UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 3, 2002
-----------------
Mobility Electronics, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-30907 86-0843914
- ---------------------------- ----------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
7955 East Redfield Road
Scottsdale, Arizona 85260
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (480) 596-0061
Reference is made to the Current Report on Form 8-K filed by Mobility on
September 3, 2002. Item 7 of the Form 8-K is hereby amended to include the
financial statements referenced below:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements may be found as exhibits to this
report:
(a) CONSOLIDATED FINANCIAL STATEMENTS OF iGo CORPORATION.
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001
Unaudited Condensed Consolidated Statements of Operations for the
Three-Month and Six-Month Periods Ended June 30, 2002 and
2001
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six-Month Periods Ended June 30, 2002 and 2001
Notes to Unaudited Condensed Consolidated Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 2001 and 2000
Consolidated Statements of Operations, Years Ended December 31, 2001,
2000 and 1999
Consolidated Statements of Stockholders' Equity (Deficit), Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows, Years Ended December 31, 2001,
2000 and 1999
Notes to Consolidated Financial Statements
(b) UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
INFORMATION.
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet of
Mobility and iGo as of June 30, 2002
Unaudited Pro Forma Condensed Combined Consolidated Statements of
Operations of Mobility and iGo, six months ended June 30, 2002
Unaudited Pro Forma Condensed Combined Consolidated Statements of
Operations of Mobility and iGo, year ended December 31, 2001
(c) EXHIBITS
23.1 Consent of Deloitte & Touche LLP
2
SIGNATURES
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 hereunto duly authorized.
MOBILITY ELECTRONICS, INC.
Date: November 18, 2002 By: /s/ Joan W. Brubacher
--------------------------------------
Joan W. Brubacher,
Chief Financial Officer
and Executive Vice President
3
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Consolidated Financial Statements of iGo Corporation:
Unaudited Condensed Consolidated Balance Sheets as of June
30, 2002 and December 31, 2001........................................ 5
Unaudited Condensed Consolidated Statements of Operations for the
Three-Month and Six-Month Periods Ended June 30, 2002 and 2001........ 6
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six-Month Periods Ended June 30, 2002 and 2001........................ 7
Notes to Unaudited Condensed Consolidated Financial Statements........... 8
Independent Auditors' Report............................................. 17
Consolidated Balance Sheets, December 31, 2001 and 2000.................. 18
Consolidated Statements of Operations, Years Ended
December 31, 2001, 2000 and 1999...................................... 19
Consolidated Statements of Stockholders' Equity (Deficit),
Years Ended December 31, 2001, 2000 and 1999.......................... 20
Consolidated Statements of Cash Flows, Years Ended
December 31, 2001, 2000 and 1999...................................... 21
Notes to Consolidated Financial Statements............................... 22
</Table>
4
iGo CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2002 2001
-------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,426 $ 5,846
Accounts receivable, net.................................. 2,471 4,212
Notes receivable, net..................................... 264 236
Inventory, net............................................ 1,052 2,480
Prepaid expenses.......................................... 450 654
-------- --------
Total current assets.............................. 7,663 13,428
Property and equipment, net................................. 1,744 2,378
Goodwill, net............................................... -- 591
Intangible assets, net...................................... 573 650
Other assets................................................ 38 509
-------- --------
Total............................................. $ 10,018 $ 17,556
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 903 $ 1,135
Accrued liabilities....................................... 2,105 2,936
Accrued liability related to business acquisition......... -- 972
Current portion of capital lease obligations and long-term
debt................................................... 10 137
Short-term borrowings..................................... -- 54
-------- --------
Total current liabilities......................... 3,018 5,234
Long-term portion of capital lease obligations and long-term
debt...................................................... 14 19
-------- --------
Total liabilities................................. 3,032 5,253
-------- --------
Commitments and contingencies (note 8)
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares
authorized; 25,388,938 and 23,353,085 shares issued and
outstanding............................................ 25 23
Additional paid-in capital................................ 88,349 87,630
Deferred compensation..................................... (69) (126)
Receivable from stockholder............................... (402) (388)
Accumulated deficit....................................... (80,917) (74,836)
-------- --------
Total stockholders' equity........................ 6,986 12,303
-------- --------
Total............................................. $ 10,018 $ 17,556
======== ========
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
iGo CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA) THREE-MONTH PERIODS SIX-MONTH PERIODS
ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Net product revenue ........................................ $ 4,500 $ 7,747 $ 9,267 $ 17,383
Cost of goods sold .............................................. 3,107 6,730 6,154 14,466
------------ ------------ ------------ ------------
Gross profit .................................................... 1,393 1,017 3,113 2,917
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing ........................................ 1,864 3,138 3,702 7,034
Product development ........................................ 382 880 817 1,723
General and administrative ................................. 2,325 2,026 4,155 4,284
Merger and acquisition costs, including amortization
of goodwill and other purchased intangibles .............. -- 853 -- 1,705
------------ ------------ ------------ ------------
Total operating expenses .............................. 4,571 6,897 8,674 14,746
------------ ------------ ------------ ------------
Loss from operations ............................................ (3,178) (5,880) (5,561) (11,829)
Other income/(expense), net ..................................... 44 (103) 71 240
------------ ------------ ------------ ------------
Loss before provision for income taxes and cumulative effect
of change in accounting principle ............................ (3,134) (5,983) (5,490) (11,589)
Provision for income taxes ...................................... -- -- -- --
------------ ------------ ------------ ------------
Loss before cumulative effect of change in accounting
principle .................................................... (3,134) (5,983) (5,490) (11,589)
Cumulative effect of change in accounting
principle .................................................... -- -- (591) --
------------ ------------ ------------ ------------
Net loss ........................................................ $ (3,134) $ (5,983) $ (6,081) $ (11,589)
============ ============ ============ ============
Loss per share - basic and diluted:
Loss before cumulative effect of change in accounting
principle ................................................ $ (0.12) $ (0.26) $ (0.22) $ (0.50)
Cumulative effect of change in accounting principle ........ -- -- (0.03) --
------------ ------------ ------------ ------------
Net loss ................................................... $ (0.12) $ (0.26) $ (0.25) $ (0.50)
============ ============ ============ ============
Weighted-average shares outstanding:
Basic and diluted .......................................... 25,388,086 23,323,880 24,567,159 23,311,485
============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
iGo CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
DOLLARS IN THOUSANDS SIX-MONTH PERIODS ENDED
JUNE 30, JUNE 30,
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss .............................................................. $ (6,081) $ (11,589)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensation expense related to stock options ....................... 44 106
Accrued interest on stockholder note receivable ..................... (14) (21)
Stock issued as payment of expense .................................. 11 --
Provisions for bad debt and inventory ............................... 764 2,329
Loss on disposition of assets ....................................... -- 144
Depreciation and amortization ....................................... 743 760
Amortization of goodwill ............................................ -- 1,705
Cumulative effect of change in accounting principle ................. 591 --
Changes in:
Accounts and notes receivable ..................................... 1,430 575
Inventory ......................................................... 1,024 510
Prepaid expenses and other assets ................................. 206 249
Accounts payable and accrued liabilities .......................... (670) (3,871)
----------- -----------
Net cash used in operating activities ........................... (1,952) (9,103)
----------- -----------
Cash flows from investing activities:
Acquisition of business ............................................... (250) --
Acquisition of property and equipment ................................. (33) (131)
----------- -----------
Net cash used in investing activities ........................... (283) (131)
----------- -----------
Cash flows from financing activities:
Principal payments on short-term borrowings and capital leases ........ (186) (262)
Stockholder note receivable ........................................... -- (306)
Proceeds from exercise of stock options ............................... 1 19
----------- -----------
Net cash used in financing activities ........................... (185) (549)
----------- -----------
Net decrease in cash and cash equivalents ............................... (2,420) (9,783)
Cash and cash equivalents, beginning of period .......................... 5,846 20,321
----------- -----------
Cash and cash equivalents, end of period ................................ $ 3,426 $ 10,538
=========== ===========
Supplemental disclosure of cash flows information:
Cash paid during the year for interest ................................ $ 14 $ 46
=========== ===========
Supplemental schedule of non-cash investing and financing activities:
Common stock issued in connection with acquisition .................... $ 723 $ --
=========== ===========
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
iGo CORPORATION
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
iGo Corporation (formerly Battery Express, Inc.) (the "Company") was
incorporated in California in 1993 and is headquartered in Reno, Nevada. iGo
Corporation (NASDAQ: IGOC) is a leading provider of parts and accessories for
mobile technology products such as notebooks, cell phones and wireless devices.
iGo's mission is to keep the mobile professional powered up and connected
anywhere they go.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the three
and six-month periods ended June 30, 2002 and 2001 have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain interim information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
financial condition, results of operations, and cash flows have been included.
The results of operations for the interim periods should not be considered
indicative of results for any other interim period or for a full calendar year.
These financial statements should be read in conjunction with the consolidated
financial statements, and notes thereto, in the Company's Form 10-K for the year
ended December 31, 2001, as amended.
The Company has experienced negative cash flows from operations of $11.4
million, $30.0 million and $12.8 million for the years ended December 31, 1999,
2000 and 2001, respectively, and $2.0 million for the six-months ended June 30,
2002. Recurring losses and negative cash flows from operations and limited
financing opportunities raise substantial doubt about the Company's ability to
continue as a going concern. With a targeted focus on high margin core products
and improved inventory control resulting in significantly reduced excess and
obsolete inventory charges the Company has been able to achieve improved gross
margins. Additionally, the Company has taken steps to reduce costs through
several initiatives including: further downsizing the workforce and facility
cost reductions resulting from a relocation of the Company's main facility in
Reno to a smaller, less costly facility in Reno.
The Company may need to raise additional funds before the end of 2002 in
the event that it fails to generate sufficient cash from operations. The Company
has no commitments and is not seeking commitments for additional financing. If
the Company were to seek additional financing, there can be no assurance that it
would be successful in obtaining any additional financing on terms acceptable to
the Company or its stockholders. If the Company raises additional funds through
the issuance of equity securities or convertible debt securities, its existing
stockholders may experience significant dilution. In the event that the Company
fails to generate sufficient cash from operations and is unable to secure
additional financing from other sources, it is uncertain if or for how long the
Company will be able to continue operations.
8
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of iGo
Corporation and its wholly owned subsidiaries. The subsidiaries were formed for
specific transactions, such as acquisitions. All significant intercompany
balances and transactions have been eliminated in consolidation.
NET LOSS PER SHARE
Net loss per share--basic and diluted, is computed using the
weighted-average number of common shares outstanding during the period. Stock
options and warrants were not included in the computations because they would
have been antidilutive. The number of potentially dilutive shares that were not
included in weighted average shares outstanding were 1,646,123 and 2,047,092 for
the three and six-month periods ended June 30, 2002 and 2001, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported in the
consolidated financial statements. Actual amounts could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 changes the accounting for goodwill and indefinite lived
intangible assets from an amortization method to an impairment only approach.
Thus, amortization of goodwill, including goodwill recorded in past business
combinations, ceased upon adoption of SFAS No. 142 in January 2002. Amortization
is still required for identifiable intangible assets with finite lives. See Note
6.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The standard supersedes the
current authoritative literature on impairments as well as disposal of a segment
of a business and is effective for fiscal years and interim periods beginning
after December 15, 2001. The Company therefore adopted SFAS No. 144 in January
2002. The Company periodically evaluates its long-lived assets for impairment.
Adoption of SFAS No. 144 did not have a material effect on the Company's
condensed consolidated financial statements.
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 146, Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS No. 146"). SFAS No.146
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. A fundamental conclusion
reached by the FASB in this statement is that an entity's commitment to a plan,
by itself, does not create a present obligation to others that meets the
definition of a liability. SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. The provisions of this
statement are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company has not yet
determined the impact of SFAS No. 146 on its financial position and results of
operations, if any.
