, as it did with television antennas when it acquired assets of Parsec
Delaware Ltd. in 1991, speaker and other audio products when it acquired
International Jensen Incorporated in 1996 and mobile audio installation products
when it acquired AAMP;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | increased its manufacturing and assembly capacity, as it
did with the Companys original Florida plant (which was subsequently
expanded) when it acquired Calibron in 1989, the Chinese manufacturing
facilities when it acquired STD in 1995 and the Benecia, California facilities
when it acquired International Jensen in 1996;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | enhanced overseas distribution capabilities, as it did
when it acquired International Jensen and its Europe- and Japan-based
subsidiaries and the German assets of HECO GmBH in 1996 and United Kingdom-based
Tambalan Limited (now Recoton (UK) Limited) in 1997;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | obtained new marketing techniques, as it did with direct
marketing talents when it acquired AAMP in 1997; and
| | - | -------------------------------------------------------------------------------------------------------------

| |  | broadened its customer base, as it did when it acquired
STD in 1995 and International Jensen in 1996.
| | - | -----------------------------------------------------------------------------------------------------

Recoton seeks to maximize the benefit of its acquisitions by consolidating
overhead expenses and leveraging sales and marketing expertise. While there may
be certain duplications of expenses immediately following an acquisition,
Recoton aims to achieve cost savings from the introduction of efficiencies of
scale, thereby making Recoton and its products more competitive.

The
Company's ability to acquire additional businesses and assets is currently
limited by covenants under its existing credit facilities. The Company
nevertheless continues to evaluate acquisition opportunities as they are
presented to it and will pursue acquisitions that are appropriate, subject to
its financial resources and existing debt covenants.

Research and Product Development

Recoton's research and development efforts are primarily oriented towards
meeting consumers' desires for changing products to accessorize or supplement
existing and new consumer electronics technologies. In order to remain a leader
in the consumer electronics after-market, the Company reviews its product lines
to identify new accessories for introduction as new consumer products are
introduced. These efforts focus primarily on improving existing products and
developing similar products in other emerging categories.

Recoton maintains research and development facilities for its consumer
electronics accessories business in Florida, for its audio business in Florida,
California, Germany and Hong Kong and for its video and computer game business
in Hong Kong and mainland China. From time to time the Company utilizes selected
outside engineering services. Recoton has recently expanded its engineering
department to increase its in-house development capabilities.

Research and development efforts for video and computer game products include
producing new gaming and sound-related products to enhance the video game
experience and entertainment applications for multimedia personal computers. The
Company has recently developed or is developing additions to its line of
accessories for use with the recently-introduced Sony PlayStation 2, and expects
to develop products for Microsoft's X-Box and Nintendo's Game Cube and GameBoy
Advanced platforms for sale when such new game platforms are
introduced.

Significant efforts to produce new and advanced loudspeaker systems include the
redesigning of the speaker lines sold under the Advent, Jensen and
NHT brands and the addition of models to the AR/Acoustic Research line of
speakers.

900 MHz wireless technology products in development include advanced headphones
and/speakers permitting Recoton to offer its wireless audio products for use
with home theater systems and for in-car entertainment systems. The Company is
also engaged in customer-funded R&D efforts for specific prospective
applications of its wireless technology to products manufactured by other
companies. For example, the Company is developing and expects to manufacture
products for Sirius Radio Inc.'s 100 channel digital satellite-to-vehicle
subscription radio service.

Recoton's use of in-house industrial designers, software developers and
engineers and other capabilities have been a major strength in obtaining and
increasing its original equipment manufacturing business with other consumer
electronics companies. Through its continual product development efforts,
Recoton believes that it has been able to establish new retail accounts, enhance
existing customer relationships and attract a growing base of OEM
customers.

Recoton's expenditures for research and development were approximately $6.0
million in 1998, $5.9 million in 1999 and $6.1 million in 2000. While cash
expenditures for research and development did not substantially change between
1998 and 2000, more R&D work was conducted offshore in 1999 and 2000 at a lesser
cost to the Company.

Production and Supply

Recoton utilizes its Chinese manufacturing facilities, as well as third-party
manufacturers or suppliers located primarily in China, to produce most of its
products or the components required for its products. A majority of the
Company's video and computer game accessories are sourced from the Chinese
manufacturing facility. This facility is also being used to manufacture
multimedia speakers, universal remote controls, television antennas and wireless
900 MHz headphones and in the future may be used to manufacture other products
for the Company. Recoton also assembles products in the U.S. at its Florida and
California facilities with products or components provided by its own production
facilities and third-party manufacturers.

Most Recoton products use standard parts and components that can be purchased
from multiple sources. In a few instances, however, components or products are
sourced from one or a small number of suppliers. Alternative sources are
available for all such products.

While
Recoton does not have guaranteed supply arrangements with any of its suppliers,
the Company has never experienced an inability to obtain necessary components or
other raw materials. Recoton believes that its sourcing and supply of components
and other raw materials are adequate for its needs. No single third-party vendor
or group of related vendors has provided more than 10% of the Company's raw
material and component purchases in any of the years 1998 through
2000.

The
Company coordinates most of its offshore third-party sourcing for the North
American market through its Hong Kong facilities and with its buying agents.
These agents coordinate information flows with suppliers, provide translation
services, conduct quality control inspections and oversee shipping. The
Company's volume allows it to consolidate shipments and obtain preferential
shipping rates. However, it has been necessary from time to time to utilize more
expensive air shipments in order to meet customers' time sensitive
needs.

Management Information Systems

The
Company believes that advanced information processing is important in order for
it to maintain its competitive position. The Company and all of its subsidiaries
have management information systems which run substantially all of the Company's
principal data processing and financial reporting software
applications.

In
1999 the Company performed a complete management information system review for
the purpose of planning and considering whether to implement a new global
Enterprise Resource Planning (ERP) system to fully integrate functions such as
finance, manufacturing, distribution and inventory management. In 2000 the
Company selected mySAP.com from SAP America, Inc. as the e-business
infrastructure to consolidate systems and streamline business processes across
the globe.

The
Company is planning to utilize the new ERP system to help manage its various
businesses and connect its global operations, with the aim of reducing
information processing costs and improving collaboration between Company
personnel and with others outside the Company. The Company intends to utilize
the Internet to redesign its business processes to address its needs and the
needs of its customers and business partners. When the new ERP system is fully
implemented the Company will be able to consolidate and upgrade all of its data
systems to one common e-business platform so that it can tighten the ability to
coordinate its businesses around the globe and generate necessary information on
a more timely and consistent basis.

The time frame for full implementation of the new ERP system is currently
expected to be one year for North American operations and two years for
European and Asian operations. The entire cost of the project, including
software licensing, hardware, consulting and related expenses, is currently
estimated to be approximately $14 million. The Company will be financing the
majority of such costs through leases and other financing mechanisms not
involving the Company's long term credit facilities.

Competition

The
consumer electronics market is highly fragmented and subject to intense
competition. Specific competitors by segment include:

| |  | Consumer Electronics Accessories: Allsop, Belkin,
Fellows, Gemini/Philips, Jasco/GE, Labtec, Sony, Thomson/RCA and Zenith;
| | - | --------------------------------------------------------------------------------------------------------------------------

| |  | Recoton Audio: Bose, Boston Acoustics, Harman
International and Polk for home audio products and Alpine, Audiovox, Kenwood,
Pioneer and Sony for mobile audio products; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Video and Computer Game: Logitech, MadCatz, Microsoft,
Nintendo, Sega, Sony and Thrustmaster.
| | - | ---------------------------------------------------------------------------------------------

Competition is based primarily on brand name reputation; product variety,
features and reliability; customer service and support; the ability to meet
customer delivery needs; price; and the proprietary nature of certain products.
Recoton believes that it competes favorably with respect to these factors. Shelf
space (both in terms of quantity and desirability of location) is a key factor
in determining sales of consumer electronics products. Retailers frequently
allocate their shelf space based on the same factors they use to determine the
products they purchase.

Trademarks and Patents

Recoton believes that it has established a high level of brand name recognition
with the Company's customers and consumers. See "Products" for a
discussion of the primary marks used for products.

As a
result of its own product development and acquisitions, Recoton has over 100
United States and foreign patents, including patents on its 900 MHz wireless
products, speakers, headphones, surge protectors, non-contact hydrodynamic
multimedia compact disc cleaning product, CD-to-cassette adapter, antennas,
connectors and adapters to eliminate tangles in coiled telephone cords.
Additionally, Recoton has various patents pending including applications
relating to wireless audio products and car stereos and routinely applies for
other patents on products as they are developed. The Company does not consider
any single patent essential to its current business.

The
Company has licensed from other companies use of their trademarks in connection
with certain of the Company's products. These currently include Sprint
for phone accessories, Barbie for certain InterAct products and
Microsoft for X-Box related video game products. The Company also
licenses to others certain of its trademarks, including Jensen and
Acoustic Research, and certain of its patents.

Recoton attempts to protect its proprietary information under domestic and
international patent, copyright and trade secret laws and through the use of
other safeguards. Recoton occasionally receives communications from others
asserting that some of Recoton's products may be covered by such parties' patent
or intellectual property rights. Recoton believes that its products do not
infringe on the intellectual property rights of any third parties.

Employees

At
December 31, 2000, Recoton had approximately 4,800 employees worldwide, of which
approximately 200 were employed by the accessories segment, 250 were employed by
the audio segment, 3,350 were employed by the video and computer game segment,
and 1000 employees were employed by the shared services division of Recoton
Corporation, which services all three Recoton segments. The number of employees
employed at the Chinese manufacturing facility fluctuates significantly on a
seasonal basis.

Approximately 645 employees at the Lake Mary, Florida premises are covered by a
collective bargaining agreement with the Glass Molders, Pottery, Plastics &
Allied Workers International Union, which expires on August 3, 2003. As Florida
is a "right to work" state, only approximately 15 employees are currently
members of the union. Approximately 50 employees in Canada are covered by a
collective bargaining agreement with the National Automobile, Aerospace,
Transportation and General Workers Union, which expires on August 10, 2002.
Recoton considers its employee relations to be good.

Regulatory and Environmental Matters

The
Company is subject to regulation by the U.S. Federal Communications Commission
with respect to its wireless transmitting devices and some of its computer and
video game accessories and mobile audio products and by the Center for Devices
and Radiological Health of the U. S Food and Drug Administration with respect to
lasers in CD players, and by comparable agencies in other jurisdictions. With
operations in numerous jurisdictions, the Company is subject to many national,
state and local laws of general business applicability. These include laws
regulating occupational, health and safety and the work place environment;
discrimination and sexual harassment; removal or remediation of hazardous
substances; the importation and exportation of products; the marketing,
advertising and sale of goods; customs and foreign trade; and payments to
foreign governments and their officials. Additional laws may be enacted from
time to time which may adversely impact the Company. Under various national,
state and local environmental laws and regulations, a current or previous owner
or operator (including a lessee) of real property may become liable for the cost
of removal or remediation of hazardous substances on such property. Such legal
requirements often impose liability without regard to fault. The Company has not
been notified of, and is not aware of, any environmental liability in connection
with its leased and owned facilities.

Seasonality

The
Company's results of operations are subject to the seasonality of the consumer
electronics industry and, as a result, net sales and net income have on a
historical basis been substantially greater during the third and fourth quarters
of each year, as the Company's retail customers increase their inventories in
anticipation of the year-end selling season, than during the first two quarters.
The Company's results of operations may also fluctuate on a quarterly basis due
to product sales mix and the timing of significant orders, new product
introductions and acquisitions (see Note M to the Consolidated Financial
Statements).

Executive Officers

The
following table sets forth the name, age and position of each of the executive
officers of the Company as of December 31, 2000 and their business experience,
principal occupations and employment during at least the last five years. The
executive officers of the Company are appointed by, and serve at the discretion
of, the Board of Directors.

`Name and Current Position
(End of Term as Director)                              Age and Business History
-------------------------                              ------------------------

Robert L. Borchardt,                                   Mr. Borchardt, 62, has served as a director of
    President, Chairman, Chief Executive               Recoton  since 1964, as President since 1976, as
    Officer and a Director (2002)                      Chief Executive  Officer  since 1996 and as Chairman
                                                       since 1998. He previously served as Co-Chairman
                                                       from 1992 until 1998 and Co-Chief Executive
                                                       Officer from 1992 until 1996. He is past Chairman
                                                       and currently on the Executive Board of the
                                                       Consumer Electronics Association, a division of
                                                       the Electronic Industries Alliance, is Vice
                                                       Chairman and on the Executive Board of Governors
                                                       of the Electronic Industries Alliance and is a
                                                       trustee of the Electronics Industries Foundation.

Stephen Chu,                                           Mr. Chu, 43, has served as President and a Managing
    Managing Director of STD Holding Limited           Director of STD and of its various subsidiaries since
                                                       1990. STD was acquired by the Company in  1995.
                                                       He was a director of Recoton from 1997 until 1999.

Tracy Clark,                                           Ms. Clark, 40,  has served as Vice President-Accounting
    Vice President-Accounting and Chief                and as Chief Accounting Officer since 1999.  She was
    Accounting Officer                                 previously Assistant Vice President-Corporate
                                                       Accounting from 1997 until 1999 and a Senior Accountant
                                                       from 1995 until 1997.

Craig W. Dykes,                                        Mr. Dykes, 42, has served as Senior Vice President-
    Senior Vice President-Information Systems          Information Systems and as Chief Information Officer
    and Chief Information Officer                      since 1999.  He previously served as Vice President-
                                                       Information Systems from 1991 until 1999.

Peter M. Ildau,                                        Mr. Ildau, 62, has served as Vice President-Corporate
    Vice President-Corporate Communications            Communications since 1993.

Arnold Kezsbom,                                        Mr. Kezsbom, 48, has served as Senior Vice President-
    Senior Vice President-Finance,                     Finance, as Treasurer and as Chief Financial Officer
    Treasurer and Chief Financial Officer              since 1999. He previously served as Vice
                                                       President-Financial Planning from 1995 until
                                                       1999.

Joseph H. Massot,                                      Mr. Massot, 56, has served as Senior Vice President-
    Senior Vice President-Administration and           Administration and Human Resources since 1999, as
    Human Resources, Secretary and a Director          Secretary since 1999 and as a director of Recoton since 1985.
    (2001)                                             He previously served as Principal Accounting Officer, Vice
                                                       President and Treasurer from 1989 until 1999.

Richard D. Miller,                                     Mr. Miller, 38, has served as Vice President-Compliance
    Vice President-Compliance                          since  1995.

Stuart Mont,                                           Mr. Mont, 60, has served as a director of Recoton since 1975,
    Executive Vice President, Chief Operating          as Executive Vice President since 2000 and as Chief Operating
    Officer and a Director (2002)                      Officer since 1993.  He previously served as Executive Vice
                                                       President-Operations from 1992 until 2000, Chief
                                                       Financial Officer from 1992 until 1999 and
                                                       Secretary from 1989 until 1999.

Terrence O'Flynn,                                      Mr.  O'Flynn, 56, has served as Executive Vice President-
    Executive Vice President-General Manager,          General Manager of the Recoton Accessories Division since
    Recoton Accessories Division                       1999.  He previously served as Senior Vice President-OEM
                                                       Sales from 1996 until 1999 and Senior Vice President-Marketing
                                                       from 1994 until 1996.

Dennis P. Wherry,                                      Mr. Wherry, 55, has served as Executive Vice President-
    Executive Vice President-General Manager,          General Manager of Recoton's Shared Services Division
    Shared Services Division                           since 1999.  He previously served as Senior Vice President-
                                                       Operations from 1993 until 1999.

Peter Wish,                                            Mr. Wish, 65, has served as a director of Recoton since
    Executive Vice President-Administration            1969 and as of Executive Vice President-Administration
    of the Recoton Accessories Division                of the Recoton Accessories and Division since 1999 (and in
    Director (2003)                                    the same position in Recoton before such division was
                                                       established from 1992 until 1999).`

Item 2.   Properties.

Recoton
considers its facilities to be modern, well maintained and suitable for their
present and intended purposes at the current level of operations.

Corporate Operations and Consumer Electronics Accessories Business

Recoton's principal executive office and the principal manufacturing,
assembling, packaging, R&D, warehousing and distribution operations for the
consumer electronics accessories business are located in Lake Mary, Florida, a
suburb of Orlando. Operations at this facility include molding, hot stamping and
packaging. The Lake Mary complex, which is owned by the Company, consists of two
buildings totaling approximately 763,000 square feet situated on two nearby
parcels totaling approximately 43 acres.

Audio Business

The
domestic audio business is based in the Company's Lake Mary, Florida facility.
Additionally, the domestic home audio portion of the audio business maintains a
leased facility in Benecia, California of approximately 50,000 square feet,
which includes facilities for research and development, manufacturing and
assembly of home speakers. The lease runs through February 28, 2002, with a five
year renewal option, at an aggregate annual rent of approximately $277,000,
subject to annual adjustments. The European home and car audio business is based
in leased facilities in Pulheim, Germany totaling approximately 10,500 square
meters (113,000 square feet). The German leases run through April 2008, at an
aggregate annual rent of approximately $923,000, subject to
adjustment.

Video and Computer Game Business

The
administrative, sales, engineering and R&D operations for STD are located in an
owned facility in the New Territories of Hong Kong and total approximately
15,800 square feet. The Company's rights on the underlying land runs through
June 2047; if the land grant is not renewed at that time, both the land and the
rights to owned space will revert to the government without any compensation to
the Company. The Company also leases three nearby facilities aggregating
approximately 17,900 square feet under short term leases with rent aggregating
approximately $136,000. The corporate office for InterAct is located in leased
facilities near Baltimore, Maryland totaling approximately 14,795 square feet,
which lease runs until October 2010 at an annual rental of approximately
$259,000, subject to annual adjustments. InterAct also maintains certain
operations in the Company's Lake Mary facility and leases a warehouse, assembly
and packaging facility near Lake Mary totaling approximately 144,000 square feet
at an annual rent of approximately $704,000. The Company does not anticipate any
difficulty obtaining renewals of these leases or additional nearby space if
necessary.

