##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number: 0-30907
 MOBILITY ELECTRONICS, INC.
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
(State or Other Jurisdiction of Incorporation)
 0-30907
    
    86-0843914(Commission File Number)
    
    (IRS Employer Identification No.)17800 N. Perimeter Dr., Suite 200, Scottsdale, Arizona
    
    85255(Address of Principal Executive Offices)
    
    (Zip Code)
 (480) 596-0061
(Registrants telephone number, including area code)
 Not applicable
(Former Name, Former Address, and Former Fiscal Year if Changed Since Last Report)
  þ o
  o þ o
  o þ




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##### 



MOBILITY ELECTRONICS, INC.
FORM 10-Q
 TABLE OF CONTENTS
 PAGE NO.Part I
    
    FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Unaudited Condensed Consolidated Financial Statements:
    
    
    1Condensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements Of Operations
    
    
    2Condensed Consolidated Statements Of Cash Flows
    
    
    3Notes To Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis Of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26Part II
    
    OTHER INFORMATION
    
    
    26Item 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    27Item 5.
    
    Other Information
    
    
    28Item 6.
    
    Exhibits
    
    
    28SIGNATURES
    
    
    29EXHIBIT INDEX
    
    
    30EX-31.1EX-31.2EX-32.1
  i




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##### Table of Contents



PART I            FINANCIAL INFORMATION
 
 ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
 MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 (unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,893
    
    
    $
    9,201Short-term investments
    
    
    4,092
    
    
    
    8,142Accounts receivable, net
    
    
    16,856
    
    
    
    20,855Inventories
    
    
    5,386
    
    
    
    12,350Prepaid expenses and other current assets
    
    
    529
    
    
    
    406Total current assets
    
    
    44,756
    
    
    
    50,954Property and equipment, net
    
    
    2,631
    
    
    
    2,980Goodwill
    
    
    3,912
    
    
    
    3,912Intangible assets, net
    
    
    2,623
    
    
    
    3,095Long-term investments
    
    
    558
    
    
    
    4,636Notes receivable and other assets
    
    
    1,624
    
    
    
    287Total assets
    
    $
    56,104
    
    
    $
    65,864LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,134
    
    
    $
    12,010Accrued expenses and other current liabilities
    
    
    3,490
    
    
    
    3,067Deferred revenue
    
    
    1,305
    
    
    
    1,357Current portion of non-current liabilities
    
    
    
    
    
    
    25Total current liabilities
    
    
    13,929
    
    
    
    16,459Minority interest
    
    
    187
    
    
    
    Total liabilities
    
    $
    14,116
    
    
    $
    16,459Stockholders equity:Common stock
    
    
    314
    
    
    
    317Additional paid-in capital
    
    
    167,569
    
    
    
    167,436Accumulated deficit
    
    
    (126,097
    )
    
    
    (118,527
    )Accumulated other comprehensive income
    
    
    202
    
    
    
    179Total stockholders equity
    
    
    41,988
    
    
    
    49,405Total liabilities and stockholders equity
    
    $
    56,104
    
    
    $
    65,864
  1




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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    19,039
    
    
    $
    24,170
    
    
    $
    57,410
    
    
    $
    73,155Cost of revenue
    
    
    13,334
    
    
    
    17,246
    
    
    
    44,179
    
    
    
    51,708Gross profit
    
    
    5,705
    
    
    
    6,924
    
    
    
    13,231
    
    
    
    21,447Operating expenses:Sales and marketing
    
    
    2,242
    
    
    
    3,742
    
    
    
    7,683
    
    
    
    8,027Research and development
    
    
    1,169
    
    
    
    1,936
    
    
    
    4,303
    
    
    
    5,706General and administrative
    
    
    3,380
    
    
    
    3,230
    
    
    
    11,711
    
    
    
    10,045Asset impairment
    
    
    
    
    
    
    8,073
    
    
    
    
    
    
    
    8,073Total operating expenses
    
    
    6,791
    
    
    
    16,981
    
    
    
    23,697
    
    
    
    31,851Loss from operations
    
    
    (1,086
    )
    
    
    (10,057
    )
    
    
    (10,466
    )
    
    
    (10,404
    )Other income (expense):Interest income, net
    
    
    291
    
    
    
    313
    
    
    
    847
    
    
    
    930Litigation settlement expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )Gain on disposal of assets and other income, net
    
    
    95
    
    
    
    1
    
    
    
    2,235
    
    
    
    22Loss before minority interest
    
    
    (700
    )
    
    
    (9,743
    )
    
    
    (7,384
    )
    
    
    (9,702
    )Minority interest
    
    
    (60
    )
    
    
    
    
    
    
    (187
    )
    
