UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission file number:
000-27021
IGO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3174623
(State or other jurisdiction of incorporation or (IRS Employer Identification
organization) Number)
9393 GATEWAY DRIVE
RENO, NEVADA 89511
(Address of principal executive offices)
(775) 746 - 6140
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 than 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 [_]
Shares outstanding of each of the registrant's classes of
common stock as of April 30, 2002
Class Outstanding as April 30, 2002
----- -----------------------------
Common stock, $0.001 par value 25,386,438
IGO CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 2002 AND DECEMBER 31, 2001 3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 5
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13
FACTORS THAT MAY AFFECT FUTURE RESULTS 19
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 30
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 30
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 30
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 30
ITEM 5 OTHER INFORMATION 31
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 31
SIGNATURES 32
2
IGO CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 4,837 $ 5,846
Accounts receivable, net .......................... 3,023 4,212
Notes receivable, net ............................. 289 236
Inventory, net .................................... 1,712 2,480
Prepaid expenses .................................. 758 654
------------ ------------
Total current assets ......................... 10,619 13,428
Property and equipment, net ............................ 2,027 2,378
Goodwill, net .......................................... -- 591
Intangible assets, net ................................. 612 650
Other assets ........................................... 45 509
------------ ------------
Total ................................... $ 13,303 $ 17,556
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 1,153 $ 1,135
Accrued liabilities ............................... 1,902 2,936
Accrued liability related to business acquisition.. -- 972
Current portion of capital lease obligations
and long-term debt ............................ 108 137
Short-term borrowings ............................. 18 54
------------ ------------
Total current liabilities .................... 3,181 5,234
Long-term portion of capital lease obligations
and long-term debt ................................. 17 19
------------ ------------
Total liabilities ............................ 3,198 5,253
------------ ------------
Commitments and contingencies (note 8)
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares
authorized; 25,386,438 and 23,353,085,
shares issued and outstanding ................. 25 23
Additional paid-in capital ........................ 88,349 87,630
Deferred compensation ............................. (91) (126)
Receivable from stockholder ....................... (395) (388)
Accumulated deficit ............................... (77,783) (74,836)
------------ ------------
Total stockholders' equity ................... 10,105 12,303
------------ ------------
Total ................................... $ 13,303 $ 17,556
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
IGO CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA) THREE-MONTH PERIODS
ENDED
MARCH 31, MARCH 31,
2002 2001
------------- -------------
Revenues:
Net product revenue ................................. $ 4,767 $ 9,636
Cost of goods sold ........................................... 3,047 7,736
------------- -------------
Gross profit ................................................. 1,720 1,900
------------- -------------
Operating expenses:
Sales and marketing ..................................... 1,838 3,895
Product development ..................................... 435 843
General and administrative .............................. 1,830 2,259
Merger and acquisition costs, including amortization
of goodwill ........................................ -- 853
------------- -------------
Total operating expenses ........................... 4,103 7,850
------------- -------------
Loss from operations ......................................... (2,383) (5,950)
Other income, net ............................................ 27 344
------------- -------------
Loss before provision for income taxes and cumulative
effect of change in accounting principle .................. (2,356) (5,606)
Provision for income taxes ................................... -- --
------------- -------------
Loss before cumulative effect of change in accounting
principle ................................................. (2,356) (5,606)
Cumulative effect of change in accounting
principle ................................................. (591) --
------------- -------------
Net loss ..................................................... $ (2,947) $ (5,606)
============= =============
Loss per share - basic and diluted:
Loss before cumulative effect of change in accounting
principle ........................................ $ (0.10) $ (0.24)
Cumulative effect of change in accounting principle...... (0.02) --
------------- -------------
Net loss ................................................ $ (0.12) $ (0.24)
============= =============
Weighted-average shares outstanding:
Basic and diluted ....................................... 23,737,111 23,298,951
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
IGO CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS THREE-MONTH PERIODS ENDED
MARCH 31, MARCH 31,
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss .......................................................... $ (2,947) $ (5,606)
Adjustments to reconcile net loss to net cash used
in operating activities:
Compensation expense related to stock options ................... 22 62
Accrued interest on stockholder note receivable ................. (7) (14)
Stock issued as payment of expense .............................. 11 --
Provisions for bad debt and inventory ........................... 390 1,217
Depreciation and amortization ................................... 391 378
Amortization of goodwill ........................................ -- 853
Cumulative effect of change in accounting principle ............. 591 --
Changes in:
Accounts and notes receivable ................................. 1,007 844
Inventory ..................................................... 584 256
Prepaid expenses and other assets ............................. (110) 40
Accounts payable and accrued liabilities ...................... (623) (3,360)
--------- ---------
Net cash used in operating activities ....................... (691) (5,330)
--------- ---------
Cash flows from investing activities:
Acquisition of business ........................................... (250) --
Acquisition of property and equipment ............................. (2) (122)
--------- ---------
Net cash used in investing activities ....................... (252) (122)
--------- ---------
Cash flows from financing activities:
Principal payments on short-term borrowings and capital leases .... (67) (119)
Stockholder note receivable ....................................... -- (306)
Proceeds from exercise of stock options ........................... 1 4
--------- ---------
Net cash used in financing activities ....................... (66) (421)
--------- ---------
Net decrease in cash and cash equivalents ........................... (1,009) (5,873)
Cash and cash equivalents, beginning of period ...................... 5,846 20,321
--------- ---------
Cash and cash equivalents, end of period ............................ $ 4,837 $ 14,448
========= =========
Supplemental disclosure of cash flows information:
Cash paid during the year for interest .......................... $ 11 $ 12
========= =========
Supplemental schedule of non-cash investing and financing activities:
Common stock issued in connection with acquisition .............. $ 723 $ --
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
IGO CORPORATION
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
iGo Corporation (formerly Battery Express, Inc.) (the "Company") was
incorporated in California in 1993 and is headquartered in Reno, Nevada. iGo
Corporation (NASDAQ: IGOC) is a leading provider of parts and accessories for
mobile technology products such as notebooks, cell phones and wireless devices.
iGo's mission is to keep the mobile professional powered up and connected
anywhere they go.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the
three-month periods ended March 31, 2002 and 2001 have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain interim information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
financial condition, results of operations, and cash flows have been included.
The results of operations for the interim periods should not be considered
indicative of results for any other interim period or for a full calendar year.
These financial statements should be read in conjunction with the consolidated
financial statements, and notes thereto, in the Company's Form 10-K for the year
ended December 31, 2001, as amended.
The Company has experienced negative cash flows from operations of
$11.4 million, $30.0 million and $12.8 million for the years ended December 31,
1999, 2000 and 2001, respectively, and $691,000 for the quarter ended March 31,
2002. Recurring losses and negative cash flows from operations and limited
financing opportunities raise substantial doubt about the Company's ability to
continue as a going concern. Management believes that if the Company is able to
execute in accordance with its business and financial plans, the Company will
have sufficient cash to fund operations. The Company anticipates that in 2002 it
will be able to significantly increase its gross margins on product sales and
further reduce its expenses while maintaining or growing its revenue levels.
With a targeted focus on high margin core products and improved inventory
control resulting in significantly reduced excess and obsolete inventory charges
the Company believes that it will be able to achieve improved gross margins.
Additionally, the Company has taken steps to reduce costs through several
initiatives including: further downsizing the workforce and facility cost
reductions resulting from a planned relocation of the Company's main facility in
Reno to a smaller, less costly facility in Reno. If the Company is successful in
implementing these plans, it believes that its current cash and cash from
operations will be adequate to fund its cash requirements through December 31,
2002. This estimate assumes that the Company will be able to meet quarterly
revenue targets in its second, third and fourth quarters in excess of those
recorded in the third and fourth quarters of 2001, achieve significantly higher
percentage gross margins than those achieved in each of the prior three years
and reduce expenses substantially below those realized in the fourth quarter of
2001, excluding the write-down of goodwill.
The Company may need to raise additional funds before the end of 2002
in the event that it fails to generate sufficient cash from operations or
6
experiences unanticipated or excessive expenditures. The Company has no
commitments and is not seeking commitments for additional financing. If the
Company were to seek additional financing, there can be no assurance that it
would be successful in obtaining any additional financing on terms acceptable to
the Company or its stockholders. If the Company raises additional funds through
the issuance of equity securities or convertible debt securities, its existing
stockholders may experience significant dilution.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
iGo Corporation and its wholly owned subsidiaries. The subsidiaries were formed
for specific transactions, such as acquisitions. All significant intercompany
balances and transactions have been eliminated in consolidation.
