1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------
Commission file number: 0-30907
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MOBILITY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0843914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7955 EAST REDFIELD ROAD
SCOTTSDALE, ARIZONA 85260
(480) 596-0061
(Address and telephone number of principal executive offices)
Indicate by check mark whether 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 [ ]
At March 31, 2001, there were 14,761,933 shares of the Registrant's
Common Stock outstanding.
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MOBILITY ELECTRONICS, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2001
and 2000 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 15
INDEX TO EXHIBITS 16
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 26,389,948 $ 30,369,490
Accounts receivable, net 6,642,232 6,905,679
Inventories 6,881,816 6,370,881
Prepaid expenses and other current assets 289,482 136,782
------------- -------------
Total current assets 40,203,478 43,782,832
------------- -------------
Property and equipment, net 1,830,459 1,682,637
Goodwill, less amortization of $310,549 (unaudited)
and $155,275 at March 31, 2001 and December
31, 2000, respectively 5,900,402 6,055,677
Other assets, net 4,166,535 4,153,111
------------- -------------
Total assets $ 52,100,874 $ 55,674,257
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,624,822 $ 4,479,044
Accrued expenses and other current liabilities 1,955,798 2,254,195
Current installments of capital lease obligations 23,254 36,636
------------- -------------
Total current liabilities 6,603,874 6,769,875
------------- -------------
Total liabilities 6,603,874 6,769,875
------------- -------------
Stockholders' equity:
Convertible preferred stock - Series C, $.01 par value;
authorized 15,000,000 shares; 944,755 (unaudited)
and 1,263,708 shares issued and outstanding at
March 31, 2001 and December 31, 2000,
respectively 9,448 12,637
Common stock, $.01 par value; authorized 90,000,000
shares; 14,761,933 (unaudited) and 14,323,100
shares issued and outstanding at March 31, 2001
and December 31, 2000, respectively 147,619 143,231
Additional paid-in capital 114,213,393 113,614,659
Accumulated deficit (65,607,929) (61,945,917)
Stock subscription and deferred compensation (3,277,625) (2,920,228)
Accumulated other comprehensive income - foreign
currency translation adjustment 12,094 --
------------- -------------
Total stockholders' equity 45,497,000 48,904,382
------------- -------------
Total liabilities and stockholders' equity $ 52,100,874 $ 55,674,257
============= =============
See accompanying notes to condensed consolidated financial statements.
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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
------------------------------
2001 2000
------------ ------------
Revenue:
Net product sales $ 7,075,644 $ 5,002,005
Technology transfer fees 100,000 --
------------ ------------
Total revenue 7,175,644 5,002,005
Cost of revenue:
Product sales 5,578,893 3,607,286
Technology transfer -- --
------------ ------------
Total cost of revenue 5,578,893 3,607,286
------------ ------------
Gross profit 1,596,751 1,394,719
------------ ------------
Operating expenses:
Sales and marketing 2,231,094 1,144,301
Research and development 1,506,325 950,657
General and administrative 2,009,636 1,235,546
------------ ------------
Total operating expenses 5,747,055 3,330,504
------------ ------------
Loss from operations (4,150,304) (1,935,785)
Other income (expense):
Interest income (expense), net 471,307 (928,935)
Other income, net 11,905 2,210
Foreign currency exchange gain (loss) 5,080 (19,834)
------------ ------------
Loss before provision for income taxes (3,662,012) (2,882,344)
Provision for income taxes -- --
------------ ------------
Net loss (3,662,012) (2,882,344)
Beneficial conversion costs of preferred stock -- (48,663)
------------ ------------
Net loss attributable to common stockholders $ (3,662,012) $ (2,931,007)
============ ============
Net loss per share:
Basic and diluted $ (0.25) $ (0.46)
============ ============
Weighted average common shares outstanding:
Basic and diluted 14,479,787 6,324,220
============ ============
See accompanying notes to condensed consolidated financial statements.
