Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

General

          Recoton Corporation is a global leader in the development, manufacturing and marketing of branded home and mobile audio products, video and computer game accessories, satellite and digital accessories and other consumer electronic accessories for aftermarket use by consumers. The Company's diverse lines include accessories for audio, video, car audio, camcorder, multi-media/computer, home office, cellular and standard telephone, music and video game products and 900 Megahertz (MHz) wireless technology headphones and speakers. The Company's products are sold under various brand names including Jensen, InterAct, GameShark, Recoton, Advent, AR/Acoustic Research, Stinger, Discwasher, NHT (Now Hear This), Magnat, Ambico, Parsec, Performance, MacAudio, Ross, Phase Linear, AAMP, SoundQuest, Linear Research, Heco and Peripheral.

          The Company classifies its business into three principal segments in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." Each segment's earnings before corporate interest and income taxes are reported to the Company's chief operating decision-makers. General corporate expenses other than certain interest costs and certain amortization of financing costs have been allocated to each segment on the basis used for internal management decision-making purposes.

          The Company operates its business under three segments as follows:

Results Of Operations

Comparison for the Quarters Ended September 30, 2000 and 1999 and the Nine Months Ended September 30, 2000 and 1999 (certain reclassifications of prior period amounts have been made to conform to the 2000 classifications)

          The following table presents certain operating segment information for the indicated three months ended September 30 (further discussed in Note E of the Notes to Condensed Consolidated Financial Statements):

                                                     (IN MILLIONS)


                                                           Video and     Consumer
                                                           Computer     Electronics
                                              Audio          Game       Accessories
2000                                         Business       Business      Business
                                           ------------    -----------   -----------

Net sales....................                 $59.7            $43.8        $54.1
Gross profit.................                  19.8             15.7         23.0
Income (loss) before
   income taxes and
   unallocated expenses                         3.6             (1.8)         5.5

1999
----

Net sales....................                 $64.6            $48.7        $60.9
Gross profit*................                  15.1             22.9         22.0
Income (loss) before
  income taxes, unallocated
  expenses and extraordinary item**...         (9.0)             1.7         (2.1)

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

(**) Includes charges in conjunction with the Strategic Plan aggregating approximately $10.1 million for the Audio Business, $1.1 million for the Video and Computer Game Business and $6.4 million for the Accessories Business.

          The following table presents certain operating segment information for the indicated nine months ended September 30 (further discussed in Note E of the Notes to Condensed Consolidated Financial Statements):

                                                     (IN MILLIONS)

                                                             Video and    Consumer
                                                             Computer    Electronics
                                              Audio           Game       Accessories
2000                                         Business        Business      Business
----                                        ----------       --------     -----------

Net sales....................                 $174.0          $107.8       $157.9
Gross profit.................                   58.9            36.3         68.2
Income (loss) before
   income taxes and
   unallocated expenses                         10.9           (11.0)        17.4

1999
----

Net sales....................                 $178.9          $128.6       $152.4
Gross profit*................                   48.1            58.4         58.7
Income (loss) before
  income taxes, unallocated
  expenses and extraordinary item**..          (12.6)            2.1          3.4

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

(**) Includes charges in conjunction with the Strategic Plan aggregating approximately $10.1 million for the Audio Business, $1.1 million for the Video and Computer Game Business and $6.4 million for the Accessories Business.

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

          Net sales for the quarter ended September 30, 2000 totaled $157.6 million, down approximately $16.6 million or 9.5% from the sales for the quarter ended September 30, 1999 of $174.2 million. Net sales for the nine months ended September 30, 2000 totaled $439.7 million, down $20.2 million or 4.4% from the $459.9 million in sales reported for the nine months ended September 30, 1999. The decreases in sales were primarily attributable to lower sales of the Company's video gaming and accessories products, the sale of certain European assets as part of the Company's reorganization and weakened European currencies. Sales by segment were as follows:

          Gross margin for the third quarter of 2000 increased to 37.1% compared to 34.5% in the same period in 1999. However, in the third quarter of 1999 gross margin before inventory write-down associated with the Company's Strategic plan was 39.2%, a decrease of 2.1% when compared to the same quarter in 2000. Gross margin for the nine months ended September 30, 2000 increased to 37.2% compared to 35.9% for the same period in 1999. However, for the nine months ended September 30, 1999 gross margin before inventory write-down associated with the Company's Strategic plan was 37.7% a decrease of 0.5% compared to the same period in 2000. The decreases in gross margin before inventory write-down were mainly due to decreased margins in the video and computer game business partially offset by increased margins from the audio and accessories businesses. Gross margins by segment were as follows:

