##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark
One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 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
  þ o
  o þ




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MOBILITY ELECTRONICS, INC.
FORM 10-Q
 TABLE OF CONTENTS
 PAGE NO.PART I: FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed
Consolidated Balance Sheets as of September 30, 2005 and
December 31, 2004 (restated)
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine months Ended September 30, 2005 and 2004 (restated)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three and Nine months Ended September 30, 2005 and 2004 (restated)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29INDEX TO EXHIBITSEX-31.1EX-31.2EX-32.1
 Restatement
    2




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS:
 MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)
    
    
    (restated)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,260
    
    
    $
    12,768Short-term investments
    
    
    20,938
    
    
    
    Accounts receivable, net
    
    
    19,666
    
    
    
    16,905Inventories
    
    
    10,348
    
    
    
    7,513Prepaid expenses and other current assets
    
    
    1,281
    
    
    
    443Total current assets
    
    
    64,493
    
    
    
    37,629Property and equipment, net
    
    
    2,324
    
    
    
    2,127Goodwill
    
    
    10,570
    
    
    
    10,570Intangible assets, net
    
    
    2,760
    
    
    
    3,059Notes receivable and other
    
    
    1,577
    
    
    
    2,032Total assets
    
    $
    81,724
    
    
    $
    55,417LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,061
    
    
    $
    12,411Accrued expenses and other current liabilities
    
    
    2,154
    
    
    
    1,514Current installments of non-current liabilities
    
    
    245
    
    
    
    328Total current liabilities
    
    
    17,460
    
    
    
    14,253Non-current liabilities, less current portion
    
    
    253
    
    
    
    463Total liabilities
    
    
    17,713
    
    
    
    14,716Stockholders equity:Convertible preferred stock
    
    
    
    
    
    
    3Common stock
    
    
    307
    
    
    
    285Additional paid-in capital
    
    
    165,586
    
    
    
    147,547Accumulated deficit
    
    
    (96,294
    )
    
    
    (106,692
    )Deferred compensation and other
    
    
    (5,705
    )
    
    
    (646
    )Accumulated other comprehensive income
    
    
    117
    
    
    
    204Total stockholders equity
    
    
    64,011
    
    
    
    40,701Total liabilities and stockholders equity
    
    $
    81,724
    
    
    $
    55,417
  3




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##### Table of Contents



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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(restated)
    
    
    
    
    
    
    (restated)Revenue
    
    $
    23,104
    
    
    $
    18,959
    
    
    $
    61,889
    
    
    $
    49,654Cost of revenue
    
    
    15,679
    
    
    
    13,102
    
    
    
    42,576
    
    
    
    34,838Gross profit
    
    
    7,425
    
    
    
    5,857
    
    
    
    19,313
    
    
    
    14,816Operating expenses:Marketing and sales
    
    
    1,921
    
    
    
    1,777
    
    
    
    5,819
    
    
    
    4,901Research and development
    
    
    1,813
    
    
    
    1,214
    
    
    
    4,727
    
    
    
    3,926General and administrative
    
    
    4,090
    
    
    
    2,743
    
    
    
    10,199
    
    
    
    8,344Total operating expenses
    
    
    7,824
    
    
    
    5,734
    
    
    
    20,745
    
    
    
    17,171Income (loss) from operations
    
    
    (399
    )
    
    
    123
    
    
    
    (1,432
    )
    
    
    (2,355
    )Other income (expense):Interest income (expense), net
    
    
    263
    
    
    
    (27
    )
    
    
    483
    
    
    
    (93
    )Gain on disposal of assets and other income (expense), net
    
    
    (6
    )
    
    
    (6
    )
    
    
    11,632
    
    
    
    14Income (loss) before provision for income tax
    
    
    (142
    )
    
    
    90
    
    
    
    10,683
    
    
    
    (2,434
    )Provision for income tax
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    Income (loss) from continuing operations
    
    
    (142
    )
    
    
    90
    
    
    
    10,398
    
    
    
    (2,434
    )Discontinued operations:Loss from discontinued operations of handheld software product line
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    (466
    )Net income (loss)
    
    $
    (142
    )
    
    $
    (206
    )
    
    $
    10,398
    
    
    $
    (2,900
    )Net income (loss) per share:BasicContinuing operations
    
    $
    (0.00
    )
    
