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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

Commission File Number 0-511

COBRA ELECTRONICS CORPORATION

(Exact name of Registrant as specified in its Charter)

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.33 ¹/3 Per Share

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 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 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.  ¨

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

The aggregate market value of the voting and non-voting common equity (only Common Stock) held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market on June 30, 2004, was $58,325,576.

The number of shares of Registrant’s Common Stock outstanding as of March 4, 2005 was 6,444,815.

Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Shareholders, scheduled to be held on May 10, 2005, are incorporated by reference into Part III of this Report.

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PART I

Item 1.  Business

General

Cobra Electronics Corporation (the “Company” or “Cobra”), incorporated in Delaware in 1961, is a public company traded on The NASDAQ Stock Market under the symbol “COBR”. The Company is a leading manufacturer of two-way mobile communications products in the United States, Canada and Europe, holding the number one or strong number two-position in each of its longstanding product lines and targeting a similar position for businesses recently entered into, namely portable mobile navigation systems, marine VHF radios and marine power inverters. The Company has a 40-year track record of innovation and the development of award-winning products, and is an industry leader in developing technology applications that serve consumers’ needs. Management believes that the Company’s future success depends upon its ability to predict and respond in a timely and effective manner to changes in the markets it serves. Product performance, reliability, price, availability and service are the main competitive factors. Also, sales are dependent upon timely introduction of new products, which incorporate new features desired by consumers, at competitive prices. Cobra is the number one brand in Citizens Band radios and radar detectors and a strong number two in the worldwide Family Radio Service/General Mobile Radio Service (“FRS/GMRS”) two-way radio category.

In 2003, Cobra introduced a line of hand-held GPS devices for recreational use and a line of marine radios and power inverters. In 2004, Cobra entered the mobile navigation market with the introduction of its “Plug and Go” mobile navigation devices.

Recent Developments

Innovation remains the hallmark of Cobra’s success, as demonstrated by just a few of its recent product introductions and other recent developments.

In the third quarter of 2004, Cobra began selling the NAV ONE^™ 3000, a “Plug and Go” mobile navigation system incorporating industry-leading features that eliminate the need to download maps from computers. This event marked a milestone for the Company, as it made the jump from selling hardware to selling technology. The product was introduced at the January 2004 International Consumer Electronics Show where it won two International CES Innovations Awards from the Consumer Electronics Association for the product’s groundbreaking features. These innovative features include an infrared port which allows users to beam an address directly to the unit from a Palm^® or Pocket PC^® PDA, eliminating the need to key in an address, the largest high-resolution screen in its class (at 5.2 inches with ultra-bright color display) and an internal gyroscope which tracks the vehicle’s position even when the satellite signal is temporarily lost while traveling in an urban area or through dense foliage.

After introducing the GPS 100 and GPS 500 in 2003, Cobra began selling the GPS 1000 DLX during the third quarter of 2004. This marked Cobra’s most advanced entry into the hand-held GPS market to date, as the model comes preprogrammed with Rand McNally^™ Street Finder software for street-level mapping detail. This unit also uses the next generation of iA.S.A.P^™ technology for accelerated acquisition times and is memory card compatible for expanded memory.

Following up on the success of Cobra’s 2003 line of microTALK^® FRS/GMRS two-way radios, that included the PR 4000-2 WX (selected to receive Popular Mechanic’s prestigious “Editor’s Choice” award at the 2003 International Consumer Electronics Show), the 2004 line provided the consumer with the industry’s longest available range in the FRS/GMRS two-way radio category. Cobra offered seven 22-channel radios during 2004, making it the first manufacturer to offer a full line of extended range two-way radios.

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Cobra radar detection products incorporate industry leading detection technology that increases range and detects the new K and Ka POP Modes as well as exclusive features that reduce false alerts, warn drivers about emergency vehicles and preserve power. This combination of features, performance and safety is unmatched by any other radar detector manufacturer and has made Cobra the clear market leader.

In the first quarter of 2004, Cobra made its first line of entry-level and professional-grade marine products available to retailers nationwide and in England. The Cobra Marine^™ line features handheld and fixed dual power VHF marine transceivers, and marine power inverters. This product line is distinguished by premium features and industry firsts focused on usability and safety.