NET LOSS PER SHARE
Net loss per share--basic and diluted, is computed using the
weighted-average number of common shares outstanding during the period. Stock
options and warrants were not included in the computations because they would
have been antidilutive. The number of potentially dilutive shares that were not
included in weighted average shares outstanding were 1,779,255 and 1,725,525 for
the three-month periods ended March 31, 2002 and 2001, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported in the
consolidated financial statements. Actual amounts could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which is effective for all fiscal quarters for all fiscal years beginning after
June 15, 2000. Adoption of SFAS No. 133, as amended, in January 2001 did not
have a material impact on the Company's consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 changes the accounting for goodwill and
indefinite lived intangible assets from an amortization method to an impairment
only approach. Thus, amortization of goodwill, including goodwill recorded in
past business combinations, ceased upon adoption of SFAS No. 142 in January
2002. Amortization is still required for identifiable intangible assets with
finite lives. See Note 6.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The standard supersedes the
current authoritative literature on impairments as well as disposal of a segment
of a business and is effective for fiscal years and interim periods beginning
after December 15, 2001. The Company therefore adopted SFAS No. 144 in January
2002. The Company periodically evaluates its long-lived assets for impairment.
Adoption of SFAS No. 144 did not have a material effect on the Company's
condensed consolidated financial statements.
7
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the 2002 presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at March 31, 2002 and
December 31, 2001:
DOLLARS IN THOUSANDS MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
Trade receivables ....................... $ 4,236 $ 5,353
Other current receivables ............... 284 482
Allowance for bad debts ................. (1,497) (1,623)
------------ ------------
Total accounts receivable, net ..... $ 3,023 $ 4,212
============ ============
3. NOTES RECEIVABLE
Notes receivable consist of the following at March 31, 2002 and
December 31, 2001:
DOLLARS IN THOUSANDS MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
Notes receivable ........................ $ 739 $ 472
Allowance for doubtful notes receivable.. (450) (236)
------------ ------------
Total accounts receivable, net ..... $ 289 $ 236
============ ============
4. INVENTORY
Inventory consists of the following at March 31, 2002 and December 31,
2001:
DOLLARS IN THOUSANDS MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
Products on hand ........................ $ 2,818 $ 4,315
Inventory reserve ....................... (1,106) (1,835)
------------ ------------
Total inventory, net ............... $ 1,712 $ 2,480
============ ============
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31, 2002 and
December 31, 2001:
DOLLARS IN THOUSANDS MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
Leasehold improvements .................. $ 416 $ 416
Furniture and equipment ................. 2,036 2,034
Software ................................ 1,966 1,966
Accumulated depreciation ................ (2,391) (2,038)
------------ ------------
Total property and equipment, net... $ 2,027 $ 2,378
============ ============
6. INTANGIBLE ASSETS AND GOODWILL
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), which establishes new accounting and
reporting requirements for goodwill and other intangible assets. Under this
8
accounting standard, goodwill and intangible assets with indefinite lives are no
longer subject to amortization but are tested for impairment at least annually.
Amortization is still required for identifiable intangible assets with finite
lives.
SFAS 142 also requires the completion of a transitional impairment test
at the date this accounting standard is initially applied. The Company has
recorded a goodwill impairment loss of $591,000 as a result of completing its
transitional impairment test, and has recognized this loss as the effect of a
change in accounting principle. 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 fair value applied
in the comparison is based upon the purchase price established in the definitive
merger agreement the Company entered into with Mobility Electronics, Inc., which
agreement provides for the acquisition of the Company by Mobility (see Note 12).
The results of the comparison and loss measurement indicated that goodwill
existing at the date of adoption of this accounting standard was fully impaired.
In connection with its adoption of SFAS 142, the Company reassessed previously
recognized intangible assets and determined that their classification and useful
lives were appropriate.
Goodwill consists of the following at March 31, 2002 and December 31,
2001:
DOLLARS IN THOUSANDS MARCH 31, DECEMBER 31,
2002 2001
--------- ---------
Aggregate amount acquired ....................................... $ 15,706 $ 15,706
Less accumulated amortization recognized prior to
adoption of SFAS 142 ...................................... (5,658) (5,658)
Write-off of goodwill recognized prior to adoption of
SFAS 142 .................................................. (9,457) (9,457)
Impairment loss recognized as a result of transitional
goodwill impairment test .................................. (591) --
--------- ---------
Net carrying amount ........................................ $ -- $ 591
========= =========
Changes in the carrying amount of goodwill for the three months ended
March 31, 2002 are as follows:
DOLLARS IN THOUSANDS
Balance as of December 31, 2001 .................................... $ 591
Impairment loss recognized as a result of transitional goodwill
impairment test .................................................. (591)
------
Balance as of March 31, 2002 ....................................... $ --
======
Intangible assets consist of the following at March 31, 2002 and
December 31, 2001:
(DOLLARS IN THOUSANDS) MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
AVERAGE GROSS NET GROSS NET
LIFE CARRYING ACCUMULATED INTANGIBLE CARRYING ACCUMULATED INTANGIBLE
(YRS) AMOUNT AMORTIZATION ASSETS AMOUNT AMORTIZATION ASSETS
------- ---------- ------------ ------------ ---------- ------------ ------------
Amortized intangible assets:
Domain names ............ 6 $ 640 $ (249) $ 391 $ 640 $ (226) $ 414
Trademarks .............. 9 239 (63) 176 239 (55) 184
Other .................. 7 100 (55) 45 100 (48) 52
---------- ------------ ------------ ---------- ------------ ------------
Total ............... $ 979 $ (367) $ 612 $ 979 $ (329) $ 650
========== ============ ============ ========== ============ ============
9
Aggregate amortization expense for intangible assets totaled $38,000
and $29,000 for the three-month periods ended March 31, 2002 and 2001,
respectively. Estimated amortization expense for each of the five succeeding
years ended December 31 is as follows:
DOLLARS IN THOUSANDS
FISCAL YEAR
-----------
2002........................................................ $ 144
2003........................................................ 119
2004........................................................ 114
2005........................................................ 113
2006........................................................ 104
The following table adjusts the Company's net loss and net loss per
share for the adoption of SFAS 142:
IN THOUSANDS, EXCEPT PER SHARE DATA THREE MONTHS ENDED
MARCH 31, MARCH 31,
2002 2001
---------- ----------
Reported net loss .................................. $ (2,947) $ (5,606)
Goodwill amortization ........................... -- 853
---------- ----------
Adjusted net loss .................................. $ (2,947) $ (4,753)
========== ==========
Reported net loss per share - basic and diluted .... $ (0.12) $ (0.24)
Goodwill amortization ........................... -- 0.04
---------- ----------
Adjusted net loss .................................. $ (0.12) $ (0.20)
========== ==========
7. OTHER ASSETS
Other assets consists of the following at March 31, 2002 and December
31, 2001:
DOLLARS IN THOUSANDS MARCH 31, DECEMBER 31,
2002 2001
-------- --------
Asset held for sale .................. $ -- $ 330
Other ................................ 45 179
-------- --------
Total other assets .............. $ 45 $ 509
======== ========
8. LEGAL PROCEEDINGS
From time to time the Company is involved in litigation incidental to
the conduct of its business. The Company is not currently a party to any lawsuit
or arbitration proceeding the outcome of which the Company believes will have a
material adverse effect on its financial position, results of operations or
liquidity.
The Securities and Exchange Commission has entered a formal order of
private investigation concerning the events underlying the Company's revisions
of its fiscal 2000 operating results based on adjustments to fourth quarter 2000
revenue, which results were announced and revised in certain press releases
issued in January and March of 2001. In connection with its investigation, the
Commission will also be reviewing the restatement of the Company's financial
statements set forth in the Company's 2001 Annual Report on Form 10-K, as
amended, and certain related accounting, sales and organizational matters. The
Company has been cooperating fully with the Staff of the Commission in its
10
investigation and to date the Staff has made no determinations that the Company
is aware of with respect to this investigation.
9. BUSINESS ACQUISITIONS
On January 4, 2000, the Company acquired CAW Products, Inc., d.b.a.
Cellular Accessory Warehouse, for $353,458 comprised of $100,000 in cash and
$253,458 in common stock (29,167 shares of common stock valued at $8.69 per
share, the approximate market price of such shares during the few days leading
up to and following the announcement of the transaction). Additionally, on
January 11, 2000, the Company acquired AR Industries Inc., d.b.a. Road Warrior
International, for $2,704,167 comprised of $750,000 in cash and $1,954,167 in
common stock (279,167 shares of common stock valued at $7.00 per share, the
approximate market price of such shares during the few days leading up to and
following the announcement of the transaction). Road Warrior is a designer and
distributor of notebook computer connectivity and power products, as well as
model-specific notebook computer hard drive upgrades. Cellular Accessory
Warehouse is a distributor of model-specific cellular accessories.