    $
    0.00
    
    
    $
    0.35
    
    
    $
    (0.09
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.02
    )Total basic net income (loss) per share
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.35
    
    
    $
    (0.10
    )DilutedContinuing operations
    
    $
    (0.00
    )
    
    $
    0.00
    
    
    $
    0.33
    
    
    $
    (0.09
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.02
    )Total diluted net income (loss) per share
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.33
    
    
    $
    (0.10
    )Weighted average common shares outstanding:Basic
    
    
    30,358
    
    
    
    28,139
    
    
    
    29,746
    
    
    
    27,901Diluted
    
    
    32,670
    
    
    
    29,779
    
    
    
    31,762
    
    
    
    27,901
  4




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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Nine months endedSeptember 30,2005
    
    
    2004(restated)Cash flows from operating activities:Net income (loss)
    
    $
    10,398
    
    
    $
    (2,900
    )Less loss from discontinued operation
    
    
    
    
    
    
    466Income (loss) from continuing operations
    
    
    10,398
    
    
    
    (2,434
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Provision for accounts receivable and sales returns and credits
    
    
    390
    
    
    
    148Depreciation and amortization
    
    
    1,541
    
    
    
    1,502Amortization of deferred compensation
    
    
    1,111
    
    
    
    105Impairment of tooling equipment
    
    
    82
    
    
    
    (Gain) loss on disposal of assets
    
    
    (11,638
    )
    
    
    15Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,636
    )
    
    
    (3,942
    )Inventories
    
    
    (2,835
    )
    
    
    488Prepaid expenses and other assets
    
    
    (1,325
    )
    
    
    (602
    )Accounts payable
    
    
    2,634
    
    
    
    4,142Accrued expenses and other current liabilities
    
    
    603
    
    
    
    (33
    )Net cash used in operating activities
    
    
    (1,675
    )
    
    
    (611
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,081
    )
    
    
    (846
    )Proceeds from sale of intangible assets
    
    
    11,692
    
    
    
    Proceeds from sale of handheld software product line
    
    
    
    
    
    
    388Purchase of investments
    
    
    (20,968
    )
    
    
    Net cash used in investing activities
    
    
    (10,357
    )
    
    
    (458
    )Cash flows from financing activities:Payment of non-current liabilities
    
    
    (25
    )
    
    
    (125
    )Net proceeds from issuance of common stock
    
    
    10,228
    
    
    
    Proceeds from exercise of options, warrants, and repayment of
stock subscription notes receivable
    
    
    1,507
    
    
    
    1,093Net cash provided by financing activities
    
    
    11,710
    
    
    
    968Effects of exchange rate changes on cash and cash equivalents
    
    
    (59
    )
    
    
    8Net cash provided by (used in) discontinued operations
    
    
    (127
    )
    
    
    10Net decrease in cash and cash equivalents
    
    
    (508
    )
    
    
    (83
    )Cash and cash equivalents, beginning of period
    
    
    12,768
    
    
    
    11,024Cash and cash equivalents, end of period
    
    $
    12,260
    
    
    $
    10,941
  5




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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation
      Restatement
  6




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30, 2004
    
    
    September 30, 2004As
    
    
    
    
    
    
    
    
    
    
    Aspreviously
    
    
    
    
    
    
    
    
    
    
    previouslyQuarterly Information (Unaudited)
    
    reported
    
    
    Adjustments
    
    
    As restated
    
    
    reported
    
    
    Adjustments
    
    
    As restatedConsolidated Statement of OperationsGeneral and administrative
    
    $
    2,653
    
    
    $
    90
    
    
    $
    2,743
    
    
    $
    7,568
    
    
    $
    776
    
    
    $
    8,344Total operating expenses
    
    
    5,644
    
    
    
    90
    
    
    
    5,734
    
    
    
    16,395
    
    
    
    776
    
    
    
    17,171Income (loss) from operations
    
    
    213
    
    
    
    (90
    )
    
    
    123
    
    
    
    (1,579
    )
    
    
    (776
    )
    
    
    (2,355
    )Income (loss) before provision for income tax
    
    
    180
    
    
    
    (90
    )
    
    
    90
    
    
    
    (1,658
    )
    
    
    (776
    )
    
    
    (2,434
    )Income (loss) from continuing operations
    
    
    180
    
    
    
    (90
    )
    
    
    90
    
    
    
    (1,658
    )
    