9
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at June 30, 2002 and December
31, 2001:
<Table>
<Caption>
DOLLARS IN THOUSANDS JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Trade receivables ........................... $ 3,634 $ 5,353
Other current receivables ................... 390 482
Allowance for bad debts ..................... (1,553) (1,623)
------------ ------------
Total accounts receivable, net ......... $ 2,471 $ 4,212
============ ============
</Table>
3. NOTES RECEIVABLE
Notes receivable consist of the following at June 30, 2002 and December 31,
2001:
<Table>
<Caption>
DOLLARS IN THOUSANDS JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Notes receivable ............................ $ 714 $ 472
Allowance for doubtful notes receivable ..... (450) (236)
------------ ------------
Total notes receivable, net ............ $ 264 $ 236
============ ============
</Table>
4. INVENTORY
Inventory consists of the following at June 30, 2002 and December 31, 2001:
<Table>
<Caption>
DOLLARS IN THOUSANDS JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Products on hand ............................ $ 1,993 $ 4,315
Inventory reserve ........................... (941) (1,835)
------------ ------------
Total inventory ........................ $ 1,052 $ 2,480
============ ============
</Table>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 2002 and
December 31, 2001:
<Table>
<Caption>
DOLLARS IN THOUSANDS JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Leasehold improvements ...................... $ 416 $ 416
Furniture and equipment ..................... 2,036 2,034
Software .................................... 1,997 1,966
Accumulated depreciation .................... (2,705) (2,038)
------------ ------------
Total property and equipment, net ...... $ 1,744 $ 2,378
============ ============
</Table>
6. INTANGIBLE ASSETS AND GOODWILL
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which establishes new accounting and reporting
requirements for goodwill and other intangible assets. Under this accounting
standard, goodwill and intangible assets with indefinite lives are no longer
subject to amortization but are tested for impairment at least annually.
Amortization is still required for identifiable intangible assets with finite
lives.
SFAS 142 also requires the completion of a transitional impairment test at
the date this accounting standard is initially applied. The Company recorded a
charge during the first quarter of 2002 of $591,000 as a result of completing
its transitional impairment test, and has recognized this loss as the effect of
a
10
change in accounting principle. This charge was determined based on a comparison
of the fair value of the Company with its carrying amount, including goodwill
that resulted from prior business acquisitions. The fair value applied in the
comparison is based upon the purchase price established in the definitive merger
agreement the Company entered into with Mobility Electronics, Inc., which
agreement (as amended) provides for the acquisition of the Company by Mobility
(see Note 12). The results of the comparison and loss measurement indicated that
goodwill existing at the date of adoption of this accounting standard was fully
impaired. In connection with its adoption of SFAS 142, the Company reassessed
previously recognized intangible assets and determined that their classification
and useful lives were appropriate.
Goodwill consists of the following at June 30, 2002 and December 31, 2001:
<Table>
<Caption>
DOLLARS IN THOUSANDS JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
Aggregate amount acquired ....................................................... $ 15,706 $ 15,706
Less accumulated amortization recognized prior to adoption of SFAS 142 .......... (5,658) (5,658)
Write-off of goodwill recognized prior to adoption of SFAS 142 .................. (9,457) (9,457)
Charge recognized as a result of transitional goodwill impairment test .......... (591) --
------------- -------------
Net carrying amount ........................................................... $ -- $ 591
============= =============
</Table>
Changes in the carrying amount of goodwill for the six months ended June
30, 2002 are as follows:
<Table>
<Caption>
DOLLARS IN THOUSANDS
Balance as of January 1, 2002 ....................................................... $ 591
Charge recognized as a result of transitional goodwill impairment test .............. (591)
------------
Balance as of June 30, 2002 ......................................................... $ --
============
</Table>
Intangible assets consist of the following at June 30, 2002 and December
31, 2001:
<Table>
<Caption>
(DOLLARS IN THOUSANDS) JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
AVERAGE GROSS GROSS
LIFE CARRYING ACCUMULATED NET INTANGIBLE CARRYING ACCUMULATED NET INTANGIBLE
(YRS) AMOUNT AMORTIZATION ASSETS AMOUNT AMORTIZATION ASSETS
-------- -------- ------------ -------------- ---------- ------------ --------------
Amortized intangible assets:
Domain names ............ 6 $ 640 $ (261) $ 379 $ 640 $ (226) $ 414
Trademarks .............. 9 239 (76) 163 239 (55) 184
Other ................... 7 100 (69) 31 100 (48) 52
-------- ---------- ------------ ---------- ------------ ------------
Total ............... $ 979 $ (406) $ 573 $ 979 $ (329) $ 650
======== ========== ============ ========== ============ ============
</Table>
11
Aggregate amortization expense for intangible assets totaled $76,000 and
$58,000 for the six-month periods ended June 30, 2002 and 2001, respectively.
Estimated amortization expense for each of the five succeeding years ended
December 31 is as follows:
<Table>
<Caption>
DOLLARS IN THOUSANDS
FISCAL YEAR
-----------
2002................................................................................... $144
2003................................................................................... 119
2004................................................................................... 114
2005................................................................................... 113
2006................................................................................... 104
</Table>
The following table adjusts the Company's net loss and net loss per share
for the adoption of SFAS 142:
<Table>
<Caption>
IN THOUSANDS, EXCEPT PER SHARE DATA THREE-MONTH PERIODS ENDED SIX-MONTH PERIODS ENDED
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
------------- ------------- ------------- -------------
Reported net loss ................. $ (3,134) $ (5,983) $ (6,081) $ (11,589)
Goodwill amortization .......... -- 853 -- 1,705
------------ ------------ ------------ ------------
Adjusted net loss ................. $ (3,134) $ (5,130) $ (6,081) $ (9,884)
============ ============ ============ ============
Reported net loss per share - basic
and diluted .................... $ (0.12) $ (0.26) $ (0.25) $ (0.50)
Goodwill amortization .......... -- 0.04 -- 0.08
------------ ------------ ------------ ------------
Adjusted net loss ................. $ (0.12) $ (0.22) $ (0.25) $ (0.42)
============ ============ ============ ============
</Table>
7. OTHER ASSETS
Other assets consists of the following at June 30, 2002 and December 31,
2001:
<Table>
<Caption>
DOLLARS IN THOUSANDS JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Asset held for sale ............... $ -- $ 330
Other ............................. 38 179
------------ ------------
Total other assets ........... $ 38 $ 509
============ ============
</Table>
8. LEGAL PROCEEDINGS
From time to time the Company is involved in litigation incidental to the
conduct of its business. The Company is not currently a party to any lawsuit or
arbitration proceeding the outcome of which the Company believes will have a
material adverse effect on its financial position, results of operations or
liquidity.
The Securities and Exchange Commission has entered a formal order of
private investigation concerning the events underlying the Company's revisions
of its fiscal 2000 operating results based on adjustments to fourth quarter 2000
revenue, which results were announced and revised in certain press releases
issued in January and March of 2001. In connection with its investigation, the
Commission will also be reviewing the restatement of the Company's financial
statements set forth in the Company's 2001 Annual Report on Form 10-K, as
amended, and certain related accounting, sales and organizational matters. The
Company has been cooperating fully with the Staff of the Commission in its
investigation
12
and to date the Staff has made no determinations that the Company is aware of
with respect to this investigation.
On June 21, 2002, in the United States District Court, Central District of
California, Comarco Wireless Technologies, Inc. filed a lawsuit against the
Company and its wholly owned subsidiary Xtend Micro Products, Inc. The suit
alleges that the Company and Xtend are offering products for sale that infringe
upon two United States patents issued to Comarco. The suit seeks injunctive
relief, monetary damages, and costs and attorney's fees. The Company is
investigating the facts surrounding these claims and consulting with legal
counsel for Mobility regarding this matter, as Mobility is currently involved in
litigation with Comarco over similar patent issues. While the Company intends to
vigorously defend itself in this matter, it cannot be certain that its defense
will be successful, and its business could be harmed if it is unsuccessful.
On June 14, 2002, in the United States District Court, Northern Nevada, the
Company filed a lawsuit against Mark Rapparport and XMicro Holding Company,
Inc., seeking declaratory relief and alleging intentional interference with
prospective advantage. This lawsuit was filed in response to a letter received
from counsel for Rapparport and XMicro which made various allegations regarding
a previous settlement agreement between the parties, the Company's acquisition
of Xtend Micro Products and certain other matters. In the lawsuit the Company
sought an order stating that the settlement agreement is valid and enforceable,
an order preventing the defendants from further attempting to interfere with the
pending merger, monetary damages, and costs and attorney's fees. Effective July
18, 2002, the parties entered into a settlement agreement regarding these
matters. In connection with this settlement, presuming that the merger is
consummated, iGo will pay such parties $1,850,000 in cash, all active litigation
between the parties will be dismissed and all claims and demands terminated and
released. Mr. Rapparport has agreed to vote his 3,531,199 shares in favor of the
merger, but prior to the consummation of the merger, such shares will be
cancelled and he will not receive distributions of any of the merger
consideration. If the merger agreement is terminated or the merger does not
occur prior to October 31, 2002, the parties' respective obligations and
releases under the settlement agreement will terminate, Mr. Rapparport will keep
his shares and will forfeit all but certain portions of the settlement payment.
If the merger is terminated prior to September 3, 2002 and no stockholder
meeting to approve the merger has taken place by that time, Mr. Rapparport will
retain $350,000 of the settlement payment. If the merger is terminated after
September 3, 2002 or otherwise following the Company's stockholder meeting, Mr.
Rapparport will retain $250,000 in addition to the previously retained payment.
If the merger has not occurred by October 1, 2002 and the Company and Mobility
choose to extend the merger agreement, but the merger does not occur by October
31, 2002, then Mr. Rapparport would retain $500,000 in addition to the
previously retained payments. Mobility has agreed to reimburse the Company for
one-half of any payments retained by such stockholder in the event the agreement
is terminated or the merger does not occur by the deadline. Related to this
agreement, the Company recorded a charge, representing the cost of settlement,
of approximately $479,000 to general and administrative expense in the second
quarter of 2002.
9. BUSINESS ACQUISITION
On August 29, 2000, the Company acquired substantially all the assets of
Xtend Micro Products, Inc., for $2,500,000 in cash and 2,268,451 shares of iGo
Common Stock. Of such shares, 1,896,574 shares were subject to an earn-out
provision based on the post-closing operating performance of the Xtend business
unit. These earn-out provisions were met. Xtend also had the opportunity to earn
up to an additional $2,500,000 in a combination of iGo Common Stock and/or cash
(at iGo's election) for exceptional post-closing operating performance. In
August 2001, we advanced $500,000 to XMicro Holding Company against anticipated
payments that would be due to XMicro pursuant to the August
13
2000 Asset Purchase Agreement. On March 13, 2002, iGo, Xtend Micro Products,
Inc., XMicro Holding Company, Inc., and Mark Rapparport entered into a
settlement agreement resolving certain matters related to the employment of Mr.
Rapparport with one of our subsidiaries and the finalization of an earn-out in
relation to our acquisition of Xtend Micro Products, Inc. In March 2002, iGo
paid an additional $250,000 and issued 1,989,807 shares of its common stock to
XMicro Holding Company as final settlement and satisfaction of these matters. At
the deemed price per share of $0.363, the aggregate value of the cash and stock
provided in March 2002 as part of this settlement is $972,300. This settlement
was recorded as additional purchase price in connection with the acquisition of
Xtend Micro Products and was included in the Company's write-down of goodwill in
2001 (see Note 6). The Company subsequently entered into an additional agreement
with Mr. Rapparport and XMicro Holding Company relating to the Company's merger
with Mobility Electronics, Inc. See Note 8.
