COBRA ELECTRONICS CORP - FORM 10-Q

Attached files

Attached files

Stock widget

Investing forum

COBRA ELECTRONICS CORP Reports

Also read

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

file	filename
EXCEL - IDEA: XBRL DOCUMENT - COBRA ELECTRONICS CORP	Financial_Report.xls
EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER - COBRA ELECTRONICS CORP	dex321.htm
EX-32.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER - COBRA ELECTRONICS CORP	dex322.htm
EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER - COBRA ELECTRONICS CORP	dex312.htm
EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER - COBRA ELECTRONICS CORP	dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For the transition period from to

Commission File Number 0-511

COBRA ELECTRONICS CORPORATION

(Exact name of Registrant as specified in its Charter)


DELAWARE		36-2479991
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

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

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

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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

Number of shares of Common Stock of Registrant outstanding as of August 8, 2011: 6,539,580

TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements		3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3	Quantitative and Qualitative Disclosures About Market Risk		22
Item 4	Controls and Procedures		22

PART II	OTHER INFORMATION

Item 1A	Risk Factors		23
Item 6	Exhibits		23

SIGNATURE			24

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Cobra Electronics Corporation and Subsidiaries

Consolidated Statements of Operations - Unaudited

(In Thousands, Except Per Share Amounts)


	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Net sales	$	28,860		$	25,710		$	51,299		$	46,793
Cost of sales		20,672			18,896			37,275			34,172

Gross profit		8,188			6,814			14,024			12,621
Selling, general and administrative expense		7,237			6,562			13,895			13,448

Earnings (loss) from operations		951			252			129			(827	)
Interest expense		(255	)		(312	)		(523	)		(628	)
Other (expense) income		(103	)		(294	)		161			(266	)

Earnings (loss) before income taxes		593			(354	)		(233	)		(1,721	)
Tax provision		76			10			69			3

Net earnings (loss)	$	517		$	(364	)	$	(302	)	$	(1,724	)


Net earnings (loss) per common share:
Basic	$	0.08		$	(0.06	)	$	(0.05	)	$	(0.27	)
Diluted	$	0.08		$	(0.06	)	$	(0.05	)	$	(0.27	)

Weighted average shares outstanding:
Basic		6,540			6,471			6,513			6,471
Diluted		6,540			6,471			6,513			6,471

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

Cobra Electronics Corporation and Subsidiaries

Consolidated Balance Sheets - Unaudited

(In Thousands)


	June 30 2011			December 31 2010
ASSETS

Current assets:
Cash	$	1,476		$	1,133
Receivables, net of allowance for doubtful accounts of $150 in 2011 and $186 in 2010		17,458			22,021
Inventories, primarily finished goods, net		29,156			27,614
Other current assets		2,805			3,289

Total current assets		50,895			54,057

Property, plant and equipment, at cost:
Buildings and improvements		6,485			6,305
Tooling and equipment		18,868			18,393

		25,353			24,698
Accumulated depreciation		(20,124	)		(19,436	)
Land		230			230

Property, plant and equipment, net		5,459			5,492

Other assets:
Cash surrender value of life insurance policies		5,392			4,891
Deferred income taxes, non-current		326			427
Intangible assets		9,168			9,315
Other assets		134			172

Total other assets		15,020			14,805


Total assets	$	71,374		$	74,354

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

Cobra Electronics Corporation and Subsidiaries

Consolidated Balance Sheets - Unaudited

(In Thousands, Except Share Data)


	June 30 2011			December 31 2010
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Bank debt	$	15,892		$	18,042
Accounts payable		6,013			7,205
Accrued salaries and commissions		1,345			1,510
Accrued advertising and sales promotion costs		920			1,196
Accrued product warranty costs		779			923
Accrued income taxes		175			197
Deferred income taxes, current		327			439
Other accrued liabilities		2,834			2,388

Total current liabilities		28,285			31,900


Non-current liabilities:
Deferred compensation		7,273			7,145
Deferred income taxes		1,474			1,538
Other long-term liabilities		558			565

Total non-current liabilities		9,305			9,248

Total liabilities		37,590			41,148

Commitments and contingencies		—			—

Shareholders’ equity:
Preferred stock, $1 par value
Authorized: 1,000,000 shares
Issued: None		—			—

Common stock, $.33 1/3 par value
Authorized: 12,000,000 shares
Issued: 7,107,400 shares for 2011 and 7,039,100 shares for 2010
Outstanding: 6,539,580 shares for 2011 and 6,471,280 shares for 2010		2,368			2,345
Paid-in capital		20,905			20,785
Retained earnings		15,900			16,202
Accumulated other comprehensive loss		(1,580	)		(2,317	)

		37,593			37,015
Treasury stock, at cost (567,820 shares)		(3,837	)		(3,837	)

Total shareholders’ equity - Cobra		33,756			33,178
Non-controlling interest		28			28

Total equity		33,784			33,206

Total liabilities and shareholders’ equity	$	71,374		$	74,354

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

Cobra Electronics Corporation and Subsidiaries

Consolidated Statements of Cash Flows - Unaudited

(In Thousands)


	Six Months Ended June 30
	2011			2010
Cash flows from operating activities:
Net loss attributable to Cobra	$	(302	)	$	(1,724	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		1,857			1,907
Deferred income taxes		(131	)		(108	)
(Gain) loss on cash surrender value (CSV) of life insurance		(159	)		179
Gain on sale of fixed asset		—			(5	)
Stock-based compensation		142			113
Changes in assets and liabilities:
Receivables		4,742			7,266
Inventories		(1,082	)		(2,106	)
Other assets		320			(752	)
Income tax refund		—			925
Accounts payable		(1,290	)		1,136
Other liabilities		(100	)		(232	)

Net cash provided by operating activities		3,997			6,599


Cash flows from investing activities:
Property, plant and equipment		(579	)		(356	)
Premiums on CSV life insurance		(342	)		(266	)
Intangible assets		(596	)		(298	)

