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 SEPTEMBER 30, 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 November 6, 2001, there were 14,926,360 shares of the Registrant's
Common Stock outstanding.
MOBILITY ELECTRONICS, INC.
FORM 10-Q
TABLE OF CONTENTS
<Table>
<Caption>
PAGE NO.
--------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30,
2001 and 2000 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 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 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 18
INDEX TO EXHIBITS 19
</Table>
-2-
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
September 30, December 31,
2001 2000
-------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,163,910 $ 30,369,490
Accounts receivable, net 6,632,298 6,905,679
Inventories 4,755,995 6,370,881
Prepaid expenses and other current assets 324,744 136,782
-------------- --------------
Total current assets 26,876,947 43,782,832
-------------- --------------
Property and equipment, net 1,946,886 1,682,637
Goodwill, less accumulated amortization of $621,098
(unaudited) and $155,275 at September 30, 2001
and December 31, 2000, respectively 5,589,854 6,055,677
Other assets, net 3,206,970 4,153,111
-------------- --------------
Total assets $ 37,620,657 $ 55,674,257
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,791,750 $ 4,479,044
Accrued expenses and other current liabilities 2,438,674 2,254,195
Current installments of capital lease obligations 2,697 36,636
-------------- --------------
Total current liabilities 5,233,121 6,769,875
-------------- --------------
Total liabilities 5,233,121 6,769,875
-------------- --------------
Stockholders' equity:
Convertible preferred stock - Series C, $.01 par value; authorized
15,000,000 shares; 695,826 (unaudited) and 1,263,708
shares issued and outstanding at September 30, 2001 and
December 31, 2000,
respectively 6,958 12,637
Common stock, $.01 par value; authorized 90,000,000
shares; 14,890,983 (unaudited) and 14,323,100
shares issued and outstanding at September 30, 2001
and December 31, 2000, respectively 148,910 143,231
Additional paid-in capital 112,804,704 113,614,659
Accumulated deficit (79,008,430) (61,945,917)
Stock subscription and deferred compensation (1,536,488) (2,920,228)
Accumulated other comprehensive income - foreign
currency translation adjustment (28,118) --
-------------- --------------
Total stockholders' equity 32,387,536 48,904,382
-------------- --------------
Total liabilities and stockholders' equity $ 37,620,657 $ 55,674,257
============== ==============
</Table>
See accompanying notes to condensed consolidated financial statements.
-3-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue:
Net product sales $ 6,990,039 $ 6,604,618 $ 20,970,782 $ 17,896,303
Technology transfer fees 100,000 1,000,000 300,000 1,000,000
------------ ------------ ------------ ------------
Total revenue 7,090,039 7,604,618 21,270,782 18,896,303
Cost of revenue:
Product sales 6,669,509 5,073,578 19,489,462 13,502,911
Technology transfer -- 100,000 -- 100,000
------------ ------------ ------------ ------------
Total cost of revenue 6,669,509 5,173,578 19,489,462 13,602,911
------------ ------------ ------------ ------------
Gross profit 420,530 2,431,040 1,781,320 5,293,392
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 2,030,412 2,618,351 6,730,430 5,601,570
Research and development 1,541,989 1,399,844 4,746,879 3,278,050
General and administrative 4,418,534 1,886,054 8,489,310 4,384,216
------------ ------------ ------------ ------------
Total operating expenses 7,990,935 5,904,249 19,966,619 13,263,836
------------ ------------ ------------ ------------
Loss from operations (7,570,405) (3,473,209) (18,185,299) (7,970,444)
Other income (expense):
Interest income (expense), net 285,553 (1,077,154) 1,096,786 (2,611,042)
Other income, net 13,839 -- 32,628 2,290
Foreign currency exchange gain (loss) 10,551 (8,408) (6,628) (44,342)
------------ ------------ ------------ ------------
Loss before provision for income taxes (7,260,462) (4,558,771) (17,062,513) (10,623,538)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss (7,260,462) (4,558,771) (17,062,513) (10,623,538)
Beneficial conversion costs of preferred stock -- -- -- (48,663)
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (7,260,462) $ (4,558,771) $(17,062,513) $(10,672,201)
============ ============ ============ ============
Net loss per share:
Basic and diluted $ (0.49) $ (0.37) $ (1.16) $ (1.26)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic and diluted 14,845,757 12,305,815 14,715,338 8,499,915
============ ============ ============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