Cobra will introduce three new mobile navigation products in late 2005. The NAV ONE 2750 will provide consumers with a more affordable alternative to the NAV ONE 3000, while still providing the “plug and go” capabilities. The NAV ONE 4000 will have a new design, featuring touch-screen capability and a new user interface. The NAV ONE 4500, in addition to the design upgrades of the NAV ONE 4000, will feature real-time traffic information, providing drivers in up to 50 metropolitan areas with warnings of accidents, traffic congestion or other delays and offering users an opportunity to reroute their trip.

Building upon its award-winning heritage of intuitively designed and solid performing products, Cobra’s 2005 line of microTALK two-way radios will feature extended communication ranges of up to 4, 8, 10 and an industry-leading 12 miles. As the first and only two-way radio on the market with 22 channels, 38 privacy codes and 83 DCS codes, the top-of-the-line PR 4700 WX offers users unparalleled privacy code options. The complete line of new two-way radios will be available at major retailers beginning in the second quarter of 2005.

Suppliers

One of the Company’s fundamental strengths is its product sourcing ability. Substantially all of the Company’s products are manufactured to its specifications and engineering designs by a number of suppliers, primarily in China, Hong Kong and the Philippines. The Company maintains control over the design and production quality of its products through its wholly owned subsidiary in Hong Kong which seeks out new suppliers, monitors technological changes, performs source inspection of key suppliers, provides selected engineering services and expedites shipments from suppliers.

Over a period of years, the Company has developed a network of suppliers for its products. To maintain flexibility in product sourcing, all of the Company’s supply contracts with its suppliers can be terminated by the Company “at will.” While it is the Company’s goal to maintain strong relationships with its current suppliers, management believes that, if necessary, alternate suppliers could be found. The extent to which a change in a supplier would have an adverse effect on the Company’s business depends upon 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, under certain limited circumstances, reimburse the Company for lost profits resulting from a supplier’s inability to fulfill its commitments to the Company. The Company negotiates substantially all of its purchases in U.S. dollars to protect itself from currency fluctuations. Assets located outside of the United States, principally Company-owned tooling at suppliers, had a net book value of $2.2 million at December 31, 2004.

Research, engineering and product development expenditures are expensed as incurred. These expenditures amounted to approximately $2.4 million in 2004, $2.0 million in 2003 and $1.5 million in 2002.

Products

The Company operates only in the consumer electronics industry. Principal products include:

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The Company competes primarily in the United States with various manufacturers and distributors of consumer electronics products, principally on the basis of product features and price, and expects the market for its products to remain highly competitive. The Company also markets its products in over 30 countries around the world through distributors.

Other than for mobile navigation and hand-held GPS products, the Company does not believe that patents and other intellectual property are of material importance to its products. However, when the Company develops a unique technology (such as VibrAlert^™ vibrating technology for two-way radios), patents are applied for to preserve exclusivity, wherever possible. The Company has entered into agreements with various providers and/or developers of intellectual property used in connection with its GPS products, including Horizon Navigation, Inc. and AtBrain Corporation. The Company has negotiated agreements with these parties that guarantee exclusivity with respect to certain product categories and distribution channels, which management believes protects the Company’s rights to the underlying intellectual property. The Company’s microTALK FRS/GMRS two-way radios, 9 Band, 10 Band, and 11 Band detectors with exclusive Strobe Alert technology, SoundTracker and NightWatch Citizens Band radios, HighGear accessories, GPS receivers, marine products and mobile navigation devices are marketed under the Cobra brand name.

The Company introduced the NAV ONE 3000 at the 2004 International Consumer Electronics Show where it won two 2004 International CES Innovations Awards from the Consumer Electronics Association for its innovative features. The NAV ONE 3000 began selling in the third quarter of 2004, and marked a milestone for the Company, as it made the leap from selling hardware to selling technology. The model contains several innovative features including an infrared port which allows users to beam an address directly to the unit from a Palm^® or Pocket PC^® PDA eliminating the need to key in an address, the largest high-resolution screen in its class (at 5.2 inches with ultra-bright color display) and an internal gyroscope which tracks the vehicle’s position even when the satellite signal is temporarily lost while traveling in an urban area or through dense foliage. The Company estimates that the domestic market for mobile navigation in factory net sales during 2004 was approximately $280 million compared to $228 million in 2003 (based on data from Frost & Sullivan).

In 1997, the Company entered the FRS two-way radio market and in the fall of 1998 began selling its new microTALK line. The Company has attained a strong number two market position in the domestic FRS/GMRS two-way radio market. The Company estimates that the domestic market for FRS/GMRS two-way radios in factory net sales in 2004 was approximately $140 million compared to $180 million in 2003 (based on Consumer Electronics Association data).