Net cash used in investing activities		(1,517	)		(920	)

Cash flows from financing activities:
Bank borrowings		(2,149	)		(5,591	)

Net cash used in financing activities		(2,149	)		(5,591	)
Effect of exchange rate changes on cash and cash equivalents		12			26

Net increase in cash		343			114
Cash at beginning of period		1,133			1,405

Cash at end of period	$	1,476		$	1,519


Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	347		$	518
Income taxes	$	52		$	(905	)

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

Cobra Electronics Corporation and Subsidiaries

Notes to Consolidated Financial Statements

For the six months ended June 30, 2011 and 2010

(Unaudited)

The consolidated financial statements included herein have been prepared by Cobra Electronics Corporation (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. The Consolidated Balance Sheet as of December 31, 2010 has been derived from the audited consolidated balance sheet as of that date. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the SEC. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim period a fair statement of such operations. Due to the seasonality of the Company’s business, the results of operations of any interim period are not necessarily indicative of the results that may be expected for a fiscal year.

(1)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business — Cobra designs and markets consumer electronics products, which it sells primarily under the Cobra brand name principally in the United States, Canada and Europe. Effective October 20, 2006, the Company acquired Performance Products Limited which sells its products under the Snooper trade name, principally in the United Kingdom, as well as elsewhere in Europe. A majority of the Company’s products are purchased from overseas suppliers, primarily in China, Hong Kong and South Korea. The consumer electronics market is characterized by rapidly changing technology and certain products may have limited life cycles. Management believes that it maintains strong relationships with its current suppliers and that, if necessary, other suppliers could be found. The extent to which a change in a supplier would have an adverse effect on the Company’s business depends on the timing of the change, the product or products that the supplier produces for the Company and the volume of that production. The Company also maintains insurance coverage that would, in certain limited circumstances, reimburse the Company for lost profits resulting from a supplier’s inability to fulfill its commitments to the Company.

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

Reclassifications — Amortization of deferred loan fees were reclassified from Other Income (Expense) to Interest Expense for the periods presented in the consolidated financial statements included in this Quarterly Report on Form 10-Q.

Correction of Immaterial Errors — Prior year amounts were revised to reflect the out-of-period correction for the second quarter of 2011. Refer to Note 2, Correction of Immaterial Errors.

(2)

CORRECTION OF IMMATERIAL ERRORS

In the second quarter of 2011, management discovered that the Company’s customs broker used an incorrect duty rate for its detection products. Subsequently, the Company confirmed that the duty rates for its other products were correct. A Prior Disclosure document will be filed with the U.S. Customs Service to correct the underpayment error. The cumulative adjustment for the incorrect duty rate, covering July 1, 2006 to June 30, 2011, approximated $1.5 million. The adjustment applicable to the second quarter of 2010 was approximately $48,000, the adjustment applicable to the first half of 2010 was approximately $91,000, and the adjustment applicable to prior years (2006 - 2010) totaled approximately $1.4 million.

Pursuant to the guidance of Staff Accounting Bulletin (“SAB”) No. 99, Materiality, the Company concluded that the errors were not material to any of its prior period financial statements. Although the errors were immaterial to prior periods, the prior period financial statements were revised, in accordance with SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, due to the significance of the out-of-period correction in the second quarter of 2011.

A reconciliation of the effects of the adjustments to the previously reported balance sheet at December 31, 2010 follows:


	December 31, 2010
	As Reported		Adjustment			As Adjusted
	(In Thousands)
Accounts payable	$	5,797	$	1,408		$	7,205
Total current liabilities		30,492		1,408			31,900
Total equity		34,614		(1,408	)		33,206

A reconciliation of the effects of the adjustments to the previously reported statement of operations for the three and six months ending June 30, 2010 follows:


	Three Months Ended June 30, 2010									Six Months Ended June 30, 2010
	As Reported			Adjustment			As Adjusted			As Reported			Adjustment			As Adjusted
	(In Thousands)
Cost of sales	$	18,848		$	48		$	18,896		$	34,081		$	91		$	34,172
Gross profit		6,862			(48	)		6,814			12,712			(91	)		12,621
Earnings (loss) from operations		300			(48	)		252			(736	)		(91	)		(827	)
Net loss		(316	)		(48	)		(364	)		(1,633	)		(91	)		(1,724	)

A reconciliation of the effects of the adjustments to the previously reported statement of cash flows for the six months ending June 30, 2010 follows:


	Six Months Ended June 30, 2010
	As Reported			Adjustment			As Adjusted
	(In Thousands)
Net loss	$	(1,633	)	$	(91	)	$	(1,724	)
Accounts payable		1,045			91			1,136

(3)

SEGMENT INFORMATION

The Company operates in two business segments: (1) Cobra Consumer Electronics (“Cobra”) and (2) Performance Products Limited (“PPL”). The Cobra segment is comprised of Cobra Electronics Corporation, Cobra Hong Kong Limited and Cobra Electronics Europe Limited (“CEEL”). The Company has separate sales departments and distribution channels for each segment, which provide segment exclusive product lines to all customers for that segment. Currently, there are no intersegment sales.