Additionally, on August 29, 2000, the Company acquired substantially
all the assets of Xtend Micro Products, Inc., for $2,500,000 in cash and
2,268,451 shares of iGo Common Stock. Of such shares, 1,896,574 shares were
subject to an earn-out provision based on the post-closing operating performance
of the Xtend business unit. These earn-out provisions were met. Xtend also had
the opportunity to earn up to an additional $2,500,000 in a combination of iGo
Common Stock and/or cash (at iGo's election) for exceptional post-closing
operating performance. In August 2001, we advanced $500,000 to XMicro Holding
Company against anticipated payments that would be due to XMicro pursuant to the
August 2000 Asset Purchase Agreement. On March 13, 2002, iGo, Xtend Micro
Products, Inc., XMicro Holding Company, Inc., and Mark Rapparport entered into a
settlement agreement resolving certain matters related to the employment of Mr.
Rapparport with one of our subsidiaries and the finalization of an earn-out in
relation to our acquisition of Xtend Micro Products, Inc. In March 2002, iGo
paid an additional $250,000 and issued 1,989,807 shares of its common stock to
XMicro Holding Company as final settlement and satisfaction of these matters. At
the deemed price per share of $0.363, the aggregate value of the cash and stock
provided in March 2002 as part of this settlement is $972,300. This settlement
was recorded as additional purchase price in connection with the acquisition of
Xtend Micro Products and was included in the Company's write-down of goodwill in
2001 (see Note 6).
Each acquisition was recorded using the purchase method of accounting
under Accounting Principles Board ("APB") Opinion No. 16 "Business
Combinations." Results of operations for each acquired company have been
included in the financial results of the Company from the respective acquisition
date forward. In accordance with APB Opinion No. 16, all identifiable assets
were assigned a portion of the cost of the acquired companies (purchase price)
on the basis of their respective fair values. Identifiable intangible assets and
goodwill are included on the accompanying condensed consolidated balance sheets
and were amortized over their estimated useful lives through 2001, which
approximated 40 months for both Cellular Accessory Warehouse and Road Warrior
International, and 60 months for Xtend Micro Products. Amortization of goodwill,
including goodwill recorded in past business combinations, ceased upon adoption
of SFAS No. 142 (see Notes 1 and 6). Intangible assets were identified and
valued by considering the Company's intended use of acquired assets and analysis
of data concerning products, technologies, markets, historical financial
performance, and underlying assumptions of future performance. The economic and
competitive environment in which the Company and the acquired companies operate
was also considered in the valuation analysis. The Company periodically
evaluates its intangible assets for impairment. In 2001, the Company's review of
recoverability of certain long-lived and intangible assets resulted in a charge
of $9,457,000 for the estimated impairment to the carrying value of its
11
goodwill. In conjunction with the adoption of SFAS No. 142 effective January 1,
2002, the Company tested its goodwill for impairment. As a result of this
testing, the Company recorded an impairment loss of $591,000, which is reflected
on the condensed consolidated statement of operations for the three-month period
ended March 31, 2002 as a cumulative effect of change in accounting principle
(see Note 6).
10. LOAN TO CHAIRMAN AND CHIEF EXECUTIVE OFFICER
On January 2, 2001, the Company entered into a Secured Loan Agreement
with Ken Hawk, then the Company's Chairman and Chief Executive Officer, pursuant
to which the Company loaned him $306,100. This loan bore interest at 10.5% and
would have matured on June 8, 2001. The loan was full recourse and was secured
by 306,100 shares of iGo common stock held by Mr. Hawk, which represented shares
with a market value of twice the loan principal amount on the date the loan was
made. As described below, this loan was subsequently restructured.
11. RESIGNATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER
On March 26, 2001, Ken Hawk resigned from his employment with and as
the President, Chairman of the Board and Chief Executive Officer of the Company.
Mr. Hawk continues to serve as a member of the Company's Board of Directors.
Under a Consulting Agreement, Mr. Hawk also served as a consultant to the
Company for a period of one year following his resignation. As consideration for
his services as a consultant, Mr. Hawk received an aggregate of approximately
$240,500 during the term of the Consulting Agreement. The Company also agreed to
restructure the indebtedness owed by Mr. Hawk to the Company. Under the terms of
a Secured Note, previously existing notes payable to the Company were
consolidated into one note for an aggregate principal amount of $366,410. This
note bears interest at 8.0% and matures on March 26, 2003, or upon an event of
default. The note is secured by 977,000 shares of iGo common stock owned by Mr.
Hawk, which represented shares with a market value of approximately twice the
principal amount of the note on the date of the Security Agreement executed by
Mr. Hawk in conjunction with the note.
12. DEFINITIVE MERGER AGREEMENT WITH MOBILITY ELECTRONICS, INC.
On March 24, 2002, the Company entered into a definitive agreement to
be acquired by Mobility Electronics, Inc. of Phoenix, Arizona. Under the
agreement, the Company's stockholders would receive an aggregate of $5,100,000
in cash and 2,600,000 shares of Mobility Electronics common stock (valued at
$3,562,000 based on the approximate market price per share during the few days
leading up to and following the announcement of the transaction of $1.37) at the
transaction closing and up to an additional $1,000,000 in cash and 500,000
additional Mobility Electronics shares (similarly valued at $685,000) one year
following the transaction closing subject to certain conditions. The closing of
the transaction is subject to certain material conditions, including the
transaction's approval by the Company's stockholders and the effectiveness of a
registration statement to be filed with the Securities and Exchange Commission,
and there can be no assurance that all of the conditions will be satisfied.
13. SECOND AMENDMENT TO LEASE AGREEMENT
On March 22, 2002, iGo entered into a Second Amendment with Dermody
Family Limited Partnership I and Gulia Dermody Turville, the landlord under the
lease for the premises located at 9393 Gateway Drive, Reno, Nevada. The primary
purpose of the Second Amendment is to provide that iGo may terminate the lease
at any time in its sole discretion by giving the landlord at least sixty (60)
days' advance written notice of such termination. The Second Amendment also
provides that the landlord may terminate the lease at any time in its sole
discretion by giving iGo at least ninety (90) days' advance written notice of
12
such termination. In connection with the Second Amendment iGo agreed to allow
the landlord to forever retain the security deposit of $140,000 described in the
lease and paid the landlord $360,000. This total sum of $500,000, which was
recorded as an expense in the fourth quarter of 2001, is characterized in the
Second Amendment as a lease restructuring fee and as such is nonrefundable.
There are certain representations, warranties, releases and covenants by and
among the parties in the Second Amendment, as well as a condition imposed upon
iGo that it cannot terminate the lease if at the time of delivering notice to
the landlord there is an uncured monetary default.
14. POTENTIAL NASDAQ DELISTING
On May 16, 2002, the Company received a determination letter from
Nasdaq stating that the Company's common stock had failed to maintain the
minimum bid price of $1.00 per share required for continued listing on the
Nasdaq National Market under Marketplace Rules 4450(a)(5) and 4310(c)(8)(B) and,
accordingly, the Company's shares are subject to delisting. The Company expects
to file a request for a hearing to review the Nasdaq staff's delisting
determination. The Company has also been notified that it is not in compliance
with Marketplace Rule 4450(a)(2), which requires that the minimum market value
of the Company's publicly held shares (shares held by non-affiliates of iGo) be
at least $5,000,000, and that it has until June 17, 2002 to regain compliance by
raising the market value of publicly held shares to $5,000,000 or more for ten
consecutive trading days. Nasdaq has indicated that both the minimum bid price
and public float deficiencies would need to be addressed in any hearing
regarding the delisting of the Company's shares. The hearing date will be
determined by Nasdaq, but the Company anticipates a hearing within approximately
45 days from its hearing request. iGo's common stock will continue to be traded
on the Nasdaq National Market pending the outcome of the hearing. There can be
no assurance that the Company's request for continued listing will be granted.
If the Company's appeal is denied, its common stock will be delisted from the
Nasdaq National Market. In that event, the Company may choose to phase down to
the Nasdaq SmallCap Market or have its common stock traded on the OTC Bulletin
Board's electronic quotation system or another quotation system or exchange on
which the Company's shares would qualify. In either case, the Company's
stockholders would still be able to obtain current trading information,
including the last trade bid and ask quotations, and share volume.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. The following discussion was prepared by
iGo Corporation (referred throughout this document where appropriate, as "iGo,"
"Company," "we," "our," and "us"), and should be read in conjunction with, and
is qualified in its entirety by, the unaudited condensed consolidated financial
statements and the unaudited notes thereto included in this report as well as
the Factors That May Affect Future Results that follow this discussion. The
following discussion and other material in this report on Form 10-Q contain
certain forward-looking statements. The forward-looking statements are
necessarily based upon a number of estimates and assumptions that, while
considered reasonable, are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond our
control, and upon assumptions with respect to future business decisions which
are subject to change. Accordingly, actual results could differ materially from
those contemplated by such forward-looking statements.
13
iGo, iGo (stylized), iGo.com, and Road Warrior are registered
trademarks of iGo. Mobile Technology Outfitter, iGo Alerts, iGo Concierge and
Pocket Dock are trademarks of iGo or its subsidiaries. This report also contains
brand names, service marks and trademarks of other companies which are the
property of their respective holders.