FRS/GMRS two-way radios operate on UHF FM frequencies, which allow for an extremely small hand-held radio and exceptionally clear sound that penetrates through buildings and other obstacles. Unlike cellular phones, these radios require no monthly fee and provide coverage even in the most remote areas. Because of their range—up to twelve-miles (for certain 2005 GMRS models, which require a license)—and exceptionally clear sound quality, the radios enable families and friends to easily keep in touch in the many situations where they typically get separated and are out of earshot, such as in shopping malls, amusement parks and ski resorts. FRS/GMRS two-way radios also provide parents with an easy way to maintain contact with children when they are outside playing.

In 2001, GMRS two-way radios started to become more of a factor in the market place as consumers demanded a greater operating range than conventional FRS radios could provide. GMRS radios provide a range of up to

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twelve miles. Another key to Cobra’s success in the FRS/GMRS market has been its emphasis on value packs, which include battery chargers, rechargeable batteries and other accessories along with the radios.

The Company’s microTALK two-way radios have innovative features, including incoming call alert that lets one user “ring” another user and talk confirmation tones that subtly let users know when the other party is done talking. Certain models even have a patented VibrAlert feature that works like a silent vibrating pager, which makes it perfect for situations where noiseless operation is important or where a ring alert cannot be easily heard. Also, certain models incorporate a ten-channel NOAA all hazards alert radio, which warns of weather, chemical and other civilian emergencies.

In 1999, the Company launched its European line of microTALK PMR radios in the United Kingdom, France, Spain, Germany, Sweden and Finland, and now holds a leading share in the European market. In 2000, as part of its European strategy to be closer to its customers, the Company formed an Irish subsidiary, Cobra Electronics Europe Limited, which is headquartered in Dublin, Ireland. As of December 31, 2004, the Company had 11 distributors serving approximately 22 countries in Europe.

In the second quarter of 2000, Cobra began selling its microTALK FRS radios in Canada, which approved the technology in March 2000, and now holds the number one share of this market. Additionally, the Canadian government approved the sale of GMRS radios in 2004. Cobra holds the number one share of this market as well.

Cobra is the number one brand in the domestic market for integrated radar/laser detectors. In factory net sales, the Company estimates that the U.S. market for integrated radar/laser detectors was approximately $64 million in 2004 and $59 million in 2003 (based on CEA data). Cobra commands the number one market share by offering innovative products with the latest technology.

The Company has been a leader in applying laser detection technology, including introducing the industry’s first laser-signal detector and the industry’s first integrated radar/laser detector with 360 degree laser detection capability. The Company was also the first to introduce to the retail channel “intelligent” detection systems capable of alerting drivers with a differentiated signal for each of the frequencies emitted by the Company’s patented, FCC-approved Safety Alert^™ transmitter. The Company’s Safety Alert Traffic Warning System is designed to help drivers avoid potentially serious accidents with police, fire, EMS and public utility vehicles.

In late 1999, the Company introduced the world’s first and, then, only line of 9 Band radar detection systems. This line provided detection of two laser systems, Ultra Lyte and ProLaser. In addition, this line was the first to incorporate the exclusive Strobe Alert feature. This technology alerts drivers to the presence of high-speed emergency vehicles equipped with strobe transmitters to control traffic signals. In 2000, the Company introduced the world’s first 10 Band radar detection system, which features a high-speed RISC processor and offers 10 bands of protection, including Cobra’s patented Safety Alert warning system and exclusive Strobe Alert detection. Unlike competing radar detection systems, 10 Band radar detectors enable motorists to detect eight speed-monitoring systems and distinguish between four types of laser systems on the road today, including, LTI 20/20, Ultra Lyte, ProLaser and ProLaser III. In 2001, Cobra introduced the world’s first radar detector incorporating a 10-channel weather radio.

In 2002, the Company introduced the innovative SmartMute^™ feature that is standard on Cobra’s 10 Band and 11 Band radar/laser detectors. An enhanced SmartMute feature called Intellimute^™ was introduced in 2004. This technology automatically mutes unwanted audible alerts below a driver-set speed, based on engine revolutions per minute.

In 2003, the Company introduced the market’s first 11 Band models, which alert drivers to the Spectre devices used to detect the presence of radar detectors in vehicles. These models also employ SmartPower^™ technology, which avoids inadvertent car battery draining that could occur in certain automobiles by not turning the detector off when the vehicle has been turned off.