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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
March 31,
------------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (3,662,012) $ (2,882,344)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for accounts receivable 164,384 30,000
Depreciation and amortization 392,135 179,354
Amortization of deferred loan costs 8,693 710,081
Amortization of deferred compensation 240,536 307,927
Changes in operating assets and liabilities:
Accounts receivable 99,063 (514,929)
Inventories (510,935) (467,345)
Prepaid expenses and other assets (201,089) (388,328)
Accounts payable 145,778 331,630
Accrued expenses and other current liabilities (298,397) 274,407
------------ ------------
Net cash used in operating activities (3,621,844) (2,419,547)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (358,410) (119,891)
------------ ------------
Net cash used in investing activities (358,410) (119,891)
------------ ------------
Cash flows from financing activities:
Repayment of lines of credit -- (862,465)
Repayment of note payable -- (166,667)
Repayment of long-term debt and capital lease obligations (13,382) (116,063)
Net proceeds from issuance of common stock 1,746 --
Net proceeds from issuance of preferred stock -- 5,000,359
Proceeds from exercise of warrants 254 209,498
------------ ------------
Net cash provided by (used in) financing activities (11,382) 4,064,662
------------ ------------
Effects of exchange rate changes on cash and cash equivalents 12,094 --
------------ ------------
Net increase (decrease) in cash and cash equivalents (3,979,542) 1,525,224
Cash and cash equivalents, beginning of period 30,369,490 4,792,313
------------ ------------
Cash and cash equivalents, end of period $ 26,389,948 $ 6,317,537
============ ============
See accompanying notes to condensed consolidated financial statements.
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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
the accounts of Mobility Electronics, Inc. ("Mobility" or the "Company") which
was formerly known as Electronics Accessory Specialists International, Inc., and
its wholly-owned subsidiaries, Magma, Inc. and Mobility Europe Holdings, Inc.
All significant intercompany balances and transactions have been eliminated in
the accompanying condensed consolidated financial statements.
The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with accounting principles
generally accepted in the United States of America, pursuant to rules and
regulations of the Securities and Exchange Commission (the "SEC"). In the
opinion of management, the accompanying condensed consolidated financial
statements include normal recurring adjustments that are necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures have been condensed or omitted pursuant to
such rules and regulations. These condensed consolidated financial statements
should be read in conjunction with our audited consolidated financial statements
and notes thereto for the fiscal year ended December 31, 2000 included in our
Form 10-K, filed with the SEC. The results of operations for the three months
ended March 31, 2001 are not necessarily indicative of results to be expected
for the full year or any other period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Reclassifications
Certain amounts included in the March 31, 2000 consolidated financial
statements have been reclassified to conform to the March 31, 2001 financial
statement presentation.
3. ACQUISITION
On January 1, 2001, the Company purchased essentially all of the assets
of its European distributor for $281,784 and assumed its leases, employee
contracts and other business contracts in order to better facilitate the sale of
the Company's products in Europe. The European operations have been organized as
a subsidiary of Mobility Europe Holdings, Inc., which was formed in January 2001
under the laws of the state of Delaware and is owned entirely by the Company.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired based upon the
estimated fair values at the date of acquisition. No goodwill resulted from the
purchase.
4. INVENTORY
Inventories consist of the following:
March 31, December 31,
2001 2000
---------- ------------
Raw materials $5,675,751 $3,167,319
Finished goods 1,206,065 3,203,562
---------- ----------
$6,881,816 $6,370,881
========== ==========
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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. STOCKHOLDERS' EQUITY
(a) Preferred Stock
During the period from December 31, 2000 through March 31, 2001,
318,953 shares of Series C preferred stock were converted into 219,268 shares of
common stock at a rate of 1-to-0.68130 for conversions through March 1, 2001 and
at a rate of 1-to-0.69095 for those conversions beginning March 2, 2001 and
thereafter.
The Series C preferred stock is convertible into shares of common
stock. The rate of conversion is 1-to-0.69065 as of March 2, 2001. The initial
conversion rate was 1-for-1, but was subject to change if certain events occur.
Generally, the conversion rate will be adjusted if the Company issues any
non-cash dividends on outstanding securities, splits its securities or otherwise
effects a change to the number of its outstanding securities. The conversion
rate will also be adjusted if the Company issues additional securities at a
price that is less than the price that the Series C preferred stockholders paid
for their shares. Such adjustments will be made according to certain formulas
that are designed to prevent dilution of the Series C preferred stock. The
Series C preferred stock can be converted at any time at the option of the
holder, and will convert automatically, immediately prior to the consummation of
a firm commitment public offering of common stock pursuant to a registration
statement filed with the Securities and Exchange Commission having a per share
price equal to or greater than $24.00 per share and a total gross offering
amount of not less than $15,000,000.
The Company may not pay any cash dividends on its common stock while
any Series C preferred stock remains outstanding without the consent of the
Series C preferred stockholders. Holders of Series C preferred stock are
entitled to vote on all matters submitted for a vote of the holders of common
stock. Holders will be entitled to one vote for each share of common stock into
which one share of Series C preferred stock could then be converted. In the
event of liquidation or dissolution, the holders of Series C preferred stock
will be entitled to receive the amount they paid for their stock, plus accrued
and unpaid dividends out of the Company's assets legally available for such
payments prior to the holders of securities junior to the Series C preferred
stock receiving payments.