The financial information by business segment for the three months and six months ended June 30, 2011 and 2010 follows:

Three months - 2011 vs. 2010


	2011									2010
	COBRA			PPL			TOTAL			COBRA			PPL			TOTAL
	(In Thousands)
Net sales	$	24,812		$	4,048		$	28,860		$	22,212		$	3,498		$	25,710
Cost of sales		18,068			2,604			20,672			16,361			2,535			18,896

Gross profit		6,744			1,444			8,188			5,851			963			6,814
Selling, general and administrative expense		5,942			1,295			7,237			5,419			1,143			6,562

Earnings (loss) from operations		802			149			951			432			(180	)		252
Interest expense		(255	)		—			(255	)		(311	)		(1	)		(312	)
Other expense		(87	)		(16	)		(103	)		(215	)		(79	)		(294	)

Earnings (loss) before income taxes		460			133			593			(94	)		(260	)		(354	)
Tax provision (benefit)		136			(60	)		76			73			(63	)		10

Net earnings (loss)	$	324		$	193		$	517		$	(167	)	$	(197	)	$	(364	)

Six months - 2011 vs. 2010


	2011									2010
	COBRA			PPL			TOTAL			COBRA			PPL			TOTAL
	(In Thousands)
Net sales	$	43,521		$	7,778		$	51,299		$	39,767		$	7,026		$	46,793
Cost of sales		32,063			5,212			37,275			29,367			4,805			34,172

Gross profit		11,458			2,566			14,024			10,400			2,221			12,621
Selling, general and administrative expense		11,392			2,503			13,895			11,220			2,228			13,448

Earnings (loss) from operations		66			63			129			(820	)		(7	)		(827	)
Interest expense		(523	)		—			(523	)		(627	)		(1	)		(628	)
Other income (expense)		68			93			161			(129	)		(137	)		(266	)

Earnings (loss) before income taxes		(389	)		156			(233	)		(1,576	)		(145	)		(1,721	)
Tax provision (benefit)		198			(129	)		69			108			(105	)		3

Net earnings (loss)	$	(587	)	$	285		$	(302	)	$	(1,684	)	$	(40	)	$	(1,724	)

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

(4)

INCOME TAXES

Each quarter, the Company estimates the annual effective income tax rate (“ETR”) for the full year and applies that rate to the Income (Loss) Before Income Taxes for tax jurisdictions not subject to a valuation allowance in determining its provision for income taxes for the interim periods. The determination of the consolidated provision for income taxes, deferred tax assets and liabilities, and the related valuation allowance requires management to make certain judgments and estimates. Changes in the estimated level of annual pre-tax income, tax laws, and changes resulting from tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the Company’s projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections.

The year-to-date ETR was less than the statutory U.S. federal income tax rate, mainly due to the taxing jurisdictions in which the Company and its foreign subsidiaries generate taxable income or loss and judgments as to the realizability of the Company’s deferred tax assets.

The Company will continue to review periodically the adequacy of its valuation allowance in all of the tax jurisdictions in which it operates and may make further adjustments based on management’s outlook for continued profits in each jurisdiction. The valuation allowance for its U.S. operations totaled $8.3 million at June 30, 2011 and $7.9 million at December 31, 2010.

(5)

FINANCING ARRANGEMENTS

On July 16, 2010, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, Harris N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto from time to time (the “Lenders”). In connection therewith, the Company terminated the Loan and Security Agreement (as amended, the “Terminated Loan Agreement”) dated as of February 15, 2008 among the Company, the lenders party thereto and The PrivateBank and Trust Company, as a lender and administrative agent.

The Company’s current Credit Agreement, which matures on July 16, 2013, provides for a $25.0 million revolving loan facility. Pursuant to the terms of its Credit Agreement, the Company is required to make mandatory prepayments on the amounts outstanding thereunder in the event that the Company receives proceeds under certain circumstances or in connection with other specified events. Financing costs totaling $513,000 for the current Credit Agreement were capitalized in the third quarter of 2010 and will be amortized over the loan term. In connection with the current Credit Agreement, the Company wrote-off the deferred financing costs associated with the Terminated Loan Agreement and recognized a non-cash pre-tax charge of $349,000 in the third quarter of 2010. Additionally, in connection with the execution of the current Credit Agreement, the Company terminated an interest rate swap agreement in exchange for a $381,000 cash payment by the Company on July 16, 2010. With the elimination of the interest rate swap, the fair value of the Company’s debt is no longer affected by changes in interest rates and future changes in the applicable interest rate will affect the interest expense incurred on the Company’s outstanding indebtedness.

Borrowings under the Credit Agreement bear interest at either the base rate or the LIBOR lending rate (each as defined in the Credit Agreement), as applicable, plus the applicable margin set forth in the Credit Agreement. The Company will also pay certain fees and expenses, including a (i) commitment fee equal to 0.50 percent per annum on the unused portion of the Lenders’ aggregate revolving commitment and (ii) a letter of credit fee equal to the product of the applicable margin set forth in the Credit Agreement times the face amount of the standby letters of credit and the commercial letters of credit outstanding at such time. The Credit Agreement contains customary covenants, including but not limited to financial covenants requiring the Company to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of 1.10 to 1.00 for the periods set forth in the Credit Agreement and providing that annual capital expenditures cannot exceed $3.5 million. Commencing in 2011, the Company may pay dividends to shareholders up to an aggregate amount of $1,250,000 in any fiscal year, subject to compliance with certain covenants and conditions. The Company’s Fixed Charge Coverage Ratio, which is based on adjusted EBITDA less capital expenditures and cash tax payments in relation to interest expense, for the second quarter of 2011, exceeded the required minimum ratio of 1.10 to 1.00 and all financial covenants for the first half of 2011 were satisfied.

As a condition to the extension of the loans and the issuance of the letters of credit under the Credit Agreement, the Company has granted a security interest to the Administrative Agent, for the benefit of the Lenders, in substantially all the assets of the Company except (i) life insurance policies not collaterally assigned to the Lenders, (ii) any equipment subject to liens permitted under the Credit Agreement if such equipment is also subject to an agreement prohibiting the pledge of such equipment to the Lenders, (iii) deposit accounts used exclusively by the Company for payroll and employee retiree benefit purposes and (iv) the Company’s interest in the outstanding voting equity securities of any of its directly-owned foreign subsidiaries to the extent such interests exceed 65 percent of the outstanding voting equity securities of such foreign subsidiary.