-4-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<Table>
<Caption>
Nine months ended
September 30,
------------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $(17,062,513) $(10,623,538)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for accounts receivable 7,215 90,000
Provision for obsolete inventory 2,950,000 539,225
Depreciation and amortization 1,252,512 558,766
Provision for note receivable 3,000,000 --
Amortization of deferred loan costs 8,693 2,726,647
Amortization of deferred compensation 571,181 1,285,257
Write off of tooling equipment 215,969 --
Changes in operating assets and liabilities:
Accounts receivable 266,166 (4,040,460)
Inventories (1,335,114) (2,799,202)
Prepaid expenses and other assets (946,041) (222,247)
Accounts payable (1,687,294) 2,225,447
Accrued expenses and other current liabilities 183,479 1,172,396
------------ ------------
Net cash used in operating activities (12,575,747) (9,087,709)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,167,380) (435,651)
Cash paid for note receivable (640,000) (2,200,000)
Cash paid to exercise stock purchase warrant (764,000) (1,200,000)
------------ ------------
Net cash used in investing activities (2,571,380) (3,835,651)
------------ ------------
Cash flows from financing activities:
Repayment of lines of credit -- (2,728,538)
Repayment of note payable -- (2,490,636)
Repayment of long-term debt and capital lease obligations (33,939) (3,693,572)
Net proceeds from issuance of common stock 2,212 49,804,115
Net proceeds from issuance of preferred stock -- 4,996,148
Proceeds from exercise of warrants 1,392 432,287
------------ ------------
Net cash provided by (used in) financing activities (30,335) 46,319,804
------------ ------------
Effects of exchange rate changes on cash and cash equivalents (28,118) --
------------ ------------
Net increase (decrease) in cash and cash equivalents (15,205,580) 33,396,444
Cash and cash equivalents, beginning of period 30,369,490 4,792,313
------------ ------------
Cash and cash equivalents, end of period $ 15,163,910 $ 38,188,757
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
-5-
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 and nine
months ended September 30, 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 September 30, 2000 condensed
consolidated financial statements have been reclassified to conform to the
September 30, 2001 financial statement presentation.
(b) Segment Reporting
The Company has only one operating business segment, the sale of
peripheral computer equipment and related technology.
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.
On May 18, 2001, the Company acquired certain assets, including a
product line, inventory related to that product line, and patent rights, of CNF
Mobile Solutions, a manufacturer of computer peripheral products, for $685,000
cash. $585,000 of the total purchase price has been capitalized as inventory and
intangibles and the remaining $100,000 has been recorded as a component of
operating expenses. Other costs associated with the transaction totaling
$116,000 have also been recorded as a component of operating expenses.
-6-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVENTORY
Inventories consist of the following:
<Table>
<Caption>
September 30, December 31,
2001 2000
--------------- ---------------
Raw materials $ 1,820,138 $ 3,167,319
Finished goods 2,935,857 3,203,562
--------------- ---------------
$ 4,755,995 $ 6,370,881
=============== ===============
</Table>
5. STOCKHOLDERS' EQUITY
(a) Preferred Stock
During the period from December 31, 2000 through September 30, 2001,
567,882 shares of Series C preferred stock were converted into 391,173 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 and is recorded in stock subscriptions,
which is a component of shareholders' equity.
In June 2000, the Company sold 100,000 shares of common stock at a
price of $12.00 per share to a company in exchange for $1,000 in cash and a
$1,199,000 promissory note bearing interest at 6% per annum and secured by these
shares of common stock. As of December 31, 2000, the $1,199,000 outstanding
principal balance was reflected as a component of deferred compensation and
stock subscriptions. On June 30, 2001, the shareholder tendered the shares of
common stock back to the Company in lieu of payment of principal and interest on
the promissory note. The shares of stock were simultaneously retired by the
Company.
-7-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 30% and 26% of total revenue of the Company
for the nine months ended September 30, 2001. Two customers accounted for 28%
and 25% of total revenue of the Company for the nine months ended September 30,
2000.