10. LOAN TO CHAIRMAN AND CHIEF EXECUTIVE OFFICER
On January 2, 2001, the Company entered into a Secured Loan Agreement with
Ken Hawk, then the Company's Chairman and Chief Executive Officer, pursuant to
which the Company loaned him $306,100. This loan bore interest at 10.5% and
would have matured on June 8, 2001. The loan was full recourse and was secured
by 306,100 shares of iGo common stock held by Mr. Hawk, which represented shares
with a market value of twice the loan principal amount on the date the loan was
made. As described below, this loan was subsequently restructured.
11. RESIGNATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER
On March 26, 2001, Ken Hawk resigned from his employment with and as the
President, Chairman of the Board and Chief Executive Officer of the Company. Mr.
Hawk continues to serve as a member of the Company's Board of Directors. Under a
Consulting Agreement, Mr. Hawk also served as a consultant to the Company for a
period of one year following his resignation. As consideration for his services
as a consultant, Mr. Hawk received an aggregate of approximately $240,500 during
the term of the Consulting Agreement. The Company also agreed to restructure the
indebtedness owed by Mr. Hawk to the Company. Under the terms of a Secured Note,
previously existing notes payable to the Company were consolidated into one note
for an aggregate principal amount of $366,410. This note bears interest at 8.0%
and matures on March 26, 2003, or upon an event of default. The note is secured
by 977,000 shares of iGo common stock owned by Mr. Hawk, which represented
shares with a market value of approximately twice the principal amount of the
note on the date of the Security Agreement executed by Mr. Hawk in conjunction
with the note.
12. DEFINITIVE MERGER AGREEMENT WITH MOBILITY ELECTRONICS, INC.
On March 24, 2002, the Company entered into a definitive agreement to be
acquired by Mobility Electronics, Inc. of Phoenix, Arizona. Under the agreement,
the Company's stockholders would receive an aggregate of $5,100,000 in cash and
2,600,000 shares of Mobility Electronics common stock (valued at $3,562,000
based on the approximate market price per share during the few days leading up
to and following the announcement of the transaction of $1.37) at the
transaction closing and up to an additional $1,000,000 in cash and 500,000
additional Mobility Electronics shares (similarly valued at $685,000) one year
following the transaction closing subject to certain conditions. The closing of
the transaction is subject to certain material conditions, including the
transaction's approval by the Company's stockholders and the effectiveness of a
registration statement to be filed with the Securities and Exchange Commission,
and there can be no assurance that all of the conditions will be satisfied.
14
On July 18, 2002, the Company entered into an amendment to the Agreement
and Plan of Merger among Mobility Electronics, Inc., IGOC Acquisition, Inc., and
the Company. The principal effects of the amendment are twofold. First, the cash
consideration to be distributed at closing was changed to $3,250,000 from
$5,100,000. Second, the date by which the merger must occur before either party
may terminate the Agreement was extended from August 31, 2002 to October 1,
2002. Relating to a settlement with a stockholder of the Company as discussed
above in Note 8, such stockholder has agreed to vote his 3,531,199 shares in
favor of the merger pursuant to a Lock-Up and Voting Agreement dated July 18,
2002, but prior to the consummation of the merger, such shares will be cancelled
and such stockholder will not receive distributions of any of the merger
consideration.
13. SECOND AMENDMENT TO LEASE AGREEMENT
On March 22, 2002, iGo entered into a Second Amendment with Dermody Family
Limited Partnership I and Gulia Dermody Turville, the landlord under the lease
for the premises located at 9393 Gateway Drive, Reno, Nevada. The primary
purpose of the Second Amendment is to provide that iGo may terminate the lease
at any time in its sole discretion by giving the landlord at least sixty (60)
days advance written notice of such termination. The Second Amendment also
provides that the landlord may terminate the lease at any time in its sole
discretion by giving iGo at least ninety (90) days' advance written notice of
such termination. In connection with the Second Amendment iGo agreed to allow
the landlord to forever retain the security deposit of $140,000 described in the
lease and paid the landlord $360,000. This total sum of $500,000, which was
recorded as an expense in the fourth quarter of 2001, is characterized in the
Second Amendment as a lease restructuring fee and as such is nonrefundable.
There are certain representations, warranties, releases and covenants by and
among the parties in the Second Amendment, as well as a condition imposed upon
iGo that it cannot terminate the lease if at the time of delivering notice to
the landlord there is an uncured monetary default. On May 31, 2002, the Company
provided the Dermody Family Limited Partnership I written notice of its intent
to terminate the lease on July 31, 2002.
14. POTENTIAL NASDAQ DELISTING
In February 2002, the Company received notice from Nasdaq that it was not
in compliance with Marketplace Rule 4450(a)(5), which requires its common stock
to have a minimum bid price per share of $1.00 and, in June 2002, the Company
also received notice from Nasdaq that it was not in compliance with Marketplace
Rule 4450(a)(2), which requires that the minimum market value of the Company's
publicly held shares (shares held by non-affiliates of the Company) be at least
$5,000,000. The Company failed to regain compliance with either of these
standards during the grace periods established under the Marketplace Rules and
received notice from Nasdaq on May 24, 2002 that its shares were subject to
delisting. The Company appealed this decision and at an oral hearing before the
Nasdaq Hearing Panel on July 11, 2002, requested a stay of delisting of its
common stock for a 90 day period in order for the merger with Mobility to be
completed.
On July 31, 2002, the Nasdaq Hearing Panel informed the Company that an
appeal to continue its listing on The Nasdaq National Market was successful and
its common stock could remain listed pending the consummation of the proposed
merger with Mobility. The Panel's determination follows an oral hearing on July
11, 2002, in which the Company requested such an extension. The Hearing Panel
has given the Company until October 11, 2002, to complete the merger and
immediately thereafter, voluntarily delist its securities from The Nasdaq
National Market. In the event the merger is not consummated, the Company may
choose to transfer its securities to the Nasdaq SmallCap Market. There can be no
assurance that the Company could maintain compliance with the continued listing
requirements of the Nasdaq SmallCap Market for any substantial period of time.
If the Company does not transfer its
15
securities to the Nasdaq SmallCap Market, its securities will be delisted from
the Nasdaq Stock Market. While the Company's stock would continue to trade on
the over-the-counter bulletin board following any delisting from either Nasdaq
Market, the Company expects that its stock price and trading volume would
decline, possibly significantly, and its ability to raise additional capital
would be substantially diminished by any such delisting.
16
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of iGo Corporation:
We have audited the accompanying consolidated balance sheets of iGo
Corporation and subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of iGo Corporation and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying consolidated financial statements for the year ended
December 31, 2001 have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 2 to the consolidated financial
statements, the Company's recurring losses and negative cash flows from
operations and limited financing opportunities raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 2. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 17, the accompanying consolidated financial statements
have been restated.
DELOITTE & TOUCHE LLP
Reno, Nevada
April 5, 2002
(Except for Note 17,
as to which the date is May 3, 2002, and
Note 19, as to which the date is July 31, 2002)
17
iGo CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
<Table>
<Caption>
2001 2000
--------- ---------
DOLLARS IN THOUSANDS
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,846 $ 20,321
Accounts receivable, net.................................. 4,212 6,875
Note receivable, net...................................... 236 --
Inventory, net............................................ 2,480 8,179
Prepaid expenses.......................................... 654 905
-------- --------
Total current assets.............................. 13,428 36,280
Property and equipment, net................................. 2,378 4,466
Goodwill and other assets, net.............................. 1,750 13,093
-------- --------
Total............................................. $ 17,556 $ 53,839
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,135 $ 5,117
Accrued liabilities....................................... 2,936 3,506
Accrued liability related to business acquisition (Notes
15 and 18)............................................. 972 125
Current portion of capital lease obligations and long-term
debt................................................... 137 316
Short-term borrowings..................................... 54 280
-------- --------
Total current liabilities......................... 5,234 9,344
Long-term portion of capital lease obligations and long-term
debt...................................................... 19 190
-------- --------
Total liabilities................................. 5,253 9,534
-------- --------
Commitments and contingencies (Notes 8, 9, 14 and 18)
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares
authorized; 23,353,085 and 23,282,842 shares issued and
outstanding............................................ 23 23
Additional paid-in capital................................ 87,630 87,921
Deferred compensation..................................... (126) (604)
Receivable from stockholder............................... (388) (47)
Accumulated deficit....................................... (74,836) (42,988)
-------- --------
Total stockholders' equity........................ 12,303 44,305
-------- --------
Total............................................. $ 17,556 $ 53,839
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
18
iGo CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
-------------- ------------ ------------
(AS RESTATED,
SEE NOTE 17)
DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)
Revenues:
Net product revenue................................. $ 28,886 $ 39,947 $ 21,043
Cost of goods sold.................................... 24,435 26,914 14,793
----------- ----------- -----------
Gross profit.......................................... 4,451 13,033 6,250
----------- ----------- -----------
Operating expenses:
Sales and marketing................................. 11,855 23,663 15,396
Product development................................. 2,590 4,800 1,544
General and administrative.......................... 9,064 7,961 4,657
Merger and acquisition costs, including amortization
of goodwill and other purchased intangibles and
goodwill write-down of $9,457 in 2001............ 12,956 2,357 --
----------- ----------- -----------
Total operating expenses.................... 36,465 38,781 21,597
----------- ----------- -----------
Loss from operations.................................. (32,014) (25,748) (15,347)
Other income, net..................................... 166 1,847 334
----------- ----------- -----------
Loss before provision for income taxes................ (31,848) (23,901) (15,013)
Provision for income taxes............................ -- -- --
----------- ----------- -----------
Net loss.............................................. $ (31,848) $ (23,901) $ (15,013)
=========== =========== ===========
Net loss per share:
Basic and diluted................................... $ (1.37) $ (1.11) $ (1.01)
=========== =========== ===========
Weighted-average shares outstanding:
Basic and diluted................................... 23,328,165 21,554,824 14,817,915
=========== =========== ===========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
19
iGo CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<Table>
<Caption>
COMMON STOCK ADDITIONAL RECEIVABLE
------------------- PAID-IN DEFERRED FROM ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDER DEFICIT TOTAL
---------- ------ ---------- ------------ ----------- ----------- --------
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
Balance, January 1, 1999..... 6,590,646 $ 6 $ 300 $ (188) $ (46) $ (3,497) $ (3,425)
Net loss..................... -- -- -- -- -- (15,013) (15,013)
Deferred compensation on
stock options granted...... -- -- 2,004 (2,004) -- -- --
Compensation expense related
to stock options........... -- -- (21) 387 -- -- 366
Stock options and warrants
exercised.................. 135,352 -- 26 -- -- -- 26
Accrued interest............. -- -- -- -- (6) -- (6)
Initial public offering,
net........................ 5,750,000 6 62,549 -- -- -- 62,555
Conversion of preferred
stock...................... 7,643,054 8 15,209 -- -- (577) 14,640
---------- --- ------- ------- ----- -------- --------
Balance, December 31, 1999... 20,119,052 20 80,067 (1,805) (52) (19,087) 59,143
Net loss..................... -- -- -- -- -- (23,901) (23,901)
Deferred compensation
adjustment for
terminations............... -- -- (942) 942 -- -- --
Compensation expense related
to stock options........... -- -- -- 259 -- -- 259
Stock options and warrants
exercised.................. 574,626 -- 329 -- -- -- 329
Employee stock purchase
plan....................... 12,385 -- 27 -- -- -- 27
Payment on stockholder note
receivable................. -- -- -- -- 5 -- 5
Acquisition of companies..... 2,576,779 3 8,440 -- -- -- 8,443
---------- --- ------- ------- ----- -------- --------
Balance, December 31, 2000... 23,282,842 23 87,921 (604) (47) (42,988) 44,305
Net loss..................... -- -- -- -- -- (31,848) (31,848)
Deferred compensation
adjustment for
terminations............... -- -- (312) 312 -- -- --
Compensation expense related
to stock options........... -- -- -- 166 -- -- 166
Stock options and warrants
exercised.................. 37,656 -- 5 -- -- -- 5
Employee stock purchase
plan....................... 32,587 -- 16 -- -- -- 16
Stockholder note
receivable................. -- -- -- -- (306) -- (306)
Accrued interest............. -- -- -- -- (35) -- (35)
---------- --- ------- ------- ----- -------- --------
Balance, December 31, 2001... 23,353,085 $23 $87,630 $ (126) $(388) $(74,836) $ 12,303