At June 30, 2011, the Company had interest bearing debt outstanding of $15.9 million borrowed under the Credit Agreement and credit availability was approximately $5.4 million based on the borrowing base formula that includes the following: 85 percent of eligible accounts receivables, the lesser of 65 percent of lower of cost or market of eligible inventory or 85 percent of the appraised net orderly liquidation value of eligible inventory, and 65 percent of commercial letters of credit issued for the purchase of inventory, subject to certain limitations and reserves established at the lenders discretion. If necessary, the Credit Agreement permits an “overadvance” of up to $1.0 million for sixty consecutive days. The weighted average interest rate for the three months ending June 30, 2011 and 2010 (which includes the amortization charges associated with the terminated interest rate swap, refer to Note 7, Derivatives for additional information) was 5.0 percent and 6.75 percent, respectively. On a year to date basis, the weighted average interest rate for the six months ending June 30, 2011 and 2010 (which includes the amortization charges associated with the terminated interest rate swap) was 5.2 percent and 6.8 percent, respectively.

(6)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash, accounts receivable, accounts payable, short-term debt, long-term debt and letters of credit. The carrying values of cash, accounts receivable and accounts payable approximated their fair value because of the short-term maturity of these instruments. The carrying amounts of the Company’s bank borrowings under its Credit Agreement approximate fair value because the interest rates are reset periodically to reflect current market rates. The letters of credit approximated fair value due to the short-term nature of the instrument. The contract value/fair value of the letters of credit was $3.7 million at June 30, 2011 and $2.7 million at December 31, 2010. The Company’s hedging activity is limited to foreign currency purchases and an interest rate swap, when applicable. The Company engages in foreign currency hedging to minimize the risk that the eventual settlement of foreign currency transactions would be adversely affected by changes in exchange rates. The Company did not have any open foreign exchange contracts at June 30, 2011 and December 31, 2010.

The Company occasionally hedges foreign exchange exposures by entering into various short-term forward foreign exchange contracts. The instruments are carried at fair value in its Consolidated Balance Sheets as a component of current liabilities. Changes in the fair value of foreign exchange forward contracts that meet the applicable hedging criteria are recorded as a component of Accumulated Other Comprehensive Income (Loss) and reclassified into earnings in the same period during which the hedged transaction affected earnings. Changes in the fair value of foreign exchange forward contracts that do not meet the applicable hedging criteria are recorded currently in income as cost of sales. Hedging activities did not have a material impact on results of operations or financial condition during the three and six month periods ending June 30, 2011 and 2010.

(7)

DERIVATIVES

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

Prior to its termination on July 16, 2010, the Company maintained an interest rate swap to fix the interest rate for the term of the revolving credit facility and term loan under the Terminated Loan Agreement, thereby protecting the Company from future interest rate increases. The interest rate swap represented a cash flow hedge and was recorded at fair value and classified as a non-current liability. Changes in the recorded fair value of the interest rate swap were recorded to Accumulated Other Comprehensive Income (Loss). At March 31, 2009, the existing contract applicable to the Terminated Loan Agreement with a value of $250,000 was terminated and replaced with a contract applicable to the term loan and a portion of the revolving loan valued at $377,000. The value of the interest rate swap liability terminated in March 2009 was amortized into interest expense through June 30, 2010. In connection with the refinancing of borrowings under the Terminated Loan Agreement, the Company paid $381,000 on July 16, 2010 to terminate the related interest rate swap agreement. The termination cost of the interest rate swap in July 2010 will be amortized into interest expense through March 31, 2014.

The interest amortization for the Company’s terminated interest rate swaps reclassified from Accumulated Other Comprehensive Income (Loss) into Interest Expense (Income) during the three and six months ending June 30, 2011 and 2010 follows:


	Three Months Ended					Six Months Ended
Income Statement Location	2011		2010			2011		2010
	(In Thousands)					(In Thousands)

Interest expense (income)	$	36	$	(28	)	$	75	$	(61	)

Total	$	36	$	(28	)	$	75	$	(61	)

The effective portion of the gain (loss) on outstanding derivatives recognized in Accumulated Other Comprehensive Income (Loss) for the three and six months ending June 30, 2011 and 2010.


	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
	(In Thousands)						(In Thousands)

Interest rate swap	$	(36	)	$	(38	)	$	(75	)	$	(26	)

Total	$	(36	)	$	(38	)	$	(75	)	$	(26	)

(8)

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share excludes any dilution and is computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock resulted in the issuance of common stock. If the common stock equivalents have an anti-dilutive effect, they are excluded from the computation of diluted earnings (loss) per share. The earnings or loss per share for the three and six months ending June 30, 2011 and 2010 follows:


	Three Months Ended June 30					Six Months Ended June 30
	2011		2010			2011			2010
	(In Thousands, Except Share Data)					(In Thousands, Except Share Data)
Net earnings (loss)	$	517	$	(364	)	$	(302	)	$	(1,724	)
Weighted-average shares outstanding		6,539,580		6,471,280			6,512,936			6,471,280

Basic earnings (loss) per share	$	0.08	$	(0.06	)	$	(0.05	)	$	(0.27	)

Diluted earnings (loss) per share	$	0.08	$	(0.06	)	$	(0.05	)	$	(0.27	)

Stock options to purchase 263,450 shares and 442,780 shares for the three and six months ending June 30, 2011 and 2010, respectively, were not included in the calculation for the dilutive loss per share because the exercise price for such options exceeded the market price.

(9)

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in equity of a business enterprise from transactions and other events from non-owner sources. Comprehensive income (loss) includes net earnings (loss) and other non-owner changes in equity that bypass the statement of operations and are reported in a separate component of equity. For the three and six months ending June 30, 2011 and 2010, Accumulated Other Comprehensive (Loss) included the foreign currency translation adjustment and an interest rate swap.