OVERVIEW
iGo was incorporated in March 1993 and began offering products for sale
later that year, but did not generate meaningful revenues until 1995. For the
period from inception to 1995, our operating activities related primarily to the
development of our proprietary databases and to locating favorable sources of
supply. In 1995, we launched our first direct marketing campaign and focused on
building sales volume and fulfillment capabilities, and in 1996, we launched our
website. In June 1997, we relocated from San Jose, California to Reno, Nevada to
take advantage of lower operating costs for our customer contact and fulfillment
centers.
Product revenue is generally recognized when persuasive evidence of a
sale arrangement exists, shipment has occurred, title has passed, the sales
price is fixed or determinable, and collectibility is reasonably assured.
Product revenue is recorded net of any discounts and reserves for expected
returns. The majority of orders are shipped the same day they are received. To
date, approximately 80% of customer purchases have been made with credit cards.
We generally receive payment from the credit card companies within one to four
business days after shipment of the product. We also extend credit terms,
typically net 30 days to 90 days, to corporate accounts that we have evaluated
for creditworthiness. Inventory is carried at the lower of cost or market. We
use the first-in-first-out method to determine cost. Advertising and promotional
costs are expensed as incurred and are recorded net of any cooperative
advertising amounts due from our suppliers at that time. In the case of direct
mail campaigns, the expenses are recorded at the time the promotional piece is
mailed to potential customers because the projected future revenue stream from
these mailings, which can occur over a two-month period, cannot be ultimately
determined at the time the mailing occurs.
We incurred net losses of $31.8 million in fiscal year 2001, $23.9
million in fiscal year 2000, and $15.0 million in fiscal year 1999. For the
three months ended March 31, 2002, our net loss was $2.9 million. At March 31,
2002, we had an accumulated deficit of approximately $77.8 million. The net
losses resulted from costs associated with marketing programs to attract new
customers, merger and acquisition costs, including amortization and write-down
of goodwill through 2001, developing our website and proprietary databases,
provisions for excess and discontinued inventory, increased provisions for bad
debts and the development of our operational infrastructure. In conjunction with
the adoption of SFAS No. 142 effective January 1, 2002, the Company recorded an
impairment charge of $591,000, which is reflected on the statement of operations
for the three-month period ended March 31, 2002 as a cumulative effect of change
in accounting principle.
On March 24, 2002, iGo entered into a definitive agreement to be
acquired by Mobility Electronics, Inc. of Phoenix, Arizona. Under the agreement,
our stockholders would receive an aggregate of $5,100,000 in cash and 2,600,000
shares of Mobility Electronics common stock at the transaction closing and up to
an additional $1,000,000 in cash and 500,000 additional Mobility Electronics
shares one year following the transaction closing subject to certain conditions.
The closing of the transaction is subject to certain material conditions,
including the transaction's approval by our stockholders and the effectiveness
of a registration statement to be filed with the Securities and Exchange
Commission, and there can be no assurance that all of the conditions will be
satisfied.
14
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of financial condition and results of
operations is based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We evaluate, on an on-going basis, our estimates and judgments,
including those related to sales returns, bad debts, excess inventory and
purchase commitments, and contingencies and litigation. We base our estimates on
historical experience and assumptions that we believe 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, among others,
affect our more significant judgments and estimates used in the preparation of
our condensed consolidated financial statements:
o Revenue Recognition and Return Allowances;
o Inventory Reserves;
o Impairment of Long Lived Assets;
o Bad Debt Reserves; and
o Deferred Income Taxes.
Product revenue is generally recognized when persuasive evidence of a
sale arrangement exists, shipment has occurred, title has passed, the sales
price is fixed or determinable, and collectibility is reasonably assured.
Evidence of a sale arrangement may include one or more factors and may require
us to make subjective determinations regarding the extent to which an
arrangement exists. Collectibility determinations can be subjective and are
generally based on a customer's payment history or, in the case of new
customers, internal credit evaluations based upon available information. These
subjective determinations affect the accuracy of our revenue recognition. We
record a provision for returns on product sales in the same period as the
related revenues are recorded. These estimates are based on historical sales
returns and analysis of credit memo data. If the data used to calculate these
estimates does not properly anticipate future returns, revenue could be
misstated.
We write down inventory for estimated excess and obsolete inventory
equal to the difference between the cost of inventory and the estimated net
realizable value based upon assumptions about future demand and market
conditions. Although we strive to ensure the accuracy of our forecasts of future
product demand, any significant unanticipated changes in demand or technological
developments could have a significant impact on the value of our inventory and
commitments, and our reported results. If actual market conditions are less
favorable than those projected, additional inventory write-downs, purchase
commitment reserves, and charges against earnings may be required.
During the fourth quarter of 2001, in accordance with SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to
be Disposed Of," we estimated the future cash flows of the businesses we
acquired based on what we believed to be reasonable assumptions and projections.
Our estimates of the future discounted and undiscounted cash flows attributable
to the unamortized balances of goodwill related to these business acquisitions
were less than the respective carrying values, as discussed further below.
Accordingly, we recorded a $9,457,000 write-down of goodwill in 2001, leaving a
remaining goodwill balance of $591,000, which was in turn written off when we
recorded a goodwill impairment loss during the first quarter of 2002. See Note
6.
15
We maintain bad debt allowances against our receivables for potential
losses resulting from the inability of our customers to make required payments.
We analyze accounts receivable and historical bad debts, customer
concentrations, customer creditworthiness, current economic trends and changes
in customer payment terms and practices when evaluating the adequacy of the
allowance for doubtful accounts. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances and charges against earnings may be required.
Due to the uncertainty of the realization of certain tax carryforward
items, a valuation allowance against deferred income taxes has been established
in the aggregate of $24.6 million at December 31, 2001. The amount of this
allowance has been determined based on an assessment of our ability to generate
sufficient taxable income prior to the expiration of the loss and credit
carryforwards. Regardless of our internal assessment, the availability of the
loss and credit carryforwards may be subject to further limitation under the
Internal Revenue Code in the event of a significant change of control.
THREE MONTH PERIOD ENDED MARCH 31, 2002 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 2001
NET PRODUCT REVENUE. Net product revenue consists of product sales to
customers and outbound shipping charges, net of any discounts and reserves for
expected returns. Net product revenue decreased from $9.6 million for the
three-month period ended March 31, 2001 to $4.8 million for the three-month
period ended March 31, 2002. The decrease in net product revenue was primarily a
result of an ongoing general contraction in purchasing by our corporate
customers, which has had an impact on our sales since the second quarter of
2001. Additionally, revenue levels have declined in part due to the reduction in
products offered as we have focused on offering core accessory products which
are expected to generate higher gross margins.
COST OF GOODS SOLD AND GROSS MARGIN. Cost of goods sold consists of the
cost of products sold to customers, costs associated with excess and
discontinued inventory, inbound shipping expense and outbound shipping charges.
Cost of goods sold decreased from $7.7 million for the quarter ended March 31,
2001 to $3.0 million for the quarter ended March 31, 2002. Gross margin
represents the percentage derived by dividing gross profit (net product revenue
less cost of goods sold) by net product revenue. Our gross margin increased from
19.7% in the first quarter of 2001 to 36.1% in the first quarter of 2002. The
increase in gross margin from the prior year period was due primarily to an
additional inventory write-down of $1.0 million in the 2001 period and the
higher gross margins associated with our current offering of core accessory
products.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
advertising costs, fulfillment expenses, credit card costs and the salary and
benefits of our sales, marketing and customer contact center personnel.
Advertising and promotional expenses include pay for performance and online
marketing efforts, print advertising, trade shows and direct marketing costs.
Sales and marketing expenses decreased from $3.9 million for the three-month
period ended March 31, 2001 to $1.8 million for the three-month period ended
March 31, 2002. Historically, the most significant single component of our sales
and marketing expense has been advertising costs. From the first quarter of 2001
to the first quarter of 2002, advertising costs declined in absolute dollars
from approximately $1.1 million to approximately $72,000. Expressed as a
percentage of net revenue, advertising costs decreased from 11% in the first
quarter of 2001 to 2% in the first quarter of 2002. This decrease is principally
due to continued efforts to reduce spending and to redirect marketing
expenditures into programs with the greatest benefit potential. Reductions in
staffing, lower incentive plan expenses and lower fulfillment and bad debt
expenses, which decline due to lower sales volume, also contributed to the cost
decline.
16
PRODUCT DEVELOPMENT. Product development expenses generally consist of
payroll and related expenses for merchandising and website personnel, site
hosting fees and web content and design expenses as well as expenses associated
with development of our proprietary products. Product development expenses
decreased from $843,000 for the three-month period ended March 31, 2001 to
$435,000 for the three-month period ended March 31, 2002. The expense decrease
in 2002 was attributable to completion in early to mid-2001 of several of the
development projects initiated in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
of salaries and related costs for our executive, administrative and finance
personnel, support services and professional fees, as well as general corporate
expenses such as rent and depreciation and amortization. General and
administrative expenses decreased from $2.3 million for the quarter ended March
31, 2001 to $1.8 million for the quarter ended March 31, 2002. The decrease in
general and administrative expenses for the first quarter of 2002 over the prior
year period was primarily attributable to reductions in staffing.