The
manufacturing facility for STD consists of numerous separate contiguous or
near-by facilities owned or leased by the Company, aggregating approximately
605,000 square feet, located in Shenzhen, a special economic zone of the
Guanzdong Province of China near Hong Kong. The plant includes 15 production
lines, plastics injection facilities and metal works and dormitory facilities.
Video games and computer accessories, as well as other Recoton products such as
multimedia speakers, universal remote controls and television antennas, are
manufactured at this facility. In 1997, the facility was certified as conforming
to the requirements of ISO 9001 by the International Standards Organization. The
owned portion consists of five manufacturing floors in an industrial building
aggregating approximately 44,000 square feet. The Chinese government has granted
the Company the right to use the land on which the owned facility is located
until July 2025; if the land grant is not renewed, both the land and the rights
to owned space will revert to the government without any compensation to the
Company. The leased portion consists of additional manufacturing, warehouse and
dormitory facilities aggregating approximately 561,000 square feet. These leases
are generally short term, and aggregate rentals for the leased facilities total
approximately $913,000 per year. The Company does not anticipate any difficulty
obtaining renewals of these leases or additional nearby space if
necessary.

Additional Facilities

Recoton
and its subsidiaries have additional leased facilities elsewhere in the United
States. These include corporate office, sales, marketing, warehouse and/or
research & development facilities in or near New York, New York; Bentonville,
Arkansas; Lake Mary, Florida; Clearwater, Florida; Novi, Michigan; Springfield,
Missouri; Hurst, Texas; Tempe, Arizona; Lake Tahoe, Nevada; Sparks, Nevada; San
Diego, California; and Bellevue, Washington. Additional overseas facilities
include office, sales, marketing, warehouse and/or distribution facilities in
Pickering, Ontario; Manchester, England; Milan, Italy; Bologna, Italy; Tokyo,
Japan; and Hong Kong, China. If the leases for these facilities could no longer
be maintained, alternative replacement facilities could be obtained without any
material financial impact on Recoton or the applicable subsidiary.

Item 3.   Legal Proceedings.

Mateel Environmental Justice Foundation v. Sprint Communications, et. al.
InterAct, four other named defendants (including Sprint Communications, Koss
Corporation and Conair Corporation) and "Does 1 through 100" were sued in June
2000 in the Superior Court of California for the County of San Francisco. Mateel
alleged that adequate warnings with regard to potential exposure to lead had not
been issued in accordance with California Health and Safety Code Section 25249.6
(sometimes called Proposition 65) for products containing electrical or data
cords coated with polyvinyl chloride. The Company has joined a joint defense
group consisting of 22 companies sued or put on notice to be sued. A trial date
is currently scheduled for May 2002. The joint defense group has conducted
studies to assess the validity of the plaintiff's claim and has entered into
informal settlement discussions.

Lemelson Medical Education & Research Foundation, Limited Partnership v. Esco
Electronics Corporation, et. al. Recoton and 90 other manufacturers or
sellers of electronic or semiconductor products were sued in 2000 in the United
States District Court for the District of Arizona by the Lemelson Medical
Education & Research Foundation, Limited Partnership for alleged violation of
various patents claimed to be owned by the Lemelson Foundation related to
machine vision and bar-code technology. The complaint seeks damages in an
unstated amount, injunctive relief and attorneys fees, among other relief
sought. The Company, along with other defendants in this and other similar
actions, is vigorously defending against the action.

Although the Company is from time to time involved in ordinary routine
litigation incidental to its business, it is not presently a party to any other
legal proceedings which, if determined adverse to the Company, would be
expected, either individually or in the aggregate, to have a material adverse
affect on the Company's business or financial condition.

Item 4.   Submission of Matters to a
Vote of Security Holders.

Not
applicable.

PART II

Item 5.   Market for the
Registrants Common Equity and Related Stockholder
Matters.

The
Company's common shares are traded on the Nasdaq Stock Market National
Market System under the symbol "RCOT." The following table sets forth for the
periods indicated the high and low sale prices of such shares as reported on the
Nasdaq Stock Market since January 1, 1999:

`Quarter Ended                                     High       Low
         -------------                                     ----       ---

              1999
                    March 31..........................    $21.75      $12.00
                    June 30...........................     17.25        9.00
                    September 30......................    11.375        6.50
                    December 31.......................    9.8125      5.4375

              2000
                    March 31..........................     14.44        8.81
                    June 30...........................     11.75        8.00
                    September 30......................     16.19        8.88
                    December 31.......................     16.44        6.00`

As
of March 15, 2001, there were 350 record holders of the common shares.

Dividend
Policy. The Company has never paid cash dividends on its common shares and does
not anticipate paying cash dividends in the foreseeable future. The Company's
policy has been to retain all available earnings for the development and growth
of its business. Covenants in the Company's current senior indebtedness preclude
the Company from paying dividends in cash or property other than for stock
dividends. In deciding whether to pay dividends in the future if the current
covenants are modified or eliminated, the Company's Board of Directors will
consider factors it deems relevant, including the Company's earnings and
financial condition and its working capital and capital expenditure
requirements.

Sales of
Unregistered Securities. There were no sales of unregistered shares by the
Company in 2000.

Item 6.   Selected
Financial Data.

The
selected consolidated financial data presented below as of and for each of the
fiscal years in the five-year period ended December 31, 2000 are derived from
the consolidated financial statements of Recoton Corporation and its
subsidiaries, which financial statements for the years 1996 through 1998 have
been audited by Cornick, Garber & Sandler, LLP, independent public accountants,
and which financial statements for the years 1999 and 2000 have been audited by
Deloitte & Touche LLP, independent public accountants, whose reports relating to
the consolidated financial statements for the three years ended December 31,
2000 appear in this report. Due to the significant acquisition activity of the
Company during the periods set forth below, the selected financial data may not
be comparable from year to year. See footnote (1) below. The selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Acquisitions" and the consolidated financial statements, notes
thereto and other financial information included elsewhere in this
report.

`Year Ended December 31,
                                              -----------------------------------------------------------------
                                                    1996          1997           1998         1999        2000
                                                    ----          ----           ----         ----        ----
                                                             (In thousands, except per share data)
Statement of Operations Data(1):

Net sales.....................................    $331,700     $503,954       $703,538      $710,250   $649,295
Cost of sales.................................     206,715      306,725        429,334       448,894    402,634
Gross profit..................................     124,985      197,229        274,204       261,356    246,661
Selling, general and administrative expenses..
                                                   108,704      176,701        231,190       247,764    210,371
Provision for U.S. customs settlement(2) .....          --           --         15,000            --         --
Restructuring charge..........................          --           --             --         3,444         --
Operating income..............................      16,281       20,528         28,014        10,148     36,290
Interest expense..............................       5,354       13,314         18,981        26,467     35,879
Amortization of financing costs...............          82          260            331         1,164      2,330
Investment income.............................        (271)        (534)          (464)       (1,294)      (830)

Income (loss) before income taxes and
   extraordinary item.........................      11,116        7,488          9,166       (16,189)    (1,089)
Income tax provision (credit).................       2,736       (6,093)         4,836         3,076        794
Income (loss) before extraordinary item.......       8,380       13,581          4,330       (19,265)    (1,883)
Extraordinary item: loss on senior debt
   restructuring..............................          --           --             --        (8,765)    (2,953)
                                                    ------      -------         ------         -----     ------
Net income (loss).............................      $8,380      $13,581         $4,330      $(28,030)   $(4,836)
                                                    ======      =======         ======      ========   ========
Income (loss) per share(3)....................        $.73        $1.18           $.36        $(2.39)     $(.41)
                                                      ====        =====           ====        ======     ======

Weighted average shares ......................      11,542       11,546         12,179         11,719    11,744`

`Balance Sheet Data (end of period):

Working capital..............................     $158,807     $222,388       $178,295      $272,168   $258,221
Total assets.................................      334,733      407,262        486,670       485,327    463,511
Short-term debt, including current
  portion of long-term debt..................       51,628       14,570        104,885        14,656     11,994
Long-term debt...............................      101,753      161,427        114,186       235,739    243,914
Shareholders' equity.........................      128,474      139,283        147,995       120,922    113,259

_______________

(1)  Data reflects sales, and any resulting profit and income (loss), resulting
     from acquisitions from the dates of such acquisitions. The following
     acquisitions occurred on the dates set forth below: International Jensen
     Incorporated: August 28, 1996; Heco GmbH: December 20, 1996; Tambalan
     Limited: February 28, 1997; Capa Industries, Inc.: December 18, 1997; and
     AAMP of Florida, Inc.: November 19, 1997.

(2)  In the fourth quarter of 1998, the Company recorded $14.0 million for the
     then-expected global settlement of a pending customs investigation and
     related fees and costs of approximately $1.0 million. The classification of
     the accrual on the 1998 consolidated balance sheet was based on the
     expected periods of payment, subject to approval by the government. Such
     approval was obtained in 1999. See Note J to the Notes to Consolidated
     Financial Statements.

(3)  Represents income (loss) per share on a diluted basis. Basic income (loss)
     per share was $.74 for 1996, $1.19 for 1997, $.37 for 1998, $(2.39) for
     1999 and $(.41) for 2000.`

Item 7.   Management's
Discussion and Analysis of Financial Condition and Results of
Operations.

The
following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" appearing above and the Company's
Consolidated Financial Statements for the Years Ended December 31, 1998, 1999
and 2000 appearing at pages F-1 through F-32.

General

Recoton
Corporation is a global leader in the development, manufacturing and marketing
of consumer electronic accessories, home and mobile audio products and computer
and video gaming products. The Company's diverse lines include accessories for
audio, video, car audio, camcorder, multi-media/computer, home office, cellular
and standard telephone products, satellite as well as 900MHz wireless technology
products including headphones and speakers; home, mobile and marine audio
products including high fidelity loudspeakers, home theater speakers and car
audio speakers and components; and accessories for video and computer games. The
Company's products are offered under various brand names including Jensen,
InterAct, GameShark, Recoton, Advent, AR/Acoustic Research, Stinger, Discwasher,
NHT (Now Hear This), Ambico, RoadGear, Parsec, Phase Linear, SoundQuest, Linear
Research, Peripheral, Ross, Magnat, MacAudio and Heco.

The
Company classifies its operations into three principal segments. Each segment's
earnings before corporate interest and income taxes are reported to the
Company's chief operating decision-makers. General corporate expenses other than
certain interest costs and certain amortization of financing costs have been
allocated to each segment on the basis used for internal management
decision-making purposes.

The
Company operates its business under three segments as follows:

| |  | Consumer Electronics Accessories Business. This segment
consists of the Accessories Division of Recoton Corporation; Christie Design
Corporation, a research and development subsidiary; Recoton (Far East) Limited,
a Hong Kong distributor of all Recoton products; AAMP of Florida, Inc., a
distributor of car audio installation products; and the consumer electronics
accessories business of Recoton Canada Ltd., a Canadian distributor of all
Recoton products. Accessory products sold include indoor and outdoor TV
antennas; music, camcorder, and photo storage cases; stereo headphones;
universal remote controls; other accessories for home and mobile audio,
camcorder, cellular and standard telephone, music, video, satellite, digital,
computer and home office products; and products utilizing 900 MHz and other
wireless technology. These products are marketed under numerous brand names
including Jensen, Advent, Recoton, Discwasher, Stinger, Parsec, Ambico, AAMPand RoadGear and, under license, Sprint for telephone
accessories. For the year ended December 31, 2000, approximately 36% of the
Companys revenues were from net sales by this segment. For the year ended
December 31, 1999, approximately 31% of the Companys revenues were from
net sales by this segment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Audio Business. This segment consists of Recoton Audio Corporation and
its United States and European subsidiaries, which primarily sell home and
mobile audio and video products. Products for the home, sold under the
Jensen, Advent, AR/Acoustic ResearchandNHT (Now Hear This)brand names and under the Magnat and Heco brand names in
Europe, include state-of-the-art high-fidelity stereo and home theater
loudspeaker systems. Products for the automobile and marine aftermarket, sold
primarily under the Jensen, Advent, Linear Research, RoadGearand
Phase Linear brand names and Magnat and MacAudiobrand names in Europe, include speakers, subwoofers, amplifiers, cassette
receivers, equalizers, electronic crossovers, signal processors, CD players and
changers, video monitors and installation accessories. For the year ended
December 31, 2000, approximately 37% of the Companys revenues were from
net sales by this segment. For the year ended December 31, 1999, approximately
36% of the Companys revenues were from net sales by this segment.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Video and Computer Game Business. This segment consists of STD Holding
Limited and its Hong Kong and other Chinese subsidiaries, including its
manufacturing operations which produce accessories to enhance the enjoyment of
playing video and computer games as well as products for other Recoton segments;
InterAct Accessories, Inc., the Companys distributor of computer and video
game accessories in the United States; and the video game business of Recoton
Canada Ltd., that distributes computer and video games accessories in Canada
which was, prior to 2000, part of the consumer electronic accessories business.
Products sold primarily under the InterAct and Performancebrands include joysticks, controllers, game steering wheels, RF modulators,
memory cards and other accessories, including the Companys popular
GameShark, a device which assists game players to improve their play. For
the year ended December 31, 2000, approximately 27% of the Companys
revenues were from net sales by this segment. For the year ended December 31,
1999, approximately 33% of the Companys revenues were from net sales by
this segment.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Results Of Operations

The
following table sets forth statement of operations data of the Company expressed
as a percentage of net sales for the periods indicated:

`Years ended December 31,
                                                                    -----------------------------------------
                                                                    1996     1997    1998     1999       2000
                                                                    ----     ----    ----     ----       ----

Net sales.......................................................     100%    100%     100%     100%
Cost of sales...................................................    62.3    60.9     61.0     63.2(a)    62.0
                                                                    ----    ----    -----     -----    ------
Gross profit...................................................     37.7    39.1     39.0     36.8       38.0
Selling, general and administrative expenses............            32.8    35.1     32.9     34.9(b)    32.4
Restructuring charge........................................         -        -        -       0.5         -
Provision for U.S. customs settlement....................            -        -       2.1       -          -
                                                                    ----    ----    -----     ----     ------
Operating income.............................................        4.9     4.0      4.0      1.4        5.6
Interest expense..............................................       1.6     2.6      2.7      3.7        5.5
Amortization of financing costs...........................            -        -       .1       .2        0.4
Investment income...........................................          -     (0.1)    (0.1)    (0.2)      (0.1)
                                                                    ----    ----    -----     ----     ------
Income (loss) before income taxes and extraordinary item..           3.3     1.5      1.3     (2.3)      (0.2)
Income tax provision (credit)..............................          0.8    (1.2)     0.7      0.4        0.1
                                                                    ----    ----    -----     ----     ------
Income (loss) before extraordinary item..................            2.5     2.7      0.6     (2.7)      (0.3)
Extraordinary item...........................................        -        -        -       1.2 (c)    0.4 (d)
                                                                    ----    ----    -----     ----     ------
Net income (loss).............................................       2.5%    2.7%     0.6%    (3.9)%     (0.7)%
                                                                    ----    ----    -----     ----     ------

(a)  Includes $8,328,000 (1.2% of net sales) of inventory write downs applicable
     to products which are being reduced or eliminated.

(b)  Includes $5,811,000 (.8% of net sales) applicable to the value of assets to
     be sold and the valuation of related receivables and other assets, and the
     costs of developing the business plan and $1,200,000 (.2% of net sales)
     associated with the costs of restructuring bank debt and seeking
     alternative financing.

(c)  Includes fees and other costs in connection with restructuring of senior
     notes, which is treated as debt extinguishments for accounting purposes.

(d)  Includes fees and other costs in connection with the debt refinancing and
     the extinguishment of the loans payable pursuant to the prior years
     Debt Restructuring.`

The following table presents certain operating segment information for the
indicated years ended December 31 (further discussed in Note L of the Notes to
Condensed Consolidated Financial Statements):

`(IN MILLIONS)
                                                     Consumer                             Video and
                                                     Electronics                          Computer
                                                     Accessories         Audio            Game
2000                                                 Business            Business         Business
-----                                               --------------       ---------        -----------
Net sales.....................                      $  231.7             $  240.0          $  177.6
Gross profit................                           101.1                 83.5              62.1
Income (loss) before income
  taxes, corporate interest, unallocated
  expenses and extraordinary item...                    30.8                 17.3             (13.1)

1999
----
Net sales..................                          $ 222.5             $  254.9          $  232.9
Gross profit*...............                            84.2                 76.0             101.2
Income (loss) before income
  taxes, corporate interest, unallocated
  expenses and extraordinary item**...                   7.6                 (5.3)              9.3

1998
----
Net sales..................                          $ 222.4             $  237.2          $  243.9
Gross profit................                            86.8                 77.0             110.4
Income (loss) before income
  taxes, corporate interest, unallocated
  expenses and extraordinary item.....                  14.5                 (0.8)             27.5

(*)  Includes inventory write-downs in conjunction with the Strategic Plan
     aggregating approximately $2.3 million for the Accessories Business and
     $6.0 million for the Audio Business.

(**) In addition to the inventory write-downs noted above, additional charges in
     conjunction with the Strategic Plan aggregating approximately $3.3 million
     for the Accessories Business, $4.1 million for the Audio Business and $1.1
     million for the Video and Computer Game Business.`

The
financial results of the reportable segments have been prepared using a
management approach, which is consistent with the basis and manner in which the
Company's management internally aggregates financial information for the
purposes of assisting in making internal operating decisions. In this regard,
certain corporate expenses were allocated among subsidiaries for decision-making
purposes.