    
    Net loss
    
    $
    (760
    )
    
    $
    (9,743
    )
    
    $
    (7,571
    )
    
    $
    (9,702
    )Net loss per share:Basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.24
    )
    
    $
    (0.31
    )Weighted average common shares outstanding:Basic and diluted
    
    
    31,391
    
    
    
    31,651
    
    
    
    31,568
    
    
    
    31,290
  2




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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (7,571
    )
    
    $
    (9,702
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in)
operating activities:Minority interest
    
    
    187
    
    
    
    Provision for accounts receivable and sales returns and credits
    
    
    421
    
    
    
    500Depreciation and amortization
    
    
    1,507
    
    
    
    1,612Stock compensation expense
    
    
    2,214
    
    
    
    1,424Impairment of goodwill
    
    
    
    
    
    
    6,895Impairment of intangible assets
    
    
    
    
    
    
    690Impairment of property and equipment
    
    
    
    
    
    
    488Impairment of tooling equipment
    
    
    
    
    
    
    31Gain on sale of intellectual property assets, net
    
    
    (1,588
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    3,578
    
    
    
    (4,941
    )Inventories
    
    
    6,964
    
    
    
    (2,163
    )Prepaid expenses and other assets
    
    
    (1,799
    )
    
    
    912Accounts payable
    
    
    (3,083
    )
    
    
    (4,733
    )Accrued expenses and other current liabilities
    
    
    372
    
    
    
    (2,190
    )Net cash provided by (used in) operating activities
    
    
    1,202
    
    
    
    (11,177
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (609
    )
    
    
    (1,335
    )Proceeds from the sale of intellectual property assets
    
    
    1,850
    
    
    
    Sale of investments
    
    
    8,135
    
    
    
    10,249Purchase of investments
    
    
    
    
    
    
    (1,700
    )Net cash provided by investing activities
    
    
    9,376
    
    
    
    7,214Cash flows from financing activities:Payment of non-current liabilities
    
    
    (25
    )
    
    
    (25
    )Repurchase of common stock
    
    
    (2,147
    )
    
    
    Net proceeds from issuance of common stock and exercise of options
and warrants
    
    
    269
    
    
    
    687Net cash
provided by (used in) financing activities
    
    
    (1,903
    )
    
    
    662Effects of exchange rate changes on cash and cash equivalents
    
    
    17
    
    
    
    44Net increase (decrease) in cash and cash equivalents
    
    
    8,692
    
    
    
    (3,257
    )Cash and cash equivalents, beginning of period
    
    
    9,201
    
    
    
    13,637Cash and cash equivalents, end of period
    
    $
    17,893
    
    
    $
    10,380
  3




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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation
    Recent Accounting Pronouncements
    4




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(2) Stock-based Compensation
       5




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Nasdaq Rule2004 Directors Plan
    
    
    2004 Omnibus Plan
    
    
    4350(i)(1)(a)(iv) GrantWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageValue per
    
    
    
    
    
    
    Value per
    
    
    
    
    
    
    Value perNumber
    
    
    Share
    
    
    Number
    
    
    Share
    
    
    Number
    
    
    ShareOutstanding, December 31, 2006
    
    
    164,400
    
    
    $
    8.20
    
    
    
    914,164
    
    
    $
    7.36
    
    
    
    
    
    
    $
    Granted
    
    
    71,500
    
    
    
    2.96
    
    
    
    1,029,700
    
    
    
    3.44
    
    
    
    1,000,000
    
    
    
    2.96Canceled
    
    
    
    
    
    
    
    
    
    
    (442,964
    )
    
    
    5.62
    
    
    
    
    
    
    
    Released to common stock
    
    
    (96,900
    )
    
    
    8.28
    
    
    
    (165,396
    )
    
    
    7.21
    
    
    
    
    
    
    
    Released for settlement of taxes
    
    
    
    
    
    
    
    
    
    
    (66,416
    )
    
    
    7.15
    
    
    
    
    
    
    
    Outstanding, September 30, 2007
    
    
    139,000
    
    
    $
    5.44
    
    
    
    1,269,088
    
    
    $
    4.82
    
    
    
    1,000,000
    
    
    $
    2.96
 (3) Investments
     September 30, 2007
    
    
    December 31, 2006Net
    
    
    
    
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedHolding
    
    
    Aggregate
    
    
    
    
    
    
    HoldingAmortized
    
    
    Gains
    
    
    Fair
    
    
    Amortized
    
    
    Gains
    
    
    AggregateCost
    
    
    (Losses)
    
    
    Value
    
    
    Cost
    
    
    (Losses)
    
    
    Fair ValueU.S. corporate securities:Commercial paper
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,822
    
