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 June 30, 2000 and 1999 and the Six Months Ended June 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 June 30 (further discussed in Note F of the Notes to Condensed Consolidated Financial Statements):

(IN MILLIONS)

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

Net sales...................          $58.1            $27.2             $51.4
Gross profit................           20.9              8.2              22.8
Income (loss) before
   income taxes and
   unallocated expenses.....            4.8             (5.2)              6.0


1999
----
Net sales...................          $66.8            $29.9             $45.1
Gross profit................           18.6             12.7              18.0
Income (loss) before
  income taxes and
  unallocated expenses......            1.0             (3.4)              1.4

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

(IN MILLIONS)

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

Net sales...................         $114.3            $64.0            $103.8
Gross profit................           39.1             20.6              45.2
Income (loss) before
   income taxes and
   unallocated expenses.....            7.3             (9.1)             11.8


1999
----
Net sales....................        $114.3            $79.9             $91.5
Gross profit.................          33.0             35.5              36.7
Income (loss) before
  income taxes and
  unallocated expenses........         (3.6)             0.4               5.5

           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 June 30, 2000 totaled $136.7 million, down approximately $5.1 million or 3.6% from the sales for the quarter ended June 30, 1999 of $141.8 million. Net sales for the six months ended June 30, 2000 totaled $282.1 million, down $3.6 million or 1.2% from the $285.7 million in sales reported for the six months ended June 30, 1999. This is primarily due to lower sales of the Company's video gaming products together with the elimination of poorly performing divisions and product lines. Sales by segment were as follows:

          Gross profit for the second quarter of 2000 increased to $51.9 million from $49.3 million for the same period in 1999 and gross margin increased to 38.0% for the second quarter of 2000 compared 34.8% in the same period in 1999. The gross margin increase was mainly due to increased margins from the audio and accessories division, which was partially offset by gross margin decreases in the video and computer game business. Gross profit for the six months ended June 30, 2000 decreased to $104.9 million from $105.2 million but gross margin increased to 37.2% in 2000 compared to 36.8% in 1999. Gross margins by segment were as follows:

           Selling, general and administrative expenses decreased for the second quarter of 2000 by approximately $3.8 million to $46.7 million compared to $50.5 million for the second quarter of 1999 and decreased as a percent of net sales to 34.2% in the second quarter of 2000 from 35.6% in the second quarter of 1999. For the six months ended June 30, 2000, selling, general and administrative expenses decreased to $94.5 million compared to $102.9 million for the same period in 1999 and decreased as a percent of sales to 33.5% in 2000 from 36.0% in 1999. These decreases are mainly due to cost savings and initiatives outlined in the Company's strategic business plan initiated in the second half of 1999.

           Operating income for the second quarter of 2000 improved $6.5 million to $5.3 million from an operating loss of $1.2 million for the second quarter of 1999. For the six months ended June 30, 2000 operating income was $10.4 million compared to $2.3 million for the same period in 1999. This is mainly due to increased sales by the audio and accessories segments, higher gross margins in these segments and reduced selling, general and administrative expenses as a result of the Company's strategic business plan.

           Interest expense (net of investment income) increased by $2.8 million to $8.6 million for the second quarter of 2000 compared to the same period in 1999 and by $5.5 million to $16.8 million for the six months ended June 30, 2000 compared to the same period in 1999. The increase was primarily attributable to 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. The Company is in the process of finalizing its new three-year senior credit facility for up to $275 million to replace all of the Company's existing senior debt. This facility, which remains subject to final due diligence, legal documentation and syndication, should, when consummated, provide the Company with enhanced liquidity, reduced interest expense and a solid financing base to support its future. Management expects that this agreement will be finalized during the third quarter of 2000.

           Amortization of financing costs increased to $563,000 for the second quarter of 2000 compared to $214,000 for the second quarter of 1999 and increased to $1.1 million for the six months ended June 30, 2000 compared to $374,000 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 second quarter of 2000 was $3.9 million compared to a loss before income taxes of $7.2 million reported for the same period in 1999. For the six months ended June 30, 2000 the loss before income taxes was $7.4 million compared to a loss before income taxes of $9.3 million reported for the same period in 1999.

           The following is a discussion, on a segment basis, of income or loss before income taxes and unallocated expenses (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 June 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 six months of 2000 is based on a 27% 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 $2.0 million for the six months ended June 30, 2000. As a result of the losses incurred for the six months ended June 30, 1999, the Company reversed and charged to operations the $542,000 income tax benefit recorded in the first quarter of 1999 and did not record an income tax benefit for six months ended June 30, 1999.