MERGER AND ACQUISITION COSTS, INCLUDING AMORTIZATION OF GOODWILL IN
2001. Amortization of goodwill, including goodwill recorded in past business
combinations, ceased upon the adoption of SFAS No. 142 in January 2002. Due to
this change, the Company recorded no amortization of goodwill in the first
quarter of 2002 compared to $853,000 in amortization of goodwill in the first
quarter of 2001 (see Notes 1 and 6 to the accompanying condensed consolidated
financial statements). This non-cash acquisition cost primarily relates to the
amortization of goodwill resulting from the January 2000 acquisitions of Road
Warrior and Cellular Accessory Warehouse and the August 2000 acquisition of
Xtend Micro Products. Goodwill was amortized on a straight-line basis over their
respective useful lives through fiscal year 2001, generally 40 to 60 months. In
conjunction with the adoption of SFAS No. 142 effective January 1, 2002, the
Company recorded an impairment charge of $591,000, which is reflected on the
statement of operations for the three-month period ended March 31, 2002 as a
cumulative effect of change in accounting principle.
OTHER INCOME, NET. Other income, net, consists primarily of interest
income earned on cash and cash equivalents, net of interest expense on borrowing
and capital leases, and losses resulting from disposals of fixed assets. Other
income, net, decreased from $344,000 for the three-month period ended March 31,
2001 to $27,000 for the three-month period ended March 31, 2002. The decrease
was primarily attributable to lower interest income as funds invested from the
net proceeds of the initial public offering in October 1999 declined.
INCOME TAXES. The Company did not provide any current or deferred U.S.
federal, state or foreign income tax provision or benefit for any of the periods
presented because it has experienced losses since inception. Utilization of the
Company's net operating loss carryforwards, which begin to expire in 2011, may
be subject to certain limitations under Sections 382 and 383 of the Internal
Revenue Code of 1986, as amended. The Company has provided a full valuation
allowance on the deferred tax asset, consisting primarily of net operating loss
carryforwards, because of the uncertainty regarding its realizability.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we financed our operations
primarily through the sale of preferred stock, capital lease obligations and
revolving credit facilities. Prior to our initial public offering, we received
$13.2 million from the sale of preferred stock, net of issuance costs. Of this
amount, $1.4 million was received in June 1996, $6.0 million in October 1998 and
$5.8 million in July 1999. Proceeds from equipment financed under a
sale-leaseback transaction, net of principal repayments, amounted to $685,000
during the year ended December 31, 1999. There were no proceeds from equipment
17
financed under sale-leaseback transactions during the three-month period ended
March 31, 2002. Proceeds from our initial public offering in October 1999, net
of offering costs, amounted to approximately $62.6 million.
Net cash used in operating activities was $691,000 for the three-month
period ended March 31, 2002, compared to $5.3 million for the three-month period
ended March 31, 2001. Net cash used in operating activities during the current
period consisted primarily of net losses, which was partially offset by
decreases in accounts and notes receivable and inventory. Non-cash expenses
included in the net loss for the first quarter of 2002 were approximately $1.1
million lower than for the first quarter of 2001.
Net cash used in investing activities was $252,000 and $122,000 for the
three-month periods ended March 31, 2002 and 2001, respectively, which was
attributable to acquisitions of property and equipment and payment related to a
business acquisition in the 2002 period.
Net cash used in financing activities was $66,000 for the three-month
period ended March 31, 2002 compared to $421,000 for the three-month period
ended March 31, 2001. Cash used in financing activities included principal
payments on debt in both periods, and the prior year period included a loan to a
stockholder, who was formerly our Chairman and Chief Executive Officer.
We have experienced negative cash flows from operations of $11.4
million, $30.0 million and $12.8 million for the years ended December 31, 1999,
2000 and 2001, respectively, and $691,000 for the quarter ended March 31, 2002.
Recurring losses and negative cash flows from operations and limited financing
opportunities raise substantial doubt about our ability to continue as a going
concern. We believe that if we are able to execute in accordance with our
business and financial plans, we will have sufficient cash to fund operations.
We anticipate that in 2002 we will be able to significantly increase our gross
margins on product sales and further reduce our expenses while maintaining or
growing our revenue levels. With a targeted focus on high margin core products
and improved inventory control resulting in significantly reduced excess and
obsolete inventory charges we believe that we will be able to achieve improved
gross margins. Additionally, we have taken steps to reduce costs through several
initiatives including: further downsizing the workforce and facility cost
reductions resulting from a planned relocation of our main facility in Reno to a
smaller, less costly facility in Reno. If we are successful in implementing
these plans, we believe that our current cash and cash from operations will be
adequate to fund our cash requirements through December 31, 2002. This estimate
assumes that we will be able to meet quarterly revenue targets in our second,
third and fourth quarters in excess of those recorded in the third and fourth
quarters of 2001, achieve significantly higher percentage gross margins than
those achieved in each of the prior three years and reduce expenses
substantially below those realized in the fourth quarter of 2001, excluding the
write down of goodwill.
We may need to raise additional funds before the end of 2002 in the
event that we fail to generate sufficient cash from operations or experience
unanticipated or excessive expenditures. We have no commitments and are not
seeking commitments for additional financing. If we were to seek additional
financing there can be no assurance that we would be successful in obtaining any
additional financing on terms acceptable to iGo or its stockholders. If we raise
additional funds through the issuance of equity securities or convertible debt
securities, our existing stockholders may experience significant dilution. For a
discussion of various risks that may impact the likelihood that we will be able
to generate cash from operations or financing activities, please see " Factors
that May Affect Future Results" below.
18
FACTORS THAT MAY AFFECT FUTURE RESULTS
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR POTENTIAL FOR
FUTURE SUCCESS.
We were incorporated in 1993 and did not begin to generate meaningful
revenues until 1995. Accordingly, we have only a limited operating history upon
which you can evaluate our business and prospects. You must consider the risks
and uncertainties frequently encountered by growth stage companies in new and
rapidly evolving markets, such as high-technology and electronic commerce. These
risks include our ability to continue to:
o sustain sales while reducing operation costs;
o implement our business model;
o attract new customers,
o retain existing customers and maintain customer satisfaction;
o maintain our gross margins in the event of price competition or
rising wholesale prices;
o minimize technical difficulties and system downtime;
o manage distribution of our proprietary products;
o manage cost effective marketing programs; and
o attract, train and retain employees.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be harmed.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT LOSSES FOR AT LEAST THE NEXT SEVERAL
QUARTERS.
Since our inception in 1993, we have incurred significant net losses,
resulting primarily from costs related to developing our proprietary databases,
establishing our brand, building our customer contact center, developing
relationships with suppliers and attracting users to our website. At March 31,
2002, we had an accumulated deficit of approximately $77.8 million. If our
revenue is less than we anticipate or our operating expenses exceed our
expectations, our losses will be significantly greater, which will in turn delay
or prevent our achievement of profitability.
WE MAY NOT HAVE SUFFICIENT CAPITAL TO REACH PROFITABILITY.
Our internal financial models project that our current cash, cash
equivalents and short-term investments, together with other available capital
resources, may be sufficient to permit us to reach a cash-flow positive state.
However, there can be no assurance that we will reach cash-flow positive without
raising additional funds. We may experience unexpected expenditures or higher
than expected expenditures, which may require us to seek additional funding. If
additional funding is necessary, we may seek such additional funding through
debt or equity financings. We currently have no commitments for any additional
financing, and there can be no assurance that adequate funds for our operations
19
will be available to us. Our auditors gave us a "going concern" opinion in
connection with our fiscal 2001 audit, which may further limit our ability to
obtain additional financing. A lack of sufficient capital may require us to
delay, scale back or even eliminate some or all of our operations.
IF OUR SHARES ARE DELISTED, OUR STOCK PRICE MAY DECLINE FURTHER AND WE MAY BE
UNABLE TO RAISE ADDITIONAL CAPITAL.