    
    $
    
    
    
    $
    3,822Corporate notes and bonds
    
    
    1,793
    
    
    
    (3
    )
    
    
    1,790
    
    
    
    2,974
    
    
    
    1
    
    
    
    2,975Asset backed securities  fixed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    645
    
    
    
    
    
    
    
    6451,793
    
    
    
    (3
    )
    
    
    1,790
    
    
    
    7,441
    
    
    
    1
    
    
    
    7,442U.S. government securities
    
    
    2,298
    
    
    
    4
    
    
    
    2,302
    
    
    
    700
    
    
    
    
    
    
    
    700$
    4,091
    
    
    $
    1
    
    
    $
    4,092
    
    
    $
    8,141
    
    
    $
    1
    
    
    $
    8,142
  September 30, 2007
    
    
    December 31, 2006Net
    
    
    
    
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedHolding
    
    
    Aggregate
    
    
    
    
    
    
    HoldingAmortized
    
    
    Gains
    
    
    Fair
    
    
    Amortized
    
    
    Gains
    
    
    AggregateCost
    
    
    (Losses)
    
    
    Value
    
    
    Cost
    
    
    (Losses)
    
    
    Fair ValueU.S. corporate securities:Corporate notes and bonds
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,344
    
    
    $
    (6
    )
    
    $
    2,338U.S. government securities
    
    
    558
    
    
    
    
    
    
    
    558
    
    
    
    2,297
    
    
    
    1
    
    
    
    2,298$
    558
    
    
    $
    
    
    
    $
    558
    
    
    $
    4,641
    
    
    $
    (5
    )
    
    $
    4,636
 6




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##### Table of Contents



(4) Inventories
  September 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    1,086
    
    
    $
    2,160Finished goods
    
    
    4,300
    
    
    
    10,190$
    5,386
    
    
    $
    12,350
   (5) Goodwill
  High-Power Group
    
    $
    3,675Low-Power Group
    
    
    237Reported balance at September 30, 2007
    
    $
    3,912
 (6) Intangible Assets
  September 30, 2007
    
    
    December 31, 2006Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetLife
    
    
    Intangible
    
    
    Accumulated
    
    
    Intangible
    
    
    Intangible
    
    
    Accumulated
    
    
    Intangible(Years)
    
    
    Assets
    
    
    Amortization
    
    
    Assets
    
    
    Assets
    
    
    Amortization
    
    
    AssetsAmortized intangible
assets:License fees
    
    
    7
    
    
    $
    334
    
    
    $
    (265
    )
    
    $
    69
    
    
    $
    934
    
    
    $
    (571
    )
    
    $
    363Patents and trademarks
    
    
    5
    
    
    
    3,430
    
    
    
    (1,691
    )
    
    
    1,739
    
    
    
    3,134
    
    
    
    (1,371
    )
    
    
    1,763Trade names
    
    
    10
    
    
    
    429
    
    
    
    (203
    )
    
    
    226
    
    
    
    429
    
    
    
    (168
    )
    
    
    261Customer list
    
    
    5
    
    
    
    813
    
    
    
    (224
    )
    
    
    589
    
    
    
    813
    
    
    
    (105
    )
    
    
    708Total
    
    
    
    
    
    $
    5,006
    
    
    $
    (2,383
    )
    
    $
    2,623
    
    
    $
    5,310
    
    
    $
    (2,215
    )
    
    $
    3,095
    7




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(7) Line of Credit
  (8) Income Taxes
    (9) Stockholders Equity
   8




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##### Table of Contents



(10) Net Loss per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic net loss per share computation:Numerator:Net loss
    
    $
    (760
    )
    
    $
    (9,743
    )
    
    $
    (7,571
    )
    
    $
    (9,702
    )Denominator:Weighted average number of common shares outstanding
    
    
    31,391
    
    
    
    31,651
    
    
    
    31,568
    
    
    
    31,290Basic net loss per share:
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.24
    )
    
    $
    (0.31
    )Diluted net loss per share computation:Numerator:Net loss
    
    $
    (760
    )
    
    $
    (9,743
    )
    
    $
    (7,571
    )
    
    $
    (9,702
    )Denominator:Weighted average number of common shares outstanding
    
    
    31,391
    
    
    
    31,651
    
    
    
    31,568
    
    
    
    31,290Effect of dilutive stock options, warrants, and restricted
stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,391
    
    
    
    31,651
    
    
    
    31,568
    
    
    
    31,290Diluted net loss per share:
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.24
    )
    
    $
    (0.31
    )Stock options not included in dilutive loss per share since
antidilutive
    
    
    287
    
    
    
    484
    
    
    
    287
    
    
    