           Comprehensive loss is comprised of the net loss and foreign currency translation adjustments (which adjustments, net of income tax effect, were a negative $1.9 million for the six months ended June 30, 2000 and a negative $3.7 million for the six months ended June 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 six months ended June 30, 2000 and the six months ended June 30, 1999, and the related foreign currency translation adjustments recorded by the Company, in addition to the net loss, total comprehensive loss in the six months ended June 30, 2000 was $7.3 million and in the six months ended June 30, 1999 was $12.9 million. Comprehensive loss for the quarter ended June 30, 2000 was $3.3 million as compared to comprehensive loss of $9.0 million for the quarter ended June 30, 1999.

           For the second quarter of 2000, basic and diluted loss per share was $0.24 based on average outstanding shares of 11,744,000. For the second quarter of 1999, basic and diluted loss per share was $0.67 based on average outstanding shares of 11,710,000. For the six months ended June 30, 2000, basic and diluted loss per share was $0.46 based on average outstanding shares of 11,741,000. For the six months ended June 30 1999, basic and diluted loss per share was $0.79 (which included an $0.11 per share one-time charge associated with the shut down of the Company's amplifier manufacturing division in the first quarter of 1999) based on average outstanding shares of 11,705,000. 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 six months ended June 30, 2000 and 1999 has been negligible.

Liquidity and Capital Resources

          Sources and Components of Working Capital. At June 30, 2000, the Company had cash and cash equivalents of $20.1 million compared to $21.7 million at December 31, 1999. At June 30, 2000, the Company had working capital of approximately $254.6 million as compared to approximately $272.2 million at December 31, 1999. The ratio of current assets to current liabilities was 4.51 to 1 at June 30, 2000 and 3.35 to 1 at December 31, 1999. The increase in the working capital ratio primarily results from accounts receivable collections, which were utilized to pay current liabilities. Trade receivables decreased $81.8 million to $119.3 million at June 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 third and fourth quarters of each year. Inventories increased from December 31, 1999 levels by $20.9 million to $161.9 million at June 30, 2000, which reflects the commencement of inventory buildup for the third and fourth quarter sales period. Accounts payable and accrued expenses decreased $28.1 million to $69.8 million at June 30, 2000, also as a result of the Company's normal business cycle. During first quarter of 2000, the Company repaid approximately $27 million, which was outstanding under the new credit facility as at December 31, 1999, of which approximately $14.3 million was recorded as a current liability.

           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 will become payable on July 2, 2001. The financial covenants under the previous debt were reduced in number and significantly relaxed. Pursuant to the 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. The Company is in the process of finalizing new three-year senior credit facilities for up to $275 million to replace all of the Company's existing senior debt. If such refinancing occurs, the write off of certain deferred financing costs associated with the September 1999 debt restructuring will be accelerated and certain prepayment premiums on outstanding note obligations will become due. The amounts of such prepayment premiums depend on the treasury rates in effect at the time of such payment. The Company has recorded a liability for what it estimates to be a substantial portion of such prepayment premium. This new facility, which remains subject to final due diligence, legal documentation and syndication, should, when consummated, provide the Company with enhanced liquidity, reduced interest expense and a solid financing base to support future operations.

          Current Sources of Credit. The Company currently has a multibank credit facility, entered into in January 1997 and modified several times with the most recent modification occurring with the debt restructuring in September 1999 as noted above. The most recent modification 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 has a $12.5 million letter of credit subfacility, of which $11.7 million was outstanding at June 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 is 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 new credit facility and $5.4 million in letters of credit were outstanding at June 30, 2000. During the first quarter of 2000, the Company repaid approximately $27 million which was outstanding under the new credit facility as at December 31, 1999. The outstanding letters of credit under both facilities as of June 30, 2000 include 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 $6.6 million in letters of credit and $3.6 million in trust receipt loans were outstanding at June 30, 2000. The restructured loan under the original credit facility and the revolving loan under the new credit facility bear interest at the greater of prime or a federal funds rate plus 3.77% and 3.5%, respectively. As of June 30, 2000 these loans bore interest of 13.27% and 13.0%, respectively. At December 31, 1999, the outstanding borrowings under the new credit facility were $27.0 million and $6.2 million in letters of credit were outstanding. (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 are entitled to receive prepayment premiums when the debt is repaid; the present value of such premiums is approximately $6.4 million at June 30, 2000 based on interest rates currently in effect.