The cumulative balance of the Comprehensive Loss at June 30, 2011 and December 31, 2010 follows:


	June 30 2011			December 31 2010
	(In Thousands)
Foreign currency translation adjustment	$	(1,481	)	$	(2,143	)
Interest rate swap		(99	)		(174	)

Total	$	(1,580	)	$	(2,317	)

A summary of the Comprehensive Income (Loss) for the three and six months ended June 30, 2011 and 2010 follows:


	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
	(In Thousands)						(In Thousands)
Net earnings (loss)	$	517		$	(364	)	$	(302	)	$	(1,724	)
Foreign currency translation adjustment (no tax effect)		(65	)		(359	)		(662	)		(1,058	)
Interest rate swap (net of applicable tax)		(36	)		(38	)		(75	)		(26	)

Total comprehensive earnings (loss)	$	416		$	(761	)	$	(1,039	)	$	(2,808	)

(10)

OTHER CURRENT ASSETS

The following table summarizes the components of other current assets at June 30, 2011 and December 31, 2010:


	June 30 2011		December 31 2010
	(In Thousands)
Prepaid assets	$	1,964	$	2,151
Vendor and miscellaneous receivables		838		1,135
Tax refunds and receivables		3		3

	$	2,805	$	3,289

(11)

COMMITMENTS AND CONTINGENCIES

The Company is subject to various unresolved legal actions which arise in the normal course of its business. None of these matters are expected to have a material adverse effect on the Company’s financial position or results of operations. However, the ultimate resolution of these matters cannot be determined at this time.

At June 30, 2011 and December 31, 2010, the Company had outstanding inventory purchase orders with suppliers totaling approximately $29.2 million and $19.9 million, respectively.

(12)

PRODUCT WARRANTY COSTS AND INVENTORY VALUATION RESERVES

The Company warrants to the consumer who purchases its products that it will repair or replace, without charge, defective products within one year of purchase. The Company also has a return policy that allows its customers to return to the Company products returned to them by their customers for full or partial credit based on when the Company’s customer last purchased these products.

Consequently, it maintains a warranty reserve, which reflects historical warranty return rates by product category multiplied by the most recent six months of unit sales of that model and the unit standard cost of the model. A roll-forward of the warranty reserve follows:


	Six Months Ended June 30, 2011			Year Ended December 31, 2010
	(In Thousands)
Accrued product warranty costs, beginning of period	$	923		$	857
Warranty provision		1,424			2,390
Warranty expenditures		(1,568	)		(2,324	)

Accrued product warranty costs, end of period	$	779		$	923

The Company maintains a liquidation reserve representing the write-down of returned product from its customers to its net realizable value. Returned inventory is either sold to various liquidators or returned to vendors for partial credit against similar, new models. The decision to sell or return products to vendors depends upon the estimated future demand for the models. Judgments are made as to whether various models are to be liquidated or returned to the vendor, taking into consideration the liquidation prices expected to be received and the amount of the vendor credit. The amount of the reserve is determined by comparing the cost of each unit returned to the estimated amount to be realized upon each unit’s disposition, either from returning the unit to the vendor for partial credit towards the cost of new, similar product or liquidating the unit. This reserve can fluctuate significantly from quarter to quarter depending upon quantities of returned inventory on-hand and the estimated liquidation price or vendor credit per unit. A roll-forward of the liquidation reserve follows:


	Six Months Ended June 30, 2011			Year Ended December 31, 2010
	(In Thousands)
Liquidation reserve, beginning of period	$	777		$	648
Liquidation provision		1,175			2,229
Liquidation of models		(1,011	)		(2,100	)

Liquidation reserve, end of period	$	941		$	777

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


	Six Months Ended June 30, 2011			Year Ended December 31, 2010
	(In Thousands)
Net realizable reserve, beginning of period	$	206		$	238
NRV provision		186			329
NRV write-offs		(206	)		(361	)

Net realizable reserve, end of period	$	186		$	206

(13)

INTEREST EXPENSE AND OTHER INCOME (EXPENSE)

The following table shows the components of Interest Expense for the three and six month periods ending June 30, 2011 and 2010:


	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
	(In Thousands)						(In Thousands)
Interest on debt	$	(161	)	$	(279	)	$	(332	)	$	(575	)
Amortization of loan fees		(58	)		(61	)		(116	)		(114	)
Interest rate swap amortization		(36	)		28			(75	)		61

	$	(255	)	$	(312	)	$	(523	)	$	(628	)

The following table shows the components of Other Income (Expense) for the three and six month periods ending June 30, 2011 and 2010:


	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
	(In Thousands)						(In Thousands)
CSV (expense) income	$	(61	)	$	(248	)	$	159		$	(179	)
Foreign exchange (expense) income		(35	)		(90	)		45			(139	)
Other - net		(7	)		44			(43	)		52

	$	(103	)	$	(294	)	$	161		$	(266	)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

ANALYSIS OF RESULTS OF OPERATIONS

Executive Summary – Second Quarter

Pre-tax earnings for the second quarter of 2011 totaled $593,000 compared to a pre-tax loss of $354,000 for the year ago quarter, an improvement of $947,000. Key factors contributing to the significant improvement were:

•

Net sales increased $3.2 million or 12.3 percent due to higher sales in both the Cobra and PPL segments

•

Gross margin increased 1.9 points to 28.4 percent due to favorable product mix and sales of higher margin new products

•

Selling, general and administrative expenses as a percentage of net sales decreased 0.5 points to 25.0 percent

As a result of the foregoing, earnings from operations for the second quarter of 2011 totaled $951,000 compared to $252,000 for the second quarter of 2010 – an improvement of $699,000 in operating income. Other expenses decreased $248,000 mainly due to lower interest expense and lower cash surrender value (“CSV”) expense. The combined impact of the improved operating results and the decrease in other expenses was a $947,000 increase in pre-tax earnings.