    388Warrants not included in dilutive loss per share since antidilutive
    
    
    1,195
    
    
    
    1,195
    
    
    
    1,195
    
    
    
    1,195
 (11) Business Segments, Concentration of Credit Risk and Significant Customers
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:High-Power Group
    
    $
    10,699
    
    
    $
    14,638
    
    
    $
    35,032
    
    
    $
    44,969Low-Power Group
    
    
    6,429
    
    
    
    6,354
    
    
    
    17,173
    
    
    
    13,032Connectivity Group
    
    
    1,911
    
    
    
    3,178
    
    
    
    5,205
    
    
    
    15,154$
    19,039
    
    
    $
    24,170
    
    
    $
    57,410
    
    
    $
    73,155
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating income (loss):High-Power Group
    
    $
    623
    
    
    $
    3,412
    
    
    $
    550
    
    
    $
    9,115Low-Power Group
    
    
    1,344
    
    
    
    (1,127
    )
    
    
    975
    
    
    
    (1,379
    )Connectivity Group
    
    
    327
    
    
    
    (9,112
    )
    
    
    (281
    )
    
    
    (8,095
    )Corporate
    
    
    (3,380
    )
    
    
    (3,230
    )
    
    
    (11,710
    )
    
    
    (10,045
    )$
    (1,806
    )
    
    $
    (10,057
    )
    
    $
    (10,466
    )
    
    $
    (10,404
    )
 9




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September 30,
    
    
    December 31,2007
    
    
    2006Assets:High-Power Group
    
    $
    20,611
    
    
    $
    26,253Low-Power Group
    
    
    9,528
    
    
    
    13,362Connectivity Group
    
    
    3,422
    
    
    
    4,220Corporate
    
    
    22,543
    
    
    
    22,029$
    56,104
    
    
    $
    65,864
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006High-power mobile electronic power products
    
    $
    10,686
    
    
    $
    14,330
    
    
    $
    34,803
    
    
    $
    43,214Low-power mobile electronic power products
    
    
    5,703
    
    
    
    4,792
    
    
    
    14,646
    
    
    
    11,406Handheld products
    
    
    3
    
    
    
    1,895
    
    
    
    207
    
    
    
    10,913Expansion and docking products
    
    
    1,910
    
    
    
    1,300
    
    
    
    5,019
    
    
    
    4,268Portable keyboard products
    
    
    727
    
    
    
    1,554
    
    
    
    2,524
    
    
    
    1,721Accessories and other products
    
    
    10
    
    
    
    299
    
    
    
    211
    
    
    
    1,633Total revenues
    
    $
    19,039
    
    
    $
    24,170
    
    
    $
    57,410
    
    
    $
    73,155
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006North America (principally United States)
    
    $
    15,966
    
    
    $
    22,639
    
    
    $
    47,457
    
    
    $
    64,637Europe
    
    
    1,061
    
    
    
    1,221
    
    
    
    2,820
    
    
    
    4,440Asia Pacific
    
    
    2,011
    
    
    
    297
    
    
    
    7,124
    
    
    
    4,006All other
    
    
    1
    
    
    
    13
    
    
    
    9
    
    
    
    72$
    19,039
    
    
    $
    24,170
    
    
    $
    57,410
    
    
    $
    73,155
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006OEM and private-label-resellers
    
    
    41
    %
    
    
    63
    %
    
    
    52
    %
    
    
    63
    %Retailers and distributors
    
    
    46
    %
    
    
    32
    %
    
    
    37
    %
    
    
    30
    %Other
    
    
    13
    %
    
    
    5
    %
    
    
    11
    %
    
    
    7
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006High-power mobile electronic power products
    
    
    33
    %
    
    
    38
    %
    
    
    36
    %
    
    
    38
    %Low-power mobile electronic power products
    
    
    40
    %
    
    
    38
    %
    
    
    44
    %
    
    
    44
    %Handheld products
    
    
    
    %
    
    
    32
    %
    
    
    10
    %
    
    
    36
    %Expansion and docking products
    
    
    47
    %
    
    
    60
    %
    
    
    54
    %
    
    
    58
    %Accessories and other products
    
    
    
    %
    
    
    49
    %
    
    
    53
    %
    
    
    48
    %
  10




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##### Table of Contents



(12) Contingencies
     (13) Variable Interest Entities
  11




---



##### Table of Contents



Mobility(Amounts in thousands)
    
    VIE
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    624
    
    
    $
    17,893Short-term investments
    
    
    
    
    
    
    4,092Accounts receivable, net
    
    
    384
    *
    
    
    16,856Inventories
    
    
    947
    
    
    
    5,386Prepaid expenses and other current assets
    
    
    74
    
    
    
    529Total current assets
    
    
    2,029
    
    
    