Comparison for the Years Ended December 31, 2000 and 1999

Net
sales for the year ended December 31, 2000 totaled $649.3 million, down
approximately $61.0 million or 8.6% from the sales for the year ended December
31, 1999 of $710.3 million. The decreases in sales were primarily attributable
to lower sales of the Company's video game and computer products, as well as the
elimination of poorly performing product lines in the Company's international
markets offset slightly by sales increases for the year 2000 in the consumer
electronics accessory segment and domestic and German audio divisions. Sales by
segment were as follows:

| |  | Net sales for the consumer electronics accessory business in 2000 were $231.7
million, an increase of 4.1% compared to $222.5 million in 1999. The increase is
primarily due to increased sales of 900 MHz wireless headphones and speakers,
camcorder and video accessories, digitally compatible products and car audio
accessories partially offset by decreases in satellite accessories and antennas
in 2000.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Net sales for the audio business in 2000 were $240.0 million, a decrease of 5.8%
compared to $254.9 million in 1999. The reduction is predominantly due to the
sale of certain European assets as part of the Companys reorganization
offset by increased sales in the Companys mobile audio products, home
speaker products and German audio products.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Net sales for the video and computer game business in 2000 were $177.6 million,
a decrease of 23.7% compared to $232.9 in 1999. These decreases are primarily
attributable to the initial launch shortages of the Sony PlayStation2 video game
platform and the general transition of the video game industry while consumers
await the introduction of new platforms in 2001.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gross margin in 2000 was 38.0% compared to 36.8% in 1999. However, in 1999 gross
margin was adversely impacted by inventory write-downs associated with the
strategic plan (see description below). The gross margin before the inventory
write-downs in 1999 was 38.0%. Gross margins by segment were as follows:

| |  | Gross margin for the consumer electronics accessories business increased to
43.6% in 2000 from 37.8% in 1999 (gross margin before inventory write-downs
associated with the Companys strategic plan in 1999 was 38.9%) These
increases were mainly due to product mix.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Gross margin for the audio business increased to 34.8% in 2000 from 29.8% in
1999 (gross margin before inventory write-down associated with the
Companys strategic plan in 1999 was 32.2%). These increases were mainly
due to the introduction of higher margin mobile audio products and the
conversion of domestically manufactured home audio products to outsourced
products.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Gross margin for the video and computer game business decreased to 34.9% in 2000
from 43.5% in 1999. This is primarily due to the increased competitive
environment as dealers cleared out older products, the initial launch shortages
of the Sony PlayStation2 video game platform and the general transition of the
video game industry while consumers await the introduction of new platforms in
2001.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Selling, general and administrative expenses decreased in 2000 by approximately
$37.4 million to $210.4 million from $247.8 million in 1999 and decreased as a
percent of net sales to 32.4% in 2000 from 34.9% in 1999 (SG&A expenses before
costs associated with the strategic plan in 1999 were $240.8 million or 33.9% as
a percent of sales). These decreases were mainly due to cost savings and
initiatives outlined in the Company's strategic plan initiated in the second
half of 1999 and decreased market development expenses and other variable
expenses as a result of lower sales volume in the video and computer game
segment.

Operating income in 2000 improved $26.2 million to $36.3 million from $10.1
million in 1999 (operating income before write-downs associated with the
Company's strategic plan and restructuring charges in 1999 was $28.8 million).
The year-to-date operating income increases were mainly due to increased sales
by the accessories segment, higher gross margins in the audio and accessories
segments and reduced selling, general and administrative expenses as a result of
the Company's strategic plan, reduced market development and other variable
expenses as a result of lower sales volume in the video and computer accessories
segment.

Interest expense (net of investment income) increased by $9.9 million to $35.1
million in 2000 compared to $25.2 million in 1999. The increase was primarily
attributable to approximately $1.7 million increase in the net present value of
the make-whole provision associated with the Company's senior notes recorded in
2000, increases in interest rates following the restructuring of the Company's
debt in September 1999, as well as increases in the federal discount rate, which
affected the Company's variable rate debt. On October 31, 2000, the Company
finalized its new three-year $275.0 million senior credit facility that replaced
the Company's existing senior debt at lower interest rates (see discussion under
"Liquidity and Capital Resources-October 2000 Debt Refinancing").

Amortization of financing costs increased to $2.3 million in 2000 compared to
$1.2 million in 1999. This was mainly attributable to the debt restructuring in
September 1999 and debt refinancing in October 2000.

On a consolidated basis, the loss before income taxes and extraordinary item in
2000 was $1.1 million compared to a loss before income taxes and extraordinary
item of $16.2 million in 1999 (income before income taxes and extraordinary item
in 1999 before charges associated with the strategic plan was $2.5 million.) The
Company's losses in 2000 were mainly due to the continuation of higher cost
financing because of delays in finalizing new financing arrangements and lower
than anticipated sales of video and computer game accessories because of the
significantly reduced quantities of the Sony PlayStation 2 video game system
available at launch.

The following is a discussion, on a segment basis, of income or loss before
income taxes and unallocated expenses (which expenses consists primarily of
corporate interest and certain amortization of financing costs) and
extraordinary item:

| |  | Income before income taxes, unallocated expenses and extraordinary item for the
consumer electronics accessories business was $30.8 million in 2000 compared to
income of $7.6 million in 1999 (before restructuring and other charges
associated with the Companys strategic plan were recorded in 1999 income
before income taxes, unallocated expenses and extraordinary item was $13.2
million.) The improved results are mainly due to strategic cost savings,
increased sales of products with higher gross margins and the strong sales of
900 MHz wireless headphones and speakers, camcorder and video accessories,
digitally compatible products and car audio accessories.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Income before income taxes, unallocated expenses and extraordinary item for the
audio business was $17.3 million in 2000 compared to a loss of $5.3 million in
1999 (before charges related to the strategic plan in 1999, income before income
taxes, unallocated expenses and extraordinary item was $4.8 million.) The strong
turnaround in the audio segment is mainly due to the initiatives outlined in the
Companys strategic plan, which consolidated the North American home audio
division into the car audio group, moved the Companys European
distribution business into Germany and eliminated poorly performing product
lines in England and Italy. This, together with increased sales of higher margin
mobile audio products, the conversion of domestically manufactured home audio
products to outsourced products and the introduction of new products including
car and marine receivers, speakers, and amplifiers, resulted in improved
operating results on lower sales.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The loss before income taxes, unallocated expenses and extraordinary item for
the video and computer game business was $13.1 million in 2000 compared to
income of $9.3 million in 1999 (before charges associated with the strategic
plan, income before income taxes, unallocated expenses and extraordinary item in
1999 was $10.4 million.) The decrease in 2000 was mainly due to the initial
launch shortages of the Sony PlayStation2 video game platform, the general
transition of the video game industry while consumers await the introduction of
new platforms in 2001 and the competitive environment as dealers cleared out
older products.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The extraordinary item of $3.0 million recorded in 2000 relates to charges
resulting from the debt refinancing, which is discussed further under "Liquidity
and Capital Resources-October 2000 Debt Refinancing" below. The extraordinary
item of $8.8 million recorded in 1999 relates to charges resulting from the
restructuring of the Company's senior notes.

In recent years, the Company's income taxes and effective consolidated income
tax rate have been materially affected by changes in the proportion of domestic
and foreign earnings. While earnings from operations in North America and
Western Europe are primarily taxed at or above United States income tax rates,
earnings from the Company's Asian operations are taxed at a current maximum rate
of 16.0%. However, the actual tax rate from Asian operations is dependent upon
the proportion of earnings from mainland China, which are currently subject to a
50% tax holiday which expired at the end of 2000. The Company's income tax
provision for 2000 is the result of a mix of foreign and domestic earnings and
additional U.S. income taxes on repatriated foreign earnings. This resulted in a
net income tax provision of $794,000 for the year ended December 31, 2000. The
Company currently estimates that the balance of its Asian retained earnings will
remain indefinitely invested. Such estimate is subject to future revision based
upon such factors as the results of domestic operations, ability to borrow or
otherwise obtain funds to finance operations, market conditions in the consumer
electronics industry and general economic conditions in the United States and in
Asia. In 1999, as a result of business requirements of the Company's domestic
operations caused in part from the provisions of the debt restructuring
agreement, the Company repatriated a portion of earnings from its Hong Kong
subsidiaries, which resulted in additional income tax expense. Additionally, in
1999, in accordance with the terms of the settlement reached with the U.S.
Customs Service, $4.1 million of the settlement was tax deductible and the
resulting income tax benefit was included with the 1999 income tax provision.
The net result of the foregoing factors resulted in an income tax expense of
$3.1 million or 19% of pretax loss in 1999.

Comprehensive
loss is comprised of the net loss and foreign currency translation adjustments
(which adjustments, net of income tax effect, were a negative $3.3 million in
2000 and a negative $3.5 million in 1999) included in the consolidated
statements of shareholders' equity. As a result of fluctuations in the value of
the U.S. dollar in relation to currencies in Western Europe for 2000 and 1999,
and the related foreign currency translation adjustments recorded by the
Company, in addition to the net loss, total comprehensive loss in 2000 was $8.1
million and in 1999 was $31.5 million.

In
2000, basic and diluted loss per share was $0.41 based on average outstanding
shares of 11,744,000 (includes an extraordinary loss equal to $.25 per share
associated with the debt refinancing). In 1999, basic and diluted loss per share
was $2.39 based on average outstanding shares of 11,719,000 (includes an
extraordinary loss equal to $0.75 per share associated with the strategic plan
and restructuring of debt). The effect of the assumed exercise of outstanding
stock options and warrants is antidilutive and therefore is not reflected in the
loss per share amounts.

Comparison for the Years Ended December 31, 1999 and 1998

During
the third quarter of 1999, the Company announced a comprehensive strategic
business plan (the strategic plan) geared towards improving the Company's
overall operations, cash flow and return on assets. The strategic plan included
a net reduction of headcount, consolidation of businesses, the reduction and/or
discontinuation of certain unprofitable products and the sale of certain assets.
In the third quarter of 1999, approximately $17.6 million in charges were
recorded in conjunction with the strategic plan. These charges include a cash
charge of approximately $3.4 million relating primarily to employee severance
payments and lease termination costs, approximately $8.4 million of inventory
write-downs applicable to product lines which are being reduced or eliminated
and approximately $5.8 million of other charges applicable to the value of
assets to be sold, the valuation of related receivables and other assets, and
the costs of developing the plan. Furthermore, in conjunction with the strategic
plan, the Company reorganized its management structure to better accommodate a
company of its size and global presence while allowing the corporate management
team to focus on a broader range of issues. The plan further incorporates the
development of a more incentive-based method of compensation, more stringent
financial controls and an upgrade of the Company's management information
systems.

Net sales for 1999 totaled $710.3 million, up $6.8 million or 1.0% from the
$703.5 million reported in 1998. Sales by segment were as follows:

| |  | Net sales for the consumer electronics accessory business in 1999 were $222.5
million compared to $222.4 million in 1998.
| | - | -------------------------------------------------------------------------------------------------------------------------

| |  | Net sales for the audio business in 1999 were $254.9 million, an increase of
7.5% compared to $237.2 million in 1998. The sales increases for this segment
were due to (1) an expanded customer base, (2) increases in revenue from
existing customers and (3) increases in sales of marine products.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Net sales for the video and computer game business in 1999 were $232.9 million,
a decrease of 4.5% compared to $243.9 million in 1998. Although unit sales
increased, the decline in net sales in 1999 was due to increased competition and
lower unit pricing attributable to the current transition phase of the video
game business as new game platforms are introduced by Sega, Nintendo and Sony.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gross margin, which was adversely impacted by inventory write-downs associated
with the strategic plan decreased to 36.8% in 1999 compared to 39.0% in 1998.
The gross margin decrease in 1999 was due to $8.3 million in charges associated
with the reduction and discontinuance of certain products. The gross margin
before the inventory write-downs associated with the strategic plan was 38.0%, a
decrease of 1.0% from 1998. This gross margin decrease was in part due to
decreased margins on InterAct products and in part to the audio segment's
decrease in gross margin which weighed more heavily on consolidated gross margin
due to the increase in the proportion of mobile audio sales to total sales.
Gross margins by segment were as follows:

| |  | Gross margin for the consumer electronics accessories business decreased to
37.8% for 1999 from 39.0% for 1998. The decrease was mainly due to $2.3 million
of write-downs associated with the strategic plan. Before the inventory
write-down associated with the strategic plan, gross margin in 1999 was 38.9%.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Gross margin for the audio business decreased to 29.8% in 1999 from 32.5% in
1998. This decrease was mainly due to $6.0 million of inventory write-downs
associated with the strategic plan, which provided for the discontinuance of
certain home speaker products and an outsourcing of manufacturing operations.
Before the inventory write-down associated with the strategic plan, gross margin
for 1999 was 32.2%. The decrease was attributable mainly to product mix in the
mobile division.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Gross margin for the video and computer game business decreased to 43.5% in 1999
from 45.3% in 1998. The decrease was attributable to increased air freight,
product mix, competitive pricing pressures and the transition of the industry
from the existing platforms as game console manufacturers prepared for the
introduction of a new generation of products.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Selling, general and administrative expenses increased in 1999 by approximately
$16.6 million to $247.8 million compared to $231.2 million in 1998 and increased
as a percentage of net sales to 34.9% in 1999 from 32.9% in 1998. These expenses
include approximately $5.8 million in charges associated with the strategic plan
and $1.2 million in costs associated with the debt restructuring. Selling,
general and administrative expenses before charges were $240.8 million for 1999,
an increase of $9.6 million compared to 1998. The increase was due to increased
market development and promotional activities principally related to the video
and computer game business.

In addition, the Company recorded $3.4 million in restructuring charges in 1999,
which include charges relating primarily to employee severance payments and
lease termination costs.

Interest expense (net of investment income) increased by $6.7 million to $25.2
million in 1999 compared to $18.5 million in 1998. The increase was primarily
attributable to the sale of $35 million of senior subordinated notes in February
1999 and increases in interest rates following the restructure of debt in
September 1999.

Amortization of financing costs increased by $833,000 in 1999 compared to 1998
attributable to the sale of the senior subordinated notes and debt
restructuring.

On a consolidated basis, the loss before income taxes and extraordinary item in
1999 was $16.2 million. This was mainly due to approximately $18.7 million in
charges associated with the strategic plan and debt restructuring. Before such
charges, income before income taxes and extraordinary item was $2.5 million
compared to income before income taxes of $9.2 million reported for 1998 ($24.2
million before the provision for the U.S. customs settlement).

The extraordinary item of $8.8 million recorded in 1999 related to charges
resulting from the restructuring of senior notes.

The following is a discussion of income or loss on a segment basis defined as
the results before income taxes, unallocated expenses (which expenses consists
primarily of corporate interest and certain costs incurred in connection with
the debt restructuring) and extraordinary item:

| |  | Income before income taxes for the consumer electronics accessories business was
$7.6 in 1999, compared to income before income taxes of $14.5 million in 1998.
The decline was attributable to both a marginal decline in the gross margin
percentage in 1999 and an increase in operating expenses as well as
approximately $5.6 million in restructuring and other charges associated with
the strategic plan. Before such charges, income before income taxes in 1999 was
$13.2 million.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In 1999, the loss before income taxes for the audio business was $5.3 million
compared to a loss before income taxes of $817,000 in 1998. In addition to the
effect of lower gross margins, approximately $10.1 million of restructuring and
other charges associated with the strategic plan were applicable to the
business, particularly its home audio business. Before such charges, income
before income taxes in 1999 was $4.8 million, an increase of $5.6 million over
the prior year. The results reflected a turn-around in the U.S. home audio
division in the fourth quarter of 1999. The division had income before income
taxes of $45,000 for the fourth quarter of 1999 and a loss for the year of $4.4
million in 1999 compared to a loss before income taxes of $3.1 million for the
fourth quarter of 1998 and a loss for the year of $8.7 million in 1998.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In 1999, income before income taxes for the video and computer game business was
$9.3 million compared to income before income taxes of $27.5 million in 1998.
The decrease was primarily due to the competitive pricing pressures and higher
promotional expenses caused by the transition of the industry to new gaming
platforms which resulted in lower gross profit and $1.1 million in charges
recorded in 1999 in connection with the strategic plan.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." To date, comprehensive income has been
comprised of net income or loss and foreign currency translation adjustments
(which adjustments, net of income tax effect, were a negative $3.5 million in
1999 and a positive $2.2 million in 1998) included in the consolidated
statements of stockholders' equity. As a result of significant fluctuations in
the value of the U.S. dollar in relation to currencies in Western Europe for
1999 and 1998, and the related foreign currency translation adjustments recorded
by the Company, in addition to the changes in net income or loss, total
comprehensive loss in 1999 was $31.5 million compared to total comprehensive
income of $6.5 million in 1998.

In 1999, basic and diluted loss per share were $2.39 per share based on average
outstanding shares of 11,719,000. In 1998, basic earnings per share was $.37 per
share and diluted earnings per share was $.36 per share based on average shares
of 11,656,000 (basic) and 12,179,000 (diluted). The effect of the assumed
exercise of outstanding stock options and warrants for 1999 is antidilutive and
therefore is not reflected in the 1999 loss per share amounts.

Impact of Inflation and Changing Prices

The impact of inflation and changing prices on the Company's net sales and
revenues and on income from continuing operations for the year ended December
31, 2000 and 1999 was negligible.

Liquidity and Capital Resources

Sources
and Components of Working Capital. At December 31, 2000, the Company had
cash and cash equivalents of $10.1 million compared to $21.7 million at December
31, 1999. At December 31, 2000, the Company had working capital of approximately
$258.2 million as compared to approximately $272.2 million at December 31, 1999.
The ratio of current assets to current liabilities was 3.53 to 1 at December 31,
2000 and 3.35 to 1 at December 31, 1999. Trade receivables decreased $35.5
million to $165.6 million at December 31, 2000 as compared to $201.1 million at
December 31, 1999. The decrease is due to lower revenues mainly from the
Company's video and computer game business. Inventories levels increased by
$23.6 million to $164.6 million at December 31, 2000 from $141.0 million at
December 31, 1999, which is mainly due to lower sales volume in the video and
computer game business as consumers delayed their purchases due to initial
launch shortages of the Sony PlayStation 2. Accounts payable and accrued
expenses decreased $10.2 million to $87.7 million at December 31, 2000 compared
to $97.9 million at December 31, 1999, as a result of the Company's slowdown of
inventory purchasing.