On May 16, 2002, we received a determination letter from Nasdaq stating
that our common stock had failed to maintain the minimum bid price of $1.00 per
share required for continued listing on the Nasdaq National Market under
Marketplace Rules 4450(a)(5) and 4310(c)(8)(B) and that, accordingly, our shares
are subject to delisting. We expect to file a request for a hearing to review
the Nasdaq staff's delisting determination. We have also been notified that we
are not in compliance with Marketplace Rule 4450(a)(2), which requires that the
minimum market value of our publicly held shares (shares held by non-affiliates
of iGo) be at least $5,000,000, and that we have until June 17, 2002 to regain
compliance by raising the market value of publicly held shares to $5,000,000 or
more for ten consecutive trading days. Nasdaq has indicated that both the
minimum bid price and public float deficiencies would need to be addressed in
any hearing regarding the delisting of our shares. The hearing date will be
determined by Nasdaq, but we anticipate a hearing within approximately 45 days
from our hearing request. iGo's common stock will continue to be traded on the
Nasdaq National Market pending the outcome of the hearing. There can be no
assurance that our request for continued listing will be granted. If our appeal
is denied, our common stock will be delisted from the Nasdaq National Market. In
that event, we may choose to phase down to the Nasdaq SmallCap Market or have
our common stock traded on the OTC Bulletin Board's electronic quotation system
or another quotation system or exchange on which our shares would qualify. If we
were to phase down to the Nasdaq SmallCap Market, there can be no assurance that
we could maintain compliance with the continued listing requirements of the
Nasdaq SmallCap Market for any substantial period of time. While our stock would
continue to trade on the over-the-counter bulletin board following any delisting
from either Nasdaq market, we expect that our stock price and trading volume
would decline, possibly significantly, and our ability to raise additional
capital would be substantially diminished by any such delisting.
ALTHOUGH WE ARE AWARE OF NO DETERMINATIONS, CONCERNS REGARDING THE SEC
INVESTIGATION COULD HARM OUR BUSINESS.
The Securities and Exchange Commission has issued a formal order of
private investigation concerning the events underlying our revisions of our
fiscal 2000 operating results based on adjustments to fourth quarter 2000
revenue, which results were announced and revised in certain press releases
issued in January and March of 2001. In connection with its investigation, the
Commission will also be reviewing the restatement of our financial statements
set forth in our 2001 Annual Report on Form 10-K, as amended, and certain
related accounting, sales and organizational matters. Although the Staff of the
Commission has made no determinations that we are aware of with respect to this
investigation, the investigation itself could raise concerns about iGo in the
eyes of customers and investors and, as a result, could harm our business and
our stock price.
OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR
QUARTERLY OPERATING RESULTS.
Although independent market research firms forecast that shipments of
portable personal computers, the number of wireless subscribers and the market
for accessories for mobile electronic devices will grow substantially over the
next few years, we cannot be certain that this growth will actually occur or
that our sales will grow at the same rate or at all. We cannot forecast with any
20
degree of certainty the extent of our sales of these products. We expect our
operating results could fluctuate significantly from quarter to quarter as a
result of various factors including:
o our ability to attract prospects and convert them into customers;
o the level of merchandise returns we experience;
o changes and seasonal fluctuations in the buying patterns of our
customers;
o our inability to obtain adequate supplies of high-demand products;
o unanticipated cost increases or delays in shipping of our
products, transaction processing, or production and distribution
of our direct marketing materials;
o unanticipated delays with respect to product introductions; and
o the costs, timing and impact of our marketing and promotional
initiatives.
Because of these and other factors, we believe that quarter to quarter
comparisons of our results of operations are not good indicators of our future
performance. If our operating results fall below the expectations of investors
in some future periods, our stock price will likely decline further. See "Item 7
- -Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quarterly Results of Operations" for more information on our
quarterly operating results.
STRENGTHENING THE IGO, ROAD WARRIOR AND XTEND BRANDS IS CRITICAL TO OUR SUCCESS.
We believe that strengthening the iGo brand as well as the brands of
our proprietary product lines, Road Warrior and Xtend, will be critical to the
success of our business. We cannot be certain that our brands will attract new
customers or retain existing customers, and the failure to maintain a strong and
effective brand may harm our business, financial condition and results of
operations.
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS, AND WE MAY NOT BE ABLE TO
HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS.
Our performance is substantially dependent on the continued services
and on the performance of our executive officers. The loss of the services of
any of our executive officers could harm our business. Any of our officers or
employees can terminate his or her employment relationship at any time. Some key
members of our management team have recently been hired. These individuals have
had little experience working in our organization. We cannot be certain that we
will be able to integrate new executives or other employees into our
organization effectively. In addition, there are significant administrative
burdens placed on our management team as a result of our status as a public
company. The loss of any of our officers could harm our results of operations
and financial condition. In addition, we may be unable to retain our other key
employees or attract, assimilate and retain other highly qualified employees in
the future, which could harm our business, financial condition and results of
operations.
COMPETITION MAY DECREASE OUR MARKET SHARE, NET REVENUES AND GROSS MARGINS AND
MAY CAUSE OUR STOCK PRICE TO DECLINE.
The mobile computing and communications markets in which we operate are
rapidly evolving and highly competitive. Our competitors operate in a number of
21
different distribution channels, including electronic commerce, traditional
retailing, catalog retailing and direct selling. We currently or potentially
compete with a variety of companies in the sale of products in specific
categories, including:
o mobile products suppliers such as Targus;
o retailers and etailers such as CompUSA and Amazon.com;
o direct marketers such as Buy.com, CDW, Insight and Microwarehouse;
o traditional mobile device manufacturers or OEM's such as Fujitsu,
Toshiba, IBM, NEC, Acer, Gateway, Dell, Nokia, Motorola and
Erickson.
Our competitors may have the ability to devote substantially more
resources to the development, marketing, and/or sale of mobile device
accessories than we do. In addition, larger and more well-financed entities may
acquire, invest in or form joint ventures with our competitors. Some of our
competitors may be able to secure products from suppliers on more favorable
terms, fulfill customer orders more efficiently and adopt more aggressive
pricing or inventory availability policies then we can. Finally, new
technologies and the expansion of existing technologies, such as price
comparison programs that search for products from a variety of websites, may
direct customers to other online merchants. There can be no assurance that we
will be able to compete successfully against current and future competitors.
THE LOSS OF OUR PROPRIETARY DATABASES WOULD SERIOUSLY HARM OUR BUSINESS.
Our proprietary databases are a key competitive advantage. If we fail
to keep these databases current or if the proprietary customer, product,
supplier and compatibility information contained in these databases is damaged
or destroyed, our business would be seriously harmed and our stock price would
decline.
THE FAILURE TO SUCCESSFULLY GROW, MANAGE AND USE OUR DATABASE OF CUSTOMERS AND
USERS WOULD HARM OUR BUSINESS.
We intend to continually expand our database of customers, potential
customers and website registrants to more effectively create targeted direct
marketing offers. We seek to expand our customer database by using information
we collect through our website, search engine optimization, channel
relationships, our customer contact center and purchased or rented lists. We
must also continually develop and refine our techniques for segmenting this
information to maximize its usefulness. If we are unable to expand our customer
database or if we fail to utilize this information successfully, then our
business model may not be successful. In addition, if federal or state
governments enact privacy legislation resulting in the increased regulation of
mailing lists, we could experience increased costs in complying with potentially
burdensome regulations concerning the solicitation of consents to keep or add
customer names to our mailing lists.
FAILURE OF OUR STRATEGIC RELATIONSHIPS TO ATTRACT CUSTOMERS COULD HARM OUR
BUSINESS.
We intend to continue to establish, leverage and grow key strategic
relationships with manufacturers, airlines, suppliers and electronic commerce
partners to enable us to collect crucial product-specific information, ensure
access to adequate product supply and acquire new customers. We cannot be
22
certain that any of these strategic relationships or partnerships will be or
continue to be successful in attracting new customers. Our strategic
relationships are often not subject to formal agreements and/or can be
terminated on little or no advance notice. The terms of our agreements with
Acer, NEC and IBM require us to purchase minimum amounts of product each year.
If we fail to meet these purchase levels, those parties have the discretion to
terminate our agreements with them. We have not met such purchase levels to
date, but have received no indication from any of those parties that they intend
to terminate our relationship. Also, in each case either party may terminate the
agreement with or without cause on two to three months' written notice.
Accordingly, we can provide no assurance that these relationships will continue
on their current terms or at all. If these programs fail to attract additional
customers or we are unable to maintain these relationships, our business,
financial condition and results of operations would be harmed. .....
WE MUST EFFECTIVELY MANAGE OUR INVENTORY AND IMPROVE OUR GROSS MARGINS.
In order to fulfill our orders, we depend upon our factories and
vendors to produce sufficient quantities of products according to schedule. We
may maintain high inventory levels in some categories of merchandise in an
effort to ensure that these products are available to our customers. This may
expose us to risks of excess inventory and outdated merchandise, which could
harm our business. In 2001, we changed our product strategy to focus on offering
a targeted core product line with a higher gross margin. As a result of this
change of strategy, we recorded significant write-offs of inventory in 2001. If
we underestimate customer demand, we may disappoint customers who may purchase
from our competitors. We also seek to negotiate with our vendors to get the best
quality available at the best prices in order to maintain and increase our gross
margins. Our failure to be able to effectively manage our factories and vendors
effectively would harm our operating results.