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:
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net loss $ (7,260,462) $ (4,558,771) $(17,062,513) $(10,623,538)
Beneficial conversion costs of preferred stock -- -- -- (48,663)
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (7,260,462) $ (4,558,771) $(17,062,513) $(10,672,201)
============ ============ ============ ============
Weighted average common shares outstanding -
basic and diluted 14,845,757 12,305,815 14,715,338 8,499,915
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.49) $ (0.37) $ (1.16) $ (1.26)
============ ============ ============ ============
</Table>
-8-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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:
<Table>
<Caption>
September 30,
-------------------------------
2001 2000
------------- -------------
Stock options and warrants 1,446,641 2,509,376
============= =============
Convertible preferred stock 695,826 1,889,886
============= =============
</Table>
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:
o loss of, and failure to replace, any significant customers;
o timing and success of new product introductions;
o product developments, introductions and pricing of
competitors;
o timing of substantial customer orders;
o availability of qualified personnel;
o performance of suppliers and subcontractors;
o market demand and industry and general economic or business
conditions;
o the "Risk Factors" set forth in our Registration Statement on
Form S-3, dated October 24, 2001; and
o 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 Electronics, Inc. ("Mobility" or the "Company") 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 other products for portable
computers. These products include 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 other 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
currently have two Split Bridge(TM) patents that are issued by the U.S. Patent
and Trademark Office. Our first
-9-
major application for Split Bridge(TM) technology is the creation of a new
universal docking product category which allows users of portable computers to
configure a flexible, high performance docking solution that meets their
individual needs.
On October 2, 2000, Mobility acquired all of the assets of Mesa Ridge
Technologies, Inc. d/b/a MAGMA, a privately held company. MAGMA provides a range
of PCI expansion products for the computer industry which utilize traditional
PCI bridge technology and MAGMA's patented expansion technology. The acquisition
of MAGMA solidified Mobility's market leadership position in the PCI expansion
business by providing products, distribution channels, key customers, and
additional resources that can leverage Mobility's Split Bridge(TM) technology
and accelerate Mobility's growth and development in this market segment.
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 monitor stand 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 84.4% of net product sales for the nine months ended
September 30, 2001 and 74.5% of net product sales for the nine months ended
September 30, 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 4.3% of net product sales for
the nine months ended September 30, 2001 and 4.8% of net product sales for the
nine months ended September 30, 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 32.1% of our net product sales for the nine months
ended September 30, 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 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.
-10-
RESULTS OF OPERATIONS
The following table presents certain selected consolidated financial
data for the periods indicated expressed as a percentage of total revenue:
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
Unaudited Unaudited
-------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Revenue:
Net product sales 98.6% 86.9% 98.6% 94.7%
Technology transfer 1.4% 13.1% 1.4% 5.3%
------------- ------------- ------------- -------------
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue:
Product sales 94.1% 66.7% 91.6% 71.5%
Technology transfer 0.0% 1.3% 0.0% 0.5%
------------- ------------- ------------- -------------
Total cost of revenue 94.1% 68.0% 91.6% 72.0%
------------- ------------- ------------- -------------
Gross profit (loss) 5.9% 32.0% 8.4% 28.0%
Operating expenses:
Sales and marketing 28.6% 34.4% 31.6% 29.6%
Research and development 21.7% 18.4% 22.3% 17.3%
General and administrative 62.3% 24.8% 39.9% 23.2%
------------- ------------- ------------- -------------
Total operating expenses 112.7% 77.6% 93.9% 70.2%
------------- ------------- ------------- -------------
Loss from operations (106.8)% (45.6)% (85.5)% (42.2)%
Other income (expense):
Interest income (expense), net 4.0% (14.2)% 5.2% (13.8)%
Other income, net 0.2% 0.0% 0.2% 0.0%
Foreign currency exchange loss 0.1% (0.1)% 0.0% (0.2)%
------------- ------------- ------------- -------------
Loss before provision for income taxes (102.4)% (59.9)% (80.2)% (56.2)%
Provision for income taxes 0.0% 0.0% 0.0% 0.0%
------------- ------------- ------------- -------------
Net loss (102.4)% (59.9)% (80.2)% (56.2)%
Beneficial conversion costs of preferred stock 0.0% 0.0% 0.0% (0.3)%
------------- ------------- ------------- -------------
Net loss attributable to common stockholders (102.4)% (59.9)% (80.2)% (56.5)%
============= ============= ============= =============
</Table>
Comparison of Three Months Ended September 30, 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 5.8% to $7.0 million for the three months ended September 30, 2001
from $6.6 million for the three months ended September 30, 2000. The increase
was primarily attributable to the sales of PCI expansion products by our Magma
subsidiary, which was acquired on October 2, 2000. The increase was partially
offset by reductions in sales of power products, monitor stands and USB
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
September 30, 2001, the Company recognized a technology transfer fee of $100,000
or 1.4% of total revenue. During the three months ended September 30, 2000, the
Company, for the first time, licensed and transferred its Split Bridge(TM)
technology and as a result, recognized a portion of a technology transfer fee of
$1.0 million or 13.1% of total revenue.