October
2000 Debt Refinancing. On October 31, 2000, the Company refinanced its
existing senior indebtedness through credit facilities aggregating approximately
$275 million. The Company entered into a loan agreement for a $235 million
facility syndicated by Heller Financial, Inc. and General Electric Capital
Corporation (the "Senior Loan Agreement") consisting of:

| |  | a $185 million three year revolving loan and letter of credit facility bearing
interest at 2.50% over LIBOR or 0.75% over the greater of the prime rate or
the federal funds rate plus .50%, with the amount of borrowing
availability dependant upon the Companys eligible receivables and
inventory;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a three year term loan in the principal amount of $20 million with interest at
2.75% over LIBOR or 1.00% over prime, amortized over three years with eleven
quarterly installments of $500,000 each and a balloon payment of $14.5 million
due on the third anniversary;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a two year term loan in the principal amount of $15 million with interest at
5.00% over LIBOR or 3.25 % over the greater of the prime rate or
the federal funds rate plus .50%, amortized over two years with eight equal
quarterly principal repayments of $1.875 million each; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a term loan of $15 million with interest at 3.00% over the greater of the prime rate or
the federal funds rate plus .50%, to be paid on the
second anniversary to the extent that the advance value of the collateral
exceeds the revolving loan by more than $45 million, with any balance generally
due in 12 equal monthly installments (subject to later payment under certain
conditions) ending on the third anniversary.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company also entered into a loan agreement (the "Subordinated Loan Agreement")
with its existing senior lenders, for a $15 million three-year term loan
subordinated to the senior loan, with interest at 5.75% over the greater of the prime rate or
the federal funds rate plus .50%. The
Company's German subsidiaries entered into a 50 million Deutsche Mark factoring
facility (equal to approximately $24.0 million at December 31, 2000) with interest at 2.5% over
European LIBOR which in part supports a $13 million letter of credit issued in
favor of Heller as security for the loans under the Senior Loan
Agreement.

The borrowings under the Senior Loan Agreement and the Subordinated Loan
Agreement were secured by substantially all the assets of Recoton and its United
States and Canadian subsidiaries, and by 65% of the capital stock of the other
first tier foreign subsidiaries pursuant to certain guarantees, security
agreements and pledge agreements.

At the same time, modifications were made to the existing 1999 Security Purchase
Agreement with the Company's senior subordinated creditors to reflect the
subordination of the rights of the holders of notes issued pursuant to that
agreement and the continuation of certain provisions of the September 8, 1999
Master Restructuring Agreement entered into with the Company's then-existing
creditors including an increased rate of interest (see discussion below) and a
cash payment of $875,000.

Warrants to purchase 20,000 Recoton Corporation common shares were issued to the
holders of the notes issued pursuant to the 1999 Security Purchase Agreement.
Warrants to purchase an aggregate of 5,000 Recoton Corporation common shares
were issued to certain lenders under one of the new term loans pursuant to the
Senior Loan agreement. Such warrants expire on October 31, 2005 and have an
exercise price of $13.28.

As a
result of the refinancing in October of 2000, the Company recorded as an
extraordinary item the write-off of the unamortized deferred finance costs
associated with the repaid senior debt plus an adjustment to the accrual of a
"make-whole" provision of the senior debentures related to the acceleration of
their payment. Such charges were $3.0 million. In addition, fees, expenses and
other costs associated with the current refinancing, estimated to be
approximately $8.1 million, will be amortized over the life of the
loans.

Sources
of Credit at December 31, 2000. As at December 31, 2000 the Company had
new credit facilities aggregating $273.6 million, entered into in October 2000
which replaced its existing senior indebtedness. The new credit facility
included a $235.0 million facility syndicated by Heller Financial, Inc. and
General Electric Capital Corporation with various interest rates over prime
and/or LIBOR, of which $208.8 million was outstanding as at December 31, 2000.
The outstanding letters of credit under this facility as of December 31, 2000
were $15.2 million including standby letters of credit aggregating approximately
$12.4 million to a foreign bank for the benefit of the Company's Hong Kong
subsidiary primarily for import facilities and discounting of customer drafts,
of which $2.1 million in letters of credit and $9.3 million in trust receipt
loans were outstanding at December 31, 2000. At December 31, 1999, the
outstanding letters of credit under both facilities were $16.9 million. The
Company also entered into a loan agreement with its existing senior lenders for
a $15.0 million term loan with interest at 5.75% over prime. As of December 31,
2000 this loan bore interest of 15.25%. The Company's German subsidiaries
entered into a 50 million Deutsche Mark factoring facility (equal to
approximately $24.0 million at December 31, 2000) with interest at 2.5% over
European LIBOR, of which approximately $16.0 million was outstanding and bore
interest of 7.3% as at December 31, 2000. This factoring facility supports a
$13.0 million letter of credit issued in favor of Heller as security for the
loans under the Senior Loan Agreement. (See the discussion above regarding debt
refinancing and the discussion below regarding the Company's outstanding
notes.)

In February 1999, the Company issued $35 million in aggregate principal amount
of senior subordinated notes due February 4, 2004 (the 1999 Notes). The proceeds
were used to reduce outstanding borrowings under the Company's revolving credit
facility. As amended in September 1999, interest was payable quarterly at 13.5%
a year to November 4, 1999, increasing to 14.5% per annum from November 5, 1999
to February 4, 2000, then increasing to 15.0% per annum from February 5, 2000 to
May 4, 2000, and then increasing to 15.5% per annum from and after May 5, 2000.
In connection with the October 31, 2000 refinancing, interest payable to the
note holders was increased to 16.5%. Under the terms of the agreement, the
Company issued warrants to the noteholders to purchase 310,000 common shares at
a price of $18.26 per share which expire on February 4, 2004. In connection with
the September 1999 debt restructuring, the exercise price of the warrants was
reduced to $7.77 a share and additional warrants to purchase 100,000 common
shares at a price of $7.77 a share were issued in place of warrants to purchase
up to an additional 310,000 shares which would have been issuable in May 2001 if
the subordinated debt had not been repaid by that date. These warrants expire on
September 8, 2004. As noted above, warrants to purchase an additional 20,000
shares were issued to the note holders on October 31, 2000.

1999 Debt Restructuring. On September 8, 1999, the Company entered into a debt
restructuring agreement which included the extension of its previous bank credit
facilities, a shortening of the term of its adjustable rate senior notes and an
additional credit facility of up to $50 million for working capital purposes,
each of which was payable on July 2, 2001. The financial covenants under the
previous debt were reduced in number and significantly relaxed. Pursuant to that
agreement, the Company granted the lenders and senior note holders collateral in
substantially all the non-Asian assets of the Company. The interest rates on the
Company's outstanding debt were increased, certain fees became payable and
warrants to acquire common shares were granted. These loans were paid off
through the October 2000 refinancing.

Capital ExpendituNres. The Company believes that advanced information processing
is important in order for it to maintain its competitive position. The Company
and all of its subsidiaries have implemented management information systems
which run substantially all of the Company's principal data processing and
financial reporting software applications.

In 1999, the Company performed a complete management information system review
for the purpose of planning and considering whether to implement a new global
Enterprise Resource Planning (ERP) system to fully integrate functions such as
finance, manufacturing, distribution and inventory management. In the fourth
quarter 2000, the Company selected mySAP.com from SAP America, Inc. as the
e-business infrastructure to consolidate systems and streamline business
processes across the globe. The estimated timeframe for full implementation of
mySAP.com is currently one year for North American operations and two years for
European and Asian operations. The estimated cost of the project is
approximately $14.0 million including software licensing, hardware, consulting
and related expenses.

Foreign Operations. To date there has been limited exposure to loss due to
foreign currency risks in the Company's Asian subsidiaries, because the Hong
Kong dollar has been pegged to the U.S. dollar at an official exchange rate of
HK $7.80 to US $1.00. Additionally, in recent years there have been no material
fluctuations in the Hong Kong/Chinese exchange rates. Also, the Company
maintains the majority of its currency in Asia in U.S. dollar accounts. However,
there can be no assurance that these relationships will continue.

The
Company's operations, which are currently being transacted on a global
basis, are exposed to variations in foreign exchange rates. Shareholders' equity
was reduced by a foreign currency translation adjustment of approximately $3.3
million in 2000 and $3.5 million in 1999. The changes in the exchange rates of
the German and Italian currencies against the American dollar, which were the
principal causes of the foreign translation adjustments, had no material impact
on the consolidated results of operations but such adjustments serve to reduce
the Company's tangible net worth.

If
there are any material adverse changes in the relationships between the
European and/or Canadian currencies with the United States dollar or if the Hong
Kong or Chinese currencies should no longer be tied to the U.S. dollar, such
changes could adversely affect the results of the Company's European, Canadian
and/or Asian operations included in the consolidated financial statements and
could cause further increases in the amount of foreign currency translation
adjustments which are charged directly to shareholders' equity.

Implications to the Company from the Adoption of
a European Common Currency

Recoton has
extensive operations in certain European countries, including Germany, Italy and
the United Kingdom. The Company also sells to additional countries in Europe. In
2000, approximately 11% of the Company's net sales were in Europe. With the
exception of the United Kingdom, all of the European countries in which the
Company has operations have confirmed their participation in an 11-country
European common currency, the Euro. The Company has not experienced, and does
not anticipate, that there will be any material adverse impact on the Company or
its European business resulting from the adoption of the Euro and any resulting
changes in European economic and market conditions other than changes in the
exchange rate between the Euro and the dollar which have occurred since the
adoption of the Euro.

In
June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. In
June 2000, Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Hedging Activities, an Amendment of FASB
Statement No. 133" ("SFAS 138") was issued. SFAS 133 and SFAS 138 address the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. The Company is required to
adopt SFAS 133 and SFAS 138 in the first quarter of 2001. The Company
anticipates that the adoption of SFAS 133 and SFAS 138 as of January 1, 2001
will not have a material effect on its financial position or results of
operations.

Item 7A:.   Quantitative
and Qualitative Disclosures About Market Risk

Effective
as of the October 2000 refinancing all of the Company's borrowings
bear various rates depending on changes in the LIBOR, prime rates or federal funds
rate.

Effective
of the October 2000 refinancing the Company's German subsidiary
entered into a 50 million Deutsche Mark factoring facility (equal to
approximately $24.0 million at December 31, 2000) with Heller Germany. At
December 31, 2000 the Company's German subsidiary had three foreign currency
contracts in the amounts of $450,000, $550,000 and $500,000 expiring on February
15, 2001, March 15, 2001 and April 15 2001, respectively for the purpose of
hedging any potential exchange adjustments on purchases in U.S dollars. Recoton
Corporation and certain of its subsidiaries have intercompany loans, which are
not denominated in their home country currency, which exposes the Company to
exchange rate fluctuations. The Company has not entered into foreign currency or
derivative contracts to hedge these potential intercompany exchange adjustments,
which are initially recorded as cumulative foreign currency translation
adjustments (a component of shareholders' equity), but will ultimately be
reflected in operations when the debt is repaid. Exclusive of intercompany
receivables and payables for current transactions, the outstanding foreign
currency loans at December 31, 2000 (expressed in U.S. dollars at current
exchange rates) which remain subject to currency fluctuations consist of
approximately $34 million in loans made by Recoton Corporation and its
subsidiaries to other subsidiaries in Germany and Italy. These loans have no
fixed due dates.

Item 8.   Financial
Statements and Supplementary Data.

The following financial statements are included in this report:

| |  | Page
| |  | ----

| | Independent Auditors' Reports
Recoton Corporation and Subsidiaries -- | F-1  to F-2
| | --------------------------------------------------------------------- | -----------

| | Consolidated Balance Sheets as of December 31, 1999
                                  and 2000
                                  Consolidated Statements of Operations for the years
                                  ended December 31, 1998, 1999 and 2000
                                  Consolidated Statements of Shareholders' Equity for
                                  the years ended December 31, 1998, 1999 and 2000
                                  Consolidated Statements of Cash Flows for the years
                                  ended December 31, 1998, 1999 and 2000
                                  Notes to Consolidated Financial Statements | F-3
                         F-4
                         F-5 to F-6
                         F-7 to F-8
                         F-9 to F-32
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------

Financial statement schedules have not been filed because the conditions
requiring the filing do not exist or the required information is provided in the
consolidated financial statements, including the notes thereto. The individual
financial statements of the Company have been omitted because the requirements
for omission have been met.

Independent Auditors' Report

To the Board of Directors and Shareholders of
Recoton Corporation
Lake Mary, Florida

We
have audited the accompanying consolidated balance sheets of Recoton Corporation
and Subsidiaries (the "Company") as of December 31, 1999 and 2000 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits
in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Recoton
Corporation and Subsidiaries as of December 31, 1999 and 2000, and the results
of their operations and their cash flows for each of the two years then ended in
conformity with accounting principles generally accepted in the United States of
America.

DELOITTE & TOUCHE LLP

New York, New York
February 23, 2001

Independent Auditors' Report

Board of DirectorsRecoton Corporation

We have audited the
accompanying consolidated statements of operations, shareholders' equity and
cash flows of Recoton Corporation and Subsidiaries for the year ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of
Recoton Corporation and Subsidiaries for the year ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States of
America.

CORNICK, GARBER & SANDLER, LLP

New York, New York
February 26, 1999

RECOTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

`ASSETS                                       December 31,
                                            ------                                       ------------
                                                                                    1999            2000
                                                                                -----------    -------------
Current assets:
    Cash and cash equivalents                                                     $  21,650       $  10,098
    Accounts receivable (less allowance for doubtful accounts
       of $4,716 in 1999 and $3,285 in 2000)                                        201,079         165,625
    Inventories                                                                     140,980         164,596
    Prepaid, refundable and deferred income taxes                                    12,180           9,573
    Prepaid expenses and other current assets                                        11,936          10,241
                                                                                 ----------      ----------

              Total current assets                                                  387,825         360,133

Property and equipment, net                                                          37,192          35,286
Trademarks and patents, net                                                           4,577           4,278
Goodwill, net                                                                        34,941          32,698
Deferred income taxes                                                                13,272          18,882
Other assets                                                                          7,520          12,234
                                                                                 ----------      ----------

              TOTAL ASSETS                                                         $485,327        $463,511
                                                                                 ==========      ==========

                                          LIABILITIES
                                          -----------

Current liabilities:
    Current portion of long-term debt                                             $  14,656       $  11,994
    Accounts payable                                                                 68,995          65,503
    Accrued expenses                                                                 28,891          22,166
    Income taxes payable                                                              3,115           2,249
                                                                                 ----------      ----------

              Total current liabilities                                             115,657         101,912

Long-term debt                                                                      235,739         243,914
Other liabilities                                                                    13,009           4,426
                                                                                 ----------      ----------

              Total liabilities                                                     364,405         350,252
                                                                                 ----------      ----------

Commitments and contingencies

SHAREHOLDERS EQUITY
----------------------------

Preferred shares - $1.00 par value each - authorized
    10,000,000 shares; none issued                                                   --               --
Common shares - $.20 par value each - authorized
    40,000,000 shares; issued 12,970,854 shares in
    1999 and 12,986,720 shares in 2000                                                2,594           2,597
Additional paid-in capital                                                           85,316          85,803
Retained earnings                                                                    47,058          42,222
Accumulated other comprehensive income                                               (7,558)        (10,866)
                                                                                 ----------      ----------

              Total                                                                 127,410         119,756

Treasury shares - 1,238,330 shares in 1999 and
    1,239,330 shares in 2000, at cost                                                (6,488)         (6,497)
                                                                                 ----------      ----------

              Total shareholders' equity                                            120,922         113,259
                                                                                 ----------      ----------

              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $485,327        $463,511
                                                                                 ==========      ==========

                                  See accompanying notes to the consolidated financial statements.`

RECOTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

`Years Ended December 31,
                                                        --------------------------------------
                                                            1998         1999           2000
                                                        -----------  -----------   -----------
Net sales                                                  $703,538     $710,250      $649,295

Cost of sales                                               429,334      448,894       402,634
                                                           --------     --------     ---------

Gross profit                                                274,204      261,356       246,661

Selling, general and administrative expenses                231,190      247,764       210,371
Restructuring charge                                             -         3,444           -
Provision for U.S. Customs settlement                        15,000          -             -
                                                          ---------     --------     ---------

Operating income                                             28,014       10,148        36,290

Other (income) expenses:
   Interest expense                                          18,981       26,467        35,879
   Amortization of financing costs                              331        1,164         2,330
   Investment income                                           (464)      (1,294)         (830)
                                                          ---------     --------     ---------

Income (loss) before income taxes and
   extraordinary item                                         9,166      (16,189)       (1,089)
Income tax provision                                          4,836        3,076           794
                                                          ---------     --------     ---------

Income (loss) before extraordinary item                       4,330      (19,265)       (1,883)
Extraordinary item (net of
     income tax benefit of $1,621 for 2000)                      -        (8,765)       (2,953)
                                                          ---------     --------     ---------

NET INCOME (LOSS)                                         $   4,330     $(28,030)    $  (4,836)
                                                          =========     ========     =========

Basic earnings per share:

   Income (loss) before extraordinary item                    $ .37       $(1.64)        $(.16)
   Extraordinary item                                            -          (.75)         (.25)
                                                          ---------     --------     ---------

   Net income (loss)                                          $ .37       $(2.39)        $(.41)
                                                          =========     ========     =========

Diluted earnings per share:
   Income (loss) before extraordinary item                    $ .36       $(1.64)        $(.16)
   Extraordinary item                                            -          (.75)         (.25)
                                                          ---------     --------     ---------
   Net income (loss)                                          $ .36       $(2.39)        $(.41)
                                                          =========     ========     =========

Number of shares used in computing per share amounts:
   Basic                                                     11,656       11,719        11,744
                                                          =========     ========     =========

   Diluted                                                   12,179       11,719        11,744
                                                          =========     ========     =========`

See accompanying notes to the consolidated financial statements.

RECOTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

`Accumulated
                                                   Additional               Other                             Total
                                   Common Stock     Paid-In    Retained  Comprehensive  Treasury   Stock   Shareholders'
                                 Shares     Amount  Capital    Earnings     Loss         Shares    Amount    Equity
                                ---------- ------  ----------  --------- -------------   -------   ------  -------------

BALANCE - JANUARY 1, 1998      12,797,601  $2,560   $78,376     $70,758    $(6,295)     1,225,167 $(6,116)  $139,283
                                                                                                            --------
Comprehensive income:
   Net income                       -         -        -          4,330        -             -        -        4,330
   Foreign currency translation
      adjustment (net of income
      tax benefit of $124)          -         -        -             -       2,205           -        -        2,205
                                                                                                              ------

Total comprehensive income                                                                                     6,535
Exercise of stock options         136,103      27     2,312          -         -            6,000    (213)     2,126
Repurchases of stock                -          -       -             -         -            4,200    (128)      (128)
Issuance of stock options at
   less than fair market value      -          -        179          -         -             -                   179
                                                        ---                                                      ---

BALANCE - DECEMBER 31, 1998    12,933,704   2,587    80,867      75,088     (4,090)     1,235,367  (6,457)   147,995
                                ----------  ------   ------      ------     ------      ---------  ------    -------`

RECOTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

`Accumulated
                                                  Additional                Other                             Total
                                   Common Stock     Paid-In   Retained  Comprehensive    Treasury Stock    Shareholders'
                                 Shares    Amount   Capital   Earnings     Loss         Shares     Amount    Equity
                                --------   ------ ----------  --------- -------------   -------   -------  -------------
BALANCE - DECEMBER 31, 1998
    (BROUGHT FORWARD)          12,933,704  $2,587   $80,867     $75,088    $(4,090)     1,235,367 $(6,457)  $147,995
                                                                                                           --------

Comprehensive income:
 Net loss                         -             -        -      (28,030)         -          -          -     (28,030)
 Foreign currency translation
   adjustment (net of income
   tax benefit of $1,264)         -             -        -           -      (3,468)         -          -      (3,468)
                                                                                                            -------

Total comprehensive loss                                                                                     (31,498)
Exercise of stock options          37,150       7       265          -           -          2,613     (24)       248
Repurchases of stock                   -        -         -          -           -            350      (7)        (7)
Value of common stock
  purchase warrants                    -        -     4,184          -           -           -          -      4,184
                               ----------   -----    ------      ------       ------     --------- -------   -------
BALANCE - DECEMBER 31, 1999    12,970,854   2,594    85,316      47,058     (7,558)     1,238,330  (6,488)   120,922
                                                                                                            -------
Comprehensive income:
 Net loss                                                        (4,836)                                      (4,836)
 Foreign currency translation
   adjustment (net of income
   tax benefit of $780)                                                     (3,308)                           (3,308)
                                                                                                             -------
Total comprehensive loss                                                                                      (8,144)
                                                                                                             -------
Exercise of stock options          15,866       3       110                                 1,000      (9)       104
Value of common stock
  purchase warrants                                     377                                                      377
                               ----------  ------   -------     -------   --------       --------- -------  --------
BALANCE - DECEMBER 31, 2000    12,986,720  $2,597   $85,803     $42,222   $(10,866)      1,239,330 $(6,497) $113,259
                               ==========  ======   =======     =======   ========       ========= =======  ========`

See accompanying notes to the consolidated financial statements.

RECOTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

`Years Ended December 31,
                                                                      -------------------------------------
                                                                        1998         1999          2000
                                                                     -----------   -----------  -----------
Cash flows from operating activities:
   Net income (loss)                                                  $  4,330     $ (28,030)     $(4,836)
                                                                      --------     ---------      -------

Adjustments to reconcile net income (loss)
  to net cash provided by (used in) operating activities:

Depreciation                                                             9,122         9,583        9,046
Amortization of intangibles                                              3,141         3,977        5,093
Amortization of debt discount costs                                          -           677        1,109
Write-off of financing costs relating to
  debt restructuring and refinancing                                         -         7,084        2,014
Provision for (recovery of) losses on accounts receivable                2,743         2,224         (185)
Deferred income taxes                                                      833        (1,744)      (2,151)
Expense applicable to stock options granted at
  prices less than fair market value                                        55             -            -
Provision for U.S. Customs settlement                                   15,000             -            -
Change in asset and liability accounts:
   Accounts receivable                                                 (54,446)      (27,364)      32,790
   Inventories                                                         (18,015)       18,202      (25,161)
   Prepaid and refundable income taxes                                   3,595           151         (126)
   Prepaid expenses and other current assets                            (1,079)          (23)       1,776
   Other assets                                                         (1,044)         (551)        (312)
   Accounts payable and accrued expenses                                 6,586        (1,513)     (17,562)
   Income taxes payable                                                  2,012        (2,018)        (797)
   Other noncurrent liabilities                                             38        (3,786)        (160)
                                                                    ----------      --------      -------
          Total adjustments                                            (31,459)        4,899        5,374
                                                                    ----------      --------       ------
          Net cash provided by (used in)
           operating activities                                        (27,129)      (23,131)         538
                                                                    ----------      --------       ------

Cash flows from investing activities:
  Expenditures for trademarks, patents and
    intellectual property                                                 (196)         (327)        (251)
  Expenditures for property and equipment                              (13,566)       (6,291)      (7,201)
                                                                    ----------      --------       ------
          Net cash used in investing activities                        (13,762)       (6,618)      (7,452)
                                                                    ----------      --------       ------
Cash flows from financing activities:
  Initial proceeds from revolving credit agreement                   $     -         $    -      $146,460
  Net borrowings (repayments) under current
    revolving loan facility                                                -              -        12,322
  Net borrowings (repayments) under previous revolving
    credit agreements                                                   27,526         6,058      (26,999)
  Proceeds from sale of senior notes                                    25,000            -             -
  Proceeds from issuance of senior subordinated notes                      -          35,000       15,000
  Proceeds from long-term bank borrowings                                  -           5,881       50,000
  Repayment of long-term bank borrowings                                (9,438)      (12,093)        (379)
  Repayment of refinanced debt                                             -              -      (191,440)
  Payment of debt financing costs                                         (252)       (4,527)      (9,334)
  Proceeds from exercise of stock options                                1,639           161           62
  Purchases of treasury stock                                             (128)           (7)           -
  Income tax benefit applicable to exercise
    of stock options                                                       487            87           42
                                                                      ---------     ---------   ----------
       Net cash provided by (used in)
         financing activities                                           44,834        30,560       (4,266)
                                                                      ---------     ---------   ----------

Effect of exchange rate changes on cash                                    195          (546)        (372)
                                                                      ---------     ---------   ----------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                       4,138           265      (11,552)

Cash and cash equivalents, beginning of the year                        17,247        21,385       21,650
                                                                      ---------      --------   ----------

CASH AND CASH EQUIVALENTS, END OF THE YEAR                            $ 21,385       $21,650    $  10,098
                                                                      =========       =======    =========

Supplemental disclosures:
  Interest paid                                                       $ 19,056       $25,022    $  32,877
                                                                      ========       =======    =========

  Income taxes paid (refunded)                                        $ (2,512)      $ 5,907    $   2,132
                                                                      ========       =======    =========`

See accompanying notes to the consolidated financial statements.

RECOTON CORPORATION AND SUBSIDIARIES
NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

|NOTE A - | Summary of Significant Accounting Policies:
|-------- | -------------------------------------------

| | Description of Business:
| | ------------------------

| | Recoton
Corporation and Subsidiaries (collectively, the Company) is a
developer, manufacturer and marketer of consumer electronic products generally
for aftermarket use. The Companys products are sold primarily to retailers
located in the United States and Europe. In addition to its domestic facilities,
the Company maintains office and warehouse facilities in Asia, Canada and
Western Europe and manufacturing and assembly facilities in the Peoples
Republic of China.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company classifies its business into three principal segments; the Consumer
Electronics Accessories Business, the Audio Business, and the Video and Computer
Game Business (see Note L for additional information relating to these business
segments).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Principles of Consolidation:
| | ----------------------------

| | The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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,
liabilities, operating results, 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. Actual results could differ
from those estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Translation of Foreign Subsidiaries' Financial Statements:
| | ----------------------------------------------------------

| | The assets and liabilities of the Companys foreign subsidiaries are
translated into United States dollars at year end rates of exchange. Operating
accounts are translated at average rates of exchange during the year. Gains and
losses on translation are reflected as a separate component (accumulated other
comprehensive income) of shareholders equity on the consolidated balance
sheet. Also included in accumulated other comprehensive income are the effects
of exchange rate changes on certain intercompany balances with foreign
subsidiaries which are not intended to be settled on a current
basis.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash and Cash Equivalents:
| | --------------------------

| | Cash equivalents on the balance sheet are comprised of certificates of deposit
with an original maturity of three months or less. Due to the nature and size of
the Company and the volume of its transactions, it maintains certain domestic
cash accounts in excess of FDIC insured limits and cash accounts in foreign
banks, which are not insured by the FDIC.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair Value of Financial Instruments:
| | ------------------------------------

| | In managements opinion, the carrying value at December 31, 1999 and 2000
of the Companys financial instruments approximates their fair values
because they either have short maturities, bear variable interest rates or for
the majority of long-term debt, there have been no significant changes in the
market rates for such debt since it was incurred, restructured or
refinanced.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventories:
| | ------------

| | Inventories are stated at the lower of cost
(first-in, first-out method) or market.
| | -----------------------------------------------------------------------------------

| | Depreciation of Property and Equipment:
| | ---------------------------------------

| | Depreciation is computed over the estimated useful lives of the assets on the
straight-line method. Interest cost associated with financing of construction is
capitalized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Computer Software Costs:
| | ------------------------

| | In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1
requires capitalization of costs of software developed or purchased for internal
use. The Company elected early adoption of the SOP for 1998 which resulted in
the capitalization of software development costs of approximately $405,000. The
after tax effect on net income in 1998 was approximately $221,000 or $.02 per
diluted share.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amortization of Trademarks and Patents:
| | ---------------------------------------

| | Trademarks are being amortized over terms of 5 to 40 years. Patents are being
amortized over the terms of the related patent, or a shorter period, based on
the estimated commercial life of the related product. Accumulated amortization
of trademarks and patents was $3,679,000 and $4,229,000 as of December 31, 1999
and 2000, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill:
| | ---------

| | Goodwill, representing the excess of the purchase price over the fair value of
the net identifiable assets acquired in business combinations treated as
purchases, is being charged to operations on a straight-line basis over periods
of 15 to 30 years. Accumulated amortization of goodwill was $8,453,000 and
$10,655,000 as of December 31, 1999 and 2000, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred Financing Costs:
| | -------------------------

| | Deferred financing costs are being amortized over the life of the related debt
on the straight-line method. Deferred financing costs were $3,312,000 and
$8,392,000 as of December 31, 1999 and 2000, respectively. These costs are
included in Other assets in the consolidated balance
sheet.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Impairment of Long-Lived and Intangible Assets:
| | -----------------------------------------------

| | The Company follows Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be disposed of,which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets carrying amount. In evaluating the fair value and
future benefits of long-lived assets, the Company performs an analysis of the
anticipated undiscounted future net cash flows of the related long-lived assets
and reduces their carrying value by the excess, if any, of the result of such
calculation. Management believes that after the 1999 adjustment for impairment
disclosed in Note K, the carrying value and useful lives of these assets
continue to be appropriate.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sales Recognition:
| | ------------------

| | Sales are recognized when the product is shipped and all significant obligations
of the Company have been satisfied. The customer takes title and assumes the
risks and rewards of ownership of the products when the merchandise leaves the
Companys warehouse. Provisions are made for anticipated discounts, returns
and allowances. The Company incurred bad debt expense of $2,743,000 for the year
ended December 31, 1998, $2,224,000 for the year ended December 31, 1999, and
had net bad debt recoveries of $185,000 for the year ended December 31, 2000.
Additionally, the Company incurred write-offs of uncollectible accounts, net of
recoveries, of $1,600,000 for the year ended December 31, 1998, $2,448,000 for
the year ended December 31, 1999 and $1,246,000 for the year ended December 31,
2000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Shipping and Handling Costs:
| | ----------------------------

| | Shipping and handling costs include all direct costs to deliver inventory to
customers. Such amounts, which are included in selling, general and
administrative expenses in the statements of operations, aggregated
approximately $26,771,000 in 1998, $27,304,000 in 1999 and $26,547,000
in 2000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Advertising costs:
| | ------------------

| | Advertising expenses are charged to operations at the time the advertising first
takes place. Advertising expense charged to operations aggregated approximately
$5,847,000 in 1998, $6,932,000 in 1999 and $7,100,000 in 2000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Research and Development:
| | -------------------------

| | Research and development costs for new products aggregated approximately
$6,034,000 in 1998, $5,930,000 in 1999 and $6,100,000 in 2000.
| | ---------------------------------------------------------------------------------------------------------------------------------------



| | Income Per Share:
| | -----------------

| | Basic income (loss) per share amounts are computed using the weighted average
common shares outstanding for the period, without regard to outstanding stock
options, warrants or other potentially dilutive securities or contingent stock
issuances. Diluted earnings per share reflect the dilution that would have
occurred if potential dilutive securities were exercised (after application of
the treasury stock method) and contingent stock issuances were made.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For the year ended December 31, 1998, the number of shares used to compute the
diluted per share amounts included an additional 523,000 shares representing the
dilutive effect of outstanding stock options. For the years ended December 31,
1999 and 2000, the effect of outstanding options and warrants was anti-dilutive
and, therefore, omitted from the per share computations. (See note F for options
outstanding)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comprehensive Income:
| | ---------------------

| | Comprehensive income, representing the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources, includes all changes in equity except those resulting from
investments by owners and distributions to owners. To date, the Companys
comprehensive income has been comprised of net income and foreign currency
translation adjustments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign Exchange Contracts:
| | ---------------------------

| | Gains and losses on foreign exchange forward contracts that are
designated as hedges are deferred and included in other liabilities or other
receivables, respectively. While these instruments are subject to risk of loss
from change in exchange rates, these losses would generally be offset by gains
on the related exposures. Periodically, the Company has entered into various
types of foreign currency agreements, but does not have any significant holding
in, nor issue, financial instruments for trading and speculative purposes. The
Company uses foreign exchange forward contracts to hedge risk of changes in
foreign currency exchange rates associated with firm commitments of less than
one year that are denominated in foreign currency.
At December 31, 2000 a German subsidiary of the Company had forward foreign
exchange contracts to acquire the $1.5 million which expire through 2001. Such
contracts were entered into in order to hedge future purchases. The carrying
value of these contracts approximates their fair value.
The forward exchange contracts have little credit risk as the counter-parties in
each case are principally large banks with high credit ratings. Such fair values
were determined by the Company based upon available market information and
appropriate valuation methodologies and accordingly may not be indicative of the
amounts the Company would realize in a current market exchange.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Derivative Instruments and Hedging Activities:
| | ----------------------------------------------

| | In June 1998, Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS 133) was issued. In June 2000, Statement of Financial
Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133
(SFAS 138) was issued. SFAS 133 and SFAS 138 address the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. The Company is required to adopt
SFAS133 and SFAS 138 in the first quarter of 2001. The Company anticipates that
the adoption of SFAS 133 and SFAS 138 as of January 1, 2001 will not have a
material effect on its financial position or results of operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Transfers and Servicing of Financial Assets and
Extinguishing of Liabilities:
| | -----------------------------------------------------------------------------

| | In September 2000, Statement of Financial Accounting Standards No.
140,Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS 140) was issued. SFAS 140
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities.SFAS 140 is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transaction and collateral for fiscal years ending
after December 15, 2000 and is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The adoption of SFAS 140 did not have a material impact on the 2000
financial position or results of operations and the Company anticipates that the
additional provisions of SFAS 140 effective in the first quarter of 2001 will
not have a material effect on its financial position or results of
operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE B- | Inventories:
|------- | ------------

| | Inventories are summarized as follows:
| | --------------------------------------

`(In Thousands)
                                                         As of December 31,
                                                     ------------------------
                                                         1999          2000
                                                     -----------    -----------

           Raw materials and work-in-process           $  27,776      $  30,887
           Finished goods                                 99,391        120,621
           Merchandise in-transit                         13,813         13,088
                                                      ----------    -----------

              Totals                                    $140,980       $164,596
                                                        ========       ========`

|NOTE C- | Property and Equipment:
|------- | -----------------------

| | Property and equipment are summarized as follows:
| | -------------------------------------------------

`(In Thousands)       Estimated
                                                           As of December 31,    Useful Life
                                                        ----------------------
                                                          1999          2000        (Years)
                                                       ----------    -----------  -------------

           Land                                         $  3,185      $  3,185
           Buildings, leaseholds and improvements         21,561        21,669     10 - 40
           Machinery and equipment                        13,481        14,743      3 - 10
           Furniture, fixtures and office equipment       19,316        22,466      5 - 10
           Tools and dies                                 21,178        21,371      2 - 10
                                                        --------    ----------

                    Totals                                78,721        83,434

           Less accumulated depreciation
              and amortization                            41,529        48,148
                                                         --------      --------

                                                         $37,192       $35,286
                                                         =======       =======`

|NOTE D- | Long-Term Debt:
|------- | ---------------

| | Long-term debt included in the consolidated balance
sheets is summarized as follows:
| | ------------------------------------------------------------------------------------