    44,756Property and equipment, net
    
    
    318
    
    
    
    2,631Goodwill
    
    
    
    
    
    
    3,912Intangible assets, net
    
    
    
    
    
    
    2,623Long-term investments
    
    
    
    
    
    
    558Notes receivable (payable) and other assets
    
    
    (1,653)
    *
    
    
    1,624Total assets
    
    $
    694
    
    
    $
    56,104LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    397
    
    
    $
    9,134Accrued expenses and other current liabilities
    
    
    76
    *
    
    
    3,490Deferred revenue
    
    
    
    
    
    
    1,305Total current liabilities
    
    
    473
    
    
    
    13,929Minority interest
    
    
    187
    
    
    
    187Total liabilities
    
    
    660
    
    
    
    14,116Stockholders equity:
    
    
    34
    
    
    
    41,988Total liabilities and stockholders equity
    
    $
    694
    
    
    $
    56,104
 
 *
    
    Reflects the elimination of intercompany accounts and notes receivable. 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  12




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##### Table of Contents




    
    the loss of, and failure to replace, any significant customers;
    
    the inability to timely and successfully complete product development efforts and
introduce new products, including internal development projects and those being pursued
with strategic partners;
    
    the ineffectiveness of our sales and marketing strategy;
    
    the inability to create broad consumer awareness and acceptance for our products and
technology;
    
    the timing and success of competitive product development efforts, new product
introductions and pricing;
    
    the ability to expand and protect our proprietary rights and intellectual property;
    
    the timing of substantial customer orders;
    
    the lack of available qualified personnel;
    
    the inability to successfully resolve pending and unanticipated legal matters;
    
    the lack of available qualified suppliers and subcontractors and/or their inability
to meet our specification, performance, and quality requirements; and
    
    market demand and industry and general economic or business conditions.
  Mobility Electronics® and iGo® are trademarks or registered trademarks of Mobility
Electronics, Inc. or its subsidiaries in the United States and other countries. Other names and
brands may be claimed as the property of others.
 Overview
   High-Power Group.
 13




---



##### Table of Contents



Low-Power Group.
  Distribution Channels.
 Strategy.
 
    
    Focus on High-Volume SKUs We intend to reduce the number of stock keeping units,
or SKUs, we currently offer to eliminate low-volume products, such as customer-specific
packaging options with limited distribution. In addition, we will focus on offering
compatible tips only for those mobile electronic devices that meet specific sales
volume criteria and will discontinue tips for devices that fall below that threshold.
We have determined that we can significantly reduce the number of tip SKUs currently
offered and still maintain compatibility with approximately 94% of consumer electronics
devices in product categories currently supported. The reduction in SKUs is expected
to decrease our engineering expenses and facilitate improved inventory management. The
decision to reduce SKUs significantly contributed to the $3,734,000 inventory write-down
we recorded in the second quarter of 2007.
 14




---



##### Table of Contents




    
    Focus Marketing Expense on Sell-Through Initiatives We intend to discontinue
expenditures on national advertising campaigns that have not proven to positively
impact sales. Our future marketing expenditures will be focused on efforts that
directly support sell-through of our products to end-users, including co-op advertising
plans with major customers in the retail and wireless carrier channels, in-store
merchandising and training of store sales personnel.
 Recent Developments
     ®
 Critical Accounting Policies and Estimates
  Variable Interest Entities.
 15




---



##### Table of Contents



Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    70.0
    %
    
    
    71.4
    %
    
    
    77.0
    %
    
    
    70.7
    %Gross profit
    
    
    30.0
    %
    
    
    28.6
    %
    
    
    23.0
    %
    
    
    29.3
    %Operating expenses:Sales and marketing
    
    
    11.8
    %
    
    
    15.5
    %
    
    
    13.4
    %
    
    
    11.0
    %Research and development
    
    
    6.1
    %
    
    
    8.0
    %
    
    
    7.5
    %
    
    
    7.8
    %General and administrative
    
    
    17.8
    %
    
    
    13.4
    %
    
    
    20.4
    %
    
    
    13.7
    %Asset impairment
    
    
    0.0
    %
    
    
    33.4
    %
    
    
    0.0
    %
    
    
    11.0
    %Total operating expenses
    
    
    35.7
    %
    
    
    70.3
    %
    
    
    41.3
    %
    
    
    43.5
    %Loss from operations
    
    
    (5.7
    %)
    
    
    (41.6
    %)
    
    
    (18.2
    %)
    
    
    (14.2
    %)Other income (expense):Interest income, net
    
    
    1.5
    %
    
    
    1.3
    %
    
    
    1.5
    %
    
    
    1.3
    %Litigation settlement expense
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (0.3
    %)Gain on disposal of assets and other income (expense), net
    