(b) Common Stock
On March 2, 2001, the Company sold 206,898 shares of common stock to
two officers of the Company and an affiliate of one of the officers at a
purchase price of $2.90 per share. Each investor paid $690 in cash (or $2,070 in
total) and executed and delivered to the Company a three-year Promissory Note,
in the original principal amount of $199,311 each (or $597,933 in total), and
bearing interest at a rate of 6.33% per annum. Each Promissory Note is secured
by the shares of common stock so issued.
Holders of shares of common stock are entitled to one vote per share on
all matters submitted to a vote of the Company's stockholders. There is no right
to cumulative voting for the election of directors. Holders of shares of common
stock are entitled to receive dividends, if and when declared by the board of
directors, out of funds legally available therefor, after payment of dividends
required to be paid on any outstanding shares of preferred stock. Upon
liquidation, holders of shares of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to the liquidation
preferences of any outstanding shares of preferred stock. Holders of shares of
common stock have no conversion, redemption or preemptive rights.
6. LINES OF CREDIT
On February 2, 2001, the Company cancelled its line of credit.
7. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Two customers accounted for 21% and 36% of total revenue of the Company
for the three months ended March 31, 2001. Three customers accounted for 29%,
22% and 11% of total revenue of the Company for the three months ended March 31,
2000.
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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. CONTINGENCIES AND LITIGATION
The Company is involved in various claims and legal actions in the
ordinary course of business. In the opinion of management, based on consultation
with legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity. Accordingly, the accompanying condensed consolidated
financial statements do not include a provision for losses, if any, that might
result from the ultimate disposition of these matters.
9. NET LOSS PER SHARE
The computation of basic and diluted net loss per share follows:
Three months ended
March 31,
------------------------------
2001 2000
------------ ------------
Net loss $ (3,662,012) $ (2,882,344)
Beneficial conversion costs of preferred stock -- (48,663)
------------ ------------
Net loss attributable to common stockholders $ (3,662,012) $ (2,931,007)
============ ============
Weighted average common shares outstanding -
basic and diluted 14,479,787 6,324,220
============ ============
Net loss per share - basic and diluted $ (0.25) $ (0.46)
============ ============
The following table summarizes securities outstanding which were not
included in the calculation of diluted net loss per share since their inclusion
would be antidilutive:
Three months ended
March 31,
-----------------------
2001 2000
--------- ---------
Stock options and warrants 3,010,460 3,058,699
========= =========
Convertible preferred stock 944,755 2,447,808
========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following:
- loss of, and failure to replace, any significant customers;
- timing and success of new product introductions;
- product developments, introductions and pricing of
competitors;
- timing of substantial customer orders;
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- availability of qualified personnel;
- performance of suppliers and subcontractors;
- market demand and industry and general economic or business
conditions;
- the "Risk Factors" set forth in our Registration Statement on
Form S-1 (No. 333-54666), dated January 31, 2001; and
- other factors to which this report refers.
The following discussion and analysis of our financial condition and
results of operations should be read together with our condensed consolidated
financial statements and notes thereto contained in this report.
OVERVIEW
Mobility designs, develops and markets connectivity devices and
accessories for the computer industry and for a broad range of related
microprocessor applications. Our major focus is on developing remote peripheral
component interface, or PCI bus, technology and products using our proprietary
Split Bridge(TM) technology. We also design, develop and market a range of
connectivity and power products for portable computers. These products include
docking stations that utilize universal serial bus, or USB, technology, monitor
stands and in air/in car chargers to power portable computers. We are still in
the process of designing, developing and upgrading our Split Bridge(TM)
technology and products, and as a result, to date our revenues have come
predominantly from our connectivity and power products.
The PCI bus is the electrical transmission path linking the computer's
central processing unit with its memory and other peripheral devices, such as
modems, disk drives and local area networks, or LANs. Our proprietary Split
Bridge(TM) technology consists of a Split Bridge(TM) link, typically two
customized semiconductors, known as application-specific integrated circuits, or
ASIC chips, two connectors and a high-speed, bi-directional cable. Our
technology for the first time allows the primary PCI bus of any computer to be
extended to a remote location, up to 17 feet, with virtually no software
requirements or performance degradation, thereby enabling architectural designs
of computer systems and applications that previously were not feasible.