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 and
quality assurance, and depreciation of equipment and indirect manufacturing
costs. Cost of revenue - product sales increased 31.5% to $6.7 million for the
three months ended September 30, 2001 from $5.1 million for the three months
ended September 30, 2000. The increase in cost of revenue - product sales was
due in part to the 5.8% volume increase in net product sales. The balance of the
increase was due to a $1.2 million charge to cost of revenue - product sales for
excess and obsolete inventory and abandoned tooling. Cost of revenue - product
sales as a percentage of net product sales increased to 95.4% for the three
months ended September 30, 2001 from 76.8% for the three months ended September
30, 2000. Excluding the $1.2 million charge, cost of revenue - product sales as
a percentage of net product sales for the three months ended September 30, 2001
increased slightly to 78.2% from the 76.8% for the three months ended September
30, 2000.
-11-
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 September 30, 2001, as the technology transfer fees for the period
consisted solely of fees for existing technology. Cost of revenue - technology
transfer was $100,000 or 1.3% of total revenue for the three months ended
September 30, 2000.
Gross profit. Gross profit decreased to 5.9% of total revenue for the
three months ended September 30, 2001 from 32.0% of total revenue for the three
months ended September 30, 2000. The gross profit rate decline was the result of
the $1.2 million charge to cost of revenue - product sales for excess and
obsolete inventory and abandoned tooling, and was also due to the decrease in
technology transfer fee revenues. Excluding the $1.2 million charge, gross
profit decreased to 22.9% of total revenues for the three months ended September
30, 2001 from 32.0% of total revenue for the three months ended September 30,
2000. This decrease is due primarily to the decrease in technology transfer fee
revenues, which have very low costs associated with them, for the three months
ended September 30, 2001, compared to the three months ended September 30, 2000.
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 decreased 22.5% to $2.0 million for the
three months ended September 30, 2001 from $2.6 million for the three months
ended September 30, 2000. The decrease is primarily the result of a reduction in
marketing programs resulting from our decision to focus our marketing efforts on
what we have deemed to be the most productive sales channels. As a percentage of
total revenue, sales and marketing expenses decreased to 28.6% for the three
months ended September 30, 2001 from 34.4% for the three months ended September
30, 2000.
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 10.2% to $1.5 million for the three
months ended September 30, 2001 from $1.4 for the three months ended September
30, 2000. Research and development expenses as a percentage of total revenue
increased to 21.7% for the three months ended September 30, 2001 from 18.4% for
the three months ended September 30, 2000. The increase is due to the additional
engineering costs associated with the acquisition of Magma.
General and administrative. General and administrative expenses 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 expenses 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
expenses increased 134.3% to $4.4 million for the three months ended September
30, 2001 from $1.9 million for the three months ended September 30, 2000. The
increase is due primarily to the write-off of a $3.0 million loan to a strategic
partner that the Company believes has become uncollectible. Excluding the
write-off, general and administrative expenses decreased $500,000 for the three
months ended September 30, 2001 compared to the three months ended September 30,
2000. The decrease is due primarily to reductions in personnel and other
overhead. Excluding the write-off, general and administrative expenses as a
percentage of total revenue decreased to 20.0% for the three months ended
September 30, 2001 from 24.8% for the three months ended September 30, 2000. As
we begin to recognize increased revenues from the sale of our new Split
Bridge(TM) products, we anticipate that general and administrative expenses, as
a percentage of revenue, will continue to decrease.
Interest income (expense), net. For the three months ended September
30, 2001, net interest income consists primarily of interest earned on our cash
balances and short-term investments. For the three months ended September 30,
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 three months ended September
30, 2001 was $286,000 compared to net interest expense of $1.1 million for the
three months ended September 30, 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
September 30, 2001 and 2000.
