UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission file number: 0-30907
MOBILITY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0843914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7955 EAST REDFIELD ROAD
SCOTTSDALE, ARIZONA 85260
(480) 596-0061
(Address and telephone number of principal executive offices)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
At November 12, 2002, there were 19,883,740 shares of the Registrant's
Common Stock outstanding.
MOBILITY ELECTRONICS, INC.
FORM 10-Q
TABLE OF CONTENTS
<Table>
<Caption>
PAGE NO.
--------
PART I: FINANCIAL INFORMATION 3
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2002
and 2001 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 27
CERTIFICATIONS 28
INDEX TO EXHIBITS 30
</Table>
-2-
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<Table>
<Caption>
September 30, December 31,
2002 2001
-------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,202 $ 14,753
Accounts receivable, net 7,668 6,035
Inventories 4,718 3,385
Prepaid expenses and other current assets 214 108
------------ ------------
Total current assets 18,802 24,281
------------ ------------
Property and equipment, net 2,210 1,869
Goodwill, net 7,336 5,627
Intangible assets, net 2,123 1,116
Other assets 340 2,144
------------ ------------
Total assets $ 30,811 $ 35,037
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,365 $ 3,540
Accrued expenses and other current liabilities 4,261 1,349
Current installments of capital lease obligations 21 --
------------ ------------
Total current liabilities 10,647 4,889
------------ ------------
Stockholders' equity:
Convertible preferred stock - Series C, $.01 par value;
authorized 15,000,000 shares; 554,379 (unaudited)
and 682,659 shares issued and outstanding at
September 30, 2002 and December 31, 2001,
respectively 6 7
Common stock, $.01 par value; authorized 90,000,000
shares; 19,443,548 (unaudited) and 15,128,641
shares issued and outstanding at September 30, 2002
and December 31, 2001, respectively 194 151
Additional paid-in capital 118,844 113,127
Accumulated deficit (97,050) (81,630)
Stock subscription and deferred compensation (1,858) (1,484)
Accumulated other comprehensive gain (loss) - foreign
currency translation adjustment 28 (23)
------------ ------------
Total stockholders' equity 20,164 30,148
------------ ------------
Total liabilities and stockholders' equity $ 30,811 $ 35,037
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
-3-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenue:
Net product sales $ 7,298 $ 6,990 $ 20,488 $ 20,971
Technology transfer fees 133 100 548 300
----------- ----------- ----------- -----------
Total revenue 7,431 7,090 21,036 21,271
Cost of revenue:
Product sales 5,760 6,669 15,985 19,490
Technology transfer -- -- -- --
----------- ----------- ----------- -----------
Total cost of revenue 5,760 6,669 15,985 19,490
----------- ----------- ----------- -----------
Gross profit 1,671 421 5,051 1,781
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 1,841 2,030 4,988 6,730
Research and development 2,261 1,542 4,673 4,747
General and administrative 2,249 4,419 5,697 8,490
----------- ----------- ----------- -----------
Total operating expenses 6,351 7,991 15,358 19,967
----------- ----------- ----------- -----------
Loss from operations (4,680) (7,570) (10,307) (18,186)
Other income (expense):
Interest income, net 176 286 577 1,097
Other income (expense), net 16 24 (63) 26
----------- ----------- ----------- -----------
Loss before provision for income taxes
and cumulative effect of change in accounting principle (4,488) (7,260) (9,793) (17,063)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Loss before cumulative effect of change in accounting principle (4,488) (7,260) (9,793) (17,063)
Cumulative effect of change in accounting principle -- (5,627) --
----------- ----------- ----------- -----------
Net loss $ (4,488) $ (7,260) $ (15,420) $ (17,063)
=========== =========== =========== ===========
Net loss per share -- basic and diluted:
Loss before cumulative effect of change in accounting principle $ (0.26) $ (0.49) $ (0.61) $ (1.16)
Cumulative effect of change in accounting principle -- -- (0.35) --
----------- ----------- ----------- -----------
$ (0.26) $ (0.49) $ (0.96) $ (1.16)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic and diluted 17,159 14,846 16,125 14,715
=========== =========== =========== ===========
</Table>
See accompanying notes to condensed consolidated financial statements.
-4-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<Table>
<Caption>
Nine months ended
September 30,
----------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (15,420) $ (17,063)
Adjustments to reconcile net loss to net cash used
in operating activities:
Goodwill impairment 5,627 --
In-process research and development 620 --
Provision for accounts receivable 46 7
Provision for obsolete inventory 644 2,950
Depreciation and amortization 866 1,252
Provision for note receivable -- 3,000
Amortization of deferred loan costs -- 9
Amortization of deferred compensation 314 571
Write off of tooling equipment 400 216
Non-cash compensation 51 --
Loss on disposal of fixed assets 41 --
Changes in operating assets and liabilities, net of
acquisition activities:
Accounts receivable 1,698 266
Inventories (700) (1,335)
Prepaid expenses and other assets (342) (946)
Accounts payable 1,371 (1,687)
Accrued expenses and other current liabilities (300) 184
------------ ------------
Net cash used in operating activities (5,084) (12,576)
------------ ------------
Cash flows from investing activities, net of acquisition activities:
Purchase of property and equipment (333) (1,167)
Proceeds from sale of investment 1,870 --
Proceeds from sale of fixed assets 25 --
Cash received in connection with acquisitions 1,073 --
Cash paid for acquisitions (6,145) --
Cash paid for note receivable -- (640)
Cash paid to exercise stock purchase warrant -- (764)
------------ ------------
Net cash used in investing activities (3,510) (2,571)
------------ ------------
Cash flows from financing activities:
Repayment of long-term debt and capital lease obligations (1) (34)
Cash paid for stock issuance costs (92) --
Net proceeds from issuance of common stock and exercise of warrants 85 4
------------ ------------
Net cash used in financing activities (8) (30)
------------ ------------
Effects of exchange rate changes on cash and cash equivalents 51 (28)
------------ ------------
Net decrease in cash and cash equivalents (8,551) (15,205)
Cash and cash equivalents, beginning of period 14,753 30,369
------------ ------------
Cash and cash equivalents, end of period $ 6,202 $ 15,164
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
-5-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Mobility Electronics, Inc. ("Mobility" or the "Company") which was
formerly known as Electronics Accessory Specialists International, Inc., and its
wholly-owned subsidiaries, Magma, Inc. ("Magma"), Portsmith, Inc. ("Portsmith"),
which includes Portsmith from February 1, 2002 (date of acquisition) and
Mobility 2001 Limited, Cutting Edge Software, Inc. ("Cutting Edge Software")
from August 20, 2002 (date of acquisition), and iGo Direct Corporation ("iGo")
from September 3, 2002 (date of acquisition). All significant intercompany
balances and transactions have been eliminated in the accompanying condensed
consolidated financial statements.
The accompanying condensed consolidated financial statements are unaudited
and have been prepared in accordance with accounting principles generally
accepted in the United States of America, pursuant to rules and regulations of
the Securities and Exchange Commission (the "SEC"). In the opinion of
management, the accompanying condensed consolidated financial statements include
normal recurring adjustments that are necessary for a fair presentation of the
results for the interim periods presented. Certain information and footnote
disclosures have been condensed or omitted pursuant to such rules and
regulations. These condensed consolidated financial statements should be read in
conjunction with our audited consolidated financial statements and notes thereto
for the fiscal year ended December 31, 2001 included in our Form 10-K/A, filed
with the SEC. The results of operations for the three and nine months ended
September 30, 2002 are not necessarily indicative of results to be expected for
the full year or any other period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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 a number of estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to bad debts, inventories, warranty
obligations, and contingencies and litigation. The Company bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes its critical accounting policies, consisting of
revenue recognition, accounts receivable, inventories, recovery of intangible
assets, warranty costs, and deferred income taxes affect its more significant
judgments and estimates used in the preparation of its consolidated financial
statements. These policies are discussed below.
(b) Principles of Consolidation
The consolidated financial statements for the three and nine months ended
September 30, 2002 include the accounts of Mobility and its wholly-owned
subsidiaries, Magma, Portsmith, which includes Portsmith from February 1, 2002
(date of acquisition) and Mobility 2001 Limited, Cutting Edge Software from
August 20, 2002 (date of acquisition) and iGo from September 3, 2002 (date of
acquisition). The consolidated financial statements for the three and nine
months ended September 30, 2001 include the accounts of Mobility and its
wholly-owned subsidiaries, Magma and Portsmith. All significant intercompany
balances and transactions have been eliminated in consolidation.
(c) Revenue Recognition
Revenue from product sales is recognized upon shipment and transfer of
ownership from the Company or contract manufacturer to the customer. Allowances
for sales returns and credits are provided for in the same period the related
sales are recorded. Should the actual return or sales credit rates differ from
the Company's estimates, revisions to the estimated allowance for sales returns
and credits may be required.
-6-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue from technology transfer fees, consisting of the licensing and
transferring of Split Bridge(R) and other technology and architecture, and
related training and implementation support services, is recognized over the
term of the respective sales or license agreement. Certain license agreements
contain no stated termination date, whereby the Company recognizes the revenue
over the estimated life of the license. Should the actual life differ from the
estimates, revisions to the estimated life may be required.
(d) Cash and Cash Equivalents
All short-term investments purchased with an original maturity of three
months or less are considered to be cash equivalents. Cash and cash equivalents
include cash on-hand and amounts on deposit with financial institutions.
(e) Accounts receivable
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of the Company's customers to make required
payments. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
(f) Inventories
Inventories consist of finished goods and component parts purchased
partially and fully assembled for computer accessory items. The Company has all
normal risks and rewards of its inventory held by contract manufacturers.