          Selling, general and administrative expenses decreased for the third quarter of 2000 by approximately $15.7 million to $50.9 million from $66.6 million for the third quarter of 1999 and decreased as a percent of net sales to 32.3% in the third quarter of 2000 from 38.2% in the third quarter of 1999. For the nine months ended September 30, 2000, selling, general and administrative expenses decreased approximately $24.1 million to $145.3 million from $169.5 million for the same period in 1999 and decreased as a percent of sales to 33.0% in 2000 from 36.9% in 1999. Selling, general and administrative expenses before costs associated with the Strategic Plan for the third quarter of 1999 were $59.6 million and for the nine months ended September 30, 1999 were $162.5 million, which reflected decreases of $8.7 million for the third quarter of 2000 compared to the same period in 1999 and decreases of $17.1 million for the nine months ended September 30, 2000 compared to the same period in 1999. These decreases were mainly due to cost savings and initiatives outlined in the Company's Strategic Plan initiated in the second half of 1999 and decreased market development expenses.

           Operating income for the third quarter of 2000 improved $17.6 million to income of $7.6 million from an operating loss of $10.0 million for the third quarter of 1999. For the nine months ended September 30, 2000 operating income improved $25.7 million to income of $18.0 million compared to an operating loss of $7.7 million for the same period in 1999. Operating income for the quarter ended September 30, 1999 before write-downs associated with the Company's Strategic Plan and restructuring charges was $8.8 million and for the nine months ended September 30, 1999 was $11.1 million. The year-to-date operating income increases were mainly due to increased sales by the accessories segment, higher gross margins in the audio and accessories segments and reduced selling, general and administrative expenses as a result of the Company's Strategic Plan and reduced market development expenses.

           Interest expense (net of investment income) increased by $3.0 million to $9.4 million for the third quarter of 2000 compared to the same period in 1999 and by $8.5 million to $26.2 million for the nine months ended September 30, 2000, compared to the same period in 1999. The increase was primarily attributable to approximately $1.2 million increase in the net present value of the make-whole provision associated with the Company's senior notes recorded in the third quarter of 2000 and $1.5 million recorded for the nine months ended September 30, 2000, increases in interest rates following the restructuring of the Company's debt in September 1999, as well as increases in the federal discount rate, which affected the Company's variable rate debt. On October 31, 2000, the Company finalized its new three-year $275.0 million senior credit facility that replaced all of the Company's existing senior debt.

           Amortization of financing costs increased to $0.6 million for the third quarter of 2000 compared to $0.3 million for the third quarter of 1999 and increased to $1.6 million for the nine months ended September 30, 2000 compared to $0.7 million for the same period in 1999. This was mainly attributable to the debt restructuring in September 1999.

          On a consolidated basis, the loss before income taxes for the third quarter of 2000 was $2.4 million compared to a loss before income taxes and extraordinary item of $16.8 million reported for the same period in 1999. For the nine months ended September 30, 2000 the loss before income taxes was $9.8 million compared to a loss before income taxes and extraordinary item of $26.0 million reported for the same period in 1999. In 1999, there were approximately $18.8 million in charges associated with the Strategic Plan and debt restructuring. Before such charges, income before income taxes and extraordinary item for the quarter ended September 30, 1999 was $2.0 million and for the nine months ended September 30, 1999 the loss before income taxes and extraordinary item was $7.2 million. The Company's losses in 2000 were mainly due to the continuation of higher cost financing because of delays in finalizing new financing arrangements, lower than anticipated sales of video and computer game accessories because of the significantly reduced quantities of the Sony PlayStation 2 video game system available at launch and the weakness in the European currencies.

          The following is a discussion, on a segment basis, of income or loss before income taxes and unallocated expenses and extraordinary item in 1999 (which expenses consists primarily of interest and certain amortization of financing costs):