    
    (776
    )
    
    
    (2,434
    )Net loss
    
    
    (116
    )
    
    
    (90
    )
    
    
    (206
    )
    
    
    (2,124
    )
    
    
    (776
    )
    
    
    (2,900
    )Net loss per shareTotal basic and diluted
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.08
    )
    
    $
    (0.02
    )
    
    $
    (0.10
    )
   As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedAs of and for the year ended December 31, 2004Balance Sheet:Goodwill
    
    $
    11,944
    
    
    $
    (1,374
    )
    
    $
    10,570Total assets
    
    
    56,791
    
    
    
    (1,374
    )
    
    
    55,417Accumulated deficit
    
    
    (105,318
    )
    
    
    (1,374
    )
    
    
    (106,692
    )Total stockholders equity
    
    
    42,075
    
    
    
    (1,374
    )
    
    
    40,701
 (2) Stock-based Compensation
  a. Stock Options
    7




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##### Table of Contents



Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(restated)
    
    
    
    
    
    (restated)Net income (loss):As reported
    
    $
    (142
    )
    
    $
    (206
    )
    
    $
    10,398
    
    
    $
    (2,900
    )Total stock-based employee compensation expense
determined under fair-value-based method for all
rewards, net of tax of $0 for all periods
    
    
    (45
    )
    
    
    (346
    )
    
    
    (1,913
    )
    
    
    (966
    )Pro forma
    
    $
    (187
    )
    
    $
    (552
    )
    
    $
    8,485
    
    
    $
    (3,866
    )Net income (loss) per share  basic:As reported
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.35
    
    
    $
    (0.10
    )Pro forma
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    0.29
    
    
    $
    (0.14
    )Net income (loss) per share  diluted:As reported
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.33
    
    
    $
    (0.10
    )Pro forma
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    0.27
    
    
    $
    (0.14
    )
  September 30,2005
    
    
    2004Expected life (years)
    
    
    3.0
    
    
    
    3.0Risk-free interest rate
    
    
    4.25
    %
    
    
    3.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    75.0
    %
    
    
    100.0
    %
 b. Restricted Stock Units
  (3) Investments
  8




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##### Table of Contents



Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    AggregateCost
    
    
    Holding Gains
    
    
    Holding Losses
    
    
    Fair ValueU.S. corporate securities:Commercial paper
    
    $
    4,756
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    4,754Corporate notes and bonds
    
    
    6,471
    
    
    
    
    
    
    
    (23
    )
    
    
    6,448Bankers acceptance
    
    
    995
    
    
    
    
    
    
    
    
    
    
    
    99512,222
    
    
    
    
    
    
    
    (25
    )
    
    
    12,197U.S. government securities
    
    
    8,746
    
    
    
    
    
    
    
    (5
    )
    
    
    8,741$
    20,968
    
    
    $
    
    
    
    $
    (30
    )
    
    $
    20,938
 (4) Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    2,089
    
    
    $
    2,122Finished goods
    
    
    8,259
    
    
    
    5,391$
    10,348
    
    
    $
    7,513
 (5) Goodwill
  High-Power Group
    
    $
    3,578Connectivity Group
    
    
    6,992Reported balance at September 30, 2005
    
    $
    10,570
 (6) Intangible Assets
  September 30, 2005
    
    
    December 31, 2004Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetLife
    
    
    Intangible
    
    
    Accumulated
    
    
    Intangible
    
    
    Intangible
    
    
    Accumulated
    
    
    Intangible(Years)
    
    
    Assets
    
    
    Amortization
    
    
    Assets
    
    
    Assets
    
    
    Amortization
    
    
    AssetsAmortized intangible
assets:License fees
    
    
    7
    
    
    $
    1,947
    
    
    $
    (678
    )
    
    $
    1,269
    
    
    $
    2,258
    
    
    $
    (843
    )
    
    $
    1,415Patents and trademarks
    
    
    3
    
    
    
    1,816
    
    
    
    (854
    )
    
    
    962
    
    
    
    1,921
    
    
    
    (994
    )
    
    
    927Trade names
    
    
    10
    
    
    
    378
    
    
    
    (117
    )
    
    
    261
    
    
    
    378
    
    
    
    (88
    )
    
    
    290Customer list
    
    
    10
    
    
    
    662
    
    
    
    (394
    )
    
    
    268
    
    
    
    662
    
    
    