           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. The 1999 Notes are subject to required prepayment from the proceeds received by the Company from the sale of either equity interests or subordinated indebtedness. 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. 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.

           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.

           Additionally, the Company's German subsidiary has lines of credit with foreign banks primarily for import facilities and discounting of customer drafts of approximately $10.3 million. The banks have security interests to the extent of merchandise purchased under these lines and the amounts of customer drafts. As of June 30, 2000 approximately $651,000 of letters of credit and approximately $2.0 million in discounted drafts were outstanding.

           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 but no commitments have been made.

           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 $ 1.9 million for the six months ended June 30, 2000. During the six months ended June 30, 1999, the shareholders' equity was reduced by a foreign currency translation adjustment of approximately $3.7 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 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 additional countries in Europe. For the six months ended June 30, 2000, approximately 11% of the Company's net sales were in Europe. With the exception of the United Kingdom, all of the European countries in which the Company has operations have confirmed their participation in 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. 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 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivatives Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 for the Company until 2001. The Company has not yet determined whether the application of SFAS No. 133 will 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 bear fixed interest rates. The borrowings under the revolving credit portion of the credit facilities bear various rates depending on changes in the prime rate.

           The Company has no significant foreign borrowings from third parties. 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 June 30, 2000 (expressed in U.S. dollars at current exchange rates) which remain subject to currency fluctuations consist of $30 million in loans made by Recoton Corporation and its subsidiaries to other subsidiaries in Germany and Italy. These loans have no fixed due dates.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

          Lemelson Medical Education & Research Foundation, Limited Partnership v. Esco Electronics Corporation, et. al. By complaint dated June 30, 2000 and received by Recoton Corporation on or about August 8, 2000, Recoton and 90 other manufacturers or sellers of electronic or semiconductor products were sued in the United States District Court for the District of Arizona (Civ 00-0660 PHX RCB) by Lemelson Medical Education & Research Foundation, Limited Partnership (the "Lemelson Foundation") for alleged violation of various patents claimed to be owned by the Lemelson Foundation related to machine vision and bar-code technology. The company understands that other suits have been commenced by the Lemelson Foundation for claimed infringement of these patents by over 500 other parties, many of which have been settled by agreements to pay royalties. The complaint seeks damages in an unstated amount, injunctive relief and attorneys fees, among other relief sought. The Company, along with other defendants in this and other actions (which include Lucent Technologies and Radio Shack), intends to vigorously defend against the action.

          Mateel Environmental Justice Foundation v. Sprint Communications, et. al. By complaint dated June 16, 2000, received by InterAct Accessories, Inc. on or about July 11, 2000, InterAct, four other named defendants (including Sprint Communications, Koss Corporation and Conair Corporation) and "Does 1 through 100" were sued in the Superior Court of California for the County of San Francisco (312962) for alleged violation of the California Safe Drinking Water Act (sometimes referred to as Proposition 65) requiring certain safety warnings to be given to California persons who handle or use chemicals "known to the state to cause cancer or reproductive toxicity." Warnings are not required if there is "no significant risk" from any exposure. The plaintiff alleges that exposure to wires or cables coated with polyvinyl chloride gives rise to exposure to lead actionable under Proposition 65 and other state statutes and seeks injunctive relief to compel any required disclosure to be made and civil penalties of $2,500 per day since at least December 16, 1995 for each individual exposed to PVC coated wires or cables. The Company, along with other defendants, intends to vigorously defend against the action.

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

           The Annual Meeting of the Shareholders of the Corporation was held on June 7, 2000. Each of the four candidates for the position of director (Jerry Kalov, Ann R. Leven, Ronald E. McPherson and Peter Wish) were elected. The directors whose terms of office continued after the meeting were Robert L. Borchardt, George Calvi, Paul E. Feffer, Irwin Friedman, Joseph M. Idy, Joseph H. Massot and Stuart Mont.

           The matters voted upon at the meeting and the number of votes cast for, against or withheld (including abstentions and broker non-votes) as to each matter, including nominees for office, are as follows:

           1. Director election:

           2. Approval of an amendment to the 1998 Stock Option Plan to increase the options authorized for grant by 1,000,000

           3. Ratification of the appointment of Deloitte & Touche, LLP as Independent Auditors for the Fiscal Year Ending December 31, 2000:

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.

(a)  Exhibits:

(b)  Reports on Form 8-K:  none