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In 2004, the Company introduced a new line of radar detectors that incorporates industry-leading technology that increases range and detects the new K and Ka POP Modes. The line also includes IntelliShield^™ software that significantly reduces false alerts in densely populated urban areas. The “city mode” has three settings for enhanced false signal rejection.

Cobra is the leading brand in the domestic Citizens Band radio market, which the Company estimates to be approximately $38 million in factory net sales (based on Industrial Marketing Research (IMR) data) in 2004 and $44 million in 2003 (based on IMR data). Approximately 90 percent of this market is for mobile Citizens Band radios, most of which are purchased by professional truck drivers. The remaining part of the domestic market is for hand-held Citizens Band radios used for sport and recreational activities.

The Company has a history of being the technology leader in the Citizens Band radio market. The Company was the first Citizens Band radio marketer to combine a National Weather Service receiver with a mobile Citizens Band radio, enabling motorists to obtain weather and travel information broadcasts. As a major enhancement of this feature, the Company also introduced the industry’s first mobile Citizens Band radio that incorporated an automatic alert feature to warn of National Weather Service emergency advisories. In 1997, the Company introduced its SoundTracker technology. This patented noise reduction technology, which dramatically improved the sound quality of the Citizens Band radios when the Citizens Band radio is in receiving mode, was the first significant product innovation in this category in several years. Additionally, SoundTracker technology allows the user’s voice to break through cluttered airwaves and to be more easily heard when transmitting.

In 1999, the Company introduced a new line of Citizens Band radios featuring an adjustable illuminated front panel. The NightWatch line enhanced drivers’ safety by making it dramatically easier for them to see and adjust their Citizens Band radio controls at night. The vast majority of the nine million mobile Citizens Band radios used by professional truck drivers today are not illuminated despite the fact that these drivers spend a significant amount of time driving at night.

Additionally, in 2000 Cobra started its HighGear accessories division to develop and market high quality Citizens Band radio microphones and external speakers.

In 2003, Cobra introduced a new line of hand-held GPS models incorporating the industry’s first truly user-friendly features, which addressed what has traditionally been the primary barrier to consumer acceptance. The Company estimates that the domestic market for hand-held GPS receivers in factory net sales in 2004 was $375 million and approximately $325 million in 2003 (based on data from Allied Business and Frost & Sullivan).

The GPS 100 and GPS 500 models include Cobra’s exclusive A.S.A.P^™, a technology that accesses 18 channels, as opposed to the category standard of 12, to locate a user’s position up to twice as fast as any other GPS technology in the consumer market. The recently introduced GPS 1000 DLX uses iA.S.A.P technology, which matches the performance of 18 channel technology, but only requires 12 channels, thus reducing power requirements and extending battery life. In addition, Cobra’s GPS 500 and GPS 1000 DLX models include Rand McNally^™ mapping software, with worldwide city and state coordinates, Canadian province and European national boundaries. Both models allow users to download points of interest from a personal computer using the optional Rand McNally^™ software and the GPS 1000 DLX allows users to download street-level detail.

In the fourth quarter of 2003, Cobra introduced its first line of entry-level and professional-grade marine electronics. The new product line is distinguished by premium features and industry firsts focused on usability and safety. The marine product line consists of fixed and hand-held dual power marine VHF transceivers, as well as marine power inverters.

Competition

Major competitors of the Company are Garmin and Magellan (Mobile Navigation and GPS receivers); Motorola, Audiovox and Uniden (FRS/GMRS); Whistler and Escort/Beltronics (Detectors); Uniden, Midland and Radio Shack (Citizens Band radios); Icom, Uniden and Standard Radio (Marine products).

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Sales and Distribution

Demand for consumer electronics products is somewhat seasonal and varies according to channel of distribution. Historically, sales in the last half of the year are significantly greater than in the first half, reflecting increasing purchases by retailers for various promotional activities that begin mainly in the second quarter and culminate with the holiday selling season. Also, because mass retail accounts make up an increasing portion of the Company’s business, the Company has experienced a shift in orders from the third quarter to the fourth quarter when the mass retailers normally begin their load-in for the holiday selling season. In 2005, the Company will continue to focus on developing new customers in the marine/outdoor channel that will over time, reduce the fourth quarter seasonality, as sales in this channel tend to peak in the first and second quarters.