========== === ======= ======= ===== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
20
iGo CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
DOLLARS IN THOUSANDS
Cash flows from operating activities:
Net loss.................................................. $(31,848) $(23,901) $(15,013)
Adjustments to reconcile net loss to net cash used in
operating activities:
Compensation expense related to stock options........... 166 259 366
Accrued interest on stockholder note receivable......... (35) -- (6)
Provisions for bad debt and inventory................... 4,910 1,453 593
Loss on sale leaseback and disposal of property and
equipment.............................................. 818 288 264
Goodwill amortization and goodwill write-down of $9,457
in 2001................................................ 12,956 2,109 --
Depreciation and amortization........................... 1,562 1,242 540
Changes in:
Accounts receivable................................... 1,098 (4,519) (2,091)
Inventory............................................. 2,040 (6,099) (1,367)
Prepaid expenses and other assets..................... (1,574) 217 (1,118)
Accounts payable and accrued liabilities.............. (2,858) (1,035) 6,436
-------- -------- --------
Net cash used in operating activities............... (12,765) (29,986) (11,396)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment..................... (400) (2,607) (3,208)
Proceeds from fixed asset disposal........................ 14 -- --
Acquisition of companies.................................. (500) (4,510) --
Acquisition of intangibles and other assets............... -- -- (629)
-------- -------- --------
Net cash used in investing activities............... (886) (7,117) (3,837)
-------- -------- --------
Cash flows from financing activities:
Principal payments on short-term notes and capital
leases.................................................. (540) (301) (132)
Proceeds from sale leaseback.............................. -- -- 702
Proceeds from initial public offering, net................ -- -- 62,555
Stockholder note receivable............................... (306) 5 --
Proceeds from exercise of stock options and warrants...... 22 356 26
Net proceeds from issuance of mandatory redeemable
preferred stock......................................... -- -- 5,771
Net proceeds from issuance of debt........................ -- -- 1,171
-------- -------- --------
Net cash provided by (used in) financing
activities.......................................... (824) 60 70,093
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (14,475) (37,043) 54,860
Cash and cash equivalents, beginning of year................ 20,321 57,364 2,504
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 5,846 $ 20,321 $ 57,364
======== ======== ========
Supplemental disclosure of cash flows information:
Cash paid during the year for interest.................... $ 75 $ 173 $ 112
======== ======== ========
Supplemental schedule of non-cash investing and financing
activities:
Conversion of debt to preferred stock..................... $ -- $ -- $ 980
======== ======== ========
Equipment acquired through capital leases................. $ -- $ 10 $ 46
======== ======== ========
Mandatory redeemable preferred stock dividends accrued and
mandatory conversion of preferred stock to common
stock................................................... $ -- $ -- $ 14,640
======== ======== ========
Intangibles and other assets acquired with short-term
borrowings.............................................. $ 36 $ -- $ --
======== ======== ========
Deferred compensation on stock options issued and
canceled................................................ $ (312) $ (942) $ 2,004
======== ======== ========
Common stock issued in connection with acquisitions....... $ -- $ 8,443 $ --
======== ======== ========
Net liabilities acquired in acquisitions.................. $ -- $ 1,404 $ --
======== ======== ========
Accrued liability related to business acquisition......... $ 847 $ -- $ --
======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
21
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
iGo Corporation (formerly Battery Express, Inc.) (the "Company" or "iGo")
was incorporated in California in 1993 and is headquartered in Reno, Nevada. iGo
designs, develops and markets accessories including batteries, adapters and
chargers for mobile technology products such as notebooks, cell phones and
wireless devices. iGo's products address the needs of mobile professionals as
well as corporations with mobile workforces who demand solutions to keep them
powered up and connected. iGo develops its own line of mobile accessories under
the Xtend(R) and Road Warrior(R) brands.
STOCK SPLIT AND DELAWARE REINCORPORATION
On August 30, 1999, the Company reincorporated in Delaware and effected a
6-for-1 share stock split. The number of shares issued and outstanding, the
conversion factors for all series of preferred stock, stock option information,
and per share information for all periods presented have been adjusted to
reflect the stock split.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of intercompany balances and
transactions.
INITIAL PUBLIC OFFERING
On October 13, 1999, the Company conducted its initial public offering of
5,000,000 shares of its common stock, and in November 1999 the underwriters
exercised their over-allotment option of 750,000 shares, the net proceeds of
which aggregated approximately $62.6 million. At the closing of the offering,
all issued and outstanding shares of the Company's mandatory redeemable
preferred stock were converted into an aggregate of 7,643,054 shares of common
stock.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents, and such items
are recorded at cost, which approximates fair market value.
INVENTORY
Inventory is stated at the lower of first-in, first-out, cost or market,
and consists primarily of batteries and electronic accessories held for sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recorded under
the straight-line method over the following estimated useful lives: leasehold
improvements, the shorter of the estimated useful life or the remaining life of
the lease; furniture and equipment, four to seven years; and software, four
years. Costs of normal repairs and maintenance are charged to expense as
incurred.
GOODWILL AND OTHER ASSETS
The costs of trademarks and copyrights are amortized under the
straight-line method over their remaining lives ranging from one to 15 years.
The goodwill acquired in the Company's three acquisitions during 2000 have been
amortized under the straight-line method over their estimated useful lives,
which approximate 40 to 60 months. Amortization expense charged to operations in
2001, 2000 and 1999 was
22
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3.5 million, $2.2 million and $65,605, respectively. Additionally, in 2001, our
review of recoverability of certain long-lived and intangible assets resulted in
a charge of $9.5 million for the estimated impairment to our carrying value for
goodwill (see Notes 7 and 16).
Included in Other Assets is equipment held for sale, which is carried at an
estimated realizable value of approximately $330,000 as of December 31, 2001.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Deferred income taxes reflect
the net tax effects of (a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes and (b) operating loss and tax credit carry forwards. The
Company has established a valuation allowance for its tax carryforward items due
to uncertainty of their realization.
CONCENTRATIONS OF CREDIT RISK
As of December 31, 2001 and 2000, the Company had accounts receivable from
a major customer, Ingram Micro Inc., of approximately $1.4 million and $1.9
million, respectively. Sales to this customer totaled approximately $3.6 million
and $5.0 million in the years 2001 and 2000, respectively. No other customer
represented a significant percentage of accounts receivable or sales in the
years 2001 and 2000. As of December 31, 1999, and for the year then ended, there
were no customers that represented a significant percentage of sales or accounts
receivable. Concentrations with respect to trade receivables are generally
limited due to the Company's large number of customers and their geographic and
economic dispersion. Financial instruments that potentially subject the Company
to credit risks consist primarily of cash accounts on deposit with banks, which,
at times, may exceed federally insured limits. The Company believes it is not
exposed to any significant credit risk related to cash or accounts receivable.
REVENUE RECOGNITION AND CLASSIFICATION
Product revenue is generally recognized when persuasive evidence of a sale
arrangement exists, shipment has occurred, title has passed, sales price is
fixed or determinable, and collectibility is reasonably assured. Product revenue
is recorded net of any discounts and reserves for expected returns. Outbound
shipping fees amounted to $1.0 million, $1.5 million, and $1.2 million in 2001,
2000, and 1999, respectively.
SHIPPING EXPENSE
Inbound shipping expense and outbound shipping charges are included in cost
of goods sold. Total freight expense for the years ended December 31, 2001, 2000
and 1999 were $1.7 million, $2.3 million and $1.5 million, respectively. The
Company estimates its outbound shipping expense to be approximately 60% to 90%
of the total freight expense, and its inbound shipping expense to be
approximately 10% to 40%, accordingly.
ADVERTISING AND PROMOTIONAL EXPENSES
The Company expenses advertising and promotional costs as they are
incurred. Advertising and promotional expenses for the years ended December 31,
2001, 2000 and 1999 were $2.2 million, $11.7 million and $10.4 million,
respectively.
23
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RETIREMENT PLANS
The Company provides a tax-qualified 401(k) retirement plan for the benefit
of eligible employees. The plan is designed to provide employees with retirement
funds on a tax-deferred basis, and allows for discretionary matching by the
employer. Currently, the Company does not match employee contributions.
1999 EMPLOYEE STOCK PURCHASE PLAN
In July 1999, the Board adopted, and in August 1999 the Company's
stockholders approved, the 1999 Employee Stock Purchase Plan (the "Purchase
Plan") and reserved 132,000 shares of common stock for issuance thereunder, plus
an annual increase to be added on the first day of the Company's fiscal year
beginning in January 2001, equal to the lesser of (i) one hundred twenty
thousand (120,000) shares (post-split), (ii) three quarters of one percent
(0.75%) of the outstanding shares on such date, or (iii) such amount as may be
determined by the Board. The Purchase Plan became effective on October 14, 1999,
the first business day on which price quotations for the Company's common stock
were available on the Nasdaq National Market. Employees are generally eligible
to participate in the Purchase Plan if they are customarily employed by the
Company for more than 20 hours per week and more than five months in a calendar
year and are not (and would not become as a result of being granted an option
under the Purchase Plan) 5% stockholders of the Company. Under the Purchase
Plan, the maximum authorized contribution may be no greater than 10% of cash
compensation of eligible employees, subject to certain maximum purchase
limitations. Each Offering Period has a maximum duration of two years (the
"Offering Period") and consists of four six-month Purchase Periods (each, a
"Purchase Period"). Offering Periods and Purchase Periods will begin on May 1
and November 1. The price at which the common stock is purchased under the
Purchase Plan is 85% of the lesser of the fair market value of the Company's
common stock on the first day of the applicable Offering Period or on the last
day of that Purchase Period. Pursuant to action by the Company's Board of
Directors, the Purchase Plan will terminate at the close of the Purchase Period
ending in April 2002.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock-based compensation in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25 and provides pro forma disclosures in the notes to the consolidated
financial statements, as if the measurement provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" had been adopted.
NET LOSS PER SHARE
Net loss per share -- basic and diluted, is computed using the
weighted-average number of common shares outstanding during the period. Stock
options and warrants were not included in the computations because they would
have been antidilutive. The number of potentially dilutive shares that were not
included in weighted average shares outstanding were 1,693,470; 1,851,035 and
1,400,982 for the years ended December 31, 2001, 2000 and 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include: accounts receivable, accounts
payable and notes payable. The Company has estimated that the carrying amounts
of accounts receivable and accounts payable approximate fair value due to the
short-term maturities of these instruments. The fair value of the Company's
notes approximate their carrying value. The fair value is based on management's
estimate of current rates available to the Company for similar debt with the
remaining maturity.
24
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one principal business segment across domestic and
international markets. International sales have been insignificant throughout
the history of the Company. There were no transfers between geographic areas.
Substantially all operating results and identifiable assets are in the United
States. Disclosure regarding revenues from external customers for each group of
similar products has not been included because it is impracticable to do so.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the carrying
value of intangible assets and other long-lived assets is reviewed on a regular
basis for the existence of facts or circumstances, both internally and
externally, that may suggest impairment. In 2001, the Company's review of
recoverability of certain long-lived and intangible assets resulted in charges
of $124,000 for the estimated impairment to our carrying value for certain
property and equipment and $9,457,000 of goodwill (see Notes 7 and 16).
PRODUCT DEVELOPMENT COSTS
Product development costs consist primarily of payroll and related expenses
for merchandising and website personnel, site hosting fees and web content and
design expenses. Such costs are expensed as incurred.
COMPREHENSIVE INCOME
The Company has no elements of comprehensive income other than its net
loss.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported in the
consolidated financial statements. Actual amounts could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for all fiscal quarters for all fiscal years beginning after June 15,
2000. The adoption of SFAS No. 133, as amended, did not have a material impact
on the Company's consolidated financial statements.