We have structured our resources to pursue the market opportunities
related to PCI expansion and connectivity. We plan to focus on the deployment of
our patented Split Bridge(TM) technology. We will continue to support the power
product and USB connectivity products, but anticipate ultimately that the PCI
expansion and connectivity products and technology will provide the bulk of
future revenue growth.
We sell our products directly to OEMs and the retail channel, as well
as through distributors. We have also established a few select worldwide private
label accounts, most notably IBM, NEC and Targus. A substantial portion of our
net product sales are concentrated among a number of OEMs, including Compaq,
Dell, Hewlett-Packard, IBM, NEC, Targus and Toshiba. A portion of our sales to
IBM are made through Kingston Technologies, who acts as their fulfillment hub
manager for sales in the United States and Malaysia. Direct sales to OEMs
accounted for approximately 88.8% of net product sales for the three months
ended March 31, 2001 and 57.7% of net product sales for the three months ended
March 31, 2000. Direct sales to OEMs have increased as a percentage of net
product sales as we have successfully promoted our power products and monitor
stands in the OEM market. We expect that we will continue to be dependent upon a
number of OEMs for a significant portion of our net product sales in future
periods, although no OEM is presently obligated to purchase a specified amount
of products.
A portion of our sales to distributors and resellers is generally under
terms that provide for certain stock balancing return privileges and price
protection. Accordingly, we make a provision for estimated sales returns and
other allowances related to those sales. Returns, which have been netted in the
product sales presented herein, were approximately 5.1% of net product sales for
the three months ended March 31, 2001 and 7.2% of net product sales for the
three months ended March 31, 2000. The major distributors are allowed to return
up to 15.0% of their prior quarter's purchases under the stock balancing
programs, provided that they place a new order for equal or greater dollar value
of the stock balancing return.
We derive a significant portion of our net product sales outside the
United States, principally in France, Germany and the United Kingdom, to OEMs,
retailers and a limited number of independent distributors. International sales
accounted for approximately 25.2% of our net product sales for the three months
ended March 31, 2001. We expect product sales outside the United States to
continue to account for a large portion of our future net product sales.
International sales are generally denominated in the currency of our foreign
customers. A decrease in the value of foreign currencies relative to the U.S.
dollar could result in a significant decrease in U.S. dollar sales received by
us for our international sales. That risk may be increased as a result of the
introduction in January 1999 of the new "Euro" currency in European countries
that are part of the European Monetary Union, or EMU. During 2002, all EMU
countries are expected to completely replace their national currencies with the
Euro. However, we cannot determine the impact this may have on our business
because a significant amount of uncertainty exists as to the effect the Euro
will have on the marketplace and because all of the final rules and regulations
have not yet been defined and finalized by the European Commission regarding the
Euro currency. We intend to develop and implement a plan
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to mitigate this risk once the final rules and regulations are established. We
have not engaged in hedging transactions with respect to our net foreign
currency exposure. To the extent that we implement hedging activities in the
future with respect to foreign currency transactions, there can be no assurance
that we will be successful in such hedging activities.
Various factors have in the past affected and may continue in the
future to affect our gross profits, including but not limited to, our product
mix, lower volume production and higher fixed costs for newly introduced product
platforms and technologies, market acceptance of newly introduced products and
the position of our products in their respective lifecycles. The initial stages
of our product introductions are generally characterized by lower volume
production which is accompanied by higher costs, especially for specific
products which are initially purchased in small volumes during the development
lifecycle.
RESULTS OF OPERATIONS
The following table presents certain selected consolidated financial
data for the periods indicated expressed as a percentage of total revenue:
Three months ended
March 31,
------------------
Unaudited
----------------
2001 2000
----- -----
Revenue:
Net product sales 98.6% 100.0%
Technology transfer 1.4% 0.0%
----- -----
Total revenue 100.0% 100.0%
Cost of revenue:
Product sales 77.7% 72.1%
Technology transfer 0.0% 0.0%
----- -----
Total cost of revenue 77.7% 72.1%
----- -----
Gross profit 22.3% 27.9%
Operating expenses:
Sales and marketing 31.1% 22.9%
Research and development 21.0% 19.0%
General and administrative 28.0% 24.7%
----- -----
Total operating expenses 80.1% 66.6%
----- -----
Loss from operations -57.8% -38.7%
Other income (expense):
Interest income (expense), net 6.6% -18.5%
Other income, net 0.2% 0.0%
Foreign currency exchange gain/(loss) 0.0% -0.4%
----- -----
Loss before provision for income taxes -51.0% -57.6%
Provision for income taxes 0.0% 0.0%
----- -----
Net loss -51.0% -57.6%
Beneficial conversion costs of preferred stock 0.0% -1.0%
----- -----
Net loss attributable to common stockholders -51.0% -58.6%
===== =====
Comparison of Three Months Ended March 31, 2001 and 2000
Net product sales. Net product sales consist of sales of product net of
returns and allowances. We recognize sales at the time goods are shipped and the
ownership of the goods is transferred to the customer, and maintain a reserve
for stock rotation transactions with the distribution channel. Net product sales
increased 41.5% to $7.1 million for the three months ended March 31, 2001 from
$5.0 million for the three months ended March 31, 2000. The increase was
primarily attributable to the sales of PCI expansion products by our Magma
subsidiary, which was acquired on October 2, 2000. Increases in our
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core power and monitor stand product lines were partially offset by reductions
in the USB products and a delay in shipping our Split Bridge(TM) based docking
products.