Cobra products are distributed through a strong, well-established network of nearly 300 retailers and distributors located primarily in the United States. Approximately 70 percent of the Company’s sales are made directly to mass marketers, such as consumer electronics specialty stores, large department store-chains, warehouse clubs, office supply chains, television home-shopping, direct-response merchandisers, home centers and specialty stores. Most of the remaining sales are through two-step wholesale distributors that carry Cobra products to fill orders for travel centers, truck stops, small department stores, appliance dealers, duty-free shops on cruise lines and for export. Cobra’s primary sales force is composed of independent sales representatives who work on a straight commission basis. They do not sell products of the Company’s competitors. The Company now estimates that its products are available in nearly 40,000 retail outlets in the U.S. In both Canada and Europe, the Company utilizes distributors, which sell primarily to retailers.

Customers which exceeded 10% of net sales in any one year are as follows: In 2004, sales to Wal-Mart and Best Buy were 17.7 percent and 14.2 percent, respectively. In 2003, sales to Wal-Mart and Best Buy were 22.3 percent and 13.0 percent of net sales, respectively. In 2002, sales to Best Buy and Wal-Mart were 14.3 percent and 13.3 percent of net sales, respectively.

International sales, primarily in Canada and Europe, were $18.2 million, $14.4 million and $15.1 million in 2004, 2003 and 2002, respectively. For additional financial information about geographic areas, see Note 11 to the Consolidated Financial Statements.

The Company’s return policies and payment terms are similar to those of other companies serving the consumer electronics market. The Company’s products generally must be shipped within a short time after an order is received and, as a result, order backlog is not significant.

The Company has registered the Cobra trademark in the U.S., most European countries and various other jurisdictions. The Company believes the Cobra trademark, which is indefinitely renewable by the Company, is a significant factor in the successful marketing of its products.

Employees

As of December 31, 2004, the Company employed 135 persons in the U.S. and 16 in its international operations. None of the Company’s employees is a member of a union.

Available Information

The Company’s website address is “www.cobra.com”. The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge through our website, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).

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Item 2.  Properties

The Company owns one building in Chicago, Illinois containing a total of approximately 93,000 sq. feet of office and warehouse space. The Company has approximately 7,000 sq. feet of leased office space in Hong Kong for its international operations and 1,650 sq. feet of leased office space in Dublin, Ireland for its European operations. The Company believes that these facilities are adequate to meet its current needs.

Item 3.  Legal Proceedings

The Company is subject to various unresolved legal actions and proceedings, which arise, in the normal course of its business. None of these actions is expected to have a material adverse effect on the Company’s financial condition or results of operations.

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

No matters were submitted during the fourth quarter of 2004.

Item 4A.  Executive Officers of the Registrant

The executive officers of the Company are as follows:

PART II

Item 5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock trades on The NASDAQ Stock Market under the symbol COBR. As of March 4, 2005, the Company had approximately 757 shareholders of record and approximately 1,711 shareholders for whom securities firms acted as nominees. The Company’s common stock is the only class of equity securities outstanding.

Under the terms of its credit agreement, the Company may not pay cash dividends.

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STOCK PRICE DATA

Note: Data compiled from The NASDAQ Stock Market Monthly Summary of Activity Reports.

Item 6.  Selected Financial Data

FIVE-YEAR FINANCIAL SUMMARY

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

Executive Summary

Net sales in 2004 increased 7.0% to $122.9 million for the year ended December 31, 2004, compared to $114.8 million in 2003 as a result of higher sales of newer products, including mobile navigation, handheld GPS and marine electronics as well as increased Detection and International sales. Gross margin decreased from 26.7% to 26.2% driven primarily by sales earlier in the year of certain end-of-life inventory and $614,000 of increased amortization expense on intangible assets associated with a change in estimated economic useful life for certain handheld GPS models. Selling, general and administrative expenses increased by $822,000 or 3.0%, but declined as a percentage of net sales from 24.0% to 23.1%, reflecting increased sales, higher research and development (“R&D”) expenses for new products, expenses related to the Company’s new Enterprise Resource Planning (“ERP”) system and higher deferred compensation expense, partially offset by lower bad debt expenses and a reserve reduction.

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Net earnings in 2004 were $2.4 million, or $0.36 per diluted share, compared to $1.8 million, or $0.28 per diluted share for 2003. Income tax expense in 2004 reflected additional tax expense for the establishment of a valuation allowance for the deferred net operating loss carry-forward tax asset related to Cobra Electronics Europe Limited.

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

Results of Operations

2004 Compared to 2003

The $8.1 million increase in net sales resulted from higher sales of newer products, including mobile navigation, marine electronics as well as increased Detection and International sales. A significant decline in sales in the two-way radio category in 2004, both in units and in price per unit, reflected market trends. This resulted in lower sales for the year to the Company’s largest customer, Wal-Mart. However, sales of mobile navigation products drove an increase in sales to Best Buy, the Company’s second largest customer.