`(In Thousands)
                                                                  As of December 31,
                                                              ------------------------
                                                                    1999          2000
                                                                 ----------    ----------
           Subordinated notes (1)                                 $  35,000      $ 50,000
           Revolving loans (2)                                           -        158,782
           Senior term loans (3)                                         -         50,000
           Senior notes, term loans, mortgages and credit
            facility loans refinanced in October 2000 (4)           218,644            -
           Other                                                        258           186
                                                                 ----------    ----------
                Total                                               253,902       258,968

           Less unamortized debt discount                            (3,507)       (3,060)
                                                                 ----------     ---------
                Balance                                             250,395       255,908

           Less current portion                                     (14,656)      (11,994)
                                                                 ----------     ---------

                Noncurrent portion                                 $235,739      $243,914
                                                                 ==========     =========`

| | A substantial portion of the Companys outstanding debt at December 31,
2000 is comprised of the proceeds of the October 31, 2000 $235 million
Senior Loan Agreement which provides for a three year revolving loan
and letter of credit facility of up to $185 million and three term loans
aggregating $50 million, of which $15 million is payable through October 31,
2002 and $35 million is payable through October 31, 2003. Additionally, on
October 31, 2000, the Company entered into the Subordinated Loan
Agreement with its then existing senior lenders which provides for an
additional $15 million loan due on October 31, 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Approximately $191.4 million of the funds obtained from the October 31, 2000
loan transactions were used to repay the then outstanding borrowings resulting
from the Companys September 1999 Debt Restructuring and other outstanding
loans.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As a result of the October 2000 debt refinancing and the extinguishment of the
loans payable pursuant to the prior years Debt Restructuring, the Company
recorded an extraordinary charge in 2000 of approximately $3 million, net of a
tax benefit of $1.6 million, representing the final adjustment to the
yield-maintenance fee payable caused by the further acceleration of the debt
repayment date and the write-off of unamortized debt discount and financing
costs associated with the repaid debt.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In addition, on October 31, 2000, the Companys German subsidiaries entered
into a 50 million Deutsche Mark annually renewable revolving credit facility
(equal to approximately $24 million at December 31, 2000) of which approximately
$16 million was outstanding at December 31, 2000. The facility, in
part, supports a $13 million letter of credit issued in favor of the senior debt
holders as security for the loans under the Senior Loan Agreement. Borrowings
under the facility bear interest at 2.5% over the Euro LIBOR rate (approximately
7.3% at December 31, 2000).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The outstanding borrowings under the Senior Loan Agreement and Subordinated Loan
Agreement at December 31, 2000 are collateralized by substantially all of the
operating assets of the Company and its subsidiaries in the United States and
Canada and a pledge of 65% of the capital stock of the Companys first tier foreign
subsidiaries.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The loan agreements provide for, among other things, the maintenance of various
specified financial ratios and minimum tangible net worth requirements (as
defined), contain limitations and restrictions on additional borrowings, the
payment of dividends, repurchases of the Companys common stock, engaging
in business not directly related to the consumer electronics industry,
investments, mergers and sales of the Companys assets, other than in the
ordinary course of business (as defined). The Company was in compliance with
these covenants as of December 31, 2000 and management believes it will be
in compliance through 2001.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1) | Notes of $15 million payable on October 31, 2003 bear interest at 5.75% over the
greater of the prime rate or the federal funds rate plus .50% (15.25% at
December 31, 2000) while notes of $35 million, payable on February 4, 2004
currently bear interest at 16.5% a year.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Provides for up to $185 million for loans and letters of credit to October 31,
2003 with advances limited to 80% of eligible accounts receivable and 65% of
eligible inventory and amounts collateralized by letters of credit under the
German facility. Advances equal to an additional 5% of eligible inventory (up to
$10 million) are available during in season periods. Total amounts
advanced for inventories are limited to $130 million. The lenders may decrease
the foregoing advance rates at their option. Interest is payable at the
Companys option at either 2.50% over LIBOR or .75% over the greater of the
prime rate or the federal funds rate plus .50% (weighted average rate of 9.38%
on outstanding borrowings at December 31, 2000).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Loans of $15 million are payable $1.875 million quarterly through October 31,
2002. Interest on these loans is payable, at the Companys option, at
either 5.00% over LIBOR or 3.25% over the greater of prime or the federal funds
rate plus .50% (weighted average rate of 11.88% at December 31, 2000). Loans of
$20 million are payable $.5 million quarterly through June 30, 2003, with a
final payment of $14.5 million on October 31, 2003. Interest on these loans is
payable, at the Companys option, at either 2.75% over LIBOR or 1% over the
greater of prime or the federal funds rate plus .50% (weighted average interest
rate of 9.53% at December 31, 2000). For the remaining $15 million of loans, the
first principal payment (based on an amount, of the outstanding revolving loans
at that date, as defined) is due on October 31, 2002, with the balance payable
in twelve equal monthly installments. These loans bear interest at 3% over the
greater of prime or .50% over the federal funds rate (12.5% at December 31,
2000).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | In September 1999, the Company entered into a Master Restructuring Agreement
(Debt Restructuring) with its banks and senior note holders. As a
result of the Debt Restructuring, the bank credit facility, with an outstanding
balance of $74.6 million, was modified whereby no new borrowings were allowable,
repayments made by the Company were not available for reborrowing and the due
date was extended to June 30, 2001. The Debt Restructuring provided for a
$50 million revolving credit agreement with the bank and senior note holders,
expiring in June 2001. In addition, a new term loan of approximately $5.9
million was made to the Company, the proceeds of which were used to repay two
existing term loans. The new term loan was combined with a remaining term loan
to form a single loan aggregating $14.6 million, payable on June 30, 2001. (see
2000 refinancing above)
The Debt Restructuring included the modification of the terms of the senior
notes payable, which aggregated $100 million, including the acceleration of
their maturity to June 30, 2001 and a 3% increase in the interest rates. As a
result of the accelerated maturity, the senior note holders became entitled to
receive a yield-maintenance fee (as defined). For financial
accounting purposes, the modification of the senior notes was treated as
creating a substantially different instrument with the result that the
previously outstanding senior notes were considered to be extinguished and the
notes with the revised terms were considered as new debt. Accordingly, the
Company recorded an extraordinary charge in 1999 of approximately $8.8 million
consisting of the then present value of the yield-maintenance fee of
approximately $7.1 million (computed based on interest rates in effect as of the
date of the restructuring), the write-off of unamortized original debt issue
costs of approximately $1 million and approximately $700,000 of other fees paid
to the note holders.
In connection with the 1999 Debt Restructuring, the Company paid the
lenders fees of approximately $1,875,000, which were being amortized over
the life of the related debt and the Company issued warrants to purchase 275,000
shares of the Companys common shares, of which 250,000 with a fair value
of $874,000 were issued in 1999 and 25,000 with a fair value of $243,000 were
issued in 2000. The fair value of the warrants was recorded as debt discount
cost and was being amortized over the life of the related debt.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The noncurrent portion of long-term debt outstanding at December 31, 2000
(before debt discount) is payable approximately $10.1 million in 2002, $201.8
million in 2003 and $35 million in 2004.
Outstanding letters of credit under the domestic and foreign lines aggregated
approximately $15.2 million at December 31, 2000. Such amounts reduce the
amounts available for direct borrowings under the lines.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE E- | Shareholders Equity:
|------- | ---------------------

| | The Recoton Corporation Stock Bonus Plan provides for the issuance to officers
and key employees an aggregate of up to 300,000 shares of stock held in
treasury, of which 261,396 shares are available for future grants at December
31, 2000. Such plan is administered by a committee of the Board of Directors.
Awards under the plan are charged to operations based on the fair market value
of the shares at the date of issuance.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In previous years the Board of Directors authorized the repurchase by the
Company of up to 500,000 of its outstanding common shares. Through December 31,
2000, the Company has repurchased 48,352 shares. Future repurchases of shares
are limited under the terms of the Companys loan agreements (see Note
D).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Companys shareholders rights plan becomes operative in certain
events involving the acquisition of 20% or more of the Companys common
shares or the commencement of a tender or exchange offer by any person or group
in a transaction not approved by the Companys Board of Directors. Upon the
occurrence of such an event, each right, unless redeemed by the Board at a
redemption price of $0.01 per right, entitles its holder to purchase for $100 an
amount of common shares of the Company, or in certain circumstances the
acquirer, having a market value of twice the purchase price. The Company has
reserved 250,000 Series A Junior Participating Preferred Shares in connection
with the rights plan.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In connection with the exercise of incentive stock
options, in 1998 15,500 common shares were issued in exchange for 6,000
previously issued common shares with a market value of approximately $213,000,
plus cash of approximately $15,000. In 1999, 21,334 common shares were issued in
exchange for 2,613 shares of previously issued common shares with a market value
of $24,000 and in 2000, 8,000 common shares were issued in exchange for 1,000
shares of previously issued common shares with a market value of $9,000. Other
transactions with respect to stock options are described in Note F.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In connection with the sale of senior subordinated notes in February 1999, the
Company issued 310,000 common stock purchase warrants with an initial fair value
of $2,491,000 immediately exercisable at $18.26 a share and which expire in
February 2004. Pursuant to the Debt Restructuring in September 1999 (see Note
D), the exercise price was reduced to $7.77 a share which increased the fair
value by approximately $469,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In September 1999, pursuant to the Debt
Restructuring (see Note D), the Company issued warrants to purchase 350,000 of
the Companys common shares with a fair value of $1,224,000, which are
immediately exercisable at $7.77 a share and which expire in September
2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In October 2000, the Company issued warrants to its former senior lenders (see
Note D) to purchase 25,000 common shares with a fair value of $243,000, which
are immediately exercisable at $14.88 a shares and expire in October
2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant to the debt refinancing in October 2000, the Company issued warrants to
purchase 25,000 common shares with a fair value of $134,000, which are
immediately exercisable at $13.28 a share and expire in October
2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The fair value of the warrants issued was estimated using the Black-Scholes
option pricing model using approximately the same expected volatilities and
average risk free interest rates as described in Note F and average expected
holding periods of 5 years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE F - | Stock Options:
|-------- | --------------

| | At December 31, 2000, the Company has two stock option plans. Options are
outstanding to purchase 1,581,802 shares under the 1991 Stock Option Plan. No
additional options are available for grant under this plan. The Companys
1998 Stock Option Plan provides for the granting of options to purchase up to
2,500,000 common shares. Such options may be either incentive stock options (as
defined in the Internal Revenue Code) or nonqualified options. At December 31,
2000, options to purchase 1,643,900 shares are available for grant under this
plan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | An employment agreement with Mr. Robert Borchardt, the Companys President,
Chairman of the Board and Chief Executive Officer, provides for the granting of
nonqualified options each year for the duration of the agreement based on a
formula related to annual increases in consolidated net income, as defined.
Pursuant to the agreement, options to purchase 130,975 shares were granted in
1998 applicable to the Companys 1997 operations. No options were granted
in connection with the Companys subsequent years
operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Also, at December 31, 2000, there are non-plan nonqualified options outstanding
to purchase an aggregate of 28,250 shares of common stock, of which options to
purchase 7,500 shares at $20.67 a share were granted to a director of the
Company. The non-plan options also include options to purchase 10,000 common
shares at a price of $13.50 a share granted to certain non-U.S. employees in
1998. The $55,000 difference between the aggregate option price and the fair
market value of the Companys shares at the date of issuance of the options
was charged to operations and credited to additional paid-in capital in 1998.
Additionally, in 1998 the Company issued to a consulting firm a non-plan option
to purchase 10,000 common shares for $25.50 a share. The $124,000 fair value of
the options at the date of grant was credited to additional paid-in capital in
1998 and is being amortized to operations over the term of the consulting
agreement, which expires in January 2001.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The length, vesting schedule, option price and other terms of the options are
determined at the time each option is granted, although the term of plan options
cannot exceed 10 years and incentive stock option prices may not be less than
the fair market value of the stock on date of grant. Since all outstanding plan
options to officers and employees were granted for at least the fair market
value of the Companys shares at the dates of grant and are considered
fixed plan options, no charge has been made to operations for these options. No
income tax benefit is received by the Company upon the granting or exercise of
incentive stock options but it may receive income tax benefits from nonqualified
stock options when they are exercised and from certain incentive stock options
if the shares are resold within one year of exercise. Such income tax benefits
are credited to additional paid-in capital when realized.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock
Based Compensation, for stock options granted to employees, officers and
directors and, therefore, continues to apply Accounting Principles Board Opinion
No. 25 and related interpretations in its accounting for stock option plans.
Accordingly, no compensation cost has been recognized for options granted under
its stock option plans. If the Company had elected to recognize compensation
cost for options granted under these plans based on their fair values at the
grant dates, consistent with the method of SFAS No. 123, the pro forma net
income (loss) and income (loss) per share would be as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Years Ended December 31,
                                            ------------------------------------
                                              1998        1999         2000
                                            --------     --------    -----------
                                                 (In thousands, except per
                                                   share information)
           Net income (loss):
             As reported                    $4,330    $(28,030)      $(4,836)
             Pro forma                       1,245     (29,273)       (7,164)
           Income (loss) per share:
             Basic:
             As reported                      $.37      $(2.39)        $(.41)
             Pro forma                         .11       (2.50)         (.61)
           As diluted:
             As reported                      $.36      $(2.39)        $(.41)
             Pro forma                         .10       (2.50)         (.61)`

| | The fair value of each option grant is estimated on the date of each grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`1998        1999         2000
                                             --------   ----------   ---------

         Expected volatility                  47.2%       57.4%        59.5%
         Average risk-free interest rate       5.6%        6.3          6.0%
         Average expected holding period,
           in years                              7           6            6`

| | A summary of the status of the Companys outstanding stock options as of
December 31, 1998, 1999 and 2000 and changes during the years then ended is
presented below:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Years Ended December 31,
                               --------------------------------------------------------------------------
                                        1998                      1999                      2000
                               -----------------------    ----------------------   ----------------------
                                            Weighted                  Weighted               Weighted
                                            Average                   Average                 Average
                                            Exercise                   Exercise              Exercise
                                 Shares      Price        Shares        Price      Shares     Price
          Stock Options          (000's)    Per Share     (000's)     Per Share    (000's)   Per Share
   --------------------------    -------    ---------    --------    ----------   -------   ---------

   Outstanding at beginning
     of year                      1,346       $13.26       1,835        $14.06       2,522      $12.00
   Granted                          662        15.92         836          7.47          65       11.41
   Exercised                       (136)       13.61         (37)         4.99         (16)       3.31
   Forfeited/expired                (37)       19.75        (112)        14.15        (105)      10.11
                                  -----       ------       -----        ------       -----      ------

   Outstanding at end of year     1,835       $14.06       2,522        $12.00       2,466      $12.13
                                  =====       ======       =====        ======       =====      ======

   Exercisable at year end        1,075       $13.25       1,246        $13.70       1,649      $12.98
                                  =====       ======       =====        ======       =====      ======

   Weighted - average fair
     value of options granted
     during the year                         $  8.95                   $  4.42                 $  7.03
                                             =======                   =======                 =======`

|NOTE F - | The following table summarizes information about
stock options outstanding at December 31, 2000:
|-------- | ------------------------------------------------------------------------------------------------

`Options Outstanding               Options Exercisable
                                      ---------------------------------------     --------------------
                                                    Weighted        Weighted                  Weighted
                                                     Average         Average                   Average
                                                    Remaining       Exercise                  Exercise
                    Range of          Shares       Contractual        Price       Shares       Price
                 Exercise Prices      (000's)         Life          Per Share     (000's)     Per Share
              -------------------     -------     --------------    ---------     -------     ---------

              $  3.33                     149        .8 years         $ 3.33          149       $  3.33
                 7.44   to 10.44          796       8.9 years           7.52          266          7.45
                 11.06  to 16.75        1,298       5.5 years          14.40        1,080         14.59
                 18.07  to 25.50          223       6.1 years          21.19          154         20.59
                                       ------                                      ------

                        Totals          2,466                                       1,649
                                        =====                                       =====`

|NOTE G - | Income Taxes:
|-------- | -------------

| | Income taxes applicable to income (loss) before extraordinary items on the
statements of operations are comprised of the following:
| | -----------------------------------------------------------------------------------------------------------------------------------

`(In Thousands)
                                                 Years Ended December 31,
                                          -------------------------------------
                                             1998          1999          2000
                                          ----------    ----------   ----------

     Currently payable (refundable):
         Federal                           $     273       $   867     $     16
         State and local                         (61)         (116)         (74)
         Foreign                               3,791         4,069        1,382
                                            --------       -------      -------

               Totals                          4,003         4,820        1,324

     Deferred                                    833        (1,744)        (530)
                                            --------       -------     --------

               Net provision                  $4,836        $3,076     $    794
                                              ======        ======     ========`

| | Pretax income (loss) before extraordinary items was derived from foreign and
domestic sources as follows:
| | ---------------------------------------------------------------------------------------------------------

`(In Thousands)
                                                 Years Ended December 31,
                                          ------------------------------------
                                             1998          1999          2000
                                          ----------    ----------   ---------

                Foreign                   $ 34,344      $ 11,032      $   (299)
                Domestic                   (25,178)      (27,221)         (790)
                                           -------       -------      --------

                         Totals           $  9,166      $(16,189)     $ (1,089)
                                          ========      ========      ========`

| | The following table reconciles statutory U.S. federal income taxes on the
Companys income (loss) before income taxes and extraordinary item to the
Companys actual income tax provision (benefit):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`(Dollar Amounts in Thousands)
                                                             Years Ended December 31,
                                     ---------------------------------------------------------------------
                                               1998                 1999                 2000
                                       --------------------  -------------------- ------------------------
                                         Rate       Amount     Rate      Amount      Rate         Amount
                                       ---------   -------    -------   --------   ---------     --------