In June 2001, the FASB issued two new standards, SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." Together
these statements will change the accounting for business combinations and
goodwill. SFAS 141 requires the purchase method of accounting for all business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. SFAS 142 changes the accounting for goodwill and
indefinite lived intangible assets from an amortization method to an impairment
only approach. Thus, amortization of goodwill, including goodwill recorded in
past business combinations, will cease upon adoption of SFAS 142. Amortization
will still be required for identifiable intangible assets with finite lives. The
provisions of SFAS 142 are required to be applied starting with fiscal years
beginning after December 15, 2001. The Company is required to adopt SFAS 142 at
the beginning of its fiscal year 2002. See Note 19.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets." This statement is effective for
financial statements issued for fiscal years beginning after
25
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 15, 2001. The Company has not yet completed its analysis of the impact
that SFAS 144 will have on its financial condition or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the 2001 presentation.
2. GOING CONCERN
The Company has experienced negative cash flows from operations of $11.4
million, $30.0 million and $12.8 million for the years ended December 31, 1999,
2000 and 2001, respectively. Recurring losses and negative cash flows from
operations and limited financing opportunities raise substantial doubt about the
Company's ability to continue as a going concern. Management believes that if
the Company is able to execute in accordance with its business and financial
plans, the Company will have sufficient cash to fund operations. The Company
anticipates that in 2002 it will be able to significantly increase its gross
margins on product sales and further reduce its expenses while maintaining or
growing its revenue levels. With a targeted focus on high margin core products
and improved inventory control resulting in significantly reduced excess and
obsolete inventory charges the Company believes that it will be able to achieve
improved gross margins. Additionally, the Company has taken steps to reduce
costs through several initiatives including: further downsizing the workforce
and facility cost reductions resulting from a planned relocation of the
Company's main facility in Reno to a smaller, less costly facility in Reno. If
the Company is successful in implementing these plans, it believes that its
current cash and cash from operations will be adequate to fund its cash
requirements through December 31, 2002. This estimate assumes that the Company
will be able to meet quarterly revenue targets in its second, third and fourth
quarters in excess of those recorded in the third and fourth quarters of 2001,
achieve significantly higher percentage gross margins than those achieved in
each of the prior three years and reduce expenses substantially below those
realized in the fourth quarter of 2001, excluding the write-down of goodwill.
The Company may need to raise additional funds before the end of the year
in the event that it fails to generate sufficient cash from operations or
experiences unanticipated or excessive expenditures. The Company has no
commitments and is not seeking commitments for additional financing. If the
Company were to seek additional financing, there can be no assurance that it
would be successful in obtaining any additional financing on terms acceptable to
the Company or its stockholders. If the Company raises additional funds through
the issuance of equity securities or convertible debt securities, its existing
stockholders may experience significant dilution.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31:
<Table>
<Caption>
2001 2000
--------- ---------
DOLLARS IN THOUSANDS
Trade receivables........................................... $ 5,353 $ 7,501
Other current receivables................................... 482 449
Allowance for bad debt...................................... (1,623) (1,075)
------- -------
Total accounts receivable, net......................... $ 4,212 $ 6,875
======= =======
</Table>
The Company extends payment terms, generally net 30 days to 90 days, to
business customers that it has evaluated for credit worthiness.
26
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTE RECEIVABLE
The Company has a note receivable from a customer for a principal amount
due of $493,000. The note bears interest at prime plus 2% and is payable in
monthly installments of principal and interest, with a balloon payment due
December 1, 2002, which is to be in the amount of all remaining principal and
accrued interest to that date. Repayment of this note is secured by the
customer's accounts receivable. The Company has recorded a provision for
doubtful notes receivable of approximately $236,000 as of December 31, 2001. The
principal amount of this note was an account receivable as of December 31, 2000
and was converted to a note receivable in 2001.
5. INVENTORY
Inventory consists of the following at December 31:
<Table>
<Caption>
2001 2000
--------- --------
DOLLARS IN THOUSANDS
Products on hand............................................ $ 4,315 $8,964
Inventory reserve........................................... (1,835) (785)
------- ------
Total inventory, net................................... $ 2,480 $8,179
======= ======
</Table>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<Table>
<Caption>
2001 2000
--------- ---------
DOLLARS IN THOUSANDS
Leasehold improvements...................................... $ 416 $ 363
Furniture and equipment..................................... 2,034 3,309
Software.................................................... 1,966 2,039
Accumulated depreciation and amortization................... (2,038) (1,245)
------- -------
Total property and equipment, net...................... $ 2,378 $ 4,466
======= =======
</Table>
7. GOODWILL AND OTHER ASSETS
Goodwill and other assets consist of the following at December 31:
<Table>
<Caption>
2001 2000
--------- ---------
DOLLARS IN THOUSANDS
Goodwill.................................................... $15,706 $14,358
Accumulated amortization.................................... (5,658) (2,109)
Write-off of goodwill (see Note 16)......................... (9,457) --
------- -------
Goodwill, net.......................................... 591 12,249
------- -------
Assets held for sale........................................ 330 --
Other assets................................................ 1,158 1,089
Accumulated amortization.................................... (329) (245)
------- -------
Other assets, net...................................... 1,159 844
------- -------
Total goodwill and other assets, net.............. $ 1,750 $13,093
======= =======
</Table>
27
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASE COMMITMENTS
OPERATING LEASES
The Company leases certain equipment under non-cancelable operating leases.
Lease expense for all equipment operating leases was $105,000, $10,000, and $859
for the years ended December 31, 2001, 2000, and 1999, respectively.
The Company leases its facility under a non-cancelable operating lease,
which was entered into in December 1999 and is effective through December 2013
(see Note 18). The lease requires monthly rental payments, which do not increase
over the lease term. The Company records rent expense on a straight-line basis.
The Company may extend the lease term for two additional five year periods. In
addition to the Company's primary facility, the Company has recorded lease
expense for facilities occupied by companies acquired by the Company during the
2000. The Company recorded facility rent expense for the years ended December
31, 2001, 2000 and 1999 of $905,000, $947,000 and $138,000, respectively.
The following is a schedule of the future minimum lease payments under the
equipment and facility operating leases as of December 31, 2001:
<Table>
<Caption>
FISCAL YEAR
- ----------- DOLLARS IN THOUSANDS
2002........................................................ $ 922
2003........................................................ 879
2004........................................................ 847
2005........................................................ 842
2006........................................................ 840
Thereafter.................................................. 5,880
-------
$10,210
=======
</Table>
CAPITAL LEASES AND SHORT-TERM BORROWINGS
The Company conducts a portion of its operations with equipment under
leases, which have been capitalized. The leases are non-cancelable and expire on
various dates through 2004. The capitalized value of the equipment was
approximately $667,000 and $822,000, and the related accumulated depreciation
was $414,000 and $294,000 as of December 31, 2001 and 2000, respectively.
Depreciation expense for fixed assets acquired under a capital lease is included
in depreciation expense, which is included in general and administrative
expense. The Company has short-term borrowings with an outstanding balance of
$54,000 as of December 31, 2001. This obligation required interest payments only
through September 2000, at which time principal and interest payments are due
through maturity in August 2002 (see Note 10). The following is a schedule of
the future minimum payments under capital leases and short-term borrowings as of
December 31, 2001:
<Table>
<Caption>
FISCAL YEAR
- ----------- DOLLARS IN THOUSANDS
2002........................................................ $ 205
2003........................................................ 12
2004........................................................ 9
-----
226
Amount representing interest................................ (16)
-----
Net present value of future minimum lease payments.......... 210
Current portion of capital lease obligation................. (191)
-----
Non-current portion of capital lease obligations............ $ 19
=====
</Table>
28
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASE LINE OF CREDIT
On June 28, 1999, the Company signed a $2.0 million equipment lease line of
credit with a leasing company. The initial term of the lease is 42 months with
an option to extend the initial term for a period of 12 months. A portion of the
line was used in a sale leaseback transaction of certain computer hardware and
software owned by the Company. The lease was recorded as a capital lease, and
resulted in a loss of $219,000 recorded in the Company's statement of operations
for the year ended December 31, 1999.
In connection with this line, the Company issued a warrant currently
representing the right to purchase 16,132 shares of common stock at an exercise
price of $6.82 per share. The warrant expires in October 2002.
10. SUBORDINATED CONVERTIBLE DEBT
On July 30, 1999, the Company entered into a $3.5 million subordinated
convertible debt agreement with a leasing company, which expired January 30,
2000. Amounts borrowed under such agreement bear interest at an annual rate of
11%. Interest only was payable for the first 12 months, then principal and
interest for the final 24 months. On August 6, 1999, the Company drew down
$1,167,000 under this agreement.
On September 10, 1999, the leasing company converted $980,000 of the
$1,167,000 outstanding subordinated convertible debt into 124,982 shares of the
Series C preferred stock. As of December 31, 2001 and 2000, the balance
outstanding was $54,000 and $280,000, respectively.
11. INCOME TAXES
The provision for income taxes recognized for the years ended December 31
consists of the following:
<Table>
<Caption>
2001 2000 1999
-------- ------- -------
DOLLARS IN THOUSANDS
Tax benefit at U.S. statutory rates.................... $ 10,801 $ 7,940 $ 5,104
Other items............................................ 95 (94) (137)
Deductible IPO fees.................................... -- -- 128
Increase in valuation allowance........................ (10,896) (7,846) (5,095)
-------- ------- -------
Tax benefit............................................ $ -- $ -- $ --
======== ======= =======
</Table>
29
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the effect of deferred income tax items and the
impact of temporary differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. The tax
items composing the Company's net deferred tax asset as of December 31 are as
follows:
<Table>
<Caption>
2001 2000
--------- ---------
DOLLARS IN THOUSANDS
Current deferred tax asset:
Accrued liabilities....................................... $ 1,370 $ 575
Other..................................................... -- (1)
Current deferred tax liability:
Prepaid expenses.......................................... (213) (307)
Valuation allowance......................................... (1,157) (267)
-------- --------
Net current deferred tax asset.............................. -- --
-------- --------
Non-current deferred tax asset:
Net operating loss........................................ 19,063 13,539
Difference between book and tax basis of goodwill......... 4,669 --
Other..................................................... 3 1
Non-current deferred tax liability:
Difference between book and tax basis of fixed asset and
intangibles............................................ (274) (85)
Valuation allowance......................................... (23,461) (13,455)
-------- --------
Net non-current deferred tax asset.......................... -- --
-------- --------
Net deferred tax asset...................................... $ -- $ --
======== ========
</Table>
Due to the uncertainty of the realization of certain tax carryforward
items, a valuation allowance has been established in the aggregate amount of
$24.6 million and $13.7 million, at December 31, 2001 and 2000, respectively.
Realization of a significant portion of the assets offset by the valuation
allowance is dependent on the Company generating sufficient taxable income prior
to the expiration of the loss and credit carryforwards. As of December 31, 2001
and 2000, the Company had net operating loss carryforwards of approximately
$56.1 million and $39.8 million, respectively, available to offset future
taxable income, which are available through 2021. The availability of the loss
and credit carryforwards may be subject to further limitation under Sections 382
and 383 of the Internal Revenue Code in the event of a significant change of
ownership.