          In recent years, the Company's income taxes and effective consolidated income tax rate have been materially affected by changes in the proportion of domestic and foreign earnings. While earnings from operations in North America and Western Europe are primarily taxed at or above United States income tax rates, earnings from the Company's Asian operations are taxed at a current maximum rate of 16.0%. However, the actual tax rate from Asian operations is dependent upon the proportion of earnings from mainland China, which are currently subject to a 50% tax holiday which expires at the end of the current year. The Company's effective income tax rate is dependant on the mix of foreign and domestic earnings and any additional U.S. income taxes on unremitted Asian retained earnings at September 30, 2000 which would be payable in the periods any intercompany dividends are declared. The Company currently estimates that the balance of its Asian retained earnings will remain indefinitely invested. Such estimate is subject to future revision based upon such factors as the results of domestic operations, ability to borrow or otherwise obtain funds to finance operations, market conditions in the consumer electronics industry and general economic conditions in the United States and in Asia. The Company's income tax credit for the first nine months of 2000 is based on a 25% estimated effective annual income tax rate for 2000. This rate is estimated by management based upon its forecast of the Company's profitability in each of its various foreign and domestic tax jurisdictions. This resulted in a net income tax credit of $2.4 million for the nine months ended September 30, 2000. As a result of the losses for the nine months ended September 30, 1999 the Company recorded no income tax benefit attributable to the losses from its domestic operations and it foreign subsidiaries operating at a loss. The provision for income taxes for the three and nine month periods ended September 30, 1999 was applicable to those foreign subsidiaries which were operating at a profit.

          Comprehensive loss is comprised of the net loss and foreign currency translation adjustments (which adjustments, net of income tax effect, were a negative $4.8 million for the nine months ended September 30, 2000 and a negative $1.9 million for the nine months ended September 30, 1999) included in the consolidated statements of shareholders' equity. As a result of fluctuations in the value of the U.S. dollar in relation to currencies in Western Europe in the nine months ended September 30, 2000 and the nine months ended September 30, 1999, and the related foreign currency translation adjustments recorded by the Company, in addition to the net loss, total comprehensive loss in the nine months ended September 30, 2000 was $12.2 million and in the nine months ended September 30, 1999 was $37.8 million. Comprehensive loss for the quarter ended September 30, 2000 was $4.9 million as compared to comprehensive loss of $24.9 million for the quarter ended September 30, 1999.

          For the third quarter of 2000, basic and diluted loss per share was $0.16 based on average outstanding shares of 11,747,000. For the third quarter of 1999, basic and diluted loss per share was $2.27 based on average outstanding shares of 11,732,000. For the nine months ended September 30, 2000, basic and diluted loss per share was $0.63 based on average outstanding shares of 11,743,000. For the nine months ended September 30 1999, basic and diluted loss per share was $3.07 per share based on average outstanding shares of 11,714,000. The per share amounts for the three and nine months ended September 30, 1999 included charges equal to $1.60 per share on losses before extraordinary item and an extraordinary loss equal to $0.75 per share associated with the Strategic Plan and restructuring of debt. The effect of the assumed exercise of outstanding stock options and warrants is antidilutive and therefore is not reflected in the loss per share amounts.

Impact of Inflation and Changing Prices

          The impact of inflation and changing prices on the Company's net sales and revenues and on income from continuing operations for the nine months ended September 30, 2000 and 1999 was negligible.

Liquidity and Capital Resources

          Sources and Components of Working Capital.  At September 30, 2000, the Company had cash and cash equivalents of $22.7 million compared to $21.7 million at December 31, 1999. At September 30, 2000, the Company had working capital of approximately $53.1 million as compared to approximately $272.2 million at December 31, 1999. The ratio of current assets to current liabilities was 1.17 to 1 at September 30, 2000 and 3.35 to 1 at December 31, 1999. As a result of not having executed a new long term credit facility by the balance sheet date, the Company was required to classify its senior debt at that date as current. Had the financing which occurred on October 31, 2000 closed by September 30, 2000, working capital would have been approximately $235.1 million and the ratio of current assets to current liabilities would have been 2.88 to 1. Trade receivables decreased $69.9 million to $131.2 million at September 30, 2000 as compared to $201.1 million at December 31, 1999. The decrease is the result of the Company's normal business cycle, where sales have traditionally been higher in the fourth quarter of each year. Inventories increased from December 31, 1999 levels by $36.1 million to $177.1 million at September 30, 2000, which reflects the commencement of inventory buildup for the fourth quarter sales period. Accounts payable and accrued expenses increased $14.8 million to $112.7 million at September 30, 2000, also as a result of the Company's normal business cycle and the reclassification of the net present value of the Make-Hole provision ($7.6 million) from a non-current liability to a current liability.

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

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

          The Company also entered into a loan agreement (the "Subordinated Loan Agreement") with its existing senior lenders, for a $15 million three-year term loan subordinated to the senior loan, with interest at 5.75% over prime. The Company's German subsidiaries entered into a 50 million Deutsch Mark factoring facility (equal to approximately $25 million) with interest at 2.5% over European LIBOR which in part supports a $13 million letter of credit issued in favor of Heller as security for the loans under the Senior Loan Agreement.