FAILURE OF THIRD PARTY SUPPLIERS TO SHIP PRODUCTS DIRECTLY TO OUR CUSTOMERS
COULD HARM OUR BUSINESS.
For the year ended December 31, 2001 and the quarter ended March 31,
2002, approximately 22% and 38%, respectively, of our total net revenues were
from products shipped to our customers directly from our suppliers. The failure
of these suppliers to continue to ship products directly to our customers or to
ship products to our customers in a timely manner could result in lost revenues,
customer dissatisfaction and damage to our reputation. In addition, if we could
not depend on these suppliers to ship products to our customers directly, we
would have to carry the products in our inventory, which would expose us to
risks of excess inventory, outdated merchandise and increased warehouse costs,
all of which could harm our business.
FAILURE OF THIRD-PARTY CARRIERS TO DELIVER OUR PRODUCTS TIMELY AND CONSISTENTLY
COULD HARM OUR BUSINESS.
Our supply and distribution system is primarily dependent upon our
relationships with United Parcel Service and Federal Express. We ship
substantially all of our orders with these carriers. Because we do not have
written agreements with these carriers that guarantee continued service, we
cannot be sure that our relationships with these carriers will continue on terms
favorable to us, or at all. If our relationship with one or more of these
carriers is terminated or impaired, or if one or more of these carriers is
unable to ship products for us, whether through labor shortage, slow down or
stoppage, deteriorating financial or business conditions or for any other
reason, we would be required to rely on other carriers. These carriers may not
be able to accommodate the increased shipping volume, in which case we may be
required to use alternative carriers, with whom we may have no prior business
relationship, for the shipment of products to our customers. We may be unable to
23
engage an alternative carrier on a timely basis or upon terms favorable to us.
Changing carriers would likely harm our business, financial condition and
results of operations. Potential adverse consequences include:
o reduced package tracking information;
o delays in order processing and product delivery;
o increased delivery costs, resulting in reduced gross margins; and
o reduced shipment quality, which may result in damaged products and
customer dissatisfaction.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR TRADEMARKS, INTERNET ADDRESSES AND
INTELLECTUAL PROPERTY RIGHTS.
We regard our brand and substantial elements of our website and
relational databases as proprietary, and seek their protection through
trademark, service mark, copyright and trade secret laws. We enter into
non-disclosure agreements with our employees and consultants, and generally with
strategic partners. Despite these precautions, it may be possible for third
parties to copy or otherwise obtain and use our intellectual property without
our authorization.
Our iGo brand and our Internet address, WWW.IGO.COM, are important
components of our business strategy. We have obtained federal trademark
registrations for our iGo, iGo (stylized), Road Warrior, Xtend, 1-800-Batteries,
iGo.com and PowerXtender trademarks. Mobile Technology Outfitter and Pocket Dock
are trademarks of iGo or its subsidiaries.
We also rely to a material extent on technology developed and licensed
from third parties. These licenses may not continue to be available to us on
commercially reasonable terms in the future. The loss of existing technology
licenses could harm the performance of our existing services until equivalent
technology can be identified, obtained and integrated. Failure to obtain new
technology licenses may result in delays or reductions in the introduction of
new features, functions or services, which would harm our business. We have been
notified from time to time that certain products that we offer may infringe on
the proprietary rights of others. There can be no assurances that third parties
will not claim infringement in the future. We expect that the continued growth
of the Internet will result in an increasing number of infringement claims as
legal standards related to our market continue to evolve. Any such claim, with
or without merit, could be time consuming, result in costly litigation, and may
have a material adverse effect on our business and results of operations.
We have also registered our iGo, Xtend and Road Warrior trademarks in
certain foreign countries in which we currently conduct, or intend to conduct
significant business. It is often difficult to obtain clear, registered title to
trademarks in foreign countries. We have encountered certain conflicts in
connection with these foreign trademark applications, and there is no guarantee
that we will be able to secure registrations in any particular foreign country.
In addition, we may be prohibited from using one or more of our marks in certain
foreign countries, which may have a material adverse effect on our business and
results of operations.
We currently hold various Internet domain names, including iGo.com,
RoadWarrior.com and XtendMicro.com. The acquisition and maintenance of domain
names generally is regulated by Internet regulatory bodies. The regulation of
domain names in the United States and in foreign countries is subject to change.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
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countries in which we conduct business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights continues to evolve. Therefore, we may be unable to prevent
third parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of our trademarks and other proprietary rights.
WE MAY BE VULNERABLE TO NEW TAX OBLIGATIONS THAT COULD BE IMPOSED ON ELECTRONIC
COMMERCE TRANSACTIONS.
We do not expect to collect sales or other similar taxes or goods
shipped into most states. However, one or more states or the federal government
may seek to impose sales tax collection obligations on out-of-state companies,
such as ours, which engage in or facilitate electronic commerce. A number of
proposals have been made at the state and local levels that would impose
additional taxes on the sale of goods and services through the Internet. These
proposals, if adopted, could substantially impair the growth of electronic
commerce and cause purchasing through our website to be less attractive to
customers. In October 1998, the United States Congress passed legislation
limiting for three years the ability of the states to impose taxes on
Internet-based transactions, which moratorium has been extended until November
2003. Failure to renew this legislation could result in the imposition by
various states of taxes on electronic commerce. Further, states have attempted
to impose sales tax collection obligations on direct marketing sales from
businesses such as ours. A successful assertion by one or more states that we
should have collected or be collecting sales taxes on the sale of products could
harm our business.
IF WE EXPAND OUR BUSINESS INTERNATIONALLY, OUR BUSINESS WOULD BECOME
INCREASINGLY SUSCEPTIBLE TO NUMEROUS INTERNATIONAL RISKS AND CHALLENGES THAT
COULD AFFECT OUR RESULTS OF OPERATIONS.
Although we have not had meaningful international revenues to date, we
intend to increase our international sales efforts. International sales are
subject to inherent risks and challenges that could affect our results of
operations, including:
o the need to develop new supplier relationships;
o unexpected changes in international regulatory requirements and
tariffs;
o difficulties in staffing and managing foreign operations;
o potential adverse tax consequences;
o price controls or other restrictions on, or fluctuations in,
foreign currency; and
o difficulties in obtaining export and import licenses.
To the extent we generate international sales in the future, any
negative effects on our international business could harm our business,
financial condition and results of operations as a whole. In particular, gains
and losses on the conversion of foreign payments into U.S. dollars may
contribute to fluctuations in our results of operations, and fluctuating
exchange rates could cause reduced revenues from dollar-denominated
international sales.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
In addition to our acquisitions of Road Warrior, Cellular Accessory
Warehouse and Xtend Micro Products, we may again invest in or buy complementary
businesses, products or technologies in the future. In the event of any
investments or purchases, we could:
25
o issue stock that would dilute the percentage ownership of our
current stockholders;
o incur debt;
o assume liabilities;
o incur amortization expenses related to goodwill and other
intangible assets; or
o incur large and immediate write-offs.
These acquisitions could also involve numerous operational risks,
including:
o problems combining the purchased operations, products or
technologies;
o unanticipated costs;
o diversion of management's attention away from our core business;
o adverse effects on existing business relationships with suppliers
and customers;
o risks associated with entering markets in which we have no or
limited prior experience; and
o potential loss of key employees, particularly those of the
purchased organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products or technologies that we have acquired or might acquire in
the future.
THE LOSS OF TECHNOLOGIES LICENSED FROM THIRD PARTIES COULD HARM OUR BUSINESS.
We rely to a material extent on technology developed and licensed from
third parties. The loss of existing technology licenses could harm the
performance of our existing services until equivalent technology can be
identified, obtained and integrated. Failure to obtain new technology licenses
may result in delays or reductions in the introduction of new features,
functions or services, which would harm our business.
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE HARMED IF
WE WERE TO BE LIABLE FOR DEFECTS IN THE PRODUCTS WE OFFER.
We may be subject to product liability claims for the products we
design and develop as well as those we sell. While we believe that our product
liability coverage of $7,000,000 is currently adequate, we can provide no
assurance that the insurance can be maintained in the future at a reasonable
cost or in amounts sufficient to protect us against losses due to liability. A
successful liability claim brought against us in excess of relevant insurance
coverage could harm our business, financial condition and results of operations.
Damage to or destruction of our warehouse could result in loss of our
inventory, which could harm our business, financial condition and results of
operations.
If all or most of the inventory in our warehouse were damaged or
destroyed, we might be unable to replace the inventory in a timely manner and,
as a result, be unable to process orders in a timely manner or at all. For the
year ended December 31, 2001 and the quarter ended March 31, 2002, approximately
78% and 62%, respectively, of the products we sell come from the inventory in
our warehouse. We cannot be certain that we would be able to replace the
26
inventory as quickly as our customer orders demand, which may result in the loss
of revenue and customers, which would harm our business, financial condition and
results of operations.
RISKS RELATED TO THE INTERNET INDUSTRY
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE.