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

Gross margin decreased from 26.7% to 26.2% driven primarily by sales earlier in the year of certain end-of-life inventory and $614,000 of increased amortization expense on intangible assets in the fourth quarter of 2004, associated with a change in estimated economic useful life for certain handheld GPS models. These were partially offset by a favorable impact from a stronger euro in 2004.

Selling, general and administrative expenses increased by $822,000 or 3.0%, but declined as a percentage of net sales from 24.0% to 23.1%, reflecting increased R&D expenses for new products, expenses related to the Company’s new ERP system and higher deferred compensation expense, partially offset by lower bad debt expenses and a reserve reduction.

R&D expense was higher by $434,000, which reflected headcount additions for new product development, both in the U.S. and Hong Kong. The Company anticipates that R&D costs will continue to increase as resources are acquired to support the anticipated growth of the Company’s navigation and marine products. Expenses related to the Company’s new ERP system amounted to approximately $290,000 and included consulting and temporary help, travel, meals and training. The $245,000 increase in deferred compensation expense was due to additional years of service for the Company’s President and CEO, who entered into a new five-year contract in 2004.

These increases were partially offset by a decrease in bad debt expense. The lower bad debt expense included a reduction of $308,000 in the allowance for doubtful accounts, based on the Company’s write-off history in the last five years and specifically identified accounts that might be at risk.

Interest expense of $110,000 for 2004 was $52,000 lower than 2003, due to lower average debt outstanding during 2004 and lower unused line fees that resulted from a reduction in the Company’s credit line from $55 million to $45 million.

Other income decreased by $66,000 compared to 2003 primarily due to a lower gain on the cash surrender value of life insurance policies.

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Income tax expense increased $194,000 to $1.5 million in 2004 due to an increase in pretax income and the establishment of a valuation allowance for the deferred net operating loss carry-forward tax asset related to Cobra Electronics Europe Limited. The effective tax rate was 38.6% in 2004 compared to 41.4% in 2003.

2003 Compared to 2002

The $21.0 million decrease in net sales primarily reflected a significant decline in sales in the two-way radio category, both in units and in price per unit. Nearly three-quarters of the decline in Cobra’s two-way radio sales was due to a decline in units sold, mirroring the overall market trends in the category. The remainder of the decline was due to continued declines in average selling prices, again reflecting market trends. Management believes that the industry decline in average selling price was offset somewhat by Cobra’s product mix and merchandising initiatives, including the introduction of longer range GMRS units and the use of value packs.

Certain customers also contributed to the decline in two-way radio sales. Merchandising choices by Costco Wholesale, which selected a competitor for placement in 2003, and Best Buy, which selected certain low-price point models from competitors, contributed to a decline in sales from 2002 of $10.8 million. Additionally, sales to K-Mart declined by $3.1 million, as Cobra imposed credit restrictions subsequent to this company’s bankruptcy filing. Partially offsetting these declines and providing a market share gain was an increase in two-way radio sales to Wal-Mart, with unit sales increasing by approximately 10%.

Partially offsetting the decline in sales of two-way radios was an increase in sales of Citizens Band radios, driven by the Harley Davidson^® and Dale Earnhardt^® limited edition models, and sales from Cobra’s new product categories, hand-held GPS and marine VHF radios and power inverters.

Gross margin for 2003 was 26.7% compared to 25.2% in 2002. The increase primarily reflected improved Detection and Citizens Band radio margins on newer models, as well as lower defective return rates for both two-way radios and Detection products. Additionally, the 2002 gross margin was negatively impacted by the Federal Communication Commission’s (“FCC’s”) decision to limit radar detector emissions in the frequency band used by VSAT satellite communications providers as some non-compliant Detection products had to be sold off more quickly at lower prices. Finally, a stronger euro favorably impacted gross margin in 2003.

Selling, general and administrative expense decreased $3.6 million, or 11.5%, and as a percentage of net sales, increased to 24.0% in 2003 from 22.9% in 2002. The decrease reflected lower overall sales, a shift in customer mix to customers using fewer programs, a decline in advertising programs at certain customers and the reversal of $1.2 million of unused program funds from 2002. This decrease was partially offset by increases in bad debt and R&D expenses. The higher bad debt expense resulted from a one-time reduction of $772,000 in the allowance for claims and doubtful accounts in 2002. The Company purchased insurance on a portion of the outstanding accounts receivable balance beginning in 2000. In 2002, the Company increased the insurance coverage, which resulted in the large reduction in the allowance for claims and doubtful accounts. R&D expense was higher by $478,000, which reflected headcount additions for new product development, both in the U.S. and Hong Kong.