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories include material and overhead costs. Overhead costs are
allocated to inventory based upon a percentage of material costs. The Company
monitors usage reports to determine if the carrying value of any items should be
adjusted due to lack of demand for the items. The Company adjusts down the
inventory for estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation on furniture,
fixtures and equipment is provided using the straight-line method over the
estimated useful lives of the assets ranging from two to seven years. Tooling is
capitalized at cost and is depreciated over a two-year period. Leasehold
improvements are amortized over the shorter of the lease term or estimated
useful lives of the assets.
(h) Goodwill and Intangible Assets
In July 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets ("Statement 142"). Statement 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. The Company adopted the provisions of Statement 142
effective January 1, 2002. Under Statement 142, the Company is required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 requires the Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities
-7-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
in a manner similar to a purchase price allocation, to its carrying amount, both
of which would be measured as of the date of adoption. This second step is
required to be completed as soon as possible, but no later than the end of the
year of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the statement of
operations.
Intangible assets include the cost of patents, trademarks and non-compete
agreements, as well as identifiable intangible assets acquired through business
combinations including trade names, customer lists and software technology.
Intangible assets are amortized on a straight-line basis over their estimated
economic lives of two to 10 years.
(i) Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(j) Warranty Costs
The Company provides limited warranties on certain of its products for
periods generally not exceeding three years. The Company accrues for the
estimated cost of warranties at the time revenue is recognized. The accrual is
based on the Company's actual claim experience. Should actual warranty claim
rates, or service delivery costs differ from our estimates, revisions to the
estimated warranty liability would be required.
(k) Net Loss Per Common Share
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted loss per share reflects the potential dilution that could occur
if securities or contracts to issue common stock were exercised or converted to
common stock or resulted in the issuance of common stock that then shared in the
earnings or loss of the Company.
(l) Fair value of Financial Instruments
The fair value of accounts receivable, accounts payable, and accrued
expenses approximates the carrying value due to the short-term nature of these
instruments.
(m) Research and Development
The cost of research and development is charged to expense as incurred.
(n) Foreign Currency Translation
The financial statements of the Company's foreign subsidiary are measured
using the local currency as the functional currency. Assets and liabilities of
this subsidiary are translated at exchange rates as of the balance sheet date.
Revenues and expenses are translated at average rates of exchange in effect
during the year. The resulting cumulative translation adjustments have been
recorded as comprehensive income (loss), a separate component of stockholders'
equity.
(o) Segment Reporting
The Company has only one operating business segment, the sale of peripheral
computer equipment.
(p) Reclassifications
Certain amounts included in the 2001 condensed consolidated financial
statements have been reclassified to conform to the 2002 financial statement
presentation.
-8-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. ACQUISITIONS
(a) Portsmith
As of February 1, 2002, the Company acquired Portsmith, Inc. through a
merger of Portsmith with the Company's subsidiary, Mobility Europe Holdings,
Inc., now Portsmith, Inc. Portsmith provides connectivity solutions for handheld
computing devices. Under the terms of the merger agreement, the Company issued
800,000 shares of its common stock, valued at $1.35 per common share, to the
former Portsmith stockholders of which 400,000 shares are held in escrow,
including 53,646 shares held for Richard C. Liggitt. The release of the escrowed
shares to the former Portsmith stockholders is contingent upon certain
performance criteria of Portsmith during the first year after the acquisition.
In addition, earn out payments may be made to the former Portsmith stockholders
depending upon Portsmith's performance during the first year after the
acquisition.
Richard C. Liggitt, a former stockholder of Portsmith, filed a claim
against Portsmith alleging (a) fraud in connection with merger negotiations that
led to the execution of a merger agreement between a company owned by Mr.
Liggitt and Portsmith, (b) wrongful termination of his employment with
Portsmith, and (c) breach of the implied covenant of good faith and fair dealing
under his employment agreement with Portsmith. The parties have reached a
settlement and are awaiting approval of the settlement from the court. The
settlement will not be effective unless that approval is obtained.
Under the terms of the settlement, the Company will pay Mr. Liggitt an
aggregate of $1,000,000 (the "Settlement Amount") in exchange for a settlement
and release of all claims and a cancellation of all of Mr. Liggitt's rights as a
former shareholder of Portsmith under the merger agreement between the Company
and Portsmith, including, but not limited to, the 53,647 shares of the Company's
common stock Mr. Liggitt received in connection with the merger, the 53,646
shares of the Company's common stock currently held in escrow that Mr. Liggitt
may otherwise be entitled to receive and Mr. Liggitt's share in any potential
earn-out payments. Of the Settlement Amount, $10,000 will be paid upon approval
of the settlement by the court and $990,000 will be paid in the form of a
convertible subordinated promissory note bearing interest at four percent per
year, payable in quarterly installments of principal and interest beginning in
January 2003, through December 2005. The outstanding principal of the promissory
note may be converted by Mr. Liggitt at any time into shares of the Company's
common stock, at a conversion price of $3.00 per share. In connection with this
settlement, the potential earn-outs under the merger agreement between the
Company and Portsmith will be reduced by $480,000, plus a certain additional
amount for fees and expenses and a tax settlement, and Mr. Liggitt's share of
the potential earn-puts will be eliminated.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed, based upon the estimated fair values at the date of acquisition.
Goodwill of $773,000 was recorded as a result of the transaction.
The purchase price of $540,000, plus acquisition costs of $132,000, was
allocated as follows (amounts in thousands):
<Table>
Purchase price:
Common stock ................................. $ 540
Costs of acquisition ......................... 132
------------
$ 672
============
Assets acquired and liabilities assumed:
Current assets ............................... $ 2,195
Equipment .................................... 31
Other assets ................................. 15
Goodwill ..................................... 773
Current liabilities .......................... (2,342)
------------
$ 672
============
</Table>
-9-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(b) Cutting Edge Software
As of August 20, 2002, the Company acquired Cutting Edge Software, Inc.
through a merger of Cutting Edge Software with the Company's subsidiary, CES II
Acquisition, Inc., now Cutting Edge Software, Inc. Cutting Edge Software
provides software solutions for handheld computing devices. Under the terms of
the merger agreement, the Company paid cash of $1,547,500 and issued 796,394
shares of its common stock, valued at $1.8835 per common share, to the former
Cutting Edge Software stockholder. In addition, earn out payments may be made to
such stockholder depending upon Cutting Edge Software's performance during each
of the five years following the acquisition date.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed, based upon the estimated fair values at the date of acquisition.
Goodwill of $1,958,000 was recorded as a result of the transaction.
The purchase price of $3,047,500, plus acquisition costs of $221,000, was
allocated as follows (amounts in thousands):
<Table>
Purchase price:
Cash .................................... $ 1,548
Common stock ............................ 1,500
Costs of acquisition .................... 221
------------
$ 3,269
============
Assets acquired and liabilities assumed:
Current assets .......................... $ 123
Equipment ............................... 48
Intangible assets ....................... 643
Goodwill ................................ 1,958
Current liabilities ..................... (123)
In-process research and development ..... 620
------------
$ 3,269
============
</Table>
The Company recorded $620,000 in expense during the three months ended
September 30, 2002 relating to in-process research and development acquired from
Cutting Edge Software.
(c) iGo
On September 3, 2002, the Company completed its acquisition of iGo
Corporation, as announced on March 25, 2002 and as amended on July 18, 2002,
through the merger of iGo Corporation with the Company's subsidiary, IGOC
Acquisition, Inc., now iGo Direct Corporation. iGo is a direct marketer of
computer peripheral equipment. Under the terms of the merger agreement, the
Company paid cash of $3,250,000 and issued 2,600,000 shares of its common stock,
valued at $1.305 per common share, to the former iGo stockholders. Additional
consideration of $1,000,000 and 500,000 shares of the Company's common stock may
also be paid to the former iGo stockholders on the first anniversary date of the
merger, the payment of which is contingent upon certain performance criteria.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed, based upon the estimated fair values at the date of acquisition.
Goodwill of $4,605,000 was recorded as a result of the transaction.
-10-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The purchase price of $6,643,000, plus acquisition costs of $994,000, was
allocated as follows (amounts in thousands):
<Table>
Purchase price:
Cash ....................................... $ 3,250
Common stock ............................... 3,393
Costs of acquisition ....................... 994
------------
$ 7,637
============
Assets acquired and liabilities assumed:
Current assets ............................. $ 3,503
Equipment .................................. 893
Intangible assets .......................... 411
Other assets ............................... 38
Goodwill ................................... 4,605
Current liabilities ........................ (2,220)
Loan to stockholder ........................ 407
------------
$ 7,637
============
</Table>
The consolidated financial statements as of September 30, 2002 include the
accounts of Portsmith, Cutting Edge Software and iGo and results of operations
since the dates of acquisition. The following summary, prepared on a pro forma
basis, presents the results of operations as if the acquisitions had occurred on
January 1, 2001 (unaudited amounts in thousands, except per share data).
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net revenue $ 9,716 $ 14,016 $ 34,018 $ 49,360
============ ============ ============ ============
Net loss $ (7,494) $ (12,145) $ (24,381) $ (34,056)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.39) $ (0.65) $ (1.27) $ (1.84)
============ ============ ============ ============
</Table>
The pro forma results are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisitions had been
effective at the beginning of 2001 or as a projection of future results.