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

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

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

          As a result of the refinancing, in the fourth quarter of 2000 the Company will record as an extraordinary item the write-off of the unamortized deferred finance costs associated with the repaid senior debt plus an adjustment to the accrual of a "make-whole" provision of the senior debentures related to the acceleration of their payment. Such charges will approximate $5.0 million on a pretax basis. In addition, fees, expenses and other costs associated with the current refinancing, estimated to be approximately $7.5 million, will be amortized over the life of the loans.

          Sources of Credit at September 30, 2000.  As at September 30, 2000 the Company had a multibank credit facility, entered into in January 1997 and modified several times thereafter. The September 1999 debt restructuring froze the existing revolving credit facility at $74.6 million and combined three existing term loans with the revolving credit facility to create a total loan of $89.2 million with a payable date of July 2, 2001. The facility had a $12.5 million letter of credit subfacility, of which $11.4 million was outstanding at September 30, 2000. In connection with the September 1999 restructuring of the senior indebtedness, the Company obtained an additional revolving credit facility of $50.0 million from certain existing lenders and noteholders, which was also payable July 2, 2001. In connection with these transactions, as described above, the interest rates on the previously outstanding debt were increased, certain fees were paid, warrants were issued and the loan covenants, as revised, were made applicable to all such senior indebtedness. There were no outstanding borrowings under the 1999 credit facility and $5.4 million in letters of credit were outstanding at September 30, 2000. During the first quarter of 2000, the Company repaid approximately $27.0 million which was outstanding under this credit facility as at December 31, 1999. The outstanding letters of credit under both facilities as of September 30, 2000 included standby letters of credit aggregating approximately $12.4 million to a foreign bank for the benefit of the Company's Hong Kong subsidiary primarily for import facilities and discounting of customer drafts, of which $5.7 million in letters of credit and $6.1 million in trust receipt loans were outstanding at September 30, 2000. At December 31, 1999, the outstanding letters of credit under the 1999 credit facility were $6.2 million. The restructured loan under the original credit facility and the revolving loan under the 1999 credit facility bore interest at the greater of prime or a federal funds rate plus 3.77% and 3.5%, respectively. As at September 30, 2000 these loans bore interest of 13.27% and 13.00%, respectively. These loans were paid off through the October 2000 refinancing. (See the discussion above regarding restructuring of this debt and the discussion below regarding the Company's outstanding notes and other borrowings.)

          In January 1997, the Company issued $75 million in principal amount of adjustable rate senior notes (the 1997 Notes), which were modified in September 1999, accelerating the maturity date to July 2, 2001 from January 6, 2007 and increasing the interest rate to 12.75% (9.75% from January 1, 1999 to the date of restructuring) per annum. In September 1998, the Company issued an additional $25 million in principal amount of 10-year senior notes (the 1998 Notes), which were also modified in September 1999 to accelerate the maturity date to July 2, 2001 from September 1, 2008 and increase the interest rate to 12.52% per annum (9.52% from January 1, 1999 to the date of restructuring). Additionally, as a result of the accelerated maturity, the senior note holders were entitled to receive prepayment premiums when the debt is repaid, of which $7.6 million was recorded as a liability at September 30, 2000 based on interest rates currently in effect. However, since these notes were prepaid upon the October 2000 debt refinancing, the $2.8 million difference between the amount paid and the amount accrued at September 30, 2000 will be recorded as part of the extraordinary expense of approximately $5.0 million on a pretax basis in the fourth quarter of 2000.

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

          Recoton granted two mortgages on its Florida property to secure loans aggregating $2.3 million from one member of the multibank credit group, which are due in July 2001. Interest rates on such loans are 8.0% and 8.4%. In September 1999, the Company also granted an additional mortgage on such property to secure the other senior indebtedness. These mortgage loans were paid off from the proceeds of the October 2000 refinancing and new mortgages on these properties were granted as security for the October 2000 refinancing.

          Additionally, as of September 30, 2000 the Company's German subsidiary had lines of credit with foreign banks primarily for import facilities and discounting of customer drafts of approximately $10.8 million. The banks had security interests to the extent of merchandise purchased under these lines and the amounts of customer drafts. As of September 30, 2000 approximately $1.4 million of letters of credit and approximately $0.5 million in discounted drafts were outstanding. These loans were paid off from the proceeds of the October 2000 refinancing under which the Company's German subsidiary entered into a 50 million Deutsche Marks factoring facility (approximately $25 million) with Heller Germany.