    
    0.5
    %
    
    
    0.0
    %
    
    
    3.9
    %
    
    
    0.1
    %Minority interest
    
    
    (0.3
    %)
    
    
    0.0
    %
    
    
    (0.3
    %)
    
    
    0.0
    %Net loss
    
    
    (4.0
    %)
    
    
    (40.3
    %)
    
    
    (13.2
    %)
    
    
    (13.2
    %)
 Comparison of Three Months Ended September 30, 2007 and 2006
 Revenue .
 Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Increase/(decrease)
    
    
    Percentage changeSeptember 30,
    
    
    September 30,
    
    
    from same period
    
    
    from the same period2007
    
    
    2006
    
    
    in the prior year
    
    
    in the prior yearHigh-Power Group
    
    $
    10,699
    
    
    $
    14,638
    
    
    $
    (3,939
    )
    
    
    (26.9
    )%Low-Power Group
    
    
    6,429
    
    
    
    6,354
    
    
    
    75
    
    
    
    1.2
    %Connectivity Group
    
    
    1,911
    
    
    
    3,178
    
    
    
    (1,267
    )
    
    
    (39.9
    )%Total Revenue
    
    $
    19,039
    
    
    $
    24,170
    
    
    $
    (5,131
    )
    
    
    (21.2
    )%
 16




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##### Table of Contents



High-Power Group.
 Low-Power Group.
 Connectivity Group.
 Cost of revenue, gross profit and gross margin .
 Three Months
    
    Three MonthsEnded
    
    Ended
    
    Increase (decrease)
    
    Percentage change fromSeptember 30,
    
    September 30,
    
    from same period in
    
    the same period in the2007
    
    2006
    
    the prior year
    
    prior yearCost of revenue
    
    $
    13,334
    
    
    $
    17,246
    
    
    $
    (3,912
    )
    
    
    (22.7
    )%Gross profit
    
    $
    5,705
    
    
    $
    6,924
    
    
    $
    (1,219
    )
    
    
    (17.6
    )%Gross margin
    
    
    30.0
    %
    
    
    28.6
    %
    
    
    1.4
    %
    
    
    4.9
    %
  17




---



##### Table of Contents



Sales and marketing .
 Three Months
    
    Three MonthsEnded
    
    Ended
    
    Decrease
    
    Percentage changeSeptember 30,
    
    September 30,
    
    from same period
    
    from the same period2007
    
    2006
    
    in the prior year
    
    in the prior yearSales and marketing
    
    $
    2,242
    
    
    $
    3,742
    
    
    $
    (1,500
    )
    
    
    (40.1
    )%
  Research and development .
 Three Months
    
    Three MonthsEnded
    
    Ended
    
    Decrease from
    
    Percentage change fromSeptember 30,
    
    September 30,
    
    same period
    
    the same period in the2007
    
    2006
    
    in the prior year
    
    prior yearResearch and development
    
    $
    1,169
    
    
    $
    1,936
    
    
    $
    (767
    )
    
    
    (39.6
    )%
  General and administrative.
 Three Months
    
    Three MonthsEnded
    
    Ended
    
    Increase
    
    Percentage changeSeptember 30,
    
    September 30,
    
    from same period
    
    from the same period2007
    
    2006
    
    in the prior year
    
    in the prior yearGeneral and administrative
    
    $
    3,380
    
    
    $
    3,230
    
    
    $
    150
    
    
    
    4.6
    %
  Asset impairment.
 18




---



##### Table of Contents



Interest income (expense) net.
 Gain on disposal of assets and other income (expense) net .
 Minority interest.
 Income taxes .
 Comparison of Nine Months Ended September 30, 2007 and 2006
 Revenue .
 Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Increase/(decrease)
    
    
    Percentage changeSeptember
    
    
    September 30,
    
    
    from same period
    
    
    from the same period30, 2007
    
    
    2006
    
    
    in the prior year
    
    
    in the prior yearHigh-Power Group
    
    $
    35,032
    
    
    $
    44,969
    
    
    $
    (9,937
    )
    
    
    (22.1
    )%Low-Power Group
    
    
    17,173
    
    
    
    13,032
    
    
    
    4,141
    
    
    
    31.8
    %Connectivity Group
    
    
    5,205
    
    
    
    15,154
    
    
    
    (9,949
    )
    
    
    (65.7
    )%Total Revenue
    
    $
    57,410
    
    
    $
    73,155
    
    
    $
    (15,745
    )
    