4. INVENTORIES
Inventories consist of the following (amounts in thousands):
<Table>
<Caption>
September 30, December 31,
2002 2001
------------ ------------
Raw materials $ 2,136 $ 1,494
Finished goods 2,582 1,891
------------ ------------
$ 4,718 $ 3,385
============ ============
</Table>
5. GOODWILL AND INTANGIBLE ASSETS
On January 1, 2002, the Company adopted Statement 142. 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.
-11-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Statement 142 also requires the completion of the transitional impairment
test of the recorded goodwill as of the date this accounting standard is
adopted. The Company completed the first step of the transitional impairment
test during the quarter ended June 30, 2002, noting an indication of impairment
associated with the recorded goodwill balance of $5,627,000 as of January 1,
2002. As part of the transitional impairment test, the Company identified one
reporting unit within its one operating business segment. The Company completed
the second step of the transitional impairment test during the quarter ended
September 30, 2002. The Company has recorded a goodwill impairment loss of
$5,627,000 as a result of completing its transitional impairment test, and has
recognized this loss as the effect of a change in accounting principle as of
January 1, 2002 in accordance with Statement 142. This impairment loss 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 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 Statement 142, the Company
reassessed previously recognized intangible assets and determined their
classification and useful lives were appropriate.
As a result of the acquisitions of Portsmith, Cutting Edge Software and
iGo, the Company has recorded goodwill of $7,336,000 during 2002. In accordance
with Statement 142, the Company will evaluate this goodwill for impairment as of
December 31, 2002. This evaluation may lead to the write down of all or a
portion of the currently recorded goodwill.
Goodwill consists of the following at September 30, 2002 and December 31,
2001 (amounts in thousands):
<Table>
<Caption>
September 30, December 31,
2002 2001
------------- -------------
Aggregate amount acquired $ 13,739 $ 6,403
Less accumulated amortization recognized prior to adoption of Statement 142 (776) (776)
Impairment loss recognized as a result of transitional goodwill impairment test (5,627) --
------------- -------------
Net carrying amount $ 7,336 $ 5,627
============= =============
</Table>
The changes in the carrying amount of goodwill follows (amounts in
thousands):
<Table>
Reported balance at December 31, 2001 $ 5,627
Additional goodwill from acquisition of Portsmith 773
Additional goodwill from acquisition of Cutting Edge Software 1,958
Additional goodwill from acquisition of iGo 4,605
Impairment loss recognized as a result of transitional goodwill
impairment test (5,627)
------------
$ 7,336
============
</Table>
The following table presents prior year loss and loss per share as if the
non-amortization provisions of Statement 142 had been applied in the prior
periods (amounts in thousands, except per share data).
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Reported net loss $ (4,488) $ (7,260) $ (15,420) $ (17,063)
Add back goodwill amortization -- 155 -- 465
------------ ------------ ------------ ------------
Adjusted net loss $ (4,488) $ (7,105) $ (15,420) $ (16,598)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss per share $ (0.26) $ (0.49) $ (0.96) $ (1.16)
Add back goodwill amortization -- 0.01 -- 0.03
------------ ------------ ------------ ------------
Adjusted loss per share $ (0.26) $ (0.48) $ (0.96) $ (1.13)
============ ============ ============ ============
</Table>
-12-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Intangible assets consist of the following at September 30, 2002 and
December 31, 2001 (amounts in thousands):
<Table>
<Caption>
September 30, 2002 December 31, 2001
-------------------------------------- --------------------------------------
Average Gross Net Gross Net
Life Carrying Accumulated Intangible Carrying Accumulated Intangible
(Years) Amount Amortization Assets Amount Amortization Assets
------- -------- ------------ ---------- -------- ------------ ----------
Amortized intangible assets:
License fees 4 $ 811 $ (223) $ 588 $ 761 $ (85) $ 676
Patents and trademarks 3 799 (383) 416 616 (204) 412
Non-compete agreements 2 159 (80) 79 75 (47) 28
Software 5 600 (10) 590 -- -- --
Trade names 10 378 (3) 375 -- -- --
Customer list 10 76 (1) 75 -- -- --
-------- ------------ ---------- -------- ------------ ----------
Total $ 2,823 $ (700) $ 2,123 $ 1,452 $ (336) $ 1,116
======== ============ ========== ======== ============ ==========
</Table>
Aggregate amortization expense for identifiable intangible assets totaled
$145,000 and $364,000 for the three and nine months ended September 30, 2002,
respectively and $33,000 and $77,000 for the three and nine months ended
September 30, 2001, respectively. Estimated amortization expense for each of the
five succeeding years ended December 31 is as follows (amounts in thousands):
<Table>
2003 $ 642
2004 327
2005 207
2006 191
2007 151
</Table>
6. LINE OF CREDIT
In October 2002, the Company entered into a $10,000,000 line of credit with
a bank. The line bears interest at prime plus 0.5% (5.25% at September 30,
2002), interest only payments due monthly, with final payment of interest and
principal due on July 31, 2004. The line of credit is secured by all assets of
the Company. The Company has not drawn against the line of credit as of
September 30, 2002. The line of credit is subject to financial covenants. The
Company was not in compliance with certain covenants as of September 30, 2002.
7. STOCKHOLDERS' EQUITY
(a) Preferred Stock
The Series C preferred stock is convertible into shares of common stock.
The initial conversion rate was one for one, but was subject to change if
certain events occur. Generally, the conversion rate will be adjusted if the
Company issues any non-cash dividends on outstanding securities, splits its
securities or otherwise effects a change to the number of its outstanding
securities. The conversion rate will also be adjusted if the Company issues
additional securities at a price that is less than the price that the Series C
preferred stockholders paid for their shares. Such adjustments will be made
according to certain formulas that are designed to prevent dilution of the
Series C preferred stock. The Series C preferred stock can be converted at any
time at the option of the holder, and will convert automatically, immediately
prior to the consummation of a firm commitment public offering of common stock
pursuant to a registration statement filed with the Securities and Exchange
Commission having a per share price equal to or greater than $24.00 per share
and a total gross offering amount of not less than $15,000,000. The rate of
conversion was 1-to-0.9266 as of September 30, 2002.
The Company may not pay any cash dividends on its common stock while any
Series C preferred stock remains outstanding without the consent of the Series C
preferred stockholders. Holders of Series C preferred stock are entitled to vote
on all matters submitted for a vote of the holders of common stock. Holders will
be entitled to one vote for each share of common stock into which one share of
Series C preferred stock could then be converted. In the event of liquidation or
dissolution, the holders of Series C preferred stock will be entitled to receive
the amount they paid for their stock, plus accrued and unpaid dividends out of
the Company's assets legally available for such payments prior to the holders of
securities junior to the Series C preferred stock receiving payments.
-13-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the period from December 31, 2001 through September 30, 2002,
128,280 shares of Series C preferred stock were converted into 99,210 shares of
common stock at a rate of 1-to-0.70220 for conversions through February 20,
2002, at a rate of 1-to-0.74385 for those conversions beginning February 21,
2002 and through May 6, 2002, at a rate of 1-to-0.7548 for those conversions
beginning May 7, 2002 and through August 19, 2002, at a rate of 1-to-0.79145 for
those conversions beginning August 20, 2002 and through September 2, 2002, and
at a rate of 1-to-0.9266 for those conversions beginning September 3, 2002 and
thereafter.
(b) Common Stock
Holders of shares of common stock are entitled to one vote per share on all
matters submitted to a vote of the Company's stockholders. There is no right to
cumulative voting for the election of directors. Holders of shares of common
stock are entitled to receive dividends, if and when declared by the board of
directors, out of funds legally available therefor, after payment of dividends
required to be paid on any outstanding shares of preferred stock. Upon
liquidation, holders of shares of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to the liquidation
preferences of any outstanding shares of preferred stock. Holders of shares of
common stock have no conversion, redemption or preemptive rights.
8. NET LOSS PER SHARE
The computation of basic and diluted net loss per share follows (amounts in
thousands, except per share data):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Loss before cumulative effect of change in accounting principle $ (4,488) $ (7,260) $ (9,793) $ (17,063)
Cumulative effect of change in accounting principle -- -- (5,627) --
------------ ------------ ------------ ------------
Net loss $ (4,488) $ (7,260) $ (15,420) $ (17,063)
============ ============ ============ ============
Weighted average common shares outstanding - basic and diluted 17,159 14,846 16,125 14,715
============ ============ ============ ============
Net loss per share - basic and diluted
Loss before cumulative effect of change in accounting principle $ (0.26) $ (0.49) $ (0.61) $ (1.16)
Cumulative effect of change in accounting principle -- -- (0.35) --
------------ ------------ ------------ ------------
$ (0.26) $ (0.49) $ (0.96) $ (1.16)
============ ============ ============ ============
</Table>
The following table summarizes securities outstanding which were not
included in the calculation of diluted net loss per share since their inclusion
would be antidilutive:
<Table>
<Caption>
September 30,
-----------------------------
2002 2001
------------- -------------
Stock options and warrants 2,858,704 1,446,641
============= =============
Convertible preferred stock 554,379 695,826
============= =============
</Table>
-14-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Two customers accounted for 22% and 20% of total revenue of the Company for
the nine months ended September 30, 2002. Two customers accounted for 30% and
26% of total revenue of the Company for the nine months ended September 30,
2001.
Export sales were approximately 17% and 32% of the Company's total revenues
for the nine months ended September 30, 2002 and 2001, respectively. The
principal international market served by the Company was Europe.
10. CONTINGENCIES AND LITIGATION
The Company is involved in various claims and legal actions in the ordinary
course of business. In the opinion of management, based on consultation with
legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity. Accordingly, the accompanying condensed consolidated
financial statements do not include a provision for losses, if any, that might
result from the ultimate disposition of these matters.
11. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("Statement 143"). Statement 143 requires the Company to
record the fair value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. The Company also records a
corresponding asset which is depreciated over the life of the asset. Subsequent
to the initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. The
Company is required to adopt Statement 143 on January 1, 2003. The adoption of
Statement 143 is not expected to have a material impact on the Company's
consolidated financial statements.
In April 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections ("Statement 145"), which addresses financial accounting and
reporting for reporting gains and losses from extinguishment of debt, accounting
for intangible assets of motor carriers and accounting for leases. Statement 145
requires that gains and losses from early extinguishment of debt should not be
classified as extraordinary, as previously required. Statement 145 also rescinds
Statement 44, which was issued to establish accounting requirements for the
effects of transition to the provisions of the Motor Carrier Act of 1980 (Public
Law 96-296, 96th Congress, July 1, 1980). Those transitions are completed;
therefore, Statement 44 is no longer necessary. Statement 145 also amends
Statement 13 to require sale-leaseback accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. Statement 145 also makes various technical corrections to existing
pronouncements. Those corrections are not substantive in nature. The provisions
of this statement relating to Statement 4 are applicable in fiscal years
beginning after May 15, 2002. The provisions of this Statement related to
Statement 13 are effective for transactions occurring after May 15, 2002. All
other provisions of this statement are effective for financial statements issued
on or after May 15, 2002. The adoption of Statement 145 is not expected to have
a material impact on the Company's consolidated financial statements.
In June 2002, the FASB issued Statement No. 146, Accounting for Exit or
Disposal Activities ("Statement 146"). Statement 146 addresses the recognition,
measurement and reporting of costs associated with exit and disposal activities,
including restructuring activities. Statement 146 also addresses recognition of
certain costs related to terminating a contract that is not a capital lease,
costs to consolidate facilities or relocate employees and termination of
benefits provided to employees that are involuntarily terminated under the terms
of a one-time benefit arrangement that is not an ongoing benefit arrangement or
an individual deferred compensation contract. Statement 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. The
Company is in the process of evaluating the adoption of Statement 146 and its
impact on the financial position or results of operations of the Company.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following:
- loss of, and failure to replace, any significant customers;
- timing and success of new product introductions;
- product developments, introductions and pricing of competitors;
- timing of substantial customer orders;
- availability of qualified personnel;
- performance of suppliers and subcontractors;
- market demand and industry and general economic or business
conditions;
- other factors to which this report refers.
The following discussion and analysis of our financial condition and
results of operations should be read together with our condensed consolidated
financial statements and notes thereto contained in this report.
OVERVIEW
The Company designs, develops and markets power, connectivity, and
accessory products and solutions for the mobile computing user. This includes
(1) universal docking products and remote peripheral component interface, or PCI
bus, technology and products using our proprietary PCI expansion and Split
Bridge(R) technologies, (2) batteries and various AC and DC power adapters which
allow the user to power a notebook computer in an office, a home, a car, an
airplane, or a boat, (3) a variety of cradle and connectivity products for
handheld devices, and (4) a variety of accessories for portable computers such
as monitor stands, travel adapters, and the like. To date, our revenues have
come predominantly from monitor stands, handheld connectivity products, in
air/in car chargers and expansion products. We expect revenues from those
products to continue and also expect to see increasing revenues primarily from
current and new power and handheld products and solutions as we further expand
our markets and distribution channels for these products.
We sell our products to OEMs, distributors, resellers, retailers, and
end-users. A substantial portion of our net product sales is concentrated among
a number of OEMs, including Symbol, Gateway, Hewlett-Packard, IBM, NEC, and
Toshiba. A portion of our sales to IBM are made through Kingston Technologies,
who acts as their fulfillment hub manager for sales in the United States and
Malaysia. Direct sales to OEMs accounted for approximately 69% of net product
sales for the nine months ended September 30, 2002 and approximately 75% of net
product sales for the nine months ended September 30, 2001. We expect that we
will continue to be dependent upon a number of OEMs for a significant portion of
our net product sales in future periods, although no OEM is presently obligated
to purchase a specified amount of products. Effective December 2001, we came to
an agreement with Targus to terminate their distribution of our products, as it
is our intention to market products previously sold through Targus under our own
brand directly through our other distribution channels.
A portion of our sales to distributors and resellers is generally under
terms that provide for certain stock balancing return privileges and price
protection. Accordingly, we make a provision for estimated sales returns and
other allowances related to those sales. Returns, which have been netted in the
product sales presented herein, were approximately 5% of net product sales for
the nine months ended September 30, 2002 and 2001, respectively. The major
distributors are allowed to return up to 20% of their prior quarter's purchases
under the stock balancing programs, provided that they place a new order for
equal or greater dollar value of the stock balancing return.
We derive a material portion of our net product sales outside the United
States, principally in France, Germany and the United Kingdom. International
sales accounted for approximately 17% of our net product sales for the nine
months ended September 30, 2002. We expect product sales outside the United
States to continue to account for a large portion of our future net product
sales. International sales are generally denominated in the currency of our
foreign customers. A decrease in the value of foreign currencies relative to the
U.S. dollar could result in a significant decrease in U.S. dollar sales received
by us for our international sales.
Various factors have in the past affected and may continue in the future to
affect our gross profits, including but not limited to, our product mix, lower
volume production and higher fixed costs for newly introduced product platforms
and technologies, market acceptance of newly introduced products and the
position of our products in their respective lifecycles. The initial stages of
our product introductions are generally characterized by lower volume
production, which is accompanied by higher costs, especially for specific
products, which are initially purchased in small volumes during the development
lifecycle.
-16-
We have experienced significant operating losses since inception and, as of
September 30, 2002, we have an accumulated deficit of approximately $97.1
million. These accumulated losses have resulted in decreases in cash and cash
equivalents. If we do not achieve continued revenue growth sufficient to absorb
our recent and planned expenditures, we could experience additional losses and
corresponding decreases in cash and cash equivalents in future periods,
including the remainder of 2002.
Operating expenses for the nine months ended September 30, 2002 totaled
$15.4 million as compared to $20.0 million for the nine months ended September
30, 2001. We anticipate that in the future we will make additional investments
in our sales and marketing activities and, as a result, operating expenses will
increase. We intend to make such investments on an ongoing basis, from cash
generated from operations and, if available, from lines of credit and other
sources of financing, as we develop and introduce new products and expand into
new markets. We expect that such increases in spending will result in increases
in revenues and resulting gross profits, which should result in turning our net
losses into net profits.
Recent general economic conditions have contributed to a slow down in sales
of computers and computer-related products and accessories. This economic slow
down has had a negative impact on our revenues. If we are not able to grow
revenues in future periods, we are likely to continue to incur net losses and
our cash equivalents are likely to continue to decrease.
In October 2000, we acquired all of the assets of Mesa Ridge Technologies,
Inc. d/b/a MAGMA, a privately held company. MAGMA provides a range of PCI
expansion products for the computer industry which utilize traditional PCI
bridge technology and MAGMA's patented expansion technology. The acquisition of
MAGMA solidified Mobility's market leadership position in the PCI expansion
business by providing products, distribution channels, key customers, and
additional resources that can leverage our Split Bridge(R) technology and
accelerate our growth and development in this market segment.
In February 2002, we acquired Portsmith, Inc., an industry leader in
providing connectivity solutions for handheld computing devices. This
acquisition provides us with an entrance into the rapidly growing handheld
computing device market and reinforces our focus on delivering powerful mobile
computing solutions. Portsmith currently provides a range of Ethernet, modem,
and other connectivity products for the most popular handheld devices such as
Palm, Handspring Visor, Compaq IPAQ, and other mainstream PDA products, and
intends to undertake a number of important product development programs that
expand on these solutions.
In August 2002, we acquired Cutting Edge Software, Inc., a leading
developer and provider of software solutions for handheld computing devices.
Cutting Edge Software currently provides software that allows users of Palm
operating system devices to utilize popular word processing, spreadsheet and
presentation programs. Cutting Edge Software has also developed software that
allows users to remotely access files stored on a desktop computer from a
wireless PDA or smartphone. This acquisition, in conjunction with the Portsmith
acquisition, enhances our product and service offering within the rapidly
growing wireless handheld computing device market.
In September 2002, we acquired iGo Corporation (now iGo Direct
Corporation), a leading computer solutions provider. iGo distributes its
products through distributors and directly through its catalog and internet
channels, and is a well-recognized brand name in the portable computer power
products and accessories market. We believe the acquisition of iGo will broaden
our revenue base and substantially strengthen our distribution capabilities and
brand identity.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make a number of estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to bad debts, inventories, warranty
obligations, and contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment and transfer of
ownership from us or our contract manufacturer to the customer. Allowances for
sales returns and credits are provided for in the same period the related sales
are recorded. Should the actual return or sales credit rates differ from our
estimates, revisions to the estimated allowance for sales returns and credits
may be required.
Revenue from technology transfer fees, consisting of the licensing and
transferring of Split Bridge(R) and other technology and architecture, and
related training and implementation support services, is recognized over the
term of the respective sales or license agreement. Certain license agreements
contain no stated termination date, whereby we recognize the revenue over
-17-
the estimated life of the license. Should the actual life differ from the
estimates, revisions to the estimated life may be required.
Our recognition of revenues from product sales to distributors and
retailers (the "distribution channel") is affected by agreements we have giving
certain customers rights to return our product at any time after purchase. We
also have agreements with certain customers that allow them to receive credit
for subsequent price reductions ("price protection"). At the time we recognize
revenue, upon shipment and transfer of ownership, we reduce our measurements of
those sales and the related cost of sales by our estimates of future returns and
price protection. We also reduce our measurements of accounts receivable by the
estimated profit margins associated with returns (i.e., sales price less cost of
sales).