Technology transfer fees. Technology transfer fees consist of revenue
from the licensing and transferring by the Company of its Split Bridge(TM)
technology and architecture. Revenue from technology transfer fees is recognized
ratably over the term of the sales agreement. During the three months ended
March 31, 2001, the Company recognized a technology transfer fee of $100,000 or
1.4% of total revenue. There were no technology transfer fees in the first
quarter of 2000 as we had not yet begun to market our Split Bridge(TM)
technology.
Cost of revenue - product sales. Cost of revenue - product sales
consists primarily of costs associated with components, outsourced manufacturing
and in-house labor associated with assembly, testing, packaging, shipping,
quality assurance, depreciation of equipment and indirect manufacturing costs.
Cost of revenue - product sales increased 54.7% to $5.6 million for the three
months ended March 31, 2001 from $3.6 million for the three months ended March
31, 2000. The increase in cost of revenue - product sales was primarily the
result of the 41.5% volume increase in net product sales. Cost of revenue -
product sales as a percentage of net product sales increased to 78.8% for the
three months ended March 31, 2001 from 72.1% for the three months ended March
31, 2000. Our power products were a larger portion of the net product sales mix
in the first quarter of 2001, having grown 61.1% over the first quarter of 2000.
This mix shift has a negative impact on cost of revenue - product sales as this
product line has a higher product cost when compared to our other product lines.
Cost of revenue - technology transfer. Cost of revenue - technology
transfer consists of engineering expenses related to the Split Bridge(TM)
technology. There were no costs of revenue - technology transfer for the three
months ended March 31, 2001, as the technology transfer fees for the period
consisted solely of fees for existing technology.
Gross profit. Gross profit decreased to 22.3% of total revenue for the
three months ended March 31, 2001 from 27.9% of total revenue for the three
months ended March 31, 2000. The gross profit rate decline was the result of the
growth in power product sales, as this product line has a lower gross profit
when compared to our other product lines.
Sales and marketing. Sales and marketing expenses generally consist of
salaries, commissions and other personnel related costs of our sales, marketing
and support personnel, advertising, public relations, promotions, printed media
and travel. Sales and marketing expenses increased 95.0% to $2.2 million for the
three months ended March 31, 2001 from $1.1 million for the three months ended
March 31, 2000. The increase was primarily attributed to the creation of a
direct sales organization in Europe. We established a warehouse facility in the
United Kingdom and two direct sales offices, one in the United Kingdom and the
other in France. Domestically, we expanded our direct sales force but most of
this increased expense was offset by a reduction in marketing programs. In
addition, there were incremental expenses associated with the addition of the
Magma subsidiary. As a percentage of total revenue, sales and marketing expenses
increased to 31.1% for the three months ended March 31, 2001 from 22.9% for the
three months ended March 31, 2000. Many of the incremental expenses were added
to support the launch of the EasiDock(TM) 1000 and EasiDock(TM) 5000 product
lines which are scheduled to begin shipping in the second quarter of 2001. No
revenues were recognized from these product lines in the first quarter.
Research and development. Research and development expenses consist
primarily of salaries and personnel-related costs, facilities, outside
consulting, lab costs and travel related costs of our product development
group. Research and development expenses increased 58.5% to $1.5 million for
the three months ended March 31, 2001 from $951,000 for the three months ended
March 31, 2000. Research and development expenses as a percentage of total
revenue increased slightly to 21.0% for the three months ended March 31, 2001
from 19.0% for the three months ended March 31, 2000. The increase is due to
the additional engineering costs associated with the acquisition of Magma and
the addition of an in-house ASIC development group to pursue the development of
our next generation ASIC chips.