12. EQUITY SECURITIES
MANDATORY REDEEMABLE PREFERRED STOCK
The Company issued 3,667,500 shares of Series A mandatory redeemable
preferred stock ("Series A") during 1996 and 3,000,000 shares of Series B
mandatory redeemable preferred stock ("Series B") during 1998. Holders of Series
A and Series B were entitled to receive dividends at 8% per annum, prior to
conversion of their shares into common stock at a ratio of 1:1 excluding accrued
dividends. The conversion ratio for Series A would have been adjusted upon
issuance of common stock at less than $0.45 per share. The conversion ratio for
Series B would have been adjusted upon issuance of common stock at less than
$2.00 per share. Conversion was automatic upon the Company's initial public
offering at a share price of not less than $1.25, with aggregate proceeds of not
less than $15.0 million. If elected by the holders of 66 2/3% of the preferred
stock then outstanding, unconverted preferred stock would have been redeemed, on
a quarterly basis, over eight consecutive quarters beginning in June 2003 at the
original issuance price plus any declared but
30
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unpaid dividends, or upon a sale or merger of the Company meeting certain
criteria. Holders of Series A and Series B were also entitled to a liquidation
preference over common stock equal to the original price plus any accrued but
unpaid dividends.
On July 30, 1999, the Company received gross proceeds of approximately $5.8
million on the sale of 850,572 shares of Series C mandatory redeemable preferred
stock ("Series C") at $6.82 per share. The Series C shareholders had the same
rights, preferences, and privileges as the Series A and Series B shareholders.
No dividends were declared or paid as of December 31, 1999. The Company
recorded accrued dividends of $122,000, $373,000 and $81,000 on Series A, Series
B and Series C, respectively, during the year ended December 31, 1999.
On October 13, 1999, the Company conducted an initial public offering of
5,750,000 shares of its common stock at a price of $12.00 per share, including
750,000 shares available for sale to the underwriters upon the exercise of their
over-allotment option. All shares of Series A, B and C automatically converted
into 7,643,054 shares of common stock upon the consummation of the offering.
WARRANTS
In connection with the issuance of Series A, the Company issued warrants
for the purchase of 81,000 shares of its common stock at $0.445 per share all of
which, as of December 31, 2000, had been exercised and converted into common
stock. In connection with an equipment lease entered into on June 28, 1999 (see
Note 9) the Company issued a warrant currently representing the right to
purchase 16,132 shares. The Company has reserved 16,132, 16,132 and 56,632
shares of common stock for issuance under outstanding warrants as of December
31, 2001, 2000 and 1999, respectively.
ISSUANCE OF UNVESTED COMMON STOCK AND STOCKHOLDER LOAN
In connection with the issuance of Series A to an investor group, the
Company issued 885,600 shares of common stock to its president at $0.05 per
share in exchange for a note receivable of $39,852. These shares vest to the
president only upon the successful achievement of certain sales and
profitability performance goals or upon a sale of the Company at a price
sufficient to meet a specified internal rate of return criteria. At the
conclusion of the performance period, any unvested shares may be repurchased by
the Company, at the Company's discretion, at the original issuance price of the
stock. At December 31, 1999, the president had vested in 100% of the shares
issued under this arrangement.
The stockholder loan called for interest to be accrued at 6% and is due
upon the sale of the Company or, if no sale occurs, on June 13, 2003. The
stockholder loan is secured by the stock issued under this arrangement and the
Company has recourse against the stockholder. This loan was subsequently
restructured as described below.
LOAN TO CHAIRMAN AND CHIEF EXECUTIVE OFFICER
On January 2, 2001, the Company entered into a Secured Loan Agreement with
Ken Hawk, then Chairman and Chief Executive Officer, pursuant to which the
Company loaned him $306,100. This loan bore interest at 10.5% and would have
matured on June 8, 2001. The loan was full recourse and was secured by 306,100
shares of iGo common stock held by Mr. Hawk, which represented shares with a
market value of twice the loan principal amount on the date the loan was made.
As described below, this loan was subsequently restructured.
31
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESIGNATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER
On March 26, 2001, Ken Hawk resigned from his employment with and as the
President, Chairman of the Board and Chief Executive Officer of the Company. Mr.
Hawk continues to serve as a member of the Company's Board of Directors. Under a
Consulting Agreement, Mr. Hawk also serves as a consultant to the Company for a
period of one year following his resignation. As consideration for his services
as a consultant, Mr. Hawk will receive an aggregate of approximately $240,500
during the term of the Consulting Agreement. The Company also agreed to
restructure the indebtedness owed by Mr. Hawk to the Company. Under the terms of
a Secured Note, previously existing notes payable to the Company were
consolidated into one note for an aggregate principal amount of $366,410. This
note bears interest at 8.0% and matures on March 26, 2003, or upon an event of
default. The note is secured by 977,000 shares of iGo common stock owned by Mr.
Hawk, which represented shares with a market value of approximately twice the
principal amount of the note on the date of the Security Agreement executed by
Mr. Hawk in conjunction with the note.
13. STOCK OPTION PLAN
The Company has a stock option plan under which the Board of Directors has
reserved an aggregate of 3,256,800 shares of common stock for issuance, which
reserve amount is subject to automatic annual increases on the first day of the
Company's fiscal year, beginning in January 2001. Under the plan, the Company
may grant incentive stock options to employees and non-qualified stock options
to employees, directors, and consultants.
Incentive stock options may be granted at a price not less than the
estimated fair market value of the common stock (110% of estimated fair value
for options granted to stockholders of 10% or more of the voting stock) at the
date of grant. Options are exercisable over periods not to exceed ten years from
the date of grant (five years for stockholders owning 10% or more of common
stock). Non-qualified options may be granted at a price not less than 85% of the
estimated fair market value of the common stock at the date of grant and are
exercisable over periods not to exceed ten years. Options granted prior to the
Company's initial public offering can be exercised at any time following grant.
The Company has the right to repurchase at the option exercise price shares that
have not vested. Options granted subsequent to the Company's initial public
offering can be exercised only to the extent vested. Options granted to date
generally vest over a four-year term, with 25% of the options vesting after the
first year and the remaining options vesting on a monthly basis thereafter.
32
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under the plan is as follows:
<Table>
<Caption>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
Balance, January 1, 1999................................. 634,878 $0.12
Granted................................................ 840,324 1.87
Exercised.............................................. (94,852) 0.10
Forfeited.............................................. (36,000) 0.83
---------- -----
Balance, December 31, 1999............................... 1,344,350 1.19
Granted................................................ 1,844,050 4.61
Exercised.............................................. (534,126) 0.55
Forfeited.............................................. (819,371) 4.20
---------- -----
Balance, December 31, 2000............................... 1,834,903 3.93
Granted................................................ 922,000 0.63
Exercised.............................................. (37,656) 0.15
Forfeited.............................................. (1,041,909) 3.22
---------- -----
Balance, December 31, 2000............................... 1,677,338 $2.62
========== =====
</Table>
As of December 31, 1999, there were 39,967 options exercisable at a
weighted average exercise price of $0.10 per share; as of December 31, 2000,
there were 245,989 options exercisable at a weighted average exercise price of
$4.53 per share; and as of December 31, 2001, there were 450,805 options
exercisable at a weighted average exercise price of $4.06 per share.
The following table summarizes information about stock options outstanding
at December 31, 2001:
<Table>
<Caption>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
--------------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED- NUMBER OF WEIGHTED-
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- -------------- ----------- --------------
$ 8.94................... 5,500 8.3 years $8.94 3,294 $8.94
7.56................... 181,250 8.1 years 7.56 93,814 7.56
7.00................... 125,000 8.1 years 7.00 62,500 7.00
5.49................... 3,000 7.8 years 5.49 1,875 5.49
3.96................... 13,400 7.6 years 3.96 8,181 3.96
3.69................... 235,000 8.5 years 3.69 97,282 3.69
3.13................... 132,000 8.8 years 3.13 43,669 3.13
2.75................... 50,000 8.8 years 2.75 16,667 2.75
1.03................... 169,000 9.0 years 1.03 47,897 1.03
0.55-0.77................... 566,000 9.4 years 0.69 18,063 0.60
0.04-0.26................... 197,188 8.7 years 0.23 57,563 0.16
--------- -------
1,677,338 450,805
========= =======
</Table>
The Company applies the provisions of APB No. 25 and related
interpretations in accounting for its stock options. For the years ended 2001,
2000 and 1999, had the Company recorded stock-based compensation cost consistent
with the provisions of SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts included in the table below. The below
paragraph discloses the weighted-average assumptions used in estimating the fair
value of stock options using the Black-Scholes option valuation model and the
33
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
weighted-average fair value of the stock options granted. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully transferable.
Additionally, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock-based compensation has characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
the Company's stock-based compensation.
The weighted average fair value of options granted during 2001, 2000 and
1999 was estimated at $0.56, $4.61 and $4.48 per share, respectively. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for the grants: risk-free interest rates of 5.0%, 5.8% and 5.9%
in 2001, 2000 and 1999, respectively; dividend yield of 0%; expected lives of
four years; expected lives of two years for employee stock purchases and
volatility of 154.5%, 146%, 133.5% in 2001, 2000 and 1999, respectively.
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
Net loss -- as reported.............................. $(31,848) $(23,901) $(15,013)
Net loss -- pro forma................................ (33,327) (25,464) (15,236)
Basic and diluted loss per share -- as reported...... $ (1.37) $ (1.11) $ (1.01)
Basic and diluted loss per share -- pro forma........ (1.43) (1.21) (1.03)
</Table>
The Company recorded deferred compensation during 2001, 2000 and 1999
aggregating $0, $0 and $2,004,745, respectively, related to stock options.
Compensation expense for 2001, 2000 and 1999 totaled $165,654, $258,895 and
$365,571, respectively. The remaining balance of deferred compensation at
December 31, 2001 will be recognized as expense over the remaining vesting
periods of the options as follows:
<Table>
2002........................................................ $ 99,770
2003........................................................ 26,570
--------
$126,340
========
</Table>
Deferred compensation was computed as the difference between the deemed
fair value of the common stock and the option exercise price at the date of
grant of the options. Deemed fair value was derived from prices paid by
independent investors in the Series A, Series B and Series C financings.
14. LEGAL PROCEEDINGS
From time to time the Company is involved in litigation incidental to the
conduct of its business. The Company is not currently a party to any lawsuit or
arbitration proceeding the outcome of which the Company believes will have a
material adverse effect on its financial position, results of operations or
liquidity.
The Securities and Exchange Commission has entered a formal order of
private investigation concerning the events underlying the Company's revisions
of its fiscal 2000 operating results based on adjustments to fourth quarter 2000
revenue, which results were announced and revised in certain press releases
issued in January and March of 2001. In connection with its investigation, the
Commission will also be reviewing the restatement of the Company's financial
statements set forth in the Company's 2001 Annual Report on Form 10-K, as
amended, and certain related accounting, sales and organizational matters. The
Company has been cooperating fully with the Staff of the Commission in its
investigation and to date the Staff has made no determinations that the Company
is aware of with respect to this investigation.
34
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. ACQUISITIONS
On January 4, 2000, the Company acquired CAW Products, Inc., d.b.a.
Cellular Accessory Warehouse, for $353,458 comprised of $100,000 in cash and
$253,458 in common stock (29,167 shares of common stock valued at $8.69 per
share, the approximate market price of such shares during the few days leading
up to and following the announcement of the transaction). Additionally, on
January 11, 2000, the Company acquired AR Industries Inc., d.b.a. Road Warrior
International, for $2,704,167 comprised of $750,000 in cash and $1,954,167 in
common stock (279,167 shares of common stock valued at $7.00 per share, the
approximate market price of such shares during the few days leading up to and
following the announcement of the transaction). Road Warrior is a designer and
distributor of notebook computer connectivity and power products, as well as
model-specific notebook computer hard drive upgrades. Cellular Accessory
Warehouse is a distributor of model-specific cellular accessories.
Additionally, on August 29, 2000, the Company acquired substantially all
the assets of Xtend Micro Products, Inc., for $2,500,000 in cash and 2,268,451
shares of iGo Common Stock. Of such shares, 1,896,574 shares were subject to an
earn-out provision based on the post-closing operating performance of the Xtend
business unit. These earn-out provisions were met. Xtend also had the
opportunity to earn up to an additional $2,500,000 in a combination of iGo
Common Stock and/or cash (at iGo's election) for exceptional post-closing
operating performance. In August 2001, we advanced $500,000 to XMicro Holding
Company against anticipated payments that would be due to XMicro pursuant to the
August 2000 Asset Purchase Agreement (see Note 18).