For our products, a historical correlation exists between the amount of
distribution channel inventory and the amount of returns that actually occur.
The greater the distribution channel inventory, the more product returns we
expect. For each of our products, we monitor levels of product sales and
inventory at our distributors' warehouses and at retailers as part of our effort
to reach an appropriate accounting estimate for returns. In estimating returns,
we analyze historical returns, current inventory in the distribution channel,
current economic trends, changes in consumer demand, introduction of new
competing products, and acceptance of our products.
In recent years, as a result of a combination of the factors described
above, we have reduced our gross sales to reflect our estimated amounts of
returns and price protection. It is also possible that returns could increase
rapidly and significantly in the future. Accordingly, estimating product returns
requires significant management judgment. In addition, different return
estimates that we reasonably could have used would have had a material impact on
our reported sales and thus have had a material impact on the presentation of
the results of operations. For those reasons, we believe that the accounting
estimate related to product returns and price protection is a "critical
accounting estimate".
For the nine months ended September 30, 2002, gross sales to the
distribution channel accounted for approximately 11% of net product sales.
Accordingly, in preparing our financial statements as of September 30, 2002, we
estimated future product returns for sales into the distribution channel to be
approximately 9% of gross sales into the distribution channel for the nine
months ended September 30, 2002. This estimate has increased from previous
estimates as a result of the acquisition of iGo products sold into the
distribution channel.
GOODWILL
In conjunction with the implementation of the new accounting rules for
goodwill, we performed a goodwill impairment evaluation relating the goodwill
that was recorded as of December 31, 2001. Based on the results of that
impairment evaluation, we determined the recorded goodwill at December 31, 2001
of approximately $5.6 million was fully impaired. We recorded the impairment
write-down as a cumulative effect of change in accounting principle in
accordance with the new accounting standard.
As a result of our recent acquisitions of Portsmith, Cutting Edge Software
and iGo we have recorded additional goodwill of approximately $7.3 million. In
accordance with the new accounting rules, we will evaluate the newly acquired
goodwill for impairment as of December 31, 2002. This evaluation may lead to the
write down of all or a portion of the recorded goodwill in the fourth quarter of
2002.
The impairment evaluation process is based on both a discounted future cash
flow approach and a market comparable approach. The discounted cash flow
approach uses our estimates of future market growth rates, market share,
revenues and costs, as well as appropriate discount rates. If we fail to achieve
our assumed revenue growth rates or assumed gross margin, we may incur charges
for impairment of goodwill in the future. For these reasons, we believe that the
accounting estimate related to goodwill impairment is a "critical accounting
estimate".
-18-
RESULTS OF OPERATIONS
The following table presents certain selected consolidated financial data
for the periods indicated expressed as a percentage of total revenue:
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
Unaudited Unaudited
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenue:
Net product sales 98.2% 98.6% 97.4% 98.6%
Technology transfer 1.8% 1.4% 2.6% 1.4%
------------ ------------ ------------ ------------
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue:
Product sales 77.5% 94.1% 76.0% 91.6%
Technology transfer 0.0% 0.0% 0.0% 0.0%
------------ ------------ ------------ ------------
Total cost of revenue 77.5% 94.1% 76.0% 91.6%
------------ ------------ ------------ ------------
Gross profit 22.5% 5.9% 24.0% 8.4%
Operating expenses:
Sales and marketing 24.8% 28.6% 23.7% 31.6%
Research and development 30.4% 21.7% 22.2% 22.3%
General and administrative 30.3% 62.3% 27.1% 39.9%
------------ ------------ ------------ ------------
Total operating expenses 85.5% 112.6% 73.0% 93.8%
------------ ------------ ------------ ------------
Loss from operations (63.0)% (106.7)% (49.0)% (85.4)%
Other income (expense):
Interest, net 2.4% 4.0% 2.7% 5.2%
Other, net 0.2% 0.3% (0.3)% 0.0%
------------ ------------ ------------ ------------
Loss before provision for income taxes
and cumulative effect of change in accounting principle (60.4)% (102.4)% (46.6)% (80.2)%
Provision for income taxes 0.0% 0.0% 0.0% 0.0%
------------ ------------ ------------ ------------
Loss before cumulative effect of change
in accounting principle (60.4)% (102.4)% (46.6)% (80.2)%
Cumulative effect of change in accounting principle 0.0% 0.0% (26.7)% 0.0%
------------ ------------ ------------ ------------
Net loss (60.4)% (102.4)% (73.3)% (80.2)%
============ ============ ============ ============
</Table>
Comparison of Three Months Ended September 30, 2002 and 2001
Net product sales. Net product sales consist of sales of product, net of
returns and allowances. We recognize sales at the time goods are shipped and the
ownership of the goods is transferred to the customer. Allowances for returns
and credits are made in the same period the related sales are recorded. Net
product sales increased 4.4% to $7.3 million for the three months ended
September 30, 2002 from $7.0 million for the three months ended September 30,
2001. The increase was primarily attributable to sales of approximately $3.9
million from recently acquired subsidiaries Portsmith, Cutting Edge Software and
iGo. This increase was largely offset by decreases primarily attributable to a
reduction in sales of power products to Targus, as a result of the termination
of our relationship with Targus in December 2001.
Technology transfer fees. Technology transfer fees consist of revenue from
the licensing and transferring by the Company of its Split Bridge(R) and
handheld docking cradle technology and architecture. Revenue from technology
transfer fees is recognized ratably over the term of the sales agreement. During
the three months ended September 30, 2002, the Company recognized a technology
transfer fee of $133,000 or 1.8% of total revenue. Technology transfer fees
represented revenue of $100,000, or 1.4% of total revenues, for the three months
ended September 30, 2001.
Cost of revenue - product sales. Cost of revenue - product sales consists
primarily of costs associated with components, outsourced manufacturing and
in-house labor associated with assembly, testing, packaging, shipping and
quality assurance, and depreciation of equipment and indirect manufacturing
costs. Cost of revenue - product sales decreased 13.6% to $5.8 million for the
three months ended September 30, 2002 from $6.7 million for the three months
ended September 30, 2001. The decrease in cost of revenue - product sales was
due primarily to a $1.2 million charge to cost of revenue - product sales for
excess and obsolete inventory for the three months ended September 31, 2001.
Cost of revenue - product sales as a percentage of net product sales decreased
to 77.5% for the three months ended September 30, 2002 from 94.1% for the three
months ended
-19-
September 30, 2001. Excluding the $1.2 million inventory charge, cost of
revenues - product sales as a percentage of net product sales for the three
months ended September 30, 2001 was 78.2%.
Cost of revenue - technology transfer. Cost of revenue - technology
transfer consists of engineering expenses related to the Split Bridge(R) and
handheld docking cradle technology. There were no costs of revenue - technology
transfer for the three months ended September 30, 2002 and 2001, as the
technology transfer fees for the periods consisted solely of fees for existing
technology.
Gross profit. Gross profit increased to 22.5% of total revenue for the
three months ended September 30, 2002 from 5.9% of total revenue for the three
months ended September 30, 2001. The gross profit rate increase is due primarily
to the $1.2 million charge to cost of revenue - product sales for excess and
obsolete inventory for the three months ended September 30, 2001. Excluding this
charge, gross profit was 22.9% for the three months ended September 30, 2001.
Sales and marketing. Sales and marketing expenses generally consist of
salaries, commissions and other personnel related costs of our sales, marketing
and support personnel, advertising, public relations, promotions, printed media
and travel. Sales and marketing expenses decreased 9.3% to $1.8 million for the
three months ended September 30, 2002 from $2.0 million for the three months
ended September 30, 2001. The decrease is primarily the result of a reduction in
marketing programs resulting from our decision to focus our marketing efforts on
what we have deemed to be the most productive sales channels. As a percentage of
total revenue, sales and marketing expenses decreased to 24.8% for the three
months ended September 30, 2002 from 28.6% for the three months ended September
30, 2001.
Research and development. Research and development expenses consist
primarily of salaries and personnel-related costs, facilities, outside
consulting, lab costs and travel related costs of our product development group.
Research and development expenses increased 46.6% to $2.3 million for the three
months ended September 30, 2002 from $1.5 for the three months ended September
30, 2001. Research and development expenses as a percentage of total revenue
increased to 30.4% for the three months ended September 30, 2002 from 21.7% for
the three months ended September 30, 2001. Research and development expense for
the three months ended September 30, 2002 included $620,000 of in-process
research and development recorded in connection with the acquisition of Cutting
Edge Software and $400,000 associated with the write-down of certain tooling
equipment. Excluding these charges, research and development expense decreased
to $1.2 million or 16.7% of revenues. The decrease is due to reductions in
engineering expenses and staff.
General and administrative. General and administrative expenses consist
primarily of salaries and other personnel-related expenses of our finance, human
resources, information systems, corporate development and other administrative
personnel, as well as professional fees, depreciation and amortization and
related expenses. General and administrative expenses also include non-cash
compensation, which is the result of the issuance of common stock, warrants and
stock options at a price deemed to be less than market value to employees and
outside consultants for services rendered. General and administrative expenses
decreased 49.1% to $2.2 million for the three months ended September 30, 2002
from $4.4 million for the three months ended September 30, 2001. For the three
months ended September 30, 2001, general and administrative expenses included a
write-off of a $3.0 million loan to a strategic partner and also included
goodwill amortization of $155,000 relating to the acquisition of Magma in
October, 2000. Excluding the September 30, 2001 charges, general and
administrative expenses for the three months ended September 30, 2002 increased
approximately $900,000, primarily due to severance and termination costs and
increases in general and administrative expenses, including personnel,
facilities, travel and telecommunications as a result of the acquisitions of
Portsmith, Cutting Edge Software and iGo.