    (235
    )
    
    
    427Total
    
    
    
    
    
    $
    4,803
    
    
    $
    (2,043
    )
    
    $
    2,760
    
    
    $
    5,219
    
    
    $
    (2,160
    )
    
    $
    3,059
  9




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##### Table of Contents



(7) Line of Credit
  (8) Non-current Liabilities
  September 30,
    
    
    December 31,2005
    
    
    2004Estimate of Invision earn-out
    
    $
    448
    
    
    $
    716Liability for license fee
    
    
    50
    
    
    
    75498
    
    
    
    791Less current portion
    
    
    245
    
    
    
    328Non-current liabilities, less current portion
    
    $
    253
    
    
    $
    463
   (9) Stockholders Equity
 ( a ) Convertible Preferred Stock
   ( b ) Common Stock
  10




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##### Table of Contents



(10) Discontinued Operations
   Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2004
    
    

September 30, 2004Revenue
    
    $
    186
    
    
    $
    1,063Cost of revenue
    
    
    14
    
    
    
    319Gross profit
    
    
    172
    
    
    
    744Selling, general and administrative expenses
    
    
    468
    
    
    
    1,210Total discontinued operations
    
    $
    (296
    )
    
    $
    (466
    )
 11




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##### Table of Contents



(11) Net Income (Loss) per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(restated)
    
    
    
    
    
    
    (restated)Basic net income (loss) per share computation:Numerator:Income (loss) from continuing operations
    
    $
    (142
    )
    
    $
    90
    
    
    $
    10,398
    
    
    $
    (2,434
    )Discontinued operations
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    (466
    )Net income (loss)
    
    $
    (142
    )
    
    $
    (206
    )
    
    $
    10,398
    
    
    $
    (2,900
    )Denominator:Weighted average number of common shares outstanding
    
    
    30,358
    
    
    
    28,139
    
    
    
    29,746
    
    
    
    27,901Basic net income (loss) per share:Continuing operations
    
    $
    (0.00
    )
    
    $
    0.00
    
    
    $
    0.35
    
    
    $
    (0.09
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.02
    )Total basic net income (loss) per share
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.35
    
    
    $
    (0.10
    )Diluted net income (loss) per share computation:Numerator:Income (loss) from continuing operations
    
    $
    (142
    )
    
    $
    90
    
    
    $
    10,398
    
    
    $
    (2,434
    )Discontinued operations
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    (466
    )Net income (loss)
    
    $
    (142
    )
    
    $
    (206
    )
    
    $
    10,398
    
    
    $
    (2,900
    )Denominator:Weighted average number of common shares outstanding
    
    
    30,358
    
    
    
    28,139
    
    
    
    29,746
    
    
    
    27,901Effect of dilutive stock options, warrants, and restricted stock units
    
    
    
    
    
    
    1,346
    
    
    
    1,874
    
    
    
    Dilutive effect of preferred shares if converted to common shares
at the beginning of the period
    
    
    
    
    
    
    294
    
    
    
    142
    
    
    
    30,358
    
    
    
    29,779
    
    
    
    31,762
    
    
    
    27,901Stock options, warrants and restricted stock units not included in
dilutive net income (loss) per share since antidilutive
    
    
    4,692
    
    
    
    
    
    
    
    
    
    
    
    2,299Convertible preferred stock not included in dilutive net income (loss)
per share since antidilutive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271Diluted net income (loss) per share:Continuing operations
    
    $
    (0.00
    )
    
    $
    0.00
    
    
    $
    0.33
    
    
    $
    (0.09
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.02
    )Total diluted net income (loss) per share
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.33
    
    
    $
    (0.10
    )
 (12) Business Segments, Concentration of Credit Risk and Significant Customers
 i i i i
 12




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##### Table of Contents



Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:High-Power Group
    
    $
    17,162
    
    
    $
    14,302
    
    
    $
    45,170
    
    
    $
    37,476itip Division
    
    
    1,875
    
    
    
    
    
    
    
    3,016
    
    
    
    Connectivity Group
    
    
    4,067
    
    
    
    4,657
    
    
    
    13,703
    
    
    
    12,178$
    23,104
    
    
    $
    18,959
    
    
    $
    61,889
    
    
    $
    49,654
 Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(restated)
    
    
    
    
    