    
    (21.5
    )%
 High-Power Group.
 Low-Power Group.
 19




---



##### Table of Contents



Connectivity Group.
 Cost of revenue, gross profit and gross margin .
 Nine
    
    NineMonths
    
    MonthsEnded
    
    Ended
    
    Decrease from same
    
    Percentage change fromSeptember
    
    September
    
    period in the prior
    
    the same period in the30, 2007
    
    30, 2006
    
    year
    
    prior yearCost of revenue
    
    $
    44,179
    
    
    $
    51,708
    
    
    $
    (7,529
    )
    
    
    (14.6
    )%Gross profit
    
    $
    13,231
    
    
    $
    21,447
    
    
    $
    (8,216
    )
    
    
    (38.3
    )%Gross margin
    
    
    23.0
    %
    
    
    29.3
    %
    
    
    (6.3
    )%
    
    
    (21.5
    )%
  Sales and marketing .
 Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Decrease
    
    Percentage changeSeptember
    
    September
    
    from same period
    
    from the same period30, 2007
    
    30, 2006
    
    in the prior year
    
    in the prior yearSales and marketing
    
    $
    7,683
    
    
    $
    8,027
    
    
    $
    (344
    )
    
    
    (4.3
    )%
 20




---



##### Table of Contents



Research and development .
 Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Decrease from
    
    Percentage change fromSeptember
    
    September 30,
    
    same period
    
    the same period in the30, 2007
    
    2006
    
    in the prior year
    
    prior yearResearch and development
    
    $
    4,303
    
    
    $
    5,706
    
    
    $
    (1,403
    )
    
    
    (24.6
    )%
  General and administrative.
 Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Increase
    
    Percentage changeSeptember 30,
    
    September 30,
    
    from same period
    
    from the same period2007
    
    2006
    
    in the prior year
    
    in the prior yearGeneral and administrative
    
    $
    11,711
    
    
    $
    10,045
    
    
    $
    1,666
    
    
    
    16.6
    %
  Asset impairment.
 Interest income (expense) net.
 Litigation settlement .
 21




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##### Table of Contents



Gain on disposal of assets and other income (expense) net .
 Minority interest.
 Income taxes .
 Operating Outlook
  
    
    Organizational Restructuring We reduced our total headcount by approximately 20%
in July 2007. The reduction in headcount reflects our commitment to more disciplined
processes and an increased focus on our most attractive and profitable opportunities.
We estimate that the restructuring action and other expense cuts in non-strategic areas
will reduce total operating expenses by approximately $1 million per quarter beginning
in the fourth quarter of 2007. The reduction in the fourth quarter of 2007 will be
offset in part by an anticipated increase in outside legal expense related to ongoing
intellectual property litigation.
    
    Focus on High-Volume SKUs We intend to reduce the number of SKUs we currently
offer to eliminate low-volume products, such as customer-specific packaging options
with limited distribution. In addition, we will focus on offering compatible tips only
for those mobile electronic devices that meet specific sales volume criteria and will
discontinue tips for devices that fall below that threshold. We have determined that
we can significantly reduce the number of tip SKUs currently offered and still maintain
compatibility with approximately 94% of consumer electronics devices in product
categories currently supported. The reduction in SKUs is expected to decrease our
engineering expenses and facilitate improved inventory management.
    
    Focus Marketing Expense on Sell-Through Initiatives We intend to discontinue
expenditures on national advertising campaigns that have not proven to positively
impact sales. Future marketing expenditures will be focused on efforts that directly
support sell-through of our products to end-users, including co-op advertising plans
with customers in the retail and wireless carrier channels, in-store merchandising and
training of store sales personnel.
   22




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##### Table of Contents



Liquidity and Capital Resources
  Nine Months Ended September 30,2007
    
    
    2006Net cash provided by (used in) operating activities
    
    $
    1,202
    
    
    $
    (11,177
    )Net cash provided by investing activities
    
    
    9,376
    
    
    
    7,214Net cash provided by (used in) financing activities
    
    
    (1,903
    )
    
    
    662Foreign currency exchange impact on cash flow
    
    
    17
    
    
    
    44Increase (decrease) in cash and cash equivalents
    
    $
    8,692
    
    
    $
    (3,257
    )Cash and cash equivalents at beginning of period
    
    $
    9,201
    
    
    $
    13,637Cash and cash equivalents at end of period
    
    $
    17,893
    
    
    $
    10,380
 Cash and Cash Flow
 
    
    Net cash provided by operating activities.Cash was provided by operating activities
for the nine months ended September 30, 2007 primarily as a result of collections of
accounts receivable and sales of inventories, partially offset by use of cash to pay
suppliers. Later in 2007, we expect to use some cash in operating activities as we
expect to incur operating losses, with changes in working capital having a relatively
neutral effect on cash flows. Our consolidated cash flow operating metrics are as
follows:
 September 30,2007
    
    2006Days outstanding in ending accounts receivable (DSOs)
    
    
    80
    
    
    
    90Inventory turns
    
    
    10
    
    
    
    4
 The decrease in DSOs at September 30, 2007 compared to September 30, 2006, was primarily
due to the timing of payments received from our large private-label reseller customer,
Targus. We do not expect a significant change in DSOs for the balance of 2007. The
increase in inventory turns was primarily due to excess and obsolete inventory charges
recorded during 2007 and during the fourth quarter of 2006 relating to our connectivity,
low-power and keyboard inventories. We expect to manage inventory growth during 2007 and
we expect inventory turns to remain relatively stable for the balance of 2007.
    