Interest expense for 2003 was $162,000, which was $66,000 lower than 2002, because of significantly lower average debt in 2003.

Other income increased by $74,000 compared to 2002 primarily due to a higher gain on the cash surrender value of life insurance policies.

Income tax expense decreased $44,000 to $1.3 million in 2003 due to higher deductible permanent items. The effective tax rate was 41.4% in 2003 compared to 43.9% in 2002.

Liquidity and Capital Resources

On January 31, 2002, the Company executed a new three-year revolving credit agreement for $55 million with three financial institutions. Borrowings and letters of credit issued under the agreement are secured by

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substantially all of the assets of the Company, with the exception of real property and the cash surrender value of certain life insurance policies owned by the Company. The credit agreement was amended as of February 18, 2003 to address certain covenant violations then existing and decrease the earnings requirements for each calendar quarter through March 31, 2004 and to provide for increased permitted capital expenditures in 2003. The credit agreement was further amended on February 18, 2004 to extend the term of the agreement to January 31, 2006, address certain covenant violations that would otherwise have occurred, reduce the cost of the credit facility by reducing its size to $45 million and reducing the applicable interest rates, and modify the earnings requirements for each calendar quarter through January 31, 2006. As of September 30, 2004, the Company obtained a waiver letter to cover an increase in the permitted capital expenditures for the year 2004. Loans outstanding under the credit agreement, as amended, bear interest, at the Company’s option, at 25 basis points below the prime rate or at LIBOR plus 175 basis points. The credit agreement specifies that the Company may not pay cash dividends and contains certain financial and other covenants, including a requirement that James R. Bazet continue as CEO of the Company. At December 31, 2004, the Company had no interest bearing debt outstanding and approximately $32.0 million available under this credit line based on asset advance formulas.

Net cash flows generated in operating activities were $2.9 million for the year ended December 31, 2004. Operating cash flows generated included the following: net earnings of $2.4 million, depreciation and amortization of $3.4 million, an increase in accounts payable of $1.7 million, an increase in accrued income taxes of $1.7 million and a decrease in inventory of $1.2 million. The above inflows were partially offset by an increase in accounts receivable of $4.7 million and an increase in intangible assets of $2.8 million. The increase in accounts payable reflected longer payment terms during 2004 for selected vendors. Accrued income taxes increased due to significantly increased income tax liabilities. The increase in accounts receivable was primarily driven by the increase in sales, offset in part by an overall reduction in the number of days sales outstanding. The increase in intangible assets was due principally to new product software development expenditures for both mobile navigation and hand-held GPS devices, which are also expected to continue in 2005 and beyond. The amortization of these assets is also expected to grow in future years.

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

Alternative minimum tax (“AMT”) credit carry-forwards were fully utilized as of December 31, 2004. The Company is currently making federal income tax payments at the statutory income tax rate.

Investing activities required cash of $4.8 million in 2004, principally for the implementation of a new ERP system, the purchase of tooling and equipment and the installation of building improvements, funds loaned to Horizon Navigation (see note 10 to the consolidated financial statements) and the annual premiums paid for officers’ life insurance. In addition, during 2004 the Company retired $6.4 million of fully depreciated tooling fixed assets that were deemed obsolete. There was no net cash used in financing activities in 2004, as the Company did not have any debt outstanding at the end of each year.

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

Total outstanding commitments at December 31, 2004 were as follows: (in thousands)

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The Company does not have any other significant long-term obligations, contractual obligations, lines of credit, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments.

Critical Accounting Policies

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

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

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

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

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

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

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

Deferred Compensation    Obligations under the deferred compensation plans (most of which are non-qualified defined benefit plans) and annual deferred compensation expense are determined by a number of assumptions. Key assumptions in the determination of obligations under the plans and annual deferred compensation expenses include the discount rate and anticipated compensation for each individual covered by the plans, which in part is dependent upon the anticipated future profitability of the Company. The rate is also dependent on rates used for qualified defined benefit plans. The discount rate used approximates the fixed rate of return the Company earns on the cash surrender value of an insurance policy purchased to fund payments to the retired president and CEO, which represented approximately half of the total obligation of the plans at December 31, 2004. This discount rate was 7% in both 2004 and 2003 and 8% in 2002. The compensation increase assumptions are based on historical experience and anticipated future performance.