    
    (restated)Operating income (loss):High-Power Group
    
    $
    4,229
    
    
    $
    2,120
    
    
    $
    8,773
    
    
    $
    4,712itip Division
    
    
    (715
    )
    
    
    
    
    
    
    (1,314
    )
    
    
    Connectivity Group
    
    
    177
    
    
    
    746
    
    
    
    1,308
    
    
    
    1,277Corporate
    
    
    (4,090
    )
    
    
    (2,743
    )
    
    
    (10,199
    )
    
    
    (8,344
    )$
    (399
    )
    
    $
    123
    
    
    $
    (1,432
    )
    
    $
    (2,355
    )
  September 30,
    
    
    December 31,2005
    
    
    2004(restated)Assets:High-Power Group
    
    $
    32,821
    
    
    $
    28,704itip Division
    
    
    
    
    
    
    Connectivity Group
    
    
    14,026
    
    
    
    12,333Corporate
    
    
    34,877
    
    
    
    14,380$
    81,724
    
    
    $
    55,417
   Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004High-power mobile electronic power products
    
    $
    14,782
    
    
    $
    11,420
    
    
    $
    39,595
    
    
    $
    30,427Low-power mobile electronic power products
    
    
    3,555
    
    
    
    1,681
    
    
    
    6,219
    
    
    
    3,699Handheld products
    
    
    2,499
    
    
    
    3,042
    
    
    
    8,869
    
    
    
    7,445Expansion and docking products
    
    
    1,579
    
    
    
    1,647
    
    
    
    4,917
    
    
    
    5,053Accessories and other products
    
    
    689
    
    
    
    1,171
    
    
    
    2,289
    
    
    
    3,030Total revenues
    
    $
    23,104
    
    
    $
    18,959
    
    
    $
    61,889
    
    
    $
    49,654
 Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004North America
    
    $
    19,946
    
    
    $
    16,070
    
    
    $
    52,948
    
    
    $
    41,078Europe
    
    
    1,402
    
    
    
    1,246
    
    
    
    4,076
    
    
    
    6,014Asia Pacific
    
    
    1,752
    
    
    
    1,627
    
    
    
    4,861
    
    
    
    2,484All other
    
    
    4
    
    
    
    16
    
    
    
    4
    
    
    
    78$
    23,104
    
    
    $
    18,959
    
    
    $
    61,889
    
    
    $
    49,654
 13




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##### Table of Contents



Three Months Ended
    
    Nine months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004OEM and private-label-resellers
    
    
    58
    %
    
    
    63
    %
    
    
    61
    %
    
    
    63
    %Retailers and distributors
    
    
    26
    %
    
    
    27
    %
    
    
    23
    %
    
    
    26
    %Other
    
    
    16
    %
    
    
    10
    %
    
    
    16
    %
    
    
    11
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Three Months Ended
    
    Nine months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004High-power mobile electronic power products
    
    
    36
    %
    
    
    38
    %
    
    
    36
    %
    
    
    39
    %Low-power mobile electronic power products
    
    
    46
    %
    
    
    34
    %
    
    
    47
    %
    
    
    33
    %Handheld products
    
    
    37
    %
    
    
    35
    %
    
    
    36
    %
    
    
    34
    %Expansion and docking products
    
    
    60
    %
    
    
    60
    %
    
    
    60
    %
    
    
    59
    %Accessories and other products
    
    
    48
    %
    
    
    48
    %
    
    
    47
    %
    
    
    48
    %
      (13) Contingencies
  14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 i
 
    
    the loss of, and failure to replace, any significant customers;
    
    changes in our relationships with customers, suppliers, distributors and/or partners in our business ventures;
    
    the timing and success of new product introductions;
    
    product developments, introductions and the pricing of competitors;
    
    the markets acceptance of our products and technology;
    
    the timing of substantial customer orders;
    
    unanticipated litigation, claims or assessments;
    
    the availability of qualified personnel;
    
    the performance of suppliers and subcontractors; and
    
    market demand and industry and general economic or business conditions.
  15




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##### Table of Contents



Restatement
  Overview
  i
 High-Power Group. i
 i tip Division. i i i i
 Connectivity Group. ®
  16




---



##### Table of Contents



Critical Accounting Policies and Estimates
    Revenue Recognition.
    Inventory Valuation.
 17




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##### Table of Contents



Goodwill and Intangible Assets Valuation. Goodwill and Other Intangible Assets
   Results of Operations
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004(restated)
    