Comparison of Nine months Ended September 30, 2001 and 2000
Net product sales. Net product sales increased 17.2% to $21.0 million
for the nine months ended September 30, 2001 from $17.9 million for the nine
months ended September 30, 2000. The increase was attributable to the sales of
PCI expansion products by our Magma subsidiary, which was acquired on October 2,
2000 and an increase in sales of our base power products. These increases were
offset in part by reductions in sales of USB and Split Bridge(TM) products.
Sales of Split Bridge(TM) products for the nine months ended September 30, 2000
was composed primarily of sales of the EasiDock(TM) 1000E, which did not include
video. That product was replaced by the EasiDock(TM) 1000EV, with video, which
did not begin shipping until late in the second quarter of 2001.
-12-
Technology transfer fees. During the nine months ended September 30,
2001, the Company recognized a technology transfer fee of $300,000 or 1.4% of
total revenue. For the nine months ended September 30, 2000, the Company
recognized technology transfer fee revenues of $1.0 million or 5.3% of total
revenue.
Cost of revenue - product sales. Cost of revenue - product sales
increased 44.3% to $19.5 million for the nine months ended September 30, 2001
from $13.5 million for the nine months ended September 30, 2000. Approximately
39% of the increase in cost of revenue - product sales was due to the volume
increase in net product sales. The balance of the increase was due to a $3.4
million charge to cost of revenue - product sales for excess and obsolete
inventory and abandoned tooling during the nine months ended September 30, 2001
Cost of revenue - product sales as a percentage of net product sales increased
to 92.9% for the nine months ended September 30, 2001 from 75.5% for the nine
months ended September 30, 2000. Excluding the $3.4 million charge for excess
and obsolete inventory and abandoned tooling, cost of revenue - product sales as
a percentage of net product sales for the nine months ended September 30, 2001
increased to 76.7% from the 75.5% for the nine months ended September 30, 2000.
Cost of revenue - technology transfer. There were no costs of revenue -
technology transfer for the nine months ended September 30, 2001, as the
technology transfer fees for the period consisted solely of fees for existing
technology. Cost of revenue - technology transfer was $100,000 or 0.5% of total
revenue for the nine months ended September 30, 2000.
Gross profit. Gross profit decreased to 8.4% of total revenue for the
nine months ended September 30, 2001 from 28.0% of total revenue for the nine
months ended September 30, 2000. The gross profit rate decline was due primarily
to the $3.4 million charge to cost of revenue - product sales for excess and
obsolete inventory and abandoned tooling. Excluding this charge, gross profit
decreased to 24.4% of total revenue for the nine months ended September 30, 2001
from 28.0% of total revenue for the nine months ended September 30, 2000. This
decrease is due primarily to the decrease in technology transfer fee revenues
for the nine months ended September 30, 2001, compared to the nine months ended
September 30, 2000.
Sales and marketing. Sales and marketing expenses increased 20.2% to
$6.7 million for the nine months ended September 30, 2001 from $5.6 million for
the nine months ended September 30, 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. In addition, we incurred incremental
expenses associated with the addition of the Magma subsidiary. As a percentage
of total revenue, sales and marketing expenses increased to 31.6% for the nine
months ended September 30, 2001 from 29.6% for the nine months ended September
30, 2000.
Research and development. Research and development expenses increased
44.8% to $4.7 million for the nine months ended September 30, 2001 from $3.3
million for the nine months ended September 30, 2000. Research and development
expenses as a percentage of total revenue increased to 22.3% for the nine months
ended September 30, 2001 from 17.3% for the nine months ended September 30,
2000. The increase is due to the additional engineering costs associated with
the acquisition of Magma, the addition of an in-house ASIC development group to
pursue the development of our next generation ASIC chips and the expenses
associated with completing the EasiDock(TM) 1000EV product.
General and administrative. General and administrative expenses
increased 93. 6% to $8.5 million for the nine months ended September 30, 2001
from $4.4 million for the nine months ended September 30, 2000. The increase is
primarily due to the $3.0 million write-off of a loan to a strategic partner
during the nine months ended September 30, 2001. Other factors contributing to
the increase include: 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 totaling $465,000 for the nine months ended
September 30, 2001. These increases are partially offset by reductions in
personnel and other overhead, as well as a reduction in deferred compensation
expense of $714,000. Excluding the loan write-off, general and administrative
expenses increased to 25.8% of total revenue for the nine months ended September
30, 2001 from 23.2% for the nine months ended September 30, 2000. As we begin to
recognize increased revenues from the sale of our new Split Bridge(TM) products,
we anticipate that general and administrative expenses, as a percentage of
revenue will decrease.