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

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

The above listing is not intended to be a comprehensive list of all of the Company’s accounting policies. In most cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States. See Note 1 to Cobra’s consolidated financial statements included under Item 8, which is incorporated herein by reference, for a complete description of the Company’s significant accounting policies.

New Accounting Pronouncements

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (“the Act”). The Act provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. In return, the Act also provides for a two-year phase-out (except for certain pre-existing binding contracts) of the existing Extraterritorial Income (“ETI”) exclusion tax benefit for foreign sales which the World Trade Organization (“WTO”) ruled was an illegal export subsidy. The European Union (“EU”) believes that the Act fails to adequately repeal the illegal export subsidies because of the transitional provisions

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and has asked the WTO to review whether these transitional provisions are in compliance with their prior ruling. This will have no material impact on the Company. Additionally, the Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividend received deduction for certain dividends from controlled foreign corporations. The impact on the Company in the future will not be material.

On December 21, 2004, the Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” was issued. FSP FAS 109-1 clarifies that this tax deduction should be accounted for as a special deduction in accordance with Statement 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the date of enactment. Rather, the impact of this deduction would be reported in the period in which the deduction is claimed on our tax return beginning in 2005. As regulations are still pending, the Company has not been able to quantify the impact, however, but believes that the impact will not be material.

On December 21, 2004, FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” was issued. FSP 109-2 provides companies additional time, beyond the financial reporting period during which the Act took effect, to evaluate the Act’s impact on a company’s plan for reinvestment or repatriation of certain foreign earnings for purposes of applying Statement 109. FSP 109-2 was effective upon issuance. As of December 31, 2004, based on management’s analysis of the Act, although not yet finalized, it is unlikely that under the repatriation provision of the Act the Company had any foreign earnings to repatriate and accordingly, the financial statements do not reflect any provisions for taxes on unremitted foreign earnings.

In November 2004, the FASB issued Statement 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” to clarify that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be recognized as current period expenses. Also, Statement 151 requires fixed overhead costs to be allocated to inventory based on normal production capacity. Normal production capacity includes a range of production levels. It is the production an enterprise expects to achieve over a number of periods under normal circumstances, considering reductions in capacity from planned maintenance. The Company believes that its current accounting policies adhere to the specifications of Statement 151.

In December 2004, the FASB issued Statement 123 (R) “Share-Based Payment.” This statement will require the Company to recognize the fair value of granted options and shares as compensation cost over the service (vesting) period in its financial statements, beginning in the first interim or annual reporting period after June 15, 2005. Accordingly, the Company will reflect the adjustment to its 2005 earnings for the impact of this accounting pronouncement in the interim reporting period ending September 30, 2005.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to market risk associated principally with changes in interest rates and foreign exchange rates. The Company does not have any interest rate exposure at December 31, 2004, as there is no outstanding debt. Debt incurred is priced at interest rates that float with the market and therefore the fair value of the Company’s debt is not significantly affected by changes in market interest rates.

The Company’s suppliers are located in foreign countries, principally in Asia. In 2004, approximately 14.8% of the Company’s sales were outside the United States, principally in Europe and Canada, compared to 12.6% in 2003. The Company minimizes its foreign currency exchange rate risk by conducting all of its transactions in U.S. dollars, except for some of the billings of its European business, which are conducted in euros. The Company does not use derivative financial or commodity instruments for trading or speculative purposes, however forward contracts are occasionally used for hedging some euro denominated transactions for the Company’s European business. Please refer to Note 4 in the financial statements, which are incorporated herein

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by reference. A 10% movement in the U.S. dollar/euro exchange rate on the forward contracts outstanding at December 31, 2004 would result in approximately a $569,000 annual increase or decrease in cost of sales and cash flows.

Forward-Looking Statements

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

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

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.

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Item 8.  Financial Statements and Supplementary Data

Financial statements and quarterly financial data are included in this Annual Report on Form 10-K, as indicated in the index on page 39.

CONSOLIDATED STATEMENTS OF EARNINGS

Cobra Electronics Corporation

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

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CONSOLIDATED BALANCE SHEETS

Cobra Electronics Corporation

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

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CONSOLIDATED BALANCE SHEETS (cont.)

Cobra Electronics Corporation

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Cobra Electronics Corporation

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

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Cobra Electronics Corporation