Interest, net. Interest, net consists primarily of interest earned on our
cash balances and short-term investments, net of interest expense. Net interest
income for three months ended September 30, 2002 was $176,000 compared to
$286,000 for the three months ended September 30, 2001. The change was primarily
due to the reduction in cash balance from September 30, 2001 to September 30,
2002.
Income taxes. We have incurred losses from inception to date; therefore, no
provision for income taxes was required for the three months ended September 30,
2002 and 2001.
Comparison of Nine Months Ended September 30, 2002 and 2001
Net product sales. Net product sales consist of sales of product, net of
returns and allowances. We recognize sales at the time goods are shipped and the
ownership of the goods is transferred to the customer. Allowances for returns
and credits are made in the same period the related sales are recorded. Net
product sales decreased 2.3% to $20.5 million for the nine months ended
September 30, 2002 from $21.0 million for the nine months ended September 30,
2001. The decrease was primarily attributable to a reduction in sales of power
products to Targus, as a result of the termination of our relationship with
Targus in December 2001. The decrease was partially offset by sales relating to
handheld products as a result of our acquisition of Portsmith, Inc. in February
2002 as well as sales of power products and batteries as a result of our
acquisition of iGo in September 2002 and sales of software as a result of our
acquisition of Cutting Edge Software in August 2002, all of which totaled
approximately $7.8 million.
Technology transfer fees. Technology transfer fees consist of revenue from
the licensing and transferring by the Company of its Split Bridge(R) and
handheld docking cradle technology and architecture. Revenue from technology
transfer fees is
-20-
recognized ratably over the term of the sales agreement. During the nine months
ended September 30, 2002, the Company recognized a technology transfer fee of
$548,000 or 2.6% of total revenue. Technology transfer fees represented revenue
of $300,000, or 1.4% of total revenues, for the nine months ended September 30,
2001.
Cost of revenue - product sales. Cost of revenue - product sales consists
primarily of costs associated with components, outsourced manufacturing and
in-house labor associated with assembly, testing, packaging, shipping and
quality assurance, and depreciation of equipment and indirect manufacturing
costs. Cost of revenue - product sales decreased 18.0% to $16.0 million for the
nine months ended September 30, 2002 from $19.5 million for the nine months
ended September 30, 2001. The decrease in cost of revenue - product sales was
due primarily to a $3.4 million charge to cost of revenue - product sales for
excess and obsolete inventory for the nine months ended September 30, 2001. Cost
of revenue - product sales as a percentage of net product sales decreased to
76.0% for the nine months ended September 30, 2002 from 91.6% for the nine
months ended September 30, 2001. Excluding the $3.4 million charge, cost of
revenues - product sales as a percentage of net product sales for the nine
months ended September 30, 2001 was 76.7%.
Cost of revenue - technology transfer. Cost of revenue - technology
transfer consists of engineering expenses related to the Split Bridge(R) and
handheld docking cradle technology. There were no costs of revenue - technology
transfer for the nine months ended September 30, 2002 and 2001, as the
technology transfer fees for the periods consisted solely of fees for existing
technology.
Gross profit. Gross profit increased to 24.0% of total revenue for the nine
months ended September 30, 2002 from 8.4% of total revenue for the nine months
ended September 30, 2001. The gross profit rate increase is due primarily to the
$3.4 million charge to cost of revenue - product sales for excess and obsolete
inventory for the nine months ended September 30, 2001. Excluding this charge,
gross profit was 24.4% for the nine months ended September 30, 2001.
Sales and marketing. Sales and marketing expenses generally consist of
salaries, commissions and other personnel related costs of our sales, marketing
and support personnel, advertising, public relations, promotions, printed media
and travel. Sales and marketing expenses decreased 25.9% to $5.0 million for the
nine months ended September 30, 2002 from $6.7 million for the nine months ended
September 30, 2001. The decrease is primarily the result of a reduction in
marketing programs resulting from our decision to focus our marketing efforts on
what we have deemed to be the most productive sales channels. As a percentage of
total revenue, sales and marketing expenses decreased to 23.7% for the nine
months ended September 30, 2002 from 31.6% for the nine months ended September
30, 2001.
Research and development. Research and development expenses consist
primarily of salaries and personnel-related costs, facilities, outside
consulting, lab costs and travel related costs of our product development group.
Research and development expenses decreased 1.6% to $4.7 million for the nine
months ended September 30, 2002 from $4.7 million for the nine months ended
September 30, 2001. Research and development expenses as a percentage of total
revenue decreased to 22.2% for the nine months ended September 30, 2002 from
22.3% for the nine months ended September 30, 2001. The decrease is due to
reductions in engineering expenses and staff as a result of the development of
Split Bridge(R) technology, which was largely developed in 2000 and the early
part of 2001. The decrease is partially offset by charges for acquired
in-process research and development of $620,000 and the $400,000 write-off of
certain tooling equipment during the nine months ended September 30, 2002.
Excluding these charges, research and development expense decreased to $3.7
million or 17.4% of revenues.
General and administrative. General and administrative expenses consist
primarily of salaries and other personnel-related expenses of our finance, human
resources, information systems, corporate development and other administrative
personnel, as well as professional fees, depreciation and amortization and
related expenses. General and administrative expenses also include non-cash
compensation, which is the result of the issuance of common stock, warrants and
stock options at a price deemed to be less than market value to employees and
outside consultants for services rendered. General and administrative expenses
decreased 32.9% to $5.7 million for the nine months ended September 30, 2002
from $8.5 million for the nine months ended September 30, 2001. For the nine
months ended September 30, 2001, general and administrative expenses included a
write-off of a $3.0 million loan to a strategic partner and also included
goodwill amortization of $465,000 relating to the acquisition of Magma in
October, 2000. Excluding the September 30, 2001 charges, general and
administrative expenses for the nine months ended September 30, 2002 increased
approximately $700,000, primarily due to severance and termination costs and
increases in general and administrative expenses, including personnel,
facilities, travel and telecommunications as a result of the acquisitions of
Portsmith, Cutting Edge Software and iGo.
Interest, net. Interest, net consists primarily of interest earned on our
cash balances and short-term investments, net of interest expense. Net interest
income for nine months ended September 30, 2002 was $577,000 compared to $1.1
million for the nine months ended September 30, 2001. The change was primarily
due to the reduction in cash balance from September 30, 2001 to September 30,
2002.
Income taxes. We have incurred losses from inception to date; therefore, no
provision for income taxes was required for the six months ended September 30,
2002 and 2001.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through debt and
equity financing, as the cash consumed by our operating activities has exceeded
cash generated by revenues. Our operating activities used cash of $5.1 million
and $12.6 million for the nine months ended September 30, 2002 and 2001,
respectively. Net cash used in operating activities for the nine months ended
September 30, 2002 was primarily attributed to our net loss of $15.4 million,
offset by non-cash charges of $8.6 million and a decrease in accounts receivable
and an increase in accounts payable. Inventory and prepaid expenses increased,
while accrued expenses decreased.
Our investing activities used cash of $3.5 million and $2.6 million for the
nine months ended September 30, 2002 and 2001, respectively. For the nine months
ended September 30, 2002, cash used for investing was for the acquisitions of
Portsmith, Cutting Edge Software and iGo and for purchases of property and
equipment and is partially offset by cash acquired and the sale of an
investment. For the nine months ended September 30, 2001, cash used in investing
activities was for the purchase of property and equipment, cash paid for a note
receivable which was written off in its entirety during the three months ended
September 30, 2001, and cash paid to exercise a stock purchase warrant.
Our net financing activities used cash of $8,000 and $30,000 for the nine
months ended September 30, 2002 and 2001, respectively.
Our cash and cash equivalents decreased to $6.2 million at September 30,
2002 compared to $14.8 million at December 31, 2001. Our net working capital at
those same dates was $8.2 million and $19.4 million, respectively. At September
30, 2002 our available sources of liquidity were our cash and cash equivalents.
At September 30, 2002, we had approximately $70.5 million of federal,
foreign and state net operating loss carryforwards which expire at various
dates. We anticipate that the sale of common stock in the IPO coupled with prior
sales of common stock will cause an annual limitation on the use of our net
operating loss carryforwards pursuant to the change in ownership provisions of
Section 382 of the Internal Revenue Code of 1986, as amended. This limitation is
expected to have a material effect on the timing of our ability to use the net
operating loss carryforward in the future. Additionally, our ability to use the
net operating loss carryforward is dependent upon our level of future
profitability, which cannot be determined.
At September 30, 2002, we had future commitments relating to various
non-cancelable operating leases totaling approximately $2.9 million, payable
over the next six years, with approximately $200,000 payable in 2002, $550,000
payable in 2003, $650,000 payable in 2004, $400,000 payable in 2005, $400,000
payable in 2006, $400,000 payable in 2007, and $300,000 payable in 2004.
In October 2002, we entered into a $10,000,000 line of credit with a bank.
The line bears interest at prime plus 0.5% (5.25% at September 30, 2002),
interest only payments due monthly, with final payment of interest and principal
on July 31, 2004. The line of credit is secured by all assets of the Company.
The Company has not drawn against the line of credit as of September 30, 2002.
The line of credit is subject to financial covenants. The Company was not in
compliance with certain covenants as of September 30, 2002. In the event the
Company is unsuccessful in obtaining a waiver from the bank or modifying the
covenants, this could have a material adverse effect on the liquidity of the
Company.