With the continuation of a full valuation allowance for its U.S. operations the consolidated tax provision totaled $76,000 for the second quarter of 2011 compared to a $10,000 tax provision for the same quarter last year. The net earnings for the three month period ending June 30, 2011 was $517,000, or a $.08 earnings per share, compared to the $364,000 loss, or a $.06 loss per share, for the three month period ending June 30, 2010.

Executive Summary – Six Months

Pre-tax loss for the first half of 2011 totaled $233,000 compared to a pre-tax loss of $1.7 million for the same period last year, an improvement of $1.5 million. Key factors contributing to the significant improvement were:

•

Net sales increased $4.5 million or 9.6 percent due to higher sales in both the Cobra and PPL segments

•

Gross margin increased 0.4 points to 27.3 percent due to favorable product mix and sales of higher margin new products

•

Selling, general and administrative expenses as a percentage of net sales decreased 1.7 points to 27.1 percent

As a result of the foregoing, earnings from operations for the first half of 2011 totaled $129,000 compared to an $827,000 loss for the first six months of 2010 - an improvement of $956,000 in operating income. Other expenses decreased $532,000 mainly due to lower interest expense and CSV income. The combined impact of the improved operating results and the decrease in other expenses was a $1.5 million increase in pre-tax earnings.

The consolidated tax provision, including the continuation of the valuation allowance for U.S operations, totaled $69,000 for the first half of 2011 compared to a $3,000 provision for the same period of 2010. The net loss for the six month period ending June 30, 2011 was $302,000, or a $.05 loss per share, compared to the $1.7 million loss, or a $.27 loss per share, for the six month period ending June 30, 2010.

Correction of Immaterial Errors

In the second quarter of 2011, management discovered that the Company’s customs broker used an incorrect duty rate for its detection products. The cumulative adjustment for the incorrect duty rate, covering July 1, 2006 to June 30, 2011, approximated $1.5 million. The adjustment applicable to the second quarter of 2010 was approximately $48,000, the adjustment applicable to the first half of 2010 was approximately $91,000, and the adjustment applicable to prior years (2006 - 2010) totaled approximately $1.4 million.

Pursuant to the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, the Company concluded that the errors were not material to any of its prior period financial statements. However, in accordance with SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements, the prior period financial statements were revised. Prior period amounts stated in this Form 10-Q have been revised to facilitate comparability between current and prior year periods.

EBITDA

The following table shows the reconciliation of net earnings (loss) to EBITDA and EBITDA As Defined for the three and six months ending June 30, 2011 and 2010:


	Three Months Ended June 30						Six months Ended June 30
	2011			2010			2011			2010
	(In Thousands)						(In Thousands)
Net earnings (loss)	$	517		$	(364	)	$	(302	)	$	(1,724	)
Depreciation/amortization		954			957			1,857			1,907
Interest expense, excluding loan fee amortization		197			251			407			514
Income tax provision		76			10			69			3

EBITDA		1,744			854			2,031			700
Stock option expense		28			57			142			113
CSV loss (income)		61			248			(159	)		179
Other non-cash items		(89	)		390			(79	)		1,077

EBITDA As Defined	$	1,744		$	1,549		$	1,935		$	2,069

Other non-cash items shown in the preceding EBITDA reconciliation include exchange gains and losses and deferred revenue.

EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA As Defined represents EBITDA adjusted to conform with the EBITDA measurement used to measure compliance with the financial covenants under the Company’s Credit Agreement. The Company believes EBITDA is a useful performance indicator and is frequently used by management, securities analysts and investors to judge operating performance between time periods and among other companies. The Company uses EBITDA As Defined to assess operating performance and ensure compliance with financial covenants.

EBITDA and EBITDA As Defined are non-GAAP performance indicators that should be used in conjunction with GAAP performance measurements such as net sales, operating profit and net income to evaluate the Company’s operating performance. EBITDA and EBITDA As Defined are not alternatives to net income or cash flow from operations determined in accordance with GAAP. Furthermore, EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies.

Second Quarter — 2011 vs. 2010

The following table contains sales and pre-tax income (loss) by business segment for the three months ending June 30, 2011 and 2010:


	2011				2010					2011 vs. 2010 Increase
	(In Thousands)
Business Segment	Net Sales		Pre-tax Income		Net Sales		Pre-tax Loss			Net Sales		Pre-tax Income
Cobra	$	24,812	$	460	$	22,212	$	(94	)	$	2,600	$	554
PPL		4,048		133		3,498		(260	)		550		393

Total Company	$	28,860	$	593	$	25,710	$	(354	)	$	3,150	$	947

Cobra Business Segment

Cobra net sales increased $2.6 million, or 11.7 percent, in the second quarter of 2011 to $24.8 million compared to $22.2 million in the second quarter of 2010. The increase was mainly attributable to higher sales of domestic Citizens Band radio and GPS Mobile products and at CEEL because of strong sales of detection products into Eastern Europe. Strong demand for the new 29 LX, introduced earlier this year, drove the increase in Citizens Band radio sales while the higher GPS Mobile sales were due to the introduction of two models, the 7750 PLT introduced in the third quarter of 2010 and the 5500 PRO introduced in the first quarter of 2011. Sales of Cobra iRadar™, introduced late in 2010, also contributed to the increase in net sales increase for the current quarter.

Gross profit increased $893,000, or 15.3 percent, to $6.7 million for the second quarter of 2011, while gross margin improved 0.8 points to 27.2 percent from 26.4 percent in the prior year’s quarter. The majority of this improvement was due to a higher domestic gross margin as a result of an improved product mix and gross margin increases in most of Cobra’s major product categories. The favorable product mix reflected a greater proportion of higher-margin Citizen Band radio sales. The higher category margins reflected mainly the impact of new higher-margin models.