    Net cash provided by investing activities.For the nine months ended September 30,
2007, net cash was provided by investing activities as we generated proceeds from the
sale of investments of $8.1 million. We also generated proceeds from the sale of
intellectual property assets of $1.9 million, partially offset by the purchase of
property and equipment. We anticipate future investment in capital equipment,
primarily for tooling equipment to be used in the production of new products.
 23




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##### Table of Contents




    
    Net cash used in financing activities.Net cash was used in financing activities
for the nine months ended September 30, 2007, primarily as a result of our repurchase
of 689,656 shares of our common stock at a total price of $2.1 million. Although we
expect to generate cash flows from operations sufficient to support our operations, we
may issue additional shares of stock in the future to generate cash for growth
opportunities. We may also elect to use cash to repurchase shares of our common stock
in the future.
  Financing Facilities.
 Contractual Obligations.
 Payment due by period2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    More than 5 yearsOperating lease obligations
    
    $
    206
    
    
    $
    439
    
    
    $
    8
    
    
    $
    8
    
    
    $
    6
    
    
    $
    Inventory Purchase obligations
    
    
    15,740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    15,946
    
    
    $
    439
    
    
    $
    8
    
    
    $
    8
    
    
    $
    6
    
    
    $
    
 Off-Balance Sheet Arrangements.
 Acquisitions and Dispositions.
   24




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##### Table of Contents



Liquidity Outlook.
 Recent Accounting Pronouncements
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    25




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting
 
 PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   26




---



##### Table of Contents



ITEM 1A. RISK FACTORS
  27




---



##### Table of Contents



ITEM 5. OTHER INFORMATION
   
 ITEM 6. EXHIBITS
  28




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 SIGNATURES
  MOBILITY ELECTRONICS, INC.Dated: November 9, 2007
    By:
    /s/ Michael D. HeilMichael D. HeilPresident, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)By:
    /s/ Joan W. BrubacherJoan W. BrubacherExecutive Vice President and Chief Financial Officer
and Authorized Officer of Registrant
(Principal Financial Officer)By:
    /s/ Darryl S. BakerDarryl S. BakerVice
President, Chief Accounting Officer and Controller 29




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document3.1
    
    Certificate of Incorporation of the Company (1)3.2
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of June 17, 1997 (2)3.3
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of September 10, 1997 (1)3.4
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of July 20, 1998 (1)3.5
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of February 3, 2000 (1)3.6
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of March 31, 2000 (2)3.7
    
    Certificate of Designations, Preferences, Rights and Limitations of Series C Preferred Stock (1)3.8
    
    Certificate of the Designations, Preferences, Rights and Limitations of Series D Preferred Stock (3)3.9
    
    Certificate of the Designations, Preferences, Rights and Limitations of Series E Preferred Stock of
Mobility Electronics, Inc. (4)3.10
    
    Certificate of the Designations, Preferences, Rights and Limitations of Series F Preferred Stock of
Mobility Electronics, Inc. (4)3.11
    
    Certificate of Designations, Preferences, Rights and Limitations of Series G Junior Participating
Preferred Stock of Mobility Electronics, Inc. (5)3.12
    
    Amended and Restated Bylaws of the Company (6)31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002**
 
 *
    
    Filed herewith**
    
    Furnished herewith(1)
    
    Previously filed as an exhibit to Registration Statement No. 333-30264 dated February 11,
2000.(2)
    
    Previously filed as an exhibit to Amendment No. 2 to Registration Statement No. 333-30264 on
Form S-1 dated May 4, 2000.(3)
    
    Previously filed as an exhibit to Amendment No. 1 to Registration Statement No. 333-30264 on
Form S-1 dated March 28, 2000.(4)
    
    Previously filed as an exhibit to Current Report on Form 8-K filed on January 14, 2003.(5)
    
    Previously filed as an exhibit to Current Report on Form 8-K filed on June 19, 2003.(6)
    
    Previously filed as an exhibit to Form 10-Q for the period ended March 31, 2005. 30