Our future capital requirements include funding operations, financing the
growth of working capital items such as accounts receivable and inventories, and
the purchase of equipment and fixtures to accomplish future growth, and
potential earn-out payments in connection with acquisitions. We believe that our
cash and cash equivalents on hand and borrowings available under our line of
credit will be sufficient to satisfy our expected cash and working capital
requirements for the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks in the ordinary course of our
business. These risks result primarily from changes in foreign currency exchange
rates and interest rates. In addition, our international operations are subject
to risks related to differing economic conditions, changes in political climate,
differing tax structures and other regulations and restrictions.
To date we have not utilized derivative financial instruments or derivative
commodity instruments. We do not expect to employ these or other strategies to
hedge market risk in the foreseeable future. We invest our cash in money market
funds and other short term, highly liquid investments, which are subject to
minimal credit and market risk. We believe that the market risks associated with
these financial instruments are immaterial.
ITEM 4. CONTROLS AND PROCEDURES
Based upon their evaluations of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as of a date
within 90 days of the filing date of this report, the Chief Executive Officer
and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures were adequate and designed to ensure that information
required to be disclosed by the Company in this report is recorded, processed,
summarized and reported by the filing date of
-22-
this report, and that such information is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
There were no significant changes in internal controls or in other factors
that could significantly affect internal controls to the date of such
evaluation, and there were no corrective actions with regard to significant
deficiencies and material weaknesses in internal controls, subsequent to the
evaluation described above.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
Mobility Electronics, Inc. v. Comarco, Inc. and Comarco Wireless
Technologies, Inc. No. CIV01-1489 PHX MHM was filed on August 10, 2001 in the
United States District Court for the District of Arizona. In this lawsuit, we
allege infringement of U.S. Patent No. 5,347,211 entitled "Selectable Output
Power Converter." We have amended our complaint to further seek declaratory
judgments of non-infringement, patent invalidity and/or patent unenforceability
of three patents allegedly owned by Comarco: U.S. Patent Nos. 6,172,884,
6,091,661 and 5,838,554. The defendants have filed a motion to dismiss, which
was denied by the Court on July 26, 2002. We will continue to vigorously pursue
our claims in this litigation.
Comarco Wireless Technologies, Inc. v. Xtend Micro Products Inc. and iGo
Corporation No. SACV02-640 AHS (Anx) was filed on June 21, 2002, in the United
States District Court for the Central District of California. In this lawsuit,
Comarco is seeking injunctive relief, monetary damages, and costs and attorney
fees. On October 28, 2002, the Court signed and Order transferring the lawsuit
to the United States District Court for the District of Arizona where Mobility
already has a lawsuit pending against Comarco involving certain patents as
described in the preceding paragraph. We intend to vigorously defend ourselves
against the claims in this lawsuit.
Richard C. Liggitt v. Portsmith, Inc., et al., Case No. 02CC03308 was filed
on February 22, 2002 in the Superior Court of the State of California, County of
Orange, Central Judicial District. In this lawsuit the plaintiff alleges fraud
in connection with merger negotiations that led to the execution of a merger
agreement between a company owned by the plaintiff and Portsmith, which we
acquired in February 2002. The plaintiff also alleges wrongful termination of
his employment with Portsmith and breach of the implied covenant of good faith
and fair dealing under his employment agreement with Portsmith. Finally, the
plaintiff alleges that Portsmith was the alter ego of certain of Portsmith's
former directors. The plaintiff is seeking general and special damages, punitive
damages, attorneys' fees and costs. We have filed an answer denying all material
allegations and have asserted a counterclaim for fraud and breach of contract.
The parties have reached a settlement and are awaiting approval of the
settlement from the court. The settlement will not be effective unless that
approval is obtained.
Under the terms of the settlement, the Company will pay Mr. Liggitt an
aggregate of $1,000,000 (the "Settlement Amount") in exchange for a settlement
and release of all claims and a cancellation of all of Mr. Liggitt's rights as a
former shareholder of Portsmith under the merger agreement between the Company
and Portsmith, including, but not limited to, the 53,647 shares of the Company's
common stock Mr. Liggitt received in connection with the merger, the 53,646
shares of the Company's common stock currently held in escrow that Mr. Liggitt
may otherwise be entitled to receive and Mr. Liggitt's share in any potential
earn-out payments. Of the Settlement Amount, $10,000 will be paid upon approval
of the settlement by the court and $990,000 will be paid in the form of a
convertible subordinated promissory note bearing interest at four percent per
year, payable in quarterly installments of principal and interest beginning in
January 2003, through December 2005. The outstanding principal of the promissory
note may be converted by Mr. Liggitt at any time into shares of the Company's
common stock, at a conversion price of $3.00 per share. In connection with this
settlement, the potential earn-outs under the merger agreement between the
Company and Portsmith will be reduced by $480,000, plus a certain additional
amount for fees and expenses and a tax settlement, and Mr. Liggitt's share of
the potential earn-puts will be eliminated.
Mobility Electronics, Inc. v. General Dynamics OTS, Inc., pending in The
United States District Court for the District of Arizona, Docket No. Civ '02
0736 PHX JAT. This is a suit for declaratory judgment brought by Mobility
arising out of a dispute involving a trademark license agreement with General
Dynamics OTS, Inc., the owner of the trademark "EmPower." General Dynamics has
contended that it is owed approximately $710,000 in back royalties and interest
based upon its interpretation of the license agreement. Under Mobility's
interpretation of the license, the royalties owed are substantially less.
Mobility commenced this litigation on April 19, 2002, in order to have the Court
construe the disputed terms of the license agreement and determine the amount
owed by Mobility. General Dynamics has responded to the suit and asserted a
counterclaim for, among other things, the royalties it alleges to be due, plus
attorney's fees and interest. This lawsuit is in the initial stages and we
cannot express an opinion as to the outcome of this action. Our failure to
express an opinion at this stage should not be construed as an indication that
we believe Mobility may ultimately be liable for any or all of the damages
sought by General Dynamics. We intend to vigorously pursue the claims made in
this lawsuit.
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We are from time to time involved in various legal proceedings other than
those set forth above incidental to the conduct of our business. We believe that
the outcome of all such pending legal proceedings will not in the aggregate have
a material adverse effect on our business, financial condition, results of
operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective as of August 20, 2002, the Company issued 796,394 shares of
common stock to Jeff Musa in connection with its acquisition of Cutting Edge
Software, Inc.
Effective September 12, 2002, Jackson Walker L.L.P., the Company's legal
counsel, agreed to convert $600,000 of fees and expenses owed by the Company
into 571,428 shares of the Company's common stock, subject to a re-sale
registration statement for such shares being filed with, and declared effective
by, the Securities and Exchange Commission on or prior to December 5, 2002.
The two issuances set forth above were made in reliance upon the exemptions
from registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), contained in Section 4(2) on the basis that such transactions
did not involve a public offering. When appropriate, the Company determined that
the purchasers of securities described below were sophisticated investors who
had the financial ability to assume the risk of their investment in the
Company's securities and acquired such securities for their own account and not
with a view to any distribution thereof to the public. The certificates
evidencing the securities bear legends stating that the securities are not to be
offered, sold or transferred other than pursuant to an effective registration
statement under the Securities Act or an exemption from such registration
requirements.
On September 3, 2002, the Company issued 2,600,000 shares of its common
stock to the former stockholders of iGo in connection with the acquisition of
iGo. The issuance was registered by the Company with the Securities and Exchange
Commission on Form S-4, Registration Number 333-88078.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
Exhibit
Number Description
------ -----------
2.1 -- Agreement and Plan of Merger dated March 23, 2002, by and
among Mobility Electronics, Inc., iGo Corporation and IGOC
Acquisition, Inc.(8)
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of June 17, 1997.(3)
3.3 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of September 10 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
3.9 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of 2000.(3)
4.1 -- Specimen of Common Stock Certificate.(4)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company and
Miram International, Inc. dated July 29, 1997.(1)
4.4 -- Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's Common stock.(1)
-24-
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's Common stock and
warrants to purchase 500 shares of the Company's Common
Stock. (1)
4.6 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placement.(1)
4.10 -- 13% Bridge Note Conversion Notice expired March 31, 1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used in
1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreements used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement executed May 3,
1999, between the Company, Philips Semiconductors VLSI, Inc.
(f/k/a VSLI Technology, Inc.) and Seligman Communications
and Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova
Capital Corporation (f/k/a Sirrom Capital Corporation) dated
as of March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999, between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated April 20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in Connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in Connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated November 2, 1999.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company
issued in the 1997 Private Placement.(2)
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and Seligman Communications and
Information Fund, Inc. entered into in connection with The
Series C Preferred Stock and Warrant Purchase Agreement
Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued in
connection with the Loan Extension Agreement dated February
29, 2000.(2)
4.25 -- Investors' Rights Agreement executed May 3, 1999 between the
Company, Philips Semiconductors VLSI, Inc. f/k/a VLSI
Technology, Inc.) and Seligman Communications and
Information Fund, Inc.(3)
4.26 -- Registration Rights granted by the Company to Cybex Computer
Products Corporation in connection with the Strategic
Partner Agreement dated March 6, 2000.(3)
4.27 -- 13% Bridge Note Conversion Notice used in July 1999 Private
Placement.(5)
4.28 -- Letter agreement dated September 12, 2002 between Mobility
Electronics, Inc. and Jackson Walker L.L.P.*
4.29 -- Mobility Electronics, Inc. Convertible Subordinated
Promissory Note in the principal amount of $990,000 dated
November 15, 2002*
10.1 -- Settlement Agreement dated July 18, 2002, by and among Xtend
Micro Products, Inc., iGo Corporation, Xmicro Holding
Company, Inc., Mark Rapparport, Mobility Electronics, Inc.,
and each of the Institutional Venture Partners VII, L.P.,
Ken Hawk, individually and as Trustee of the Kenneth W. Hawk
Grantor Retained Annuity Trust, Peter Gotcher, IVM
Investment Fund VIII, LLC, Robert Darrell Boyle Trustee UTA
dated August 26, 1994, Lauren Reeves Boyle Trustee UTA dated
August 26, 1994, IVM Investment Fund VIII-A, LLC, IVP
Founders Fund, L.P., Ross Bott, Ph.D., David Olson, Scott
Shackelton, Reid W. Dennis and IVP Founders Fund I, L.P.(7)
10.2 -- Depository Agreement made as of July 18, 2002, by and among
U.S. Stock Transfer Corporation, iGo Corporation, Mark
Rapparport, an individual, and XMicro Holding Company, Inc.