    
    
    
    
    (restated)Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    67.9
    %
    
    
    69.1
    %
    
    
    68.8
    %
    
    
    70.2
    %Gross profit
    
    
    32.1
    %
    
    
    30.9
    %
    
    
    31.2
    %
    
    
    29.8
    %Operating expenses:Sales and marketing
    
    
    8.3
    %
    
    
    9.4
    %
    
    
    9.4
    %
    
    
    9.9
    %Research and development
    
    
    7.8
    %
    
    
    6.4
    %
    
    
    7.6
    %
    
    
    7.9
    %General and administrative
    
    
    17.7
    %
    
    
    14.5
    %
    
    
    16.5
    %
    
    
    16.8
    %Total operating expenses
    
    
    33.9
    %
    
    
    30.2
    %
    
    
    33.5
    %
    
    
    34.6
    %Income (loss) from operations
    
    
    (1.7
    %)
    
    
    0.6
    %
    
    
    (2.3
    %)
    
    
    (4.7
    %)Other income (expense):Interest, net
    
    
    1.1
    %
    
    
    (0.1
    %)
    
    
    0.8
    %
    
    
    (0.2
    %)Other, net
    
    
    (0.0
    %)
    
    
    (0.0
    %)
    
    
    18.8
    %
    
    
    0.0
    %Provision for income tax
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (0.5
    %)
    
    
    0.0
    %Income (loss) from continuing operations
    
    
    (0.6
    %)
    
    
    0.5
    %
    
    
    16.8
    %
    
    
    (4.9
    %)Loss from discontinued operations
    
    
    0.0
    %
    
    
    (1.6
    %)
    
    
    0.0
    %
    
    
    (0.9
    %)Net income (loss)
    
    
    (0.6
    %)
    
    
    (1.1
    %)
    
    
    16.8
    %
    
    
    (5.8
    %)
 18




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##### Table of Contents



Comparison of Three Months Ended September 30, 2005 and 2004
 Revenue .
 Increase (decrease)
    
    Percentage changefrom same period
    
    from the same periodQ3 2005
    

Q3 2004
    
    in the prior year
    
    in the prior yearHigh-Power Group
    
    $
    17,162
    
    
    $
    14,302
    
    
    $
    2,860
    
    
    
    20.0
    %itip Division
    
    
    1,875
    
    
    
    
    
    
    
    1,875
    
    
    
    Connectivity Group
    
    
    4,067
    
    
    
    4,657
    
    
    
    (590
    )
    
    
    (12.7
    %)Total Revenue
    
    $
    23,104
    
    
    $
    18,959
    
    
    $
    4,145
    
    
    
    21.9
    %
 High-Power Group.
 i tip Division. i i i i
 Connectivity Group.
 Cost of revenue, gross profit and gross margin .
 Increase from same
    
    Percentage change fromperiod in the prior
    
    the same period in theQ3 2005
    

Q3 2004
    
    year
    
    prior yearCost of revenue
    
    $
    15,679
    
    
    $
    13,102
    
    
    $
    2,577
    
    
    
    19.7
    %Gross profit
    
    $
    7,425
    
    
    $
    5,857
    
    
    $
    1,568
    
    
    
    26.8
    %Gross margin
    
    
    32.1
    %
    
    
    30.9
    %
    
    
    1.2
    %
    
    
    3.9
    %
  19




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##### Table of Contents



Sales and marketing .
 Increase
    
    Percentage changefrom same period
    
    from the same periodQ3 2005
    
    Q3 2004
    
    in the prior year
    
    in the prior yearSales and marketing
    
    $
    1,921
    
    
    $
    1,777
    
    
    $
    144
    
    
    
    8.1
    %
  Research and development .
 Increase
    
    Percentage changefrom same period
    
    from the same periodQ3 2005
    
    Q3 2004
    
    in the prior year
    
    in the prior yearResearch and development
    
    $
    1,813
    
    
    $
    1,214
    
    
    $
    599
    
    
    
    49.3
    %
  General and administrative.
 Increase
    
    Percentage changeQ3 2004
    
    from same period
    
    from the same periodQ3 2005
    
    (restated)
    
    in the prior year
    
    in the prior yearGeneral and administrative
    
    $
    4,090
    
    
    $
    2,743
    
    
    $
    1,347
    
    
    