Each acquisition was recorded using the purchase method of accounting under
Accounting Principles Board ("APB") Opinion No. 16 "Business Combinations."
Results of operations for each acquired company have been included in the
financial results of the Company from the respective acquisition date forward.
In accordance with APB Opinion No. 16, all identifiable assets were assigned a
portion of the cost of the acquired companies (purchase price) on the basis of
their respective fair values. Identifiable intangible assets and goodwill are
included in "Goodwill and other assets, net" on the accompanying consolidated
balance sheets and are amortized over their estimated useful lives, which
approximates 40 months for both Cellular Accessory Warehouse and Road Warrior
International, and 60 months for Xtend Micro Products. Intangible assets were
identified and valued by considering the Company's intended use of acquired
assets and analysis of data concerning products, technologies, markets,
historical financial performance, and underlying assumptions of future
performance. The economic and competitive environment in which the Company and
the acquired companies operate was also considered in the valuation analysis.
The Company periodically evaluates its intangible assets for impairment (see
Note 16).
The pro forma condensed consolidated financial information for the year
ended December 31, 1999, determined as if all acquisitions had occurred on
January 1 of that period, would have resulted in net sales of $37.4 million, net
loss of $16.1 million, and basic and diluted loss per share of $1.09. Due to the
timing of the acquisitions on January 4, 2000 and January 11, 2000 for Cellular
Accessory Warehouse and Road Warrior International, respectively, no significant
activity took place prior to the acquisitions and therefore pro forma results
are not presented. The pro forma condensed consolidated financial information
for the year ended December 31, 2000, determined as if the Xtend acquisition had
occurred on January 1 of that period, would have resulted in net sales of $47.2
million, net loss of $22.8 million, and basic and diluted loss per share of
$1.06. This unaudited pro forma information is presented for illustrative
purposes only, and is not necessarily indicative of the results of operations in
future periods or results that would have been achieved had iGo Corporation and
the acquired companies been combined during the specified period.
35
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. IMPAIRMENT OF ASSETS
BUSINESS ACQUISITIONS
As discussed in Note 15, the Company made three business acquisitions
during fiscal year 2000: CAW Products, Inc., AR Industries Inc., and Xtend Micro
Products, Inc. The Company allocated the acquisition cost for each of these
entities to identifiable assets and goodwill. The amounts allocated to goodwill
have subsequently been amortized on the basis of their estimated useful lives
ranging from 40 to 60 months. During the fourth quarter of 2001, in accordance
with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long
Lived Assets to be Disposed Of," the Company estimated the future cash flows of
the businesses based on reasonable assumptions and projections containing
management's best estimates taking into account actual losses realized in the
third and fourth quarters of 2001 and similar forecasted operating results of
the acquired businesses in 2002 based on the impact of the events of September
11, 2001 on the travel industry and the overall effect on the economy, resulting
in reduced purchases by the Company's distributors and customers. The Company
used undiscounted cash flows to determine if the goodwill was impaired. Because
the amount of the undiscounted cash flows was less than the carrying value of
the goodwill, the Company recognized a write-down with respect to each acquired
business computed based upon discounted cash flows. The resulting write-downs of
unamortized goodwill related to the acquisitions of CAW Products, Inc., AR
Industries Inc., and Xtend Micro Products, Inc. were approximately $250,000,
$1.4 million and $7.8 million, respectively.
LONG-LIVED ASSETS
During the fourth quarter of 2001, the Company determined that due to our
staffing reductions, certain assets had become idle and therefore their carrying
value was impaired. As a result of this determination, the Company recorded a
write-down for these assets in the amount of approximately $124,000.
36
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. RESTATEMENT
Subsequent to the issuance of the Company's consolidated financial
statements for the year ended December 31, 2001, management of the Company
determined that accounting entries duplicating the elimination of certain
intercompany transactions during the period had been made. As a result, the
consolidated financial statements for the year ended December 31, 2001 have been
restated from those previously reported on the Company's Form 10-K to increase
both net product revenue and cost of goods sold by $932,000. A summary of the
significant effects of the restatement on the accompanying consolidated
statement of operations is as follows (items that have not been changed were not
affected by the restatement):
EFFECTS ON THE CONSOLIDATED STATEMENT OF OPERATIONS:
<Table>
<Caption>
2001
------------------------
AS PREVIOUSLY AS
REPORTED RESTATED
------------- --------
(DOLLARS IN THOUSANDS)
Revenues:
Net product revenue....................................... $ 27,954 $ 28,886
-------- --------
Cost of goods sold.......................................... 23,503 24,435
-------- --------
Gross profit................................................ 4,451 4,451
Operating expenses:
Sales and marketing....................................... 11,855 11,855
Product development....................................... 2,590 2,590
General and administrative................................ 9,064 9,064
Merger and acquisition costs.............................. 12,956 12,956
-------- --------
Total operating expenses.......................... 36,465 36,465
-------- --------
Loss from operations........................................ (32,014) (32,014)
Other income, net........................................... 166 166
-------- --------
Net loss.......................................... $(31,848) $(31,848)
======== ========
Net loss per share:
Basic and diluted......................................... $ (1.37) $ (1.37)
======== ========
</Table>
18. SUBSEQUENT EVENTS
DEFINITIVE MERGER AGREEMENT WITH MOBILITY ELECTRONICS, INC.
On March 24, 2002, the Company entered into a definitive agreement to be
acquired by Mobility Electronics, Inc. of Phoenix, Arizona. Under the agreement,
the Company's stockholders would receive an aggregate of $5,100,000 in cash and
2,600,000 shares of Mobility Electronics common stock (valued at $3,562,000
based on the approximate market price per share during the few days leading up
to and following the announcement of the transaction of $1.37) at the
transaction closing and up to an additional $1,000,000 in cash and 500,000
additional Mobility Electronics shares (similarly valued at $685,000) one year
following the transaction closing subject to certain conditions. The closing of
the transaction is subject to certain material conditions, including the
transaction's approval by the Company's stockholders and the effectiveness of a
registration statement to be filed with the Securities and Exchange Commission,
and there can be no assurance that all of the conditions will be satisfied.
37
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SETTLEMENT AGREEMENT WITH XMICRO HOLDING COMPANY, INC. AND FORMER OFFICER
On March 13, 2002, iGo, Xtend Micro Products, Inc., XMicro Holding Company,
Inc., and Mark Rapparport entered into a settlement agreement resolving certain
matters related to the employment of Mr. Rapparport with one of our subsidiaries
and the finalization of an earn-out in relation to our acquisition of Xtend
Micro Products, Inc. In August 2001, iGo advanced $500,000 to XMicro Holding
Company against the anticipated earn-out obligation (see Note 15). In March
2002, iGo paid an additional $250,000 and issued 1,989,807 shares of its common
stock to XMicro Holding Company as final settlement and satisfaction of these
matters. At the deemed price per share of $0.363, the aggregate value of the
cash and stock provided in March 2002 as part of this settlement is $972,300.
This settlement was recorded as additional purchase price in connection with the
acquisition of Xtend Micro Products and was included in the Company's write-down
of goodwill in 2001 (see Notes 7 and 16).
SECOND AMENDMENT TO LEASE AGREEMENT
On March 22, 2002, iGo entered into a Second Amendment with Dermody Family
Limited Partnership I and Gulia Dermody Turville, the landlord under the lease
for the premises located at 9393 Gateway Drive, Reno, Nevada. The primary
purpose of the Second Amendment is to provide that iGo may terminate the lease
at any time in its sole discretion by giving the landlord at least sixty (60)
days' advance written notice of such termination. The Second Amendment also
provides that the landlord may terminate the lease at any time in its sole
discretion by giving iGo at least ninety (90) days' advance written notice of
such termination. In connection with the Second Amendment iGo agreed to allow
the landlord to forever retain the security deposit of $140,000 described in the
lease and paid the landlord $360,000. This total sum of $500,000, which is
included in accrued liabilities as of December 31, 2001, is characterized in the
Second Amendment as a lease restructuring fee and as such is nonrefundable.
There are certain representations, warranties, releases and covenants by and
among the parties in the Second Amendment, as well as a condition imposed upon
iGo that it cannot terminate the lease if at the time of delivering notice to
the landlord there is an uncured monetary default.
POTENTIAL NASDAQ DELISTING
In February 2002, the Company received notice from Nasdaq that it is not in
compliance with Nasdaq Marketplace Rule 4450(a)(5), which requires the Company's
common stock to have a minimum $1.00 bid price per share. Under the Marketplace
Rules, the Company has until May 15, 2002, to regain compliance by achieving a
closing bid price for its shares of $1.00 or more for a minimum of ten
consecutive trading days. The Company has also been notified that it is not in
compliance with Marketplace Rule 4450(a)(2), which requires that the minimum
market value of the Company's publicly held shares (shares held by
non-affiliates of iGo) be at least $5,000,000, and that it has until June 17,
2002 to regain compliance by raising the market value of publicly held shares to
$5,000,000 or more for ten consecutive trading days. Failure to regain
compliance with either of these standards would result in the Company's common
stock being delisted from the Nasdaq National Market. The Company could appeal a
delisting decision and/or transfer its securities to the Nasdaq SmallCap Market.
There can be no assurance that any such appeal would be successful or that the
Company could maintain compliance with the continued listing requirements of the
Nasdaq SmallCap Market for any substantial period of time. The Company's stock
would continue to trade on the over-the-counter bulletin board following any
delisting from either Nasdaq Market.
19. ADOPTION OF SFAS NO. 142
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which establishes new accounting and reporting
requirements for goodwill and other intangible assets. Under this accounting
standard,goodwill and intangible assets with indefinite lives are no
38
iGo CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
longer subject to amortization but are tested for impairment at least annually.
Amortization is still required for identifiable intangible assets with finite
lives.
The following table adjusts the Company's net loss and net loss per share
for the adoption of SFAS 142:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
IN THOUSANDS, EXCEPT PER SHARE DATA
Reported net loss..................................... $(31,848) $(23,901) $(15,013)
Goodwill amortization............................... 3,499 2,109 --
-------- -------- --------
Adjusted net loss..................................... $(28,349) $(21,792) $(15,013)
======== ======== ========
Reported net loss per share -- basic and diluted...... $ (1.37) $ (1.11) $ (1.01)
Goodwill amortization............................... 0.15 0.10 --
-------- -------- --------
Adjusted net loss..................................... $ (1.22) $ (1.01) $ (1.01)
======== ======== ========
</Table>
39
UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined consolidated financial
information gives effect to the merger using the purchase method of accounting,
after giving effect to the pro forma adjustments described in the accompanying
notes. The unaudited pro forma condensed combined consolidated balance sheet is
based on the individual balance sheets of Mobility and iGo and has been prepared
as if the merger had been effective on June 30, 2002 after giving effect to the
purchase accounting and other related adjustments. The unaudited pro forma
condensed combined consolidated statements of operations combine the individual
statements of operations of Mobility and iGo for the six months ended June 30,
2002 and the year ended December 31, 2001, as if the combination had taken place
on January 1, 2001 after giving effect to the purchase accounting and other
related adjustments.
The unaudited pro forma condensed combined financial information reflects
the application of the purchase method of accounting for the merger. Under this
method of accounting, the purchase price will be allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
closing. Estimates of the fair values of iGo's assets and liabilities have been
combined with recorded values of the assets and liabilities of Mobility.
However, changes to the adjustments included in the unaudited pro forma
condensed combined financial data are expected as valuations of assets and
liabilities are completed and as additional information becomes available.
Accordingly, the final unaudited pro forma condensed combined amounts will
differ from those set forth in the unaudited pro forma condensed combined
financial data.