Interest income (expense), net. Net interest income for the nine months
ended September 30, 2001 was $1.1 million compared to net interest expense of
$2.6 million for the nine months ended September 30, 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 nine months ended
September 30, 2001 and 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through debt
and equity financing, as the cash consumed by our operating activities has
exceeded cash generated by revenues. Our operating activities used cash of $12.6
million and $9.1 million for the nine months ended September 30, 2001 and 2000,
respectively. Net cash used in operating activities for the
-13-
nine months ended September 30, 2001 was primarily attributed to our net loss
and increases in inventories, prepaids and other assets and a reduction in
accounts payable. Cash used in operating activities was offset, in part, by
non-cash expenses such as depreciation of property and equipment, write off of a
note receivable which has become uncollectible, amortization of deferred
compensation and intangibles, and provision for obsolete inventory.
Our investing activities used cash of $2.6 million and $3.8 million for
the nine months ended September 30, 2001 and 2000, respectively. For the nine
months ended September 30, 2001, cash used in investing activities was for the
purchase of property and equipment, cash paid for a note receivable which was
written off in its entirety during the three months ended September 30, 2001,
and cash paid to exercise a stock purchase warrant.
Our financing activities used cash of $30,000 for the nine months ended
September 30, 2001 and provided cash of $46.3 million for the nine months ended
September 30, 2000. Net cash used in financing activities for the nine months
ended September 30, 2001 was primarily used to pay down capital lease
obligations.
Our cash and cash equivalents decreased to $15.2 million at September
30, 2001, compared to $30.4 million at December 31, 2000. Our net working
capital at those same dates was $21.6 million and $37.0 million, respectively.
At September 30, 2001 our available sources of liquidity were our cash and cash
equivalents.
Our future capital requirements include funding operations, 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 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement No. 141, Business Combinations
("Statement 141"), and Statement No. 142, Goodwill and Other Intangible Assets
("Statement 142"). Statement 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001.
Statement 141 also specifies criteria intangible assets acquired in a purchase
method business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated prior to July
1, 2001, which it expects to account for using the pooling-of-interests method,
and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of Statement
142 within the first interim period. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
-14-
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.
Finally, any unamortized negative goodwill existing at the date
Statement 142 is adopted must be written off as the cumulative effect of a
change in accounting principle.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $5.4 million, which will be subject to the transition
provisions of Statements 141 and 142. At that same date, the Company will have
no unamortized identifiable intangible assets and no unamortized negative
goodwill. Amortization expense related to goodwill was $155,000 and $465,000 for
the year ended December 31, 2000 and the nine months ended September 30, 2001,
respectively. Because of the extensive effort needed to comply with adopting
Statements 141 and 142, it is not practicable to reasonably estimate the impact
of adopting these Statements on the Company's financial statements at the date
of this report, including whether any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
In August 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations ("Statement 143"). Statement 143 requires that the fair
value of a liability for an asset retirement obligation be recorded in the
period in which it is incurred. The Company is required to adopt the provisions
of Statement 143 as of January 1, 2003. The adoption of Statement 143 is not
expected to have a material effect on our consolidated financial statements.
In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("Statement 144"). Statement 144
supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. Statement 144 also
supercedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. However,
it retains the requirement in Opinion No. 30 to report separately discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. The Company is required to adopt the provisions
of Statement 144 as of January 1, 2002. The adoption of Statement 144 is not
expected to have a material effect on our consolidated financial statements.
ITEM 3. QUANTATIVE 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:
Mobility Electronics, Inc. v. SBS Technologies, Inc. No. CIV01-0409 PHX
JAT; filed on March 5, 2001 in the United States District Court for the District
of Arizona. In this lawsuit, the Company alleges patent infringement against SBS
Technologies on two patents owned by the Company; U.S. Patent No. 6,070,214
entitled "Serially Linked Bus Bridge for
-15-
Expanding Access Over a First Bus to a Second Bus" and U.S. Patent No. 6,088,752
entitled "Method and Apparatus for Exchanging Information Between Buses and a
Portable Computer and Docking Station Through a Bridge Employing a Serial Link."