    49.1
    %
  Interest income (expense) net.
 Increase
    
    Percentage changefrom same period
    
    from the same periodQ3 2005
    
    Q3 2004
    
    in the prior year
    
    in the prior yearInterest income
    
    $
    286
    
    
    $
    34
    
    
    $
    252
    
    
    
    714.2
    %Interest expense
    
    $
    23
    
    
    $
    61
    
    
    $
    (38
    )
    
    
    (62.3
    %)Net interest income
(expense)
    
    $
    263
    
    
    $
    (27
    )
    
    $
    290
    
    
    
    1,074.0
    %
 Other income (expense) net .
 Income taxes .
 20




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##### Table of Contents



Comparison of Nine months Ended September 30, 2005 and 2004
 Revenue .
 Nine monthsEnded
    
    Nine months
    
    Increase
    
    Percentage changeSeptember
    
    Ended September
    
    from same period
    
    from the same period30, 2005
    
    30, 2004
    
    in the prior year
    
    in the prior yearHigh-Power Group
    
    $
    45,170
    
    
    $
    37,476
    
    
    $
    7,694
    
    
    
    20.5
    %itip Division
    
    
    3,016
    
    
    
    
    
    
    
    3,016
    
    
    
    Connectivity Group
    
    
    13,703
    
    
    
    12,178
    
    
    
    1,525
    
    
    
    12.5
    %Total Revenue
    
    $
    61,889
    
    
    $
    49,654
    
    
    $
    12,235
    
    
    
    24.6
    %
 High-Power Group.
 i tip Division. i i i i
 Connectivity Group.
 Cost of revenue, gross profit and gross margin .
 Nine
    
    Ninemonths
    
    monthsEnded
    
    Ended
    
    Increase from same
    
    Percentage change fromSeptember
    
    September
    
    period in the prior
    
    the same period in the30, 2005
    
    30, 2004
    
    year
    
    prior yearCost of revenue
    
    $
    42,576
    
    
    $
    34,838
    
    
    $
    7,738
    
    
    
    22.2
    %Gross profit
    
    $
    19,313
    
    
    $
    14,816
    
    
    $
    4.497
    
    
    
    30.4
    %Gross margin
    
    
    31.2
    %
    
    
    29.8
    %
    
    
    1.4
    %
    
    
    4.7
    %
  21




---



##### Table of Contents



Sales and marketing .
 Ninemonths
    
    Nine monthsEnded
    
    Ended
    
    Increase
    
    Percentage changeSeptember
    
    September
    
    from same period
    
    from the same period30, 2005
    
    30, 2004
    
    in the prior year
    
    in the prior yearSales and marketing
    
    $
    5,819
    
    
    $
    4,901
    
    
    $
    918
    
    
    
    18.7
    %
  Research and development .
 Ninemonths
    
    Nine monthsEnded
    
    Ended
    
    Increase
    
    Percentage changeSeptember
    
    September
    
    from same period
    
    from the same period30, 2005
    
    30, 2004
    
    in the prior year
    
    in the prior yearResearch and development
    
    $
    4,727
    
    
    $
    3,926
    
    
    $
    801
    
    
    
    20.4
    %
  General and administrative.
 NineNine
    
    monthsmonths
    
    EndedEnded
    
    September
    
    Increase
    
    Percentage changeSeptember
    
    30, 2004
    
    from same period
    
    from the same period30, 2005
    
    (restated)
    
    in the prior year
    
    in the prior yearGeneral and
administrative
    
    $
    10,199
    
    
    $
    8,344
    
    
    $
    1,855
    
    
    
    22.2
    %
  22




---



##### Table of Contents



Interest income (expense) net.
 Nine
    
    Ninemonths
    
    monthsEnded
    
    Ended
    
    Increase
    
    Percentage changeSeptember
    
    September
    
    from same period
    
    from the same period30, 2005
    
    30, 2004
    
    in the prior year
    
    in the prior yearInterest income
    
    $
    553
    
    
    $
    100
    
    
    $
    453
    
    
    
    453.0
    %Interest expense
    
    $
    70
    
    
    $
    193
    
    
    $
    (123
    )
    
    
    (63.7
    )%Net interest income
(expense)
    
    $
    483
    
    
    $
    (93
    )
    
    $
    576
    
    
    