Selling, general and administrative expense increased $523,000, or 9.7 percent, to $5.9 million for the second quarter of 2011 compared to $5.4 million in the prior year’s quarter and, as a percentage of net sales, were 24.0 percent and 24.4 percent, respectively. The increase was primarily in fixed expenses, principally higher public relations and media expenses to support new products, which were up $551,000. Partially offsetting this increase were lower engineering and general & administrative costs, down $66,000, mainly resulting from lower payroll expense due to the replacement of executive officers who retired or resigned.

Interest expense was $255,000 in the second quarter of 2011 and included $36,000 in amortization expense related to an interest rate swap that was terminated in the second half of 2010, while interest expense was $311,000 in the second quarter of 2010 and included $28,000 of interest rate swap amortization income. Excluding the interest rate swap amortization, interest decreased $121,000 primarily because of lower interest rates as a result of the new Credit Agreement entered into in July 2010. Other expense decreased from $215,000 for the year ago period to $87,000 for the current quarter, mainly due to lower CSV expense, higher foreign exchange losses and lower royalty income.

As a result of the above, the Cobra segment had a pre-tax income of $460,000 in the second quarter of 2011 compared to a pre-tax loss of $94,000 in the second quarter of 2010.

Performance Products Limited (“PPL”) Business Segment

PPL’s net sales increased $550,000, or 15.7 percent, to $4.0 million in the second quarter of 2011 compared to the same quarter last year. Higher sales of satellite navigation products offset the decline in the GPS, outdoor leisure products and download fees. Sales of the Truckmate^TMproducts, including the new the S6000 model, contributed to the 29.9 percent increase in satellite navigation products in 2011as compared to 2010.

Gross profit increased $481,000, or 49.9 percent, to $1.4 million for the second quarter of 2011 and gross margin increased 8.2 points to 35.7 percent from 27.5 percent in the prior year’s quarter. The improved gross margin was due primarily to favorable product mix and an exchange gain on inventory for the second quarter of 2011 compared to a loss for the same period in 2010.

Selling, general and administrative expenses increased $152,000, or 13.3 percent, to $1.3 million for the current quarter from $1.1 million in the prior year’s quarter and as a percentage of net sales, were 32.0 percent and 32.7 percent, respectively. The increase was due primarily to higher variable selling costs for commissions as well as higher overseas travel, legal fees and payroll due to two employee additions.

Other expense for the second quarter of 2011 decreased $63,000 compared to the second quarter of 2010, principally due to lower foreign exchange losses in 2011 as compared to 2010.

As a result of the above, the PPL segment had a pre-tax income of $133,000 for the second quarter of 2011 compared to a pre-tax loss of $260,000 for the second quarter of 2010.

Six Months — 2011 vs. 2010

The following table contains sales and pre-tax income (loss) by business segment for the six months ending June 30, 2011 and 2010:


	2011					2010					2011 vs. 2010 Increase
	(In Thousands)
Business Segment	Net Sales		Pre-tax Income (Loss)			Net Sales		Pre-tax Loss			Net Sales		Pre-tax Income
Cobra	$	43,521	$	(389	)	$	39,767	$	(1,576	)	$	3,754	$	1,187
PPL		7,778		156			7,026		(145	)		752		301

Total Company	$	51,299	$	(233	)	$	46,793	$	(1,721	)	$	4,506	$	1,488

Cobra Business Segment

Cobra net sales increased $3.7 million, or 9.4 percent, in the first half of 2011 to $43.5 million compared to $39.8 million in the first half of 2010. The increase resulted primarily from higher domestic sales and sales at CEEL. Domestically, Citizens Band radios and GPS Mobile products were responsible for the sales increase. Citizens Band radio sales benefitted from strong demand for the new 29LX introduced earlier this year while GPS Mobile sales benefitted from the 7750 PLT introduced in the third quarter of 2010 and the 5550 PRO introduced in the first quarter of 2011. Cobra iRadar, introduced late in 2010, also contributed to the increase in net sales for the current period.

Gross profit increased $1.1 million, or 10.2 percent, to $11.5 million for the first six months of 2011 and gross margin increased 0.2 points to 26.3 percent from 26.1 percent in the first half of 2010. The increase in gross margin resulted from a more favorable domestic product mix, reflecting a greater proportion of higher-margin Citizen Band radio and GPS Mobile sales. Margins in both of these categories improved because of the introduction of new products, including the 29 LX Classic Citizens Band radio and the 5550 PRO truck navigation unit.

Selling, general and administrative expense increased $172,000, or 1.5 percent, to $11.4 million from $11.2 million for the same period last year, and, as a percentage of net sales, was 26.2 percent and 28.2 percent, respectively. Variable selling costs decreased $416,000, or 17.3 percent, mainly because of higher sales to a customer that has a low variable selling cost program. Fixed selling and marketing expenses increased $885,000, or 36.0 percent, mainly due to higher public relations, media and show expenses to support new products. Engineering and general and administrative expenses decreased $297,000, or 4.6 percent, mainly because of reduced consulting and professional fees, with some of the reduction due to timing, as well as lower payroll and deferred compensation expenses because of the replacement of two long-term executive officers.

Interest expense was $523,000 in the first half of 2011 and included $75,000 in amortization expense related to an interest rate swap that was terminated in the second half of 2010, while interest expense was $627,000 in the first half of 2010 and included $61,000 of interest rate swap amortization income. Excluding the interest rate swap amortization, this was a decrease of $241,000, which was primarily due to lower interest rates as a result of the Company’s new credit agreement entered into in July 2010. Other income increased $197,000 from the year ago period to $68,000, mainly due to CSV income in 2011 compared to an expense in 2010, a foreign exchange loss in 2011 compared to a gain in 2010 and lower royalty income in 2011 compared to 2010.

As a result of the above, the Cobra segment had a pre-tax loss of $389,000 in the first half of 2011 compared to a pre-tax loss of $1.6 million in the same period in 2010 - an improvement of $1.2 million from 2010.