In its Original Complaint, the Company alleges that certain products designed,
manufactured and/or sold by SBS infringe these two patents. SBS has filed an
answer denying infringement and a counterclaim seeking a declaratory judgment of
non-infringement of patents and a declaratory judgment of patent invalidity and
unenforceability, as well as tortious interference with prospective contractual
relations. The Company in its answer to SBS's counterclaims has denied any such
liability. The parties have just commenced discovery. The Company intends to
vigorously pursue its claims and defend against the counterclaims.
Mobility Electronics, Inc. v. Targus Group International, Inc.,
Comarco, Inc. and Comarco Wireless Technologies, Inc. No. CV2001-012640 was
filed on July 23, 2001 in the Arizona Superior Court for Maricopa County,
Arizona. In this lawsuit, the Company seeks specific performance of a contract
with Targus Group International, Inc. for the distribution and sale of the
Company's computer universal Auto/Air/AC power adapter product line and damages
for breach of contract. The Company also seeks damages for fraud, negligent
misrepresentation and misappropriation of trade secrets against Targus. The
Company further seeks damages for tortious interference with contract against
Comarco, Inc. and Comarco Wireless Technologies, Inc. In late October 2001 the
parties reached a settlement agreement that has now been signed by all parties.
Thus the lawsuit is in the process of being dismissed.
Mobility Electronics, inc. v. Comarco, inc. and Comarco Wireless
Technologies, Inc. was filed on August 10, 2001 in the United States District
Court for the District of Arizona. In this lawsuit, the Company alleges
infringement of U.S. Patent No. 5,347,211 entitled "Selectable Output Power
Converter." The Company has amended its Complaint to further seek declaratory
judgments of non-infringement, patent invalidity and/or patent unenforceability
of three patents allegedly owned by Comarco: U.S. Patent Nos. 6,172,884,
6,091,661 and 5,838,554. The Defendants have filed a motion to dismiss, to which
the Company has responded, and the motion is set for hearing February 11, 2002.
The Company intends to vigorously pursue its claims in this litigation.
We are from time to time involved in various other legal proceedings
incidental to the conduct of our business. We believe that the outcome of all
such other pending legal proceedings will not in the aggregate have a material
adverse effect on our business, financial condition, results of operations or
liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
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)
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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 -- 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 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
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
Placement.(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.(5)
10.1 -- Form of Indemnity Agreement executed between the Company
and certain officers and directors.*
24.1 -- None
99.1 -- Agreement and Plan of Merger (the "Agreement") dated
October 2, 2000 by and among the Company, Mesa Ridge
Technologies d/b/a MAGMA and the stockholders of
MAGMA.(6)
- ----------
* Filed herewith
(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.
-17-
(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. 3 to Registration
Statement No. 333-30264 dated May 18, 2000.
(5) Previously filed as an exhibit to Amendment No. 4 to Registration
Statement No. 333-30264 dated May 26, 2000.
(6) Previously filed as an exhibit to Current Report on Form 8-K No.
000-30907 filed on October 17, 2000.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during
the quarter ended September 30, 2001.
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: November 14, 2001 By: /s/ JOAN W. BRUBACHER
--------------------------------------------
Joan W. Brubacher
Vice President and Chief Financial Officer
and Authorized Officer of Registrant
(Principal Financial and Accounting Officer)
-18-
MOBILITY ELECTRONICS, INC.
INDEX TO EXHIBITS
<Table>
<Caption>
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 -- 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 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
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
Placement.(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)
</Table>
19
<Table>
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.(5)
10.1 -- Form of Indemnity Agreement executed between the Company
and certain officers and directors.*
24.1 -- None
99.1 -- Agreement and Plan of Merger (the "Agreement") dated
October 2, 2000 by and among the Company, Mesa Ridge
Technologies d/b/a MAGMA and the stockholders of MAGMA.(6)
</Table>
- --------
* Filed herewith
(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. 3 to Registration
Statement No. 333-30264 dated May 18, 2000.
(5) Previously filed as an exhibit to Amendment No. 4 to Registration
Statement No. 333-30264 dated May 26, 2000.
(6) Previously filed as an exhibit to Current Report on Form 8-K No.
000-30907 filed on October 17, 2000.
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.
20