    619.5
    %
 Other income (expense) net .
 Income taxes .
 Operating Outlook
   
    
    improved economics in our itip Division resulting from improved pricing with RadioShack
that will take effect at the beginning of 2006;
    
    continued growth in sales of portable computer power products with current and new
partners, both domestically and internationally;
    
    continued growth in sales of our itip products driven by new products, strategic
partnerships, and new direct and indirect distribution partners including wireless
carriers, wireless distributors, and retailers;
    
    incremental revenue generated from expansion into new power areas such as rechargeable
batteries/chargers, including the anticipated introduction of jointly developed power
products with Energizer in 2006.
   23




---



##### Table of Contents



Liquidity and Capital Resources
  Nine months Ended September 30,2005
    
    
    2004Net cash used in operating activities
    
    $
    (1,675
    )
    
    $
    (611
    )Net cash used in investing activities
    
    
    (10,357
    )
    
    
    (458
    )Net cash provided by financing activities
    
    
    11,710
    
    
    
    968Foreign currency exchange impact on cash flow
    
    
    (59
    )
    
    
    8Net cash provided by (used in) discontinued operations
    
    
    (127
    )
    
    
    10Decrease in cash and cash equivalents
    
    $
    (508
    )
    
    $
    (83
    )Cash and cash equivalents at beginning of period
    
    $
    12,768
    
    
    $
    11,024Cash and cash equivalents at end of period
    
    $
    12,260
    
    
    $
    10,941
 Cash and Cash Flow
 
    
    Net cash used in operating activities.Cash was used in operating activities for the
nine months ended September 30, 2005 primarily for growth in inventory. In 2005, we
expect to use cash in operating activities as a result of anticipated operating losses
and changes in working capital. Our consolidated cash flow operating metrics are as
follows:
 September 30,2005
    
    2004Days outstanding in ending accounts receivable (DSOs)
    
    
    86
    
    
    
    83Inventory turns
    
    
    6
    
    
    
    6
 The increase in DSOs at September 30, 2005 compared to September 30, 2004, is
primarily due to a slow-down in payment by large customers, including RadioShack and
Motorola in connection with the ramp-up of various new programs with these customers. We
expect DSOs to remain consistent or to improve slightly throughout the remainder of 2005
and into 2006 as we continue to leverage our key OEM, private-label reseller and retail
customer relationships. Inventory turns remained consistent at September 30, 2005
compared to September 30, 2004. We expect to continue to manage inventory growth during
the remainder of 2005 and into 2006, and we expect inventory turns to remain consistent
as we increase sales volumes in the remainder of 2005 and into 2006.
    
    Net cash used in investing activities.As a result of funds received during the
nine months ended September 30, 2005 in connection with the sale of intellectual
property assets and equity investments made by RadioShack and Motorola, we invested
$21.0 million in various short-term corporate and government securities. These
investments were partially offset by net proceeds of $11.7 million received in
connection with our sale of intellectual property assets during the nine months ended
September 30, 2005. We also used cash for 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.
    
    Net cash provided by financing activities.Net cash provided by financing
activities for the nine months ended September 30, 2005 was primarily from net proceeds
from equity investments by RadioShack and Motorola combined with exercises of stock
options and warrants and payment of stock subscription receivables. Although we expect
to generate cash flows from operations sufficient to support our operations over the
long-term, we may issue additional shares of stock in the future to generate cash for
growth opportunities.
  24




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##### Table of Contents



Financing Facilities.
 Contractual Obligations.
 Payment due by period2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    More than 5 yearsOperating lease obligations
    
    $
    203
    
    
    $
    739
    
    
    $
    707
    
    
    $
    375
    
    
    $
    
    
    
    $
    Inventory Purchase obligations
    
    
    21,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    245
    
    
    
    228
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    22,253
    
    
    $
    967
    
    
    $
    732
    
    
    $
    375
    
    
    $
    
    
    
    $
    
 Off-Balance Sheet Arrangements.
 Acquisitions and dispositions.
    Liquidity Outlook.
 Recent Accounting Pronouncements
  25




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    26




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting Business Combinations





PART II: OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS




27



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##### Table of Contents



ITEM 6. EXHIBITS
  28




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 SIGNATURES
  MOBILITY ELECTRONICS, INC.Dated:      November 14, 2005
    By:
    /s/ Charles R. MolloCharles R. MolloPresident, 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 and Accounting Officer) 29




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document31.1
    
    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 30