General and administrative. General and administrative costs consist
primarily of salaries and other personnel-related expenses of our finance, human
resources, information systems, corporate development and other administrative
personnel, as well as professional fees, depreciation and amortization and
related expenses. General and administrative costs also include non-cash
compensation, which is the result of the issuance of common stock, warrants and
stock options at a price deemed to be less than market value to employees and
outside consultants for services rendered, and goodwill amortization which
relates to the acquisition of Magma in October, 2000. General and administrative
costs increased 62.7% to $2.0 million for the three months ended March 31, 2001
from $1.2 million for the three months ended March 31, 2000. The increase is due
to additional general and administrative expenses associated with our Magma
subsidiary, the implementation of a new ERP system which has resulted in higher
consulting fees, software maintenance and personnel costs in our information
systems department and higher legal and professional fees associated with being
a public company. The increase is also due in part to the amortization of Magma
goodwill totalling $155,000 for the three months ended March 31, 2001. As a
percentage of total revenue, general and administrative expenses increased to
28.0% for the three months ended March 31, 2001 from 24.7% for the three months
ended March 31, 2000. As we begin to recognize revenues from the sale of our new
Split Bridge(TM) products, we anticipate that general and administrative costs
as a percentage of revenue will decrease.
Interest income (expense), net. For the three months ended March 31,
2001, net interest income consists of interest earned on our cash balances and
short-term investments. For the three months ended March 31, 2000, net interest
expense consists of interest on our bank revolving lines of credit and
promissory notes as well as our subordinated debt and convertible debentures,
partially offset by interest earned on our cash balances and short-term
investments. Net interest income for the
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three months ended March 31, 2001 was $471,000 compared to net interest expense
of $929,000 for the three months ended March 31, 2000. The change was primarily
due to the payoff of debt with our IPO proceeds and interest earned on our IPO
proceeds.
Income taxes. We have incurred losses from inception to date;
therefore, no provision for income taxes was required for the three months ended
March 31, 2001 and 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through debt
and equity financing, as the cost of our operating activities has exceeded our
revenue. Our operating activities used cash of $3.6 million and $2.4 million for
the three months ended March 31, 2001 and 2000, respectively. Net cash used in
operating activities for the three months ended March 31, 2001 was primarily
attributed to our net loss and an increase in inventories, offset in part by
non-cash expenses such as depreciation of property and equipment and
amortization of deferred compensation and intangibles.
Our investing activities used cash of $358,000 and $120,000 for the
three months ended March 31, 2001 and 2000, respectively. For the three months
ended March 31, 2001, cash used in investing activities was for the purchase of
property and equipment.
Our financing activities used cash of $11,000 for the three months
ended March 31, 2001 and provided cash of $4.1 million for the three months
ended March 31, 2000. Net cash used in financing activities for the three months
ended March 31, 2001 was primarily used to pay down capital lease obligations.
Our cash and cash equivalents decreased to $26.4 million at March 31,
2001, compared to $30.4 million at December 31, 2000. Our net working capital at
those same dates was $33.6 million and $37.0 million, respectively. At March 31,
2001 our available sources of liquidity were our cash and cash equivalents.
Our future capital requirements include financing the growth of working
capital items such as accounts receivable and inventories, and the purchase of
equipment and fixtures to accomplish future growth. We believe that our cash and
cash equivalents on hand will be sufficient to satisfy our expected cash and
working capital requirements for at least the next twelve months.
At December 31, 2000 we had approximately $47.5 million of federal net
operating loss carryforwards which expire at various dates. We anticipate that
the sale of common stock in the IPO coupled with prior sales of common stock
will cause an annual limitation on the use of our net operating loss
carryforwards pursuant to the change in ownership provisions of Section 382 of
the Internal Revenue Code of 1986, as amended. This limitation is expected to
have a material effect on the timing of our ability to use the net operating
loss carryforward in the future. Additionally, our ability to use the net
operating loss carryforward is dependent upon our level of future profitability,
which cannot be determined.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks in the ordinary course of our
business. These risks result primarily from changes in foreign currency exchange
rates and interest rates. In addition, our international operations are subject
to risks related to differing economic conditions, changes in political climate,
differing tax structures and other regulations and restrictions.
To date we have not utilized derivative financial instruments or
derivative commodity instruments. We do not expect to employ these or other
strategies to hedge market risk in the foreseeable future. We invest our cash in
money market funds and other short term, highly liquid investments, which are
subject to minimal credit and market risk. We believe that the market risks
associated with these financial instruments are immaterial.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
We are from time to time involved in various legal proceedings
incidental to the conduct of our business. We believe that the outcome of all
such pending legal proceedings will not in the aggregate have a material adverse
effect on our business, financial condition, results of operations or liquidity.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities.