    Statutory U.S. Federal income
       tax provision (benefit)           34.0%      $ 3,116   (34.0)%    $(5,504)   (34.0%)   $   (370)
    Effect of:
       State and local income
          tax provision (benefit)
          (net of federal effect)         2.1           187    (4.8)        (769)    (7.8)         (85)
       Difference between U.S.
          and foreign income tax
          rates on earnings and
          distributions of foreign
          subsidiaries                  (59.6)       (5,463)  104.7       16,959    498.3        5,428
       Foreign and other income
          tax credits                                         (65.1)     (10,543)  (903.1)      (9,839)
       Provision for expected U.S.
         Customs settlement              53.3         4,889    (8.6)      (1,394)
       Valuation reserves on
         deferred tax assets             15.5         1,419     7.3        1,175    472.4        5,147
       Alternative minimum tax                                  5.9          950
       Other items (net)                  7.5           688    13.6        2,202     47.0          513
                                         ----       -------    ----      -------  -------      -------
    Actual income tax
       provision                         52.8%      $ 4,836    19.0%     $ 3,076     72.8%     $   794
                                         ====       =======    ====      =======  =======      =======`

| | The earnings from the Companys Asian operations are taxed locally at a
current maximum tax rate of 16%. However, the effective tax rate from Asian
operations has been dependent on the proportion of earnings from mainland China.
Since January 1996, a subsidiary of the Company with manufacturing operations in
mainland China was granted a five year tax holiday, comprised of a
full exemption from income taxes for the first two years and a 50% reduction
from the statutory 15% tax rate for the next three years which ended on December
31, 2000. As a result of the tax holiday, the Company has saved an aggregate of
$7,890,000 in income taxes. The savings on a diluted per share basis were $.20
in 1998 and $.04 in 1999 and nil in 2000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 1998, no determination had been made as to what portion of the
expected settlement with the U.S. Customs Service might be deductible for income
tax purposes (see Note J). Accordingly, no deduction was made for this item in
the computation of income taxes for 1998. In accordance with the terms of the
settlement in 1999, $4.1 million was tax deductible and the resulting income tax
benefit was included with the 1999 income tax provision.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Before 1999, the Company did not provide for additional U.S. income taxes which
would be payable upon the payment of dividends from its Hong Kong subsidiaries,
because the earnings of these subsidiaries were considered indefinitely
invested. However, as a result of business requirements of its domestic
operations caused in part from the provisions of the 1999 Debt Restructuring
agreement (Note D), in 1999 the Company repatriated $41 million of such
earnings, of which $18.8 million was previously taxed as U.S. Sub-part F income
and in 2000, the Company repatriated an additional $7.8 million of earnings. At
December 31, 2000, additional taxes would aggregate approximately $15.8
million based on the Hong Kong subsidiaries remaining undistributed
earnings which aggregate approximately $59 million for income tax purposes. The
foregoing amounts are stated net of U.S. Sub-Part F taxes paid, or payable,
which are considered the equivalent of repatriated earnings. The Companys
effective income tax rate on future earnings from Hong Kong and additional U.S.
income taxes on the Hong Kong retained earnings at December 31, 2000 are, in
part, dependent upon the Companys future domestic cash requirements. While
the Company currently projects that its Hong Kong retained earnings at December
31, 2000 will remain indefinitely invested, such estimate continues to be
subject to future revision based upon general economic conditions and market
conditions in the consumer electronics industry.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred tax assets and liabilities and the principal temporary differences from
which they arise are:
| | ------------------------------------------------------------------------------------------------------

`(In Thousands)
                                                                                     December 31,
                                                                               ------------------------
                                                                                   1999          2000
                                                                               ----------    ----------
         Deferred tax assets:
            Allowance for estimated doubtful accounts and
              estimated sales returns, allowances and discounts                  $2,792       $  1,818
            Tax basis adjustments to inventory                                    6,171          4,500
            Deferred compensation accruals                                          633            745
            Difference in basis and amortization periods of patents,
              trademarks and package design costs                                 2,128          1,731
            Cumulative foreign translation adjustment                             2,054          2,840
            Debt restructuring costs                                              2,209
            Net operating loss and tax credit carryforwards                      11,671         23,295
            Other                                                                   784            399
                                                                                -------       --------

                   Total                                                         28,442         35,328

            Less valuation allowance                                             (4,395)        (9,542)
                                                                                -------       --------

                   Total deferred tax assets                                     24,047         25,786
                                                                                -------        -------

         Deferred tax liabilities:
           Accelerated depreciation of property and equipment                     1,028            245
           Tax basis adjustments to prepaid catalog costs                           193            121
                                                                                -------       --------

                   Total deferred tax liabilities                                 1,221            366
                                                                                -------       --------

                   Net deferred tax assets                                      $22,826        $25,420
                                                                                =======       ========

         The increase in the valuation allowance is analyzed as follows:

           Foreign tax credit carryforwards                                                   $  4,250
           Foreign net operating loss carryforwards                                                228
           Net adjustment of loss carryforwards and
            other items related to 1996 Jensen acquisition                                         543
           Other                                                                                   126
                                                                                              --------

                   Total                                                                      $  5,147
                                                                                              ========`

| | The Company has net operating loss carryforwards in the United Kingdom of
approximately $7.4 million, which are available to be applied against future
earnings in the United Kingdom. Additionally, at December 31, 2000, the Company
has a domestic net operating loss carryforward of approximately $3.2 million
expiring in 2020 and tax credit carryforwards of approximately $15.5 million of
which approximately $12.4 million expire in 2004 and the balance expires between
2005 and 2019. The Company has recorded a deferred tax asset for the tax benefit
of the foregoing carryforwards and a valuation allowance for the tax benefit of
such carryforwards which it estimates is not likely to be realized prior to
expiration. If the amount subject to valuation allowance attributable to
preacquisition loss carryforwards of acquired businesses is subsequently
realized, the income tax benefit will be recorded as a reduction of the then
unamortized goodwill related to the acquisition.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE H - | Employee Benefit Plans:
|-------- | -----------------------

| | The Companys profit sharing plans for eligible domestic nonunion employees
provide for annual contributions as authorized by the Board of Directors of up
to the maximum allowable as a tax deduction by the Treasury Department. Profit
sharing expense was approximately $400,000 in 1998, $434,000 in 1999 and
$400,000 in 2000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE I - | Commitments and Contingencies:Leases:
|-------- | -------------------------------------

| | Aggregate
minimum rental payments under long-term leases of premises which expire at
various dates through 2013 are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------

`Year ending December 31:                 (In Thousands)
                    2001                                 $       4,648
                    2002                                         3,502
                    2003                                         2,257
                    2004                                         1,901
                    2005                                         1,707
                Subsequent to December 31, 2005                  7,546
                                                         -------------

                    Total                                $      21,561
                                                         =============`

| | Rent expense was $6,312,000 in 1998, $5,806,000 in 1999 and $6,390,000 in 2000.
| | -------------------------------------------------------------------------------

|NOTE I - | Commitments and Contingencies:Employment Agreement:
|-------- | ---------------------------------------------------

| | The Companys employment agreement with Mr. Robert Borchardt, the
Companys President, Chairman of the Board and Chief Executive Officer,
provides for a base annual salary ($1,137,000 for 2000) to be increased annually
by the greater of 6% or the change in the consumer price index, and annual
bonuses and nonqualified stock option grants based on formulas related to annual
increases in the consolidated net income of the Company. The agreement
terminates on December 31, 2004 and is automatically renewable for
successive two year periods. If an election is made not to renew the agreement,
Mr. Borchardt may thereafter be retained as a consultant to the Company for
life.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In connection with certain business acquisitions and the formation of new
subsidiaries in prior years, the Company entered into employment agreements with
certain key employees, which expire at various times through November 2002. The
agreements provide for specified annual salaries. Certain agreements include
provisions for annual increases based on changes in consumer price indexes and
provide for performance based bonuses relating to the results of operations of
the acquired entity or newly formed subsidiary, which are payable in either
cash, stock or a combination thereof at the Companys option.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Legal Proceedings:
| | ------------------

| | Various suits and claims arising in the course of business are pending against
the Company. In the opinion of management, dispositions of these matters are not
expected to materially affect the Companys consolidated financial
position, cash flows or results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE J - | Customs Settlement:
|-------- | -------------------

| | In 1998, the Company recorded a provision of $15 million for the expected
settlement and related fees and costs relating to an ongoing investigation by
the U.S. Customs Service and the U.S. Attorneys Office in Orlando, Florida
which began in 1994.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The agreements with the United States Customs Service and the United States
Attorneys Office for the Middle District of Florida entered into in 1999
settled the matter with the Company entering a guilty plea to a number of counts
involving country of origin mismarkings and undervaluation of imports and
agreeing to pay $14 million in varying installments through October 31, 2002,
including interest at 7% a year. The $4.7 million outstanding liability at
December 31, 2000 is comprised of $2.5 million due in 2001 and $2.2 million
due in 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE K - | Business Restructuring and Related Costs:
|-------- | -----------------------------------------

| | In September 1999, the Company adopted a strategic business plan designed to
improve operating efficiencies, increase future profitability, improve cash flow
and increase the return on assets through a combination of staff reductions,
consolidation of certain businesses, reduction or elimination of certain product
lines and sales of certain assets. The results of operations for the year ended
December 31, 1999 reflect a restructuring charge of approximately $3.4 million,
which includes approximately $2.2 million for severance benefits associated with
the elimination of positions and approximately $1.2 million primarily relating
to lease terminations and related costs. Amounts charged against the reserve
aggregated approximately $1.6 million in 1999 and approximately $1.5 million in
2000. The remaining accrued balance at December 31, 2000, aggregating
approximately $294,000, relates primarily to unpaid severance
installments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In connection with the plan, the Company also recorded and included in cost of
sales approximately $8.3 million of inventory write-downs relating to products
to be reduced or eliminated. Additionally, in 1999 the Company recorded and
included in selling, general and administrative expenses other charges totaling
approximately $5.8 million applicable to the value of assets to be sold, the
valuation of related receivables and other assets and the costs of developing
the plan.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE L - | Segment Information and Geographical Data:
|-------- | ------------------------------------------

| | The Company operates three business segments, as follows:
| | ---------------------------------------------------------

| | Consumer Electronics Accessories Business - Consists of the
accessories operations of Recoton Corporation and certain other
subsidiaries. Products sold include 900 MHz and other wireless technology
products and other consumer electronic accessories.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Audio Business - Consists of the home and mobile audio business of
Recoton Audio Corporation and its United States and European subsidiaries.
Products sold include high-performance and home theater loudspeaker systems and
mobile audio products.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Video and Computer Game Business - Consists of the manufacturing
operations of STD Holdings Limited and its Hong Kong and other Chinese
subsidiaries and the sale and distribution of peripherals and other accessories
to enhance the enjoyment of playing video and computer games. This segment also
manufactures certain products sold by the Companys other business
segments. The profits on these products have been allocated to the other
segments.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each segments earnings before corporate interest and income taxes are
reported to the Companys chief operating decision-makers. General
corporate expenses other than certain interest costs are allocated to each
segment on the basis used for internal management decision making purposes;
certain interest expense, the 1998 provision for the U.S. Customs settlement and
assets jointly utilized by more than one business segment are reflected as
unallocated corporate in the following presentation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table presents certain operating segment information:
| | -------------------------------------------------------------------

`(In Thousands)
                                        --------------------------------------------------------------
                                                                                                                                      ---------
                                         Consumer                  Video and
                                         Electronics               Computer
                                         Accessories  Audio        Game       Unallocated
                                         Business     Business     Business   Corporate      Total
                                         ---------   ---------    ---------   ---------    ---------
          1998:
          ----
            Net sales:
             External customers           $222,362    $237,253     $243,923   $    --       $703,538
             Intersegment                      343       1,748       34,962        --         37,053
            Interest expense                 1,071         747          500      16,663       18,981
            Depreciation and
               amortization                  4,327       4,024        3,599         313       12,263
            Provision for U.S.
               Customs settlement             --          --           --        15,000       15,000
            Income (loss) before
             income taxes and
               extraordinary item           14,503        (817)      27,456     (31,976)       9,166
            Identifiable assets            104,293     171,520      157,476      49,794      483,083
            Property and equipment
               additions                     1,639       4,200        4,586       3,141       13,566

          1999:
          ----
            Net sales:
              External customers          $222,453    $254,909     $232,888   $    --       $710,250
              Intersegment                     419       3,290       36,381        --         40,090
            Interest expense                   489         630          439      24,909       26,467
            Depreciation and
                amortization                 3,814       4,264        4,186       1,296       13,560
            Restructuring charge               690       2,654         --           100        3,444
            Income (loss) before
                income taxes and
               extraordinary item            7,626      (5,348)       9,339     (27,806)     (16,189)
            Identifiable assets            100,785     161,107      152,888      70,547      485,327
            Property and equipment
               additions                       309         902        2,599       2,481        6,291

           2000:
           -----
            Net sales:
              External customers         $ 231,671   $ 239,980     $177,644   $       -     $649,295
              Intersegment                      65       1,168        6,592           -        7,825
              Interest expense                 222         758          689      34,210       35,879
              Depreciation and
                amortization                 3,343       3,950        4,516       2,330       14,139
              Income (loss) before
                income taxes and
                extraordinary item          30,804      17,294      (13,134)    (36,053)      (1,089)
              Identifiable assets           94,327     157,030      142,862      69,292      463,511
              Property and equipment
                additions                      200         333        3,815       2,853        7,201`

| | In 1998 and 1999, sales to one customer represented approximately 17% and 17% of
consolidated net sales, respectively. In 2000, sales to two customers
represented 19% and 11%, respectively. In all three years, sales to these
customers were made by each of the Companys reportable business segments.
Revenue from export sales from the United States was less than 10% of
consolidated net sales in each of the three years ended December 31, 2000. The
Company currently sources certain products from single suppliers. However, to
lessen the risks of off-shore manufacturing, the Company maintains substantial
inventories of long-lead-time items and continually evaluates alternative supply
sources.
Net sales to customers and long-lived tangible assets by geographic area are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`(In Thousands)
                                                              Years Ended December 31,
                                                    --------------------------------------------
                                                        1998            1999             2000
                                                    -----------     -----------     ------------
             Net sales to customers in:
                United States                          $548,374        $555,125         $531,725
                Europe                                  105,373         114,564           71,824
                Other                                    49,791          40,561           45,746
                                                      ---------       ---------         --------

                         Totals                        $703,538        $710,250         $649,295
                                                       ========        ========         ========

                                                                   (In Thousands)
                                                                 As of December 31,
                                                    --------------------------------------------
                                                       1998             1999             2000
                                                    -----------     -----------      -----------
             Long-lived tangible assets:
                United States                         $  34,559        $ 33,338         $ 32,148
                Europe                                    3,723           3,164            2,401
                Other                                     5,876           4,898            4,579
                                                    -----------      ----------       ----------

                         Totals                       $  44,158        $ 41,400         $ 39,128
                                                      =========        ========         ========`

|NOTE M - | Selected Quarterly Information (unaudited):
|-------- | -------------------------------------------

Unaudited, summarized financial data by quarter for 2000 and
1999 is as follows (in thousands except per share data):

`First           Second        Third        Fourth
Year Ended December 31.                          Quarter          Quarter       Quarter      Quarter
                                                 -------          -------       --------     -------

2000
----
Total Revenues                                   $145,463         $136,678      $157,582     $209,572
Gross Profit                                       52,930           51,949        58,474       83,309
Net Income(loss) before
  extraordinary item                               (2,624)          (2,793)       (1,929)       5,463
Extraordinary item                                    -                -             -         (2,953)
                                                ---------        ---------      --------      -------
Net Income (loss)                                $ (2,624)       $  (2,793)     $ (1,929)    $  2,510
                                                 ========        =========      ========      =======


Basic Earnings Per Share:
Income (loss) Before Extraordinary Item          $   (.22)       $     (.24)    $   (.16)    $    .47
Extraordinary Item                                      -                -            -          (.25)
                                                 --------         ---------     ---------    --------
     Net Income (Loss)                           $   (.22)       $     (.24)    $   (.16)   $     .22
                                                 ========         =========     =========    ========

Diluted Earnings Per Share:

Income (Loss) Before Extraordinary Item          $    (.22)      $     (.24)    $   (.16)    $    .45
Extraordinary Item                                       -                -           -          (.24)
     Net Income (Loss   )                        $    (.22)      $     (.24)    $   (.16)    $    .21
                                                 =========       ==========     ========     ========


1999
----

Total Revenues                                  $ 143,906        $ 141,798      $174,172    $ 250,374
Gross Profit                                       55,908           49,318        60,021       96,109
Net Income (loss) before
  extraordinary item                               (1,464)          (7,791)      (17,910)       7,898
Extraordinary item                                      -                -        (8,765)
                                                 --------          -------      --------     --------
     Net Income (loss)                           $ (1,464)       $  (7,791)     $(26,675)    $  7,898
------------                                     ========          =======      ========     ========

Basic Earnings Per Share:
Income (Loss) Before Extraordinary Item          $   (.13)       $    (.67)    $   (1.52)      $  .67
Extraordinary item                                      -                -          (.75)           -
                                                ---------           ------       -------      --------
     Net Income (loss)                            $  (.13)       $    (.67)    $   (2.27)    $    .67
                                                =========           ======        ======       ========

Diluted Earnings Per Share:
Income (Loss) Before Extraordinary Item           $  (.13)       $    (.67)    $   (1.52)    $    .67
Extraordinary item                                      -                -          (.75)           -
                                                ---------         --------        ------     --------
     Net Income (loss)                            $  (.13)       $    (.67)    $   (2.27)    $    .67
                                                =========         ========       =======     ========`

Item 9.   Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.

Not applicable.

PART III

Item 10.   Directors and
Executive Officers of the Registrant.

That portion of Recoton's definitive proxy statement for the annual meeting in
2001 appearing under the caption "Election of Directors" (or comparable
language) is incorporated by reference. The information regarding the executive
officers of Recoton is contained under "Executive Officers of Recoton" under
Item 1 to this Report.

Item 11.   Executive Compensation.