          Capital Expenditures.  The Company is considering the purchase of additional computer hardware and software (including upgrades to the Company's management information system) to be used both in the United States and in its foreign locations. However, no commitments have been made to date.

          Foreign Operations.  To date there has been limited exposure to loss due to foreign currency risks in the Company's Asian subsidiaries, because the Hong Kong dollar has been pegged to the U.S. dollar at an official exchange rate of HK $7.79 to US $1.00. Additionally, in recent years there have been no material fluctuations in the Hong Kong/Chinese exchange rates. Also, the Company maintains the majority of its currency in Asia in U.S. dollar accounts. However, there can be no assurance that these relationships will continue.

          The Company's operations, which are currently being transacted on a global basis, are exposed to variations in foreign exchange rates. Shareholders' equity was reduced by a foreign currency translation adjustment of approximately $ 4.8 million for the nine months ended September 30, 2000. During the nine months ended September 30, 1999, shareholders' equity was reduced by a foreign currency translation adjustment of approximately $1.9 million. The changes in the exchange rates of the German and Italian currencies against the American dollar, which were the principle causes of the foreign translation adjustments, had no material impact on the consolidated results of operations but such adjustments serve to reduce the Company's tangible net worth which is required to be maintained at specified levels under financial covenants in loan and note purchase agreements.

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

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

          Recoton has extensive operations in certain European countries, including Germany, Italy and the United Kingdom. The Company also sells to customers in additional countries in Europe. For the nine months ended September 30, 2000, approximately 10% of the Company's net sales were in Europe. With the exception of the United Kingdom, all of the European countries in which the Company has operations have confirmed their participation in a new 11-country European common currency, the Euro. The Company does not believe that the adoption of a common currency will give any parties to material contracts with the Company the right to terminate or modify such contracts on the grounds of "frustration," "impossibility" or "impracticability". The Company has not experienced, and does not anticipate, that there will be any material adverse impact on the Company or its European business resulting from the adoption of the Euro and any resulting changes in European economic and market conditions other than changes in the exchange rate between the Euro and the dollar which have occurred since the adoption of the Euro. For a further discussion of the implications on the Company regarding the adoption of a common European currency, see "Item 7 Management's Discussion and Analysis of Financial Conditions and Results of Operations," from the Company's Form 10-K for the year ended December 31, 1999.

          In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 138, Accounting for Certain Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. This Statement addressed a limited number of implementation issues for entities applying SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires the recognition of all derivatives as either assets or liabilities in the statement of financial position and measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative is dependent upon the intended use of the derivative. SFAS No. 133 is effective for the Company's first quarter of the fiscal year ending December 31, 2001, and retroactive application is not permitted. The Company estimates that the application of SFAS No. 133 and SFAS No. 138 will not have a material impact on its financial position or results of operations.

Item 3:  Quantitative and Qualitative Disclosures About Market Risk

          Approximately 61% of the Company's borrowings as at September 30, 2000 bore fixed interest rates. The borrowings under the revolving credit portion of the credit facilities bear various rates depending on changes in the prime rate. Effective as of the October 2000 refinancing all of the borrowings under this agreement as previously mentioned bear various rates depending on changes in the LIBOR or prime rates.

          Effective as of the October 2000 refinancing the Company's German subsidiary entered into a 50 million Deutsch Mark factoring facility (equal to approximately $25 million) with Heller Germany. Recoton Corporation and certain of its subsidiaries have intercompany loans, which are not denominated in their home country currency, which exposes the Company to exchange rate fluctuations. The Company has not entered into any foreign currency or derivative contracts to hedge these potential exchange adjustments, which are initially recorded as cumulative foreign currency translation adjustments (a component of shareholders' equity), but will ultimately be reflected in operations when the debt is repaid. Exclusive of intercompany receivables and payables for current transactions, the outstanding foreign currency loans at September 30, 2000 (expressed in U.S. dollars at current exchange rates) which remain subject to currency fluctuations consist of $29 million in loans made by Recoton Corporation and its subsidiaries to other subsidiaries in Germany and Italy. These loans have no fixed due dates.

Item 5.  Other Information.

          When used in this Form 10-Q and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "expect," "believe," "hope" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on such forward-looking statements, which speak only as of the date made.

Item 6.  Exhibits and Reports on Form 8-K.