On March 2, 2001, we issued 68,966 shares of common stock to each of
Jeffrey S. Doss, Donald W. Johnson and La Luz Enterprises, L.L.C., an affiliate
of Charles R. Mollo, at a purchase price of $2.90 per share. Each of the
purchasers paid $690 in cash and executed and delivered to the Company a
three-year promissory note, in the original principal amount of $199,311, and
bearing interest at the rate of 6.33% per annum. Each promissory note is secured
by the shares of common stock so issued and, in addition, the promissory note
issued by La Luz Enterprises, L.L.C. is guaranteed by Mr. Mollo. There were no
underwriters employed in connection with these transactions.
These issuances to Messrs. Doss and Johnson as well as to La Luz
Enterprises, L.L.C. were made in reliance on Section 4(2) of the Securities Act
and Regulation D promulgated thereunder as transactions by an issuer not
involving a public offering. Each purchaser in these transactions represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof and appropriate legends were affixed to the
share certificates and other instruments issued in such transactions. All
recipients either received adequate information about us or had access, through
employment or other relationships, to such information. All recipients were
knowledgeable, sophisticated and experienced in making investment decisions of
this kind and received adequate information about the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
Exhibit
Number Description
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of June 17, 1997.(3)
3.3 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of September 10 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
3.9 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of March 31, 2000.(3)
4.1 -- Specimen of Common Stock Certificate.(4)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company and
Miram International, Inc. dated July 29, 1997. (1)
4.4 -- Form of Unit Purchase Agreement used in 1998 Private
Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's Common stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's common stock and
warrants to purchase 500 shares of the Company's Common
Stock. (1)
4.6 -- Form of Warrant to Purchase Shares of common stock of the
Company used with the 13% Bridge Notes and Series C Preferred
Stock Private Placements. (3)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
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4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placements.(1)
4.10 -- 13% Bridge Note Conversion Notice expired June 30, 1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used in
1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreements used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement executed May 3,
1999, between the Company, Philips Semiconductors VLSI, Inc.
(f/k/a VSLI Technology, Inc.) and Seligman Communications and
Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova
Capital Corporation (f/k/a Sirrom Capital Corporation) dated
as of March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement dated
October 29, 1999, between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated April 20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in Connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in Connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated November 2, 1999.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company
issued in the 1997 Private Placement.(2)
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and Seligman Communications and
Information Fund, Inc. entered into in connection with The
Series C Preferred Stock and Warrant Purchase Agreement
Series C Preferred Stock and Warrant Purchase Agreement dated
October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued in
connection with the Loan Extension Agreement dated February
29, 2000.(2)
4.25 -- Investors' Rights Agreement executed May 3, 1999 between the
Company, Philips Semiconductors VLSI, Inc. f/k/a VLSI
Technology, Inc.) and Seligman Communications and Information
Fund, Inc.(3)
4.26 -- Registration Rights granted by the Company to Cybex Computer
Products Corporation in connection with the Strategic Partner
Agreement dated March 6, 2000.(3)
4.27 -- 13% Bridge Note Conversion Notice used in July 1999 Private
Placement.(4)
10.1 -- Form of Stock Purchase Agreement, dated as of March 2, 2001,
by and between the Company and each of Jeffrey S. Doss,
Donald W. Johnson and La Luz Enterprises, L.L.C.(8)
10.2 -- Form of Promissory Note, dated March 2, 2001, in the
principal amount of $199,311, and issued by each of Jeffrey
S. Doss, Donald W. Johnson and La Luz Enterprises, L.L.C. to
the Company (8)
10.3 -- Form of Pledge and Security Agreement, dated as of March 2,
2001, by and between the Company nd each of Jeffrey S. Doss,
Donald W. Johnson and La Luz Enterprises, L.L.C.(8)
10.4 -- Guaranty, dated as of March 2, 2001, issued by Charles R.
Mollo in favor of the Company (8)
24.1 -- None
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(1) Previously filed as an exhibit to Registration Statement No. 333-30264
dated February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 1 to Registration
Statement No. 333-30264 dated March 28, 2000.
(3) Previously filed as an exhibit to Amendment No. 2 to Registration
Statement No. 333-30264 dated May 4, 2000.
(4) Previously filed as an exhibit to Amendment No. 4 to Registration
Statement No. 333-30264 dated May 26, 2000.