Performance Products Limited (“PPL”) Business Segment

PPL’s net sales increased $752,000 or 10.7 percent, to $7.8 million in the first half of 2011 compared to the year ago period. Higher sales of satellite navigation products offset the decline in the GPS, outdoor leisure products and download fees. Sales of the Truckmate products, including the new the S6000 model, contributed to the 26.1 percent increase in satellite navigation products in 2011 as compared to 2010.

Gross profit increased $345,000, or 15.5 percent, to $2.6 million for the first six months of 2011, and gross margin increased 1.4 points to 33.0 percent from 31.6 percent in 2010. The improved gross margin was due primarily to favorable product mix.

Selling, general and administrative expenses increased $275,000, or 12.3 percent, to $2.5 million from the $2.2 million in the first half of 2010 and as a percentage of net sales, was 32.2 percent and 31.7 percent, respectively. The increase was due primarily to higher variable selling costs for commissions as well as higher overseas travel, legal fees and payroll due to two employee additions.

Other income for the first six months of 2011 increased $230,000 compared to the same period in 2010, principally due to foreign exchange gains in 2011 compared to foreign exchange losses in 2010.

As a result of the above, the PPL segment had a pre-tax income of $156,000 for the first half of 2011 compared to a pre-tax loss of $145,000 for the first half of 2010.

LIQUIDITY AND CAPITAL RESOURCES

The Company refinanced its bank debt in 2010 and replaced a $23.0 million revolving asset-based credit facility and a $2.2 million term loan with a $25.0 million revolving asset-based credit facility. The current Credit Agreement provides a lower cost credit facility and greater liquidity due to the borrowing base formula. Refer to Note 5, Financing Arrangements, for additional information.

At June 30, 2011, the Company had interest bearing debt outstanding of $15.9 million borrowed under the Credit Agreement. As of June 30, 2011, credit availability was approximately $5.4 million under the Credit Agreement. Additionally, the Company’s Credit Agreement permits an “overadvance” of up to $1.0 million for sixty consecutive days. For the six months ended June 30, 2011, net cash flows provided by operating activities totaled $4.0 million. Significant net cash inflows from operations and non-cash add-backs included a decrease in accounts receivable of $4.7 million and non-cash depreciation and amortization of $1.9 million. The decrease in accounts receivable was primarily due to normal collections of receivables and lower sales in the second quarter of 2011 compared to sales in the fourth quarter of 2010. Partially offsetting these inflows was a net loss of $302,000, an increase in inventories of $1.1 million, primarily due to a seasonal build-up for the second half of 2011, and a decrease in payables of $1.3 million. Excluding the effect of the $1.5 million accrual for the underpayment of custom duties for the previous five years, the decrease in payables from the prior year would have been $2.8 million. The Company plans to execute the $1.5 million payment for the unpaid custom duties in the near future.

Working capital requirements are seasonal, with demand for working capital being higher later in the year as customers begin purchasing for the holiday selling season. The Company believes that cash generated from operations and from borrowings under its Credit Agreement will be sufficient in 2011 to fund its working capital needs.

Net cash used in investing activities for the first half of 2011 totaled $1.5 million. Property, plant and equipment additions, primarily building improvements, computer hardware and tooling totaled $579,000. Intangible asset additions, primarily for new product software, patents and trademarks, totaled $596,000 and premium payments for life insurance totaled $342,000.

Net cash used in financing activities in the first six months of 2011 totaled $2.1 million and was used to reduce bank debt. The Company is not expected to pay a dividend in 2011.

A failure to comply, absent a waiver from lenders, with the covenants contained in the Credit Agreement in future periods could result in any outstanding indebtedness under the Credit Agreement becoming immediately due and payable and in the inability to borrow additional funds under the Credit Agreement. The Company believes that, for the foreseeable future, it will be able to continue to fund its operations and seasonal working capital requirements with cash generated from operations and borrowings under the Credit Agreement.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies and estimates consist of those that reflect significant judgments and uncertainties and could potentially result in materially different results under different assumptions. For a description of the Company’s critical accounting policies and estimates refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the Company as well as the related footnote disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable. If actual amounts ultimately differ from previous estimates, the revisions are included in the Company’s results of operations for the period in which the actual amounts become known.

FORWARD-LOOKING STATEMENTS

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

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

•

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

•

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

•

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

•

significant competition in the consumer electronics industry, including introduction of new products and changes in pricing;

•

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

•

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

•

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

•

changes in law;

•

ability to successfully integrate acquisitions, including PPL; and

•

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

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Market risks related to changes in foreign currency exchange and interest rates are inherent to the Company’s operations. Changes to these factors could cause fluctuations in the Company’s net earnings, cash flows and the fair values of financial instruments subject to market risks. Future changes in the applicable interest rate will affect the interest expense incurred by the Company on its outstanding indebtedness.

There have been no material changes in the Company’s market risk since December 31, 2010.

Item 4.

Controls and Procedures

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

As of June 30, 2011, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of June 30, 2011.

There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1A.

Risk Factors

There have been no material changes to the risk factors as previously disclosed under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 6.

Exhibits

a)	Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

b)	Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

c)	Exhibit 32.1 Section 1350 Certification of the Chief Executive Officer.

d)	Exhibit 32.2 Section 1350 Certification of the Chief Financial Officer.

e)	Exhibit 101 Financial statements and footnotes formatted in XBRL (eXtensible Business Reporting Language).

SIGNATURE

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


COBRA ELECTRONICS CORPORATION

By		/s/ Robert J. Ben
		Robert J. Ben
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Dated: August 12, 2011

INDEX TO EXHIBITS


Exhibit Number		Description of Document

31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

32.1		Section 1350 Certification of the Chief Executive Officer.

32.2		Section 1350 Certification of the Chief Financial Officer.

101		Financial statements and footnotes formatted in XBRL (eXtensible Business Reporting Language).

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company