(7)
10.3 -- Lock-up and Voting Agreement, dated July 18, 2002 by and
between Mobility Electronics, Inc., iGo Corporation, Xmicro
Holding Company, Inc., and Mark Rapparport.(7)
10.4 -- Agreement and Plan of Merger, dated as of August 20, 2002,
by and among Cutting Edge Software, Inc., Jeff Musa,
Mobility Electronics, Inc. and CES Acquisition, Inc.*
-25-
10.5 -- Lockup Agreement dated as of August 20, 2002, by and between
Mobility Electronics, Inc. and Jeff Musa*
10.6 -- Purchase Agreement dated as of November 15, 2002, by and
between Richard C. Liggitt and Mobility Electronics, Inc.*
10.7 -- Compromise Settlement Agreement dated November 15, 2002, by
and between Mobility Electronics, Inc., Portsmith, Inc.,
Holmes Lundt, Jeff Asla, Richard Neff, Dan Axtman and
Richard C. Liggitt.*
24.1 -- None
99.1 -- Certification of Charles R. Mollo pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
99.2 -- Certification of Joan W. Brubacher pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
- --------
* Filed herewith
(1) Previously filed as an exhibit to Registration Statement No. 333-30264
dated February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 1 to Registration Statement
No. 333-30264 dated March 28, 2000.
(3) Previously filed as an exhibit to Amendment No. 2 to Registration Statement
No. 333-30264 dated May 4, 2000.
(4) Previously filed as an exhibit to Amendment No. 3 to Registration Statement
No. 333-30264 dated May 18, 2000.
(5) Previously filed as an exhibit to Amendment No. 4 to Registration Statement
No. 333-30264 dated May 26, 2000.
(6) Previously filed as an exhibit to Current Report on Form 8-K No. 000-30907
filed on October 17, 2000.
(7) Previously filed as an exhibit to Amendment No. 1 to Registration Statement
No. 333-88078 filed on August 5, 2002.
(8) Previously filed as an exhibit to Mobility's Form 10-K for the period
ending December 31, 2001.
(b) Reports on Form 8-K: The Company filed a Report on Form 8-K
on September 17, 2002 reporting its acquisition of iGo
Corporation.
-26-
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
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 thereunto duly authorized.
MOBILITY ELECTRONICS, INC.
Dated: November 19, 2002 By: /S/ CHARLES R. MOLLO
-------------------------------
Charles R. Mollo
President, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
By: /S/ JOAN W. BRUBACHER
-------------------------------
Joan W. Brubacher
Executive Vice President and Chief
Financial Officer and Authorized
Officer of Registrant
(Principal Financial and Accounting
Officer)
-27-
CERTIFICATIONS
I, Charles R. Mollo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mobility Electronics,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 19, 2002
/s/ Charles R. Mollo
- -----------------------------
Charles R. Mollo
President and Chief Executive Officer
-28-
I, Joan W. Brubacher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mobility Electronics,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 19, 2002
/s/ Joan W. Brubacher
- -------------------------------------
Joan W. Brubacher
Executive Vice President and Chief Financial Officer
-29-
MOBILITY ELECTRONICS, INC.
INDEX TO EXHIBITS
<Table>
<Caption>
Exhibit
Number Description
------ -----------
2.1 -- Agreement and Plan of Merger dated March 23, 2002, by and
among Mobility Electronics, Inc., iGo Corporation and IGOC
Acquisition, Inc.(8)
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of June 17, 1997.(3)
3.3 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of September 10 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
3.9 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of 2000.(3)
4.1 -- Specimen of Common Stock Certificate.(4)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company and
Miram International, Inc. dated July 29, 1997.(1)
4.4 -- Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's Common stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's Common stock and
warrants to purchase 500 shares of the Company's Common
Stock.(1)
4.6 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placement.(1)
4.10 -- 13% Bridge Note Conversion Notice expired March 31, 1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used in
1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreements used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement executed May 3,
1999, between the Company, Philips Semiconductors VLSI, Inc.
(f/k/a VSLI Technology, Inc.) and Seligman Communications
and Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova
Capital Corporation (f/k/a Sirrom Capital Corporation) dated
as of March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999, between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated April 20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in Connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in Connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron
Wilson, the Company and certain Stockholders of the Company
dated November 2, 1999.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company
issued in the 1997 Private Placement.(2)
</Table>
-30-
<Table>
<Caption>
Exhibit
Number Description
------ -----------
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and Seligman Communications and
Information Fund, Inc. entered into in connection with The
Series C Preferred Stock and Warrant Purchase Agreement
Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued in
connection with the Loan Extension Agreement dated February
29, 2000.(2)
4.25 -- Investors' Rights Agreement executed May 3, 1999 between the
Company, Philips Semiconductors VLSI, Inc. f/k/a VLSI
Technology, Inc.) and Seligman Communications and
Information Fund, Inc.(3)
4.26 -- Registration Rights granted by the Company to Cybex Computer
Products Corporation in connection with the Strategic
Partner Agreement dated March 6, 2000.(3)
4.27 -- 13% Bridge Note Conversion Notice used in July 1999 Private
Placement.(5)
4.28 -- Letter agreement dated September 12, 2002 between Mobility
Electronics, Inc. and Jackson Walker L.L.P.*
4.29 -- Mobility Electronics, Inc. Convertible Subordinated
Promissory Note in the principal amount of $990,000 dated
November 15, 2002*
10.1 -- Settlement Agreement dated July 18, 2002, by and among Xtend
Micro Products, Inc., iGo Corporation, Xmicro Holding
Company, Inc., Mark Rapparport, Mobility Electronics, Inc.,
and each of the Institutional Venture Partners VII, L.P.,
Ken Hawk, individually and as Trustee of the Kenneth W. Hawk
Grantor Retained Annuity Trust, Peter Gotcher, IVM
Investment Fund VIII, LLC, Robert Darrell Boyle Trustee UTA
dated August 26, 1994, Lauren Reeves Boyle Trustee UTA dated
August 26, 1994, IVM Investment Fund VIII-A, LLC, IVP
Founders Fund, L.P., Ross Bott, Ph.D., David Olson, Scott
Shackelton, Reid W. Dennis and IVP Founders Fund I, L.P.(7)
10.2 -- Depository Agreement made as of July 18, 2002, by and among
U.S. Stock Transfer Corporation, iGo Corporation, Mark
Rapparport, an individual, and XMicro Holding Company, Inc.(7)
10.3 -- Lock-up and Voting Agreement, dated July 18, 2002 by and
between Mobility Electronics, Inc., iGo Corporation, Xmicro
Holding Company, Inc., and Mark Rapparport.(7)
10.4 -- Agreement and Plan of Merger, dated as of August 20, 2002,
by and among Cutting Edge Software, Inc., Jeff Musa,
Mobility Electronics, Inc. and CES Acquisition, Inc.*
10.5 -- Lockup Agreement dated as of August 20, 2002, by and between
Mobility Electronics, Inc. and Jeff Musa*
10.6 -- Purchase Agreement dated as of November 15, 2002, by and
between Richard C. Liggitt and Mobility Electronics, Inc.*
10.7 -- Compromise Settlement Agreement dated November 15, 2002, by
and between Mobility Electronics, Inc., Portsmith, Inc.,
Holmes Lundt, Jeff Asla, Richard Neff, Dan Axtman and
Richard C. Liggitt.*
24.1 -- None
99.1 -- Certification of Charles R. Mollo pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
99.2 -- Certification of Joan W. Brubacher pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
</Table>
- --------
* Filed herewith
(1) Previously filed as an exhibit to Registration Statement No. 333-30264 dated
February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 1 to Registration Statement
No. 333-30264 dated March 28, 2000.
(3) Previously filed as an exhibit to Amendment No. 2 to Registration Statement
No. 333-30264 dated May 4, 2000.
(4) Previously filed as an exhibit to Amendment No. 3 to Registration Statement
No. 333-30264 dated May 18, 2000.
(5) Previously filed as an exhibit to Amendment No. 4 to Registration Statement
No. 333-30264 dated May 26, 2000.
(6) Previously filed as an exhibit to Current Report on Form 8-K No. 000-30907
filed on October 17, 2000.
(7) Previously filed as an exhibit to Amendment No. 1 to Registration Statement
No. 333-88078 filed on August 5, 2002.
(8) Previously filed as an exhibit to Mobility's Form 10-K for the period
ending December 31, 2001.
All other schedules and exhibits are omitted because they are not applicable
or because the required information is contained in the Financial Statements or
Notes thereto.
-31-