Our industry is new and rapidly evolving. Our business would be harmed
if Internet usage does not continue to grow. Internet usage may be inhibited for
a number of reasons, including:
o inadequate Internet infrastructure;
o inconsistent quality of service; and
o unavailability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, or its performance and
reliability may decline. In addition, websites, including ours, have experienced
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. We anticipate that these outages
or delays will occur from time to time in the future and, if they occur
frequently or for extended periods of time, Internet usage, including usage of
our website, could grow more slowly or decline.
A PORTION OF OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE ELECTRONIC
COMMERCE MARKET, WHICH IS UNCERTAIN.
A portion of our future revenues substantially depends upon the
widespread acceptance and use of the Internet as an effective medium of commerce
by consumers. Demand for recently introduced products and services over the
Internet is subject to a high level of uncertainty. Although independent market
research firms forecast that the number of Internet users worldwide will grow
substantially in the next few years, we cannot be certain that this growth will
occur or that our sales will grow at the same rate. The development of the
Internet as a viable commercial marketplace is subject to a number of risks
including:
o potential customers may be unwilling to shift their purchasing
from traditional vendors to online vendors;
o insufficient availability of or changes in telecommunications
services could result in slower response times, which could delay
the acceptance of the Internet as an effective commerce medium;
o continued growth in the number of Internet users;
o concerns about transaction security;
o continued development of the necessary technological
infrastructure;
o development of enabling technologies; and
o uncertain and increasing government regulations.
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RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR WEBSITES AND SYSTEMS OBSOLETE AND
REQUIRE SIGNIFICANT CAPITAL EXPENDITURES.
The Internet and the electronic commerce industry are characterized by
rapid technological change, sudden changes in customer requirements and
preferences, frequent new product and service introductions incorporating new
technologies and the emergence of new industry standards and practices that
could render our existing websites and transaction processing systems obsolete.
The emerging nature of these products and services and their rapid evolution
will require that we continually improve the performance, features and
reliability of our online services, particularly in response to competitive
offerings. Our success will depend, in part, on our ability:
o to enhance our existing products and services; and
o to respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis.
The development of websites and other proprietary technology entails
significant technical and business risks and requires substantial expenditures
and lead time. We may be unable to use new technologies effectively or adapt our
website, proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards, which could harm our business.
Updating our technology internally and licensing new technology from third
parties may require significant additional capital expenditures and could affect
our results of operations.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH ELECTRONIC COMMERCE SECURITY AND CREDIT
CARD FRAUD, WHICH MAY REDUCE COLLECTIONS AND DISCOURAGE ONLINE TRANSACTIONS.
Consumer concerns about privacy or the security of transactions
conducted on the Internet may inhibit the growth of the Internet and electronic
commerce. To securely transmit confidential information, such as customer credit
card numbers, we rely on encryption and authentication technology that we
license from third parties. We cannot predict whether the algorithms we use to
protect customer transaction data will be compromised. Furthermore, our servers
may be vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions. We may need to expend significant additional capital and
other resources to protect against a security breach or to alleviate problems
caused by any security breaches. The measures we take to protect against
security breaches may not be successful. Our failure to prevent security
breaches could harm our business.
To date, we have suffered minor losses as a result of orders placed
with fraudulent credit card data even though the associated financial
institution approved payment of the orders in each case. Under current credit
card practices, a merchant is liable for fraudulent credit card transactions
where, as is the case with the transactions we process, that merchant does not
obtain a cardholder's signature. Failure to adequately control fraudulent credit
card transactions could reduce our revenues and harm our business.
WE COULD FACE LIABILITY FOR INFORMATION DISPLAYED ON AND COMMUNICATIONS THROUGH
OUR WEBSITE.
We may be subject to claims for defamation, negligence, copyright or
trademark infringement or other claims relating to the information we publish on
our website. These types of claims have been brought, sometimes successfully,
against Internet companies as well as print publications in the past. We also
utilize email as a marketing medium, which may subject us to potential risks,
such as:
o liabilities or claims resulting from unsolicited email;
28
o lost or misdirected messages; or
o illegal or fraudulent use of email.
These claims could result in substantial costs and a diversion of our
management's attention and resources, which could harm our business.
EFFORTS TO REGULATE OR ELIMINATE THE USE OF MECHANISMS THAT AUTOMATICALLY
COLLECT INFORMATION ON VISITORS TO OUR WEBSITE MAY INTERFERE WITH OUR ABILITY TO
TARGET OUR MARKETING EFFORTS.
Websites typically place a small tracking program on a user's hard
drive without the user's knowledge or consent. These programs automatically
collect data about any visits that a user makes to various websites. Website
operators use these mechanisms for a variety of purposes, including the
collection of data derived from users' Internet activity. Most currently
available Internet browsers allow users to elect to remove these tracking
programs at any time or to prevent this information from being stored on their
hard drive. In addition, some commentators, privacy advocates and governmental
bodies have suggested limiting or eliminating the use of these tracking
mechanisms. Any reduction or limitation in the use of this software could limit
the effectiveness of our sales and marketing efforts.
WE COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF AND
LEGAL UNCERTAINTIES SURROUNDING THE INTERNET.
New Internet legislation or regulation or the application of existing
laws and regulations to the Internet and electronic commerce could harm our
business, financial condition and results of operations. We are subject to
regulations applicable to businesses generally and laws or regulations directly
applicable to communications over the Internet and access to electronic
commerce. Although there are currently few laws and regulations directly
applicable to electronic commerce, it is possible that a number of laws and
regulations may be adopted with respect to the Internet covering issues such as
user privacy, pricing, content, copyrights, distribution, antitrust, taxation
and characteristics and quality of products and services. For example, the
United States Congress recently enacted Internet laws regarding children's
privacy, copyrights and transmission of sexually explicit material. In addition,
the European Union recently enacted its own Internet privacy regulations.
Furthermore, the growth and development of the market for electronic commerce
may prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations regarding the Internet may decrease the
growth of the Internet or electronic commerce, which could, in turn, decrease
the demand for our products and services and increase our cost of doing
business. In addition, if we were alleged to have violated federal, state or
foreign civil or criminal law, we could be subject to liability, and even if we
could successfully defend such claims, they may involve significant legal
compliance and litigation costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates is limited to
the exposure related to our debt instruments which are tied to market rates. We
plan to ensure the safety and preservation of our invested principal funds by
limiting default risks, market risk and reinvestment risk. We have invested in
high-quality, investment-grade securities. As a result, we do not believe that
we are subject to material interest rate risk.
29
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are involved in litigation incidental to the
conduct of our business. We are not currently a party to any lawsuit or
arbitration proceeding the outcome of which we believe will have a material
adverse effect on our financial position, results of operations or liquidity.
The Securities and Exchange Commission has entered a formal order of
private investigation concerning the events underlying our revisions of our
fiscal 2000 operating results based on adjustments to fourth quarter 2000
revenue, which results were announced and revised in certain press releases
issued in January and March of 2001. In connection with its investigation, the
Commission will also be reviewing the restatement of our financial statements
set forth in our 2001 Annual Report on Form 10-K, as amended, and certain
related accounting, sales and organizational matters. We have been cooperating
fully with the Staff of the Commission in its investigation and to date the
Staff has made no determinations that we are aware of with respect to this
investigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with our initial public offering of common stock, we
filed a Registration Statement on Form S-1, SEC File No. 333-84723 (the
"Registration Statement"), which was declared effective by the Commission on
October 13, 1999. Pursuant to the Registration Statement, we registered
5,750,000 shares of our common stock, $.001 par value per share, including
750,000 shares available for sale to the underwriters upon the exercise of their
over-allotment option. The aggregate offering price of the shares sold was $69.0
million, $4.8 million of which was applied towards the underwriters' discounts
and commissions. Other expenses related to the offering totaled $1.6 million.
The net proceeds to us from the sale of common stock in the initial public
offering were approximately $62.6 million, including exercise of the
underwriters' over-allotment option.
We have used a portion of the proceeds for investment in sales and
marketing, and general corporate purposes, including capital expenditures ($4.9
million), as well as strategic acquisitions ($5.0 million). The remainder of the
proceeds have been invested in short-term, interest-bearing, investment-grade
securities. The use of proceeds from the offering does not represent a material
change in the use of proceeds described in our final prospectus filed on October
15, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
30
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
None
(b) REPORTS ON FORM 8-K
On March 28, 2002, the Company filed a report on Form 8-K announcing
that it had entered into a definitive agreement to be acquired by Mobility
Electronics, Inc. The principal agreements for such transaction were filed in
connection with such Form 8-K and, accordingly, are not included herewith.
31
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.
Dated: May 16, 2002
IGO CORPORATION
/s/ Scott Shackelton
-----------------------------------
Scott Shackelton
Senior Vice President, Finance
and Chief Financial Officer
(Duly Authorized Officer, Principal
Financial and Accounting Officer)
32