(5) Previously filed as an exhibit to Post-Effective Amendment No. 1 to
Registration Statement No. 333-30264 dated July 24, 2000.
(6) Previously filed as an exhibit to Form 10-Q dated August 14, 2000.
(7) Previously filed as an exhibit to Form 8-K dated October 17, 2000.
(8) Previously filed as an exhibit to Form 10-K dated April 2, 2001.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended March 31, 2001.
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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOBILITY ELECTRONICS, INC.
Dated: May 14, 2001 By: /s/ RICHARD W. WINTERICH
--------------------------------------------
Richard W. Winterich
Vice President and Chief Financial Officer
and Authorized Officer of Registrant
(Principal Financial and Accounting Officer)
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MOBILITY ELECTRONICS, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of June 17, 1997.(3)
3.3 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of September 10 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
3.9 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of March 31, 2000.(3)
4.1 -- Specimen of Common Stock Certificate.(4)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company and
Miram International, Inc. dated July 29, 1997. (1)
4.4 -- Form of Unit Purchase Agreement used in 1998 Private
Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's Common stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's Common stock and
warrants to purchase 500 shares of the Company's Common
Stock. (1)
4.6 -- Form of Warrant to Purchase Shares of common stock of the
Company used With the 13% Bridge Notes and Series C Preferred
Stock Private Placements. (3)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placements.(1)
4.10 -- 13% Bridge Note Conversion Notice expired September 30,
1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used in
1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreements used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement executed May 3,
1999, between the Company, Philips Semiconductors VLSI, Inc.
(f/k/a VSLI Technology, Inc.) and Seligman Communications and
Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova
Capital Corporation (f/k/a Sirrom Capital Corporation) dated
as of March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement dated
October 29, 1999, Between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated April 20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in Connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo, Cameron
Wilson, the Company and Certain Stockholders of the Company
dated April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in Connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo, Cameron
Wilson, the Company and Certain Stockholders of the Company
dated November 2, 1999.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company
issued in the 1997 Private Placement.(2)
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and
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Seligman Communications and Information Fund, Inc. entered
into in connection with The Series C Preferred Stock and
Warrant Purchase Agreement Series C Preferred Stock And
Warrant Purchase Agreement dated October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued in
connection with the Loan Extension Agreement dated February
29, 2000.(2)
4.25 -- Investors' Rights Agreement executed May 3, 1999 between the
Company, Philips Semiconductors VLSI, Inc. f/k/a VLSI
Technology, Inc.) and Seligman Communications And Information
Fund, Inc.(3)
4.26 -- Registration Rights granted by the Company to Cybex Computer
Products Corporation in connection with the Strategic Partner
Agreement dated March 6, 2000.(3)
4.27 -- 13% Bridge Note Conversion Notice used in July 1999 Private
Placement.(4)
10.1 -- Form of Stock Purchase Agreement, dated as of March 2, 2001,
by and between the Company and each of Jeffrey S. Doss,
Donald W. Johnson and La Luz Enterprises, L.L.C.(8)
10.2 -- Form of Promissory Note, dated March 2, 2001, in the
principal amount of $199,311, and issued by each of Jeffrey
S. Doss, Donald W. Johnson and La Luz Enterprises, L.L.C. to
the Company (8)
10.3 -- Form of Pledge and Security Agreement, dated as of March 2,
2001, by and between the Company nd each of Jeffrey S. Doss,
Donald W. Johnson and La Luz Enterprises, L.L.C.(8)
10.4 -- Guaranty, dated as of March 2, 2001, issued by Charles R.
Mollo in favor of the Company (8)
24.1 -- None
- ----------
(1) Previously filed as an exhibit to Registration Statement No. 333-30264
dated February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 1 to Registration
Statement No. 333-30264 dated March 28, 2000.
(3) Previously filed as an exhibit to Amendment No. 2 to Registration
Statement No. 333-30264 dated May 4, 2000.
(4) Previously filed as an exhibit to Amendment No. 4 to Registration
Statement No. 333-30264 dated May 26, 2000.
(5) Previously filed as an exhibit to Post-Effective Amendment No. 1 to
Registration Statement No. 333-30264 dated July 24, 2000.
(6) Previously filed as an exhibit to Form 10-Q dated August 14, 2000.
(7) Previously filed as an exhibit to Form 8-K dated October 17, 2000.
(8) Previously filed as an exhibit to Form 10-K dated April 2, 2001.
All other schedules and exhibits are omitted because they are not
applicable or because the required information is contained in the Financial
Statements or Notes thereto.
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