That portion of Recoton's definitive proxy statement for the annual meeting in
2001 appearing under the caption "Compensation of Executive Officers" (or
comparable language) is incorporated by reference.

Item 12.   Security Ownership of Certain Beneficial Owners and Management.

That portion of Recoton's definitive proxy statement for the annual meeting in
2001 appearing under the caption "Security Ownership of Certain Beneficial
Owners and Management" (or comparable language) is incorporated by reference.

Item 13.   Certain Relationships and Related Transactions.

That portion of Recoton's definitive proxy statement for the annual meeting in
2001 appearing under the caption "Certain Relationships and Related
Transactions" (or comparable language) is hereby incorporated by reference.

PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1) and
(2). Financial Statements and Financial Statement Schedules:

| | See "Index to Financial Statements" set forth in Item 8, "Financial Statements
and Supplementary Data" of this Report.
| | ----------------------------------------------------------------------------------------------------------------------

(a)(3).
Exhibits Required to be Filed by Item 601 of Regulation S-K:

| | (3)   Articles of Incorporation and By-Laws:
| | --------------------------------------------

| | 3.1A | Restated Certificate of Incorporation of Recoton Corporation, as filed January
28, 1997 (incorporated by reference to Exhibit 3.1 to the Registrants Form
10-K for the year ended December 31, 1996)
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.1B | Amendment to Restated Certificate of Incorporation of Recoton Corporation, as
filed June 25, 1998 (incorporated by reference to Exhibit 3.3 to the
Registrants Form 10-Q for the quarter ended June 30, 1998)
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | By-Laws of Recoton as amended October 19, 1995 (incorporated by reference to
Exhibit 3(ii) to the Registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995)
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4)   Instruments defining the rights of
security holders, including indentures::
| | ---------------------------------------------------------------------------------

| | 4.1 | Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-K for the year ended December 31, 1996)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2A | Rights Agreement, dated as of October 27, 1995, between Recoton
Corporation and ChaseMellon Shareholder Services, L.L.C. as Rights Agent
(incorporated by reference to Exhibit 4 to the Registrants Current Report
on Form 8-K dated October 27, 1995)
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2B | First Amendment, dated as of June 9, 1999, between Recoton
Corporation and ChaseMellon Shareholders Services, L.L.C. (f/k/a ChemicalMellon
Shareholder Services, L.L.C.) to Rights Agreement dated as of October 27, 1995,
executed on June 28, 1999 (incorporated by reference to Exhibit 4.2 to the
Registrants Form 8-A 12g/A dated June 28, 1999)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (10)   Material contracts(an asterisk indicates management contracts and compensatory
plans or          arrangements):
| | ----------------------------------------------------------------------------------------------------------------------

| | 10.1 | Employment Agreement between Recoton Corporation and Robert L.
Borchardt, dated October 25, 1995 (incorporated by reference to Exhibit (10)(1)
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995)*
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | Deferred Compensation Agreement, effective as of July 1, 1982,
between Recoton and Robert Borchardt (incorporated by reference to Exhibit 10(C)
to the Registrants Registration Statement on Form S-2, filed on October
12, 1983, File No. 2-87097)*
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 | Deferred Compensation Agreement, effective as of October 1,
1982, between Recoton and Peter Wish (incorporated by reference to Exhibit 10(E)
to the Registrants Registration Statement on Form S-2, filed on October
12, 1983, File No. 2-87097)*
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4A | Split Dollar Life Insurance Agreements, effective as of
February 24, 1989, among Recoton and Trudi Borchardt and Marvin Schlacter and
Robert Borchardt in the aggregate face amount of $2,750,000 (incorporated by
reference to Exhibit 10(G) to the Registrants Form 10-K for the year ended
December 31, 1988)*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4B | Split Dollar Life Insurance Agreements, effective as of December 17, 1993, among
Recoton, the Robert and Trudi Borchardt 1993 Family Trust and Robert L.
Borchardt in the face amounts of $6,500,000 (First Policy);
$3,500,000 (Second Policy); and $1,300,000 (Third
Policy) (incorporated by reference to Exhibit 10(G) to the
Registrants Annual Report on Form 10-K for the year ended December 31,
1993)*
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4C | Amendment to Split Dollar Life Insurance Agreements Dated as of December 17,
1993, dated as of November 6, 1998, to amend principal amount of First Policy to
$10,000,000 and to terminate Second Policy (incorporated by reference to Exhibit
10.5(C) to the Registrants Annual Report on Form 10-K for the year ended
December 31, 1999)*
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4D | Split Dollar Life Insurance Agreement, effective as of November 8, 1998, among
Recoton, the Robert and Trudi Borchardt 1993 Family Trust and Robert L.
Borchardt in the face amount of $2,250,000 (incorporated by reference to Exhibit
10.5(D) to the Registrants Annual Report on Form 10-K for the year ended
December 31, 1999)*
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4E | Split Dollar Life Insurance Agreement, effective as of November 8, 1998, among
Recoton, the Robert and Trudi Borchardt 1993 Family Trust and Robert L.
Borchardt in the face amount of $2,000,000 (incorporated by reference to Exhibit
10.5(E) to the Registrants Annual Report on Form 10-K for the year ended
December 31, 1999)*
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | Recoton Corporation 1991 Stock Option Plan, as revised March 23, 1998, and form
of option agreement (incorporated by reference to Exhibit 10.9 to the
Registrants Annual Report on Form 10-K for the year ended December 31,
1997)*
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Recoton Corporation Nonqualified Stock Option Plan, as revised March 23, 1998
(incorporated by reference to Exhibit 10.10 to the Registrants Annual
Report on Form 10-K for the year ended December 31, 1997)*
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 | Recoton Corporation Stock Bonus Plan, as revised September 15, 1993
(incorporated by reference to Exhibit 10(K) to the Registrants Annual
Report on Form 10-K for the year ended December 31, 1993)*
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 | Recoton Corporation 1998 Stock Option Plan and form of option certificate as
adopted March 23, 1998 and amended June 7, 2000 (incorporated by reference to
Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000)*
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9A | Recoton Corporation Code Section 401(K) Profit Sharing Plan and
Trust Agreement, as amended and restated December 29, 1994 (incorporated by
reference to Exhibit 10(K) to the Registrants Annual Report on
Form 10-K for the year ended December 31, 1994)*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9B | First Amendment to Recoton Corporation Code Section 401(K)
Profit Sharing Plan and Trust Agreement, effective January 1, 1995*
(incorporated by reference to Exhibit 10.11B to the Registrants Annual
Report on Form 10-K for the year ended December 31, 1999)*
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9C | Second Amendment to Recoton Corporation Code Section 401(K)
Profit Sharing Plan and Trust Agreement, effective January 1, 1995*
(incorporated by reference to Exhibit 10.11C to the Registrants Annual
Report on Form 10-K for the year ended December 31, 1999)*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9D | Third Amendment to Recoton Corporation Code Section 401(K)
Profit Sharing Plan and Trust Agreement, effective January 1, 1998*
(incorporated by reference to Exhibit 10.11D to the Registrants Annual
Report on Form 10-K for the year ended December 31, 1999)*
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9E | Fourth Amendment to Recoton Corporation Code Section 401(K)
Profit Sharing Plan and Trust Agreement, effective December 31, 1998*
(incorporated by reference to Exhibit 10.11E to the Registrants Annual
Report on Form 10-K for the year ended December 31, 1999)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9F | Fifth Amendment to Recoton Corporation Code Section 401(K)
Profit Sharing Plan and Trust Agreement, effective January 1, 1997*
(incorporated by reference to Exhibit 10.11F to the Registrants Annual
Report on Form 10-K for the year ended December 31, 1999)*
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9G | Sixth Amendment to Recoton Corporation Code Section 401(K) Profit Sharing Plan
and Trust Agreement, effective November 24, 2000* (incorporated by reference to
Exhibit 10.11G to the Registrants Annual Report on Form 10-K for the year
ended December 31, 1999)
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10 | Retainer letter and option certificate, dated January 12, 2001,
with I. Friedman Equities, Inc. [filed herewith]*
| | ----- | -----------------------------------------------------------------------------------------------------------------

| | 10.11 | Option Agreement, dated May 5, 1994, with I. Friedman Equities,
Inc. (incorporated by reference to Exhibit 10(L) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994)*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12 | Common Stock Purchase Option, as of April 7, 1998, with the
Equity Group, Inc. (incorporated by reference to Exhibit 10.34 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13 | Employment Agreement dated as of August 31, 1995 with Stephen
Chu as President of STD Holding Limited* (incorporated by reference to Exhibit
402(p)(i) to Exhibit 1 to the Registrants Current Report of Form 8-K dated
September 5, 1995)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14A | Securities Purchase Agreement between Recoton Corporation, The
Prudential Insurance Company of America and ING (U.S.) Capital LLC dated
February 4, 1999 (incorporated by reference to Exhibit 5 to the
Registrants Current Report on Form 8-K dated February 4, 1999)
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14B | Form of warrants issued to The Prudential Insurance Company of
America and ING (U.S.) Investments Corporation dated February 4, 1999 and sheet
detailing variable information (incorporated by reference to Exhibit 5 to the
Registrants Current Report on Form 8-K dated February 4, 1999)
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14C | Registration Rights Agreement with The Prudential Insurance
Company of America and ING (U.S.) Investments Corporation dated February 4, 1999
(incorporated by reference to Exhibit 5 to the Registrants Current Report
on Form 8-K dated February 4, 1999)
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14D | First Amendment to Securities Purchase Agreement, Guaranty and
Registration Rights Agreement, dated as of October 31, 1999, between Recoton
Corporation, The Prudential Insurance Company of America and ING (U.S.) Capital
LLC (incorporated by reference to Exhibit 10.4 to the Registrants Current
Report of Form 8-K dated October 31, 1999).
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15A | Registration Rights Agreement dated as of September 8, 1999 among Recoton
Corporation and each of the parties whose signatures are set forth thereto under
the heading LIFO Lenders (incorporated by reference to Exhibit 5 to
the Registrants Current Report on Form 8-K dated September 8, 1999)
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15B | Form of 1999 Replacement Common Stock Purchase Warrants dated
September 8, 1999 issued to the holders of the Companys Subordinated Notes
issued February 4, 1999 to purchase an aggregate of 100,000 shares of common
stock (incorporated by reference to Exhibit 6 to the Registrants Current
Report on Form 8-K dated September 8, 1999)
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15C | Letter from Recoton Corporation dated September 8, 1999 to the
holders of the Companys Subordinated Notes issued February 4, 1999
repricing options expiring on February 4, 2004 (incorporated by reference
to Exhibit 7 to the Registrants Current Report on Form 8-K dated September
8, 1999)
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15D | Form of Fixed Facility Fee Common Stock Purchase Warrant dated September 8, 1999
issued to the lenders under the Credit Agreement dated as of September 8, 1999
to purchase an aggregate of 75,000 shares of common stock (incorporated by
reference to Exhibit 8 to the Registrants Current Report on Form 8-K dated
September 8, 1999)
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15E | Form of Cancelable Facility Fee Common Stock Purchase Warrant
dated September 8, 1999 issued to the lenders under the Credit Agreement dated
as of September 8, 1999 to purchase an aggregate of 175,000 shares of common
stock (incorporated by reference to Exhibit 9 to the Registrants Current
Report on Form 8-K dated September 8, 1999)
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15F | Form of Prepayment Common Stock Purchase Warrant to purchase an aggregate of up
to 75,000 shares of common stock to be issued to the lenders under the Credit
Agreement dated as of September 8, 1999 under certain circumstances
(incorporated by reference to Exhibit 10 to the Registrants Current Report
on Form 8-K dated September 8, 1999)
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15G | Form of Common Stock Purchase Warrant to purchase an aggregate of up to 20,000
shares of common stock to be issued to the holders of the Companys
Subordinated Notes issued February 4, 1999 under certain circumstances
(incorporated by reference to Exhibit 11 to the Registrants Current Report
on Form 8-K dated September 8, 1999)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16A | Loan Agreement, dated as of October 31, 2000 between Recoton
Corporation, InterAct Accessories, Inc., Recoton Audio Corporation, AAMP of
Florida, Inc and Recoton Home Audio Corporation as borrowers (the
Borrowers), and Christie Design Corporation, Recoton International
Holdings, Recoton European Holdings, Recoton Japan, Inc. and Recoton Canada,
Ltd. as guarantors (the Guarantors and, together with the Borrowers,
the Loan Parties), Heller Financial, Inc. (Heller) as
Administrative Agent, Senior Agent and a Lender, General Electric Capital
Corporation as Collateral Agent, Syndication Agent and a Lender and other
lenders party thereto (the Senior Loan Agreement) for a $235 million
loan and letter of credit facility (incorporated by reference to Exhibit 10.1 to
the Registrants Current Report of Form 8-K dated October 31, 2000).
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16B | Credit Agreement, dated as of October 31, 2000, among the Loan
Parties, the several lenders from time to time parties thereto, and The Chase
Manhattan Bank, as Agent (the Subordinated Loan Agreement) for a $15
million term loan for a $15 million term loan (incorporated by reference to
Exhibit 10.2 to the Registrants Current Report of Form 8-K dated October
31, 2000).
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16C | Security Agreement, dated as of October 31, 2000, made by
Recoton Corporation and certain of its Subsidiaries in favor of Heller, as
Collateral Agent (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report of Form 8-K dated October 31, 2000).
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16D | Form of Common Stock Purchase Warrants dated October 31, 2000
issued to the holders of Recoton Corporations Subordinated Notes issued
February 4, 1999 to purchase an aggregate of 20,000 shares of common stock
(incorporated by reference to Exhibit 10.5 to the Registrants Current
Report of Form 8-K dated October 31, 2000).
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16E | Form of Common Stock Purchase Warrants dated October 31, 2000 issued to the
lenders under the Subordinated Loan Agreement to purchase an aggregate of 5,000
shares of common stock (incorporated by reference to Exhibit 10.6 to the
Registrants Current Report of Form 8-K dated October 31, 2000).
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (11)   Statement re computation of per share
earnings:   not applicable
| | -----------------------------------------------------------------------

| | (12)   Statement computation of ratios:   not
applicable
| | --------------------------------------------------------

| | (13)   Annual report to security holders,
Form 10-Q or quarterly report to securityholders:   not applicable
| | ------------------------------------------------------------------------------------------------------------

| | (16)   Letter re change in certifying
accountant:   not applicable
| | ------------------------------------------------------------------

| | (18)   Letter re change in accounting
principles:   not applicable
| | ------------------------------------------------------------------

| | (21)   Subsidiaries of the registrant [filed
herewith]
| | ------------------------------------------------------

| | (22)   Published report regarding matters submitted to vote of security holders:   
not applicable
| | --------------------------------------------------------------------------------------------------

| | (23)   Consent of experts and counsel:   
Consents of the Independent Public Accountants [filed herewith]
| | ---------------------------------------------------------------------------------------------------------

| | (a)    Cornick Garber & Sandler, LLP:   [filed herewith]
| | --------------------------------------------------------

| | (b)    Deloitte & Touche LLP:   [filed herewith
| | -----------------------------------------------

| | (24)   Power of attorney:   not applicable
| | ------------------------------------------

| | (28)   Information from reports furnished to
state insurance regulatory authorities:   not applicable
| | -----------------------------------------------------------------------------------------------------

| | (99)   Additional exhibits:
| | ---------------------------

| | 99.1 | Charter for Audit Committee (incorporated by reference to
Exhibit 99.1 to the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000)
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)
Reports on Form 8-K: The Registrant filed Forms 8-K in the Fourth Quarter
of 2000 for events which occurred on the dates set forth below:

| | Date of Report
                         October 31, 2000 |  | Item Number and Subject Matter
5 - Refinancing of Long Term Debt | 
| | -------------------------------------------------------- |  | ---------------------------------------------------------------- | 

SIGNATURES

Pursuant to
the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

| | RECOTON CORPORATION
By:  /s/ Robert L. Borchardt
        Robert L. Borchardt, Chairman, Chief
        Executive Officer and President
Date:  March 30, 2001
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

|Signature | Position | Date
|--------- | -------- | ----

|/s/ Robert L. Borchardt
Robert L. Borchardt | Chief Executive Officer 
(Principal Executive Officer)
and Director | March 30, 2001
|------------------------------------------- | ------------------------------------------------------------------- | --------------

|/s/ Arnold Kezsbom
Arnold Kezsbom | Chief Financial Officer
(Principal Financial Officer) | March 30, 2001
|--------------------------------- | ----------------------------------------------------- | --------------

|/s/ Tracy Clark
Tracy Clark | Chief Accounting Officer
(Principal Accounting Officer) | March 30, 2001
|--------------------------- | ------------------------------------------------------- | --------------

|/s/ George Calvi
George Calvi | Director | March 30, 2001
|----------------------------- | -------- | --------------

|/s/ Paul Feffer
Paul Feffer | Director | March 30, 2001
|--------------------------- | -------- | --------------

|/s/ Irwin S. Friedman
Irwin S. Friedman | Director | March 30, 2001
|--------------------------------------- | -------- | --------------

|/s/ Joseph M. Idy
Joseph M. Idy | Director | March 30, 2001
|------------------------------- | -------- | --------------

|/s/ Jerry Kalov
Jerry Kalov | Director | March 30, 2001
|--------------------------- | -------- | --------------

|/s/ Ann R. Leven
Ann R. Leven | Director | March 30, 2001
|----------------------------- | -------- | --------------

|/s/ Ronald E. McPherson
Ronald E. McPherson | Director | March 30, 2001
|------------------------------------------- | -------- | --------------

|/s/ Joseph H. Massot
Joseph H. Massot | Director | March 30, 2001
|------------------------------------- | -------- | --------------

|/s/ Stuart Mont
Stuart Mont | Director | March 30, 2001
|--------------------------- | -------- | --------------

|/s/ Peter Wish
Peter Wish | Director | March 30, 2001
|------------------------- | -------- | --------------