For the purpose of preparation of the unaudited pro forma condensed
combined consolidated balance sheet, direct acquisition costs (which the
companies anticipate will be approximately $1,000,000) were included. The
estimate of direct acquisition costs is preliminary and subject to change.
Certain financial statement balances of iGo have been reclassified to
conform with Mobility's financial statement presentation.
The unaudited condensed combined consolidated financial information does
not purport to be indicative of the operating results or the financial position
that would have actually occurred if the merger had been in effect on the dates
indicated, nor are they necessarily indicative of future operating results or
financial position of the merged companies. The pro forma adjustments are based
on the information currently available. The unaudited pro forma condensed
combined consolidated financial information does not give effect to any cost
savings or synergies that may result from the integration of Mobility's and
iGo's operations. No assurances can be given with respect to the ultimate level
of revenues or cost savings.
40
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
OF MOBILITY ELECTRONICS, INC. AND IGO CORPORATION
JUNE 30, 2002
(IN THOUSANDS)
HISTORICAL
------------------ PRO FORMA PRO FORMA
MOBILITY IGO ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents ........................... $12,541 $ 3,426 $(5,100)(a) $10,867
Accounts receivable, net ............................ 4,574 2,471 -- 7,045
Note receivable, net ................................ -- 264 -- 264
Inventories, net .................................... 3,378 1,052 (333)(b) 4,097
Prepaid expenses and other current assets ........... 125 450 -- 575
------- ------- ------- -------
Total current assets ............................. 20,618 7,663 (5,433) 22,848
Property and equipment, net ......................... 1,656 1,744 (718)(c) 2,682
Other assets, net ................................... 3,447 611 (162)(d) 3,896
Goodwill and intangible assets with indefinite lives,
net ................................................. 5,947 -- 3,720(e) 9,667
------- ------- ------- -------
Total assets ........................................ $31,668 $10,018 $(2,593) $39,093
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 4,059 $ 903 $ -- $ 4,962
Accrued expenses and other current liabilities ...... 1,837 2,105 1,000(f) 4,942
Current portion of capital lease obligations and
long-term debt ...................................... -- 10 -- 10
------- ------- ------- -------
Total current liabilities ........................ 5,896 3,018 1,000 9,914
Long-term portion of capital lease obligations and
long-term debt ...................................... -- 14 -- 14
------- ------- ------- -------
Total liabilities ................................ 5,896 3,032 1,000 9,928
Total stockholders' equity .......................... 25,772 6,986 (3,593)(g) 29,165
------- ------- ------- -------
Total liabilities and stockholders' equity ....... $31,668 $10,018 $(2,593) $39,093
======= ======= ======= =======
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements
41
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS
OF OPERATIONS OF MOBILITY ELECTRONICS, INC. AND IGO CORPORATION
Six Months Ended June 30, 2002
(In thousands, except share related data)
Historical
-------------------- Pro Forma Pro Forma
Mobility iGo Adjustments Combined
-------- -------- ----------- ---------
Revenue:
Net product sales .......................... $ 13,190 $ 9,267 $ -- $ 22,457
Technology transfer fees ................... 416 -- -- 416
-------- -------- -------- --------
Total revenue ........................... 13,606 9,267 -- 22,873
Cost of revenue: .............................. 10,226 6,154 -- 16,380
-------- -------- -------- --------
Gross profit ............................ 3,380 3,113 -- 6,493
-------- -------- -------- --------
Operating expenses:
Marketing and sales ........................ 3,147 3,702 -- 6,849
Research and development ................... 2,412 817 -- 3,229
General and administrative ................. 3,448 4,155 (180)(h) 7,423
-------- -------- -------- --------
Total operating expenses ................ 9,007 8,674 (180) 17,501
-------- -------- -------- --------
Loss from operations .................... (5,627) (5,561) 180 (11,008)
Other income (expense):
Interest income, net ....................... 401 -- -- 401
Other, net ................................. (79) 71 -- (8)
-------- -------- -------- --------
Loss before provision for income taxes
and cumulative effect of change in
accounting principle .................... (5,305) (5,490) 180 (10,615)
Provision for income taxes .................... -- -- -- --
-------- -------- -------- --------
Loss before cumulative effect of change
in accounting principle ................. (5,305) (5,490) 180 (10,615)
Cumulative effect of change in accounting
principle ............................... -- (591) -- (591)
-------- -------- -------- --------
Net loss ............................. $ (5,305) $ (6,081) $ 180 $(11,206)
======== ======== ======== ========
Loss per share - basic and diluted:
Loss before cumulative effect of change in
accounting principle........................ $(0.34) $ (0.59)
Cumulative effect of change in accounting
principle................................... -- (0.03)
-------- --------
Loss per share.............................. $(0.34) $ (0.62)
======== ========
Weighted average common shares outstanding:
Basic and diluted.......................... 15,609 18,209
======== ========
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements
42
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS OF MOBILITY ELECTRONICS, INC. AND IGO CORPORATION
YEAR ENDED DECEMBER 31, 2001
Historical
-------------------- Pro Forma Pro Forma
Mobility iGo Adjustments Combined
-------- -------- ----------- ---------
(In thousands, except share related data)
Revenue:
Net product sales.................... $ 27,925 $ 28,886 $ -- $ 56,811
Technology transfer fees............. 400 -- -- 400
-------- -------- -------- --------
Total revenue..................... 28,325 28,886 -- 57,211
Cost of revenue:..................... 25,703 24,435 -- 50,138
-------- -------- -------- --------
Gross profit...................... 2,622 4,451 -- 7,073
-------- -------- -------- --------
Operating expenses:
Marketing and sales.................. 8,129 11,855 -- 19,984
Research and development............. 5,598 2,590 -- 8,188
General and administrative........... 9,957 22,020 (3,779)(i) 28,198
-------- -------- -------- --------
Total operating expenses.......... 23,684 36,465 (3,779) 56,370
-------- -------- -------- --------
Loss from operations.............. (21,062) (32,014) 3,779 (49,297)
Other income (expense):
Interest income, net................. 1,313 -- -- 1,313
Other, net........................... 65 166 -- 231
-------- -------- -------- --------
Loss before provision for income (19,684) (31,848) 3,779 (47,753)
taxes
Provision for income taxes.............. -- -- -- -
-------- -------- -------- --------
Net loss.......................... $(19,684) $(31,848) $ 3,779 $(47,753)
======== ======== ======== ========
Loss per share:
Basic and diluted................. $ (1.33) $ (2.74)
======== ========
Weighted average common shares outstanding:
Basic and diluted................. 14,809 17,409
======== ========
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements
43
Note 1. Basis of Pro Forma Presentation
On March 23, 2002, Mobility and iGo entered into a merger agreement which
will result in iGo becoming a wholly-owned subsidiary of Mobility in a
transaction to be accounted for using the purchase method. The total estimated
purchase price of approximately $7,643,000 includes Mobility common stock valued
at $3,393,000, cash of $3,250,000 and estimated direct transaction costs of
$1,000,000. This estimated purchase price does not include $1,000,000 of cash
and 500,000 shares of Mobility common stock included in the merger
consideration, which will be held in escrow as contingent consideration pending
the outcome of certain criteria specified in the merger agreement, until one day
following the first anniversary date of the transaction effective time.
The unaudited pro forma condensed combined consolidated financial
statements provide for the issuance of 2,600,000 shares of Mobility common
stock, based upon an exchange ratio of 0.11859 of a share of Mobility common
stock for each share of iGo common stock as of September 3, 2002. This does not
include an additional 500,000 shares being held in escrow as described above.
The average market price per share of Mobility common stock of $1.305 is based
on an average of the closing prices for a range of trading days (March 21, March
22, March 25 and March 26, 2002) around the announcement date (March 23, 2002)
of the proposed merger.
The estimated total purchase price of the iGo merger is as follows (amounts
in thousands):
Cash consideration...................................... $ 3,250
Common stock............................................ 26
Additional paid-in capital.............................. 3,367
Direct acquisition costs................................ 1,000
-------
Total................................................ $ 7,643
=======
Under the purchase method of accounting, the total estimated purchase price
as shown in the table above is allocated to iGo's assets and assumed
liabilities. The excess purchase price over identified assets is shown as
goodwill. In accordance with FASB Statement No. 142, "Goodwill and Other
Intangible Assets", the Company will evaluate goodwill for impairment on an
annual basis. The preliminary estimated purchase price is allocated to the
assets acquired and liabilities assumed as follows (amounts in thousands):
Assets acquired and liabilities assumed:
Current assets.......................................... $ 5,480
Fixed assets............................................ 1,026
Other assets............................................ 449
Goodwill................................................ 3,720
Liabilities assumed..................................... (3,032)
-------
Total................................................ $ 7,643
=======
44
Note 2. Pro Forma Adjustments
Pro forma adjustments are necessary to allocate the estimated purchase
price to iGo's tangible and intangible assets and liabilities based on a
preliminary estimate of their fair values. The unaudited pro forma condensed
combined consolidated financial statements do not include any adjustments for
liabilities resulting from integration planning, as management of Mobility is
in the process of making these assessments, and estimates of these costs are not
currently known. However, liabilities ultimately will be recorded for severance
or relocation costs related to iGo employees, costs of vacating some facilities
of iGo, or other costs associated with exiting activities of iGo are not
reflected in the pro forma financial statements.
Mobility has not identified any preacquisition contingencies where the
related asset, liability or impairment is probable and the amount of the asset,
liability or impairment can be reasonably estimated. Prior to the end of the
purchase price allocation period, if information becomes available which would
indicate it is probable that such events have occurred and the amounts can be
reasonably estimated, such items will be included in the purchase price
allocation.
The pro forma adjustments included in the unaudited pro forma condensed
combined consolidated financial statements are as follows:
(a) Adjustment to record cash consideration of $3,250,000 to be paid to
iGo shareholders, and $1,850,000 to be paid for a settlement
agreement.
(b) Adjustment to reduce inventory by the amount of cellular product
inventory to be liquidated upon closing of the acquisition.
(c) Adjustment to reduce the historical amount of iGo's property and
equipment to estimated fair value.
(d) Adjustment to write off the historical amount of iGo intangible
assets, and to record an estimate of intangible assets with definite
lives acquired.
(e) Adjustment to reflect the preliminary estimate of the goodwill.
(f) Adjustment to record estimated direct acquisition costs.
(g) Adjustments to stockholders' equity (amounts in thousands):
To record the estimated value of Mobility shares
to be issued.......................................... $ 3,393
To eliminate iGo's historical stockholders' equity....... (6,986)
-------
Total................................................. $(3,593)
=======
(h) Adjustment to record a reduction in depreciation and amortization
expense resulting from the pro forma adjustment to property and
equipment and other assets proportional to the difference between
historical value and the allocated purchase price of iGo property and
equipment and other assets - see (c) and (d).
45
(i) Adjustments to general and administrative expenses (amounts in
thousands):
To eliminate amortization expense associated with
historical iGo goodwill, as iGo historical goodwill
has been written-off to zero value .................... $ (3,499)
To record a reduction in depreciation and amortization
expense resulting from the pro forma adjustment to
property and equipment and other assets proportional
to the difference between historical value and fair
value of iGo property and equipment and other assets
- see (c) and (d) ..................................... (280)
--------
Total............................................... $ (3,779)
========
Note 3. Impairment of Assets
As described in Note 16 to the iGo Corporation Consolidated Financial
Statements, during the fourth quarter of 2001, iGo recorded a write-down of
approximately $9,457,000 relating to the impairment of goodwill. No pro forma
adjustment relating to this asset impairment has been recorded.
Note 4. Pro Forma Loss Per Share
Pro forma basic and diluted loss per share are based on the weighted
average number of shares of Mobility common stock outstanding plus the
2,600,000 shares of Mobility common stock issued in exchange for the
outstanding shares of common stock of iGo.
46
INDEX TO EXHIBITS
<Table>
<Caption>
No. Description
--- -----------
23.1 Consent of Deloitte & Touche LLP
</Table>