##### 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
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   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




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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 June 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 2005
and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Three and Six Months Ended June 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 6. Exhibits
    
    
    27SIGNATURES
    
    
    28INDEX TO EXHIBITS
    
    
    29EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS:
 
 CONDENSED CONSOLIDATED BALANCE SHEETS MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS  (In thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,779
    
    
    $
    12,768Short-term investments
    
    
    13,214
    
    
    
    Accounts receivable, net
    
    
    16,672
    
    
    
    16,905Inventories
    
    
    7,519
    
    
    
    7,513Prepaid expenses and other current assets
    
    
    602
    
    
    
    443Total current assets
    
    
    59,786
    
    
    
    37,629Property and equipment, net
    
    
    2,200
    
    
    
    2,127Goodwill
    
    
    12,352
    
    
    
    11,944Intangible assets, net
    
    
    2,972
    
    
    
    3,059Notes receivable and other
    
    
    2,514
    
    
    
    2,032Total assets
    
    $
    79,824
    
    
    $
    56,791LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,985
    
    
    $
    12,411Accrued expenses and other current liabilities
    
    
    1,618
    
    
    
    1,514Current installments of non-current liabilities
    
    
    85
    
    
    
    328Total current liabilities
    
    
    14,688
    
    
    
    14,253Non-current liabilities, less current portion
    
    
    438
    
    
    
    463Total liabilities
    
    
    15,126
    
    
    
    14,716Stockholders equity:Convertible preferred stock
    
    
    
    
    
    
    3Common stock
    
    
    305
    
    
    
    285Additional paid-in capital
    
    
    165,027
    
    
    
    147,547Accumulated deficit
    
    
    (94,370
    )
    
    
    (105,318
    )Deferred compensation and other
    
    
    (6,422
    )
    
    
    (646
    )Accumulated other comprehensive income
    
    
    158
    
    
    
    204Total stockholders equity
    
    
    64,698
    
    
    
    42,075Total liabilities and stockholders equity
    
    $
    79,824
    
    
    $
    56,791
  3




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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands, except per share amounts)  (unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    20,427
    
    
    $
    16,651
    
    
    $
    38,785
    
    
    $
    30,695Cost of revenue
    
    
    14,016
    
    
    
    12,305
    
    
    
    26,897
    
    
    
    21,737Gross profit
    
    
    6,411
    
    
    
    4,346
    
    
    
    11,888
    
    
    
    8,958Operating expenses:Marketing and sales
    
    
    1,912
    
    
    
    1,468
    
    
    
    3,898
    
    
    
    3,126Research and development
    
    
    1,517
    
    
    
    1,287
    
    
    
    2,914
    
    
    
    2,711General and administrative
    
    
    2,859
    
    
    
    2,610
    
    
    
    5,701
    
    
    
    4,914Total operating expenses
    
    
    6,288
    
    
    
    5,365
    
    
    
    12,513
    
    
    
    10,751Income (loss) from operations
    
    
    123
    
    
    
    (1,019
    )
    
    
    (625
    )
    
    
    (1,793
    )Other income (expense):Interest income (expense), net
    
    
    183
    
    
    
    (46
    )
    
    
    221
    
    
    
    (66
    )Gain on disposal of assets and other income (expense), net
    
    
    11,638
    
    
    
    (2
    )
    
    
    11,638
    
    
    
    20Income (loss) before provision for income tax
    
    
    11,944
    
    
    
    (1,067
    )
    
    
    11,234
    
    
    
    (1,839
    )Provision for income tax
    
    
    285
    
    
    
    
    
    
    
    285
    
    
    
    Income (loss) from continuing operations
    
    
    11,659
    
    
    
    (1,067
    )
    
    
    10,949
    
    
    
    (1,839
    )Discontinued operations:Loss from discontinued operations of handheld software product line
    
    
    
    
    
    
    (167
    )
    
    
    
    
    
    
    (168
    )Net income (loss)
    
    $
    11,659
    
    
    $
    (1,234
    )
    
    $
    10,949
    
    
    $
    (2,007
    )Net income (loss) per share:BasicContinuing operations
    
    $
    0.39
    
    
    $
    (0.04
    )
    
    $
    0.37
    
    
    $
    (0.07
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.01
    )Total basic net income (loss) per share
    
    $
    0.39
    
    
    $
    (0.04
    )
    
    $
    0.37
    
    
    $
    (0.07
    )DilutedContinuing operations
    
    $
    0.36
    
    
    $
    (0.04
    )
    
    $
    0.35
    
    
    $
    (0.07
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.01
    )Total diluted net income (loss) per share
    
    $
    0.36
    
    
    $
    (0.04
    )
    
    $
    0.35
    
    
    $
    (0.07
    )Weighted average common shares outstanding:Basic
    
    
    30,278
    
    
    
    27,912
    
    
    
    29,439
    
    
    
    27,782Diluted
    
    
    32,017
    
    
    
    27,912
    
    
    
    31,095
    
    
    
    27,782
  4




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)  (unaudited)
 June 30,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    10,949
    
    
    $
    (2,007
    )Less loss from discontinued operation
    
    
    
    
    
    
    168Loss from continuing operations
    
    
    10,949
    
    
    
    (1,839
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Provision for accounts receivable and sales returns and credits
    
    
    212
    
    
    
    118Depreciation and amortization
    
    
    978
    
    
    
    1,046Amortization of deferred compensation
    
    
    728
    
    
    
    26Impairment of tooling equipment
    
    
    82
    
    
    
    Gain on disposal of assets
    
    
    (11,638
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    351
    
    
    
    (5,646
    )Inventories
    
    
    (6
    )
    
    
    345Prepaid expenses and other assets
    
    
    (962
    )
    
    
    (918
    )Accounts payable
    
    
    572
    
    
    
    6,007Accrued expenses and other current liabilities
    
    
    90
    
    
    
    246Net cash provided by (used in) operating activities
    
    
    1,356
    
    
    
    (615
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (692
    )
    
    
    (586
    )Proceeds from sale of intangible assets
    
    
    11,692
    
    
    
    Purchase of investments
    
    
    (14,019
    )
    
    
    Net cash used in investing activities
    
    
    (3,019
    )
    
    
    (586
    )Cash flows from financing activities:Payment of non-current liabilities
    
    
    (25
    )
    
    
    (125
    )Net proceeds from issuance of common stock
    
    
    9,942
    
    
    
    84Proceeds from exercise of options, warrants, and repayment of
stock subscription notes receivable
    
    
    881
    
    
    
    709Net cash provided by financing activities
    
    
    10,798
    
    
    
    668Effects of exchange rate changes on cash and cash equivalents
    
    
    (29
    )
    
    
    5Net cash used in discontinued operations
    
    
    (95
    )
    
    
    (98
    )Net increase (decrease) in cash and cash equivalents
    
    
    9,011
    
    
    
    (626
    )Cash and cash equivalents, beginning of period
    
    
    12,768
    
    
    
    11,024Cash and cash equivalents, end of period
    
    $
    21,779
    
    
    $
    10,398
  5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 (1) Basis of Presentation
      (2) Stock-based Compensation
  a. Stock Options
   6




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss):As reported
    
    $
    11,659
    
    
    $
    (1,234
    )
    
    $
    10,949
    
    
    $
    (2,007
    )Total stock-based employee compensation expense
determined under fair-value-based method for all
rewards, net of tax of $0 for all periods
    
    
    (59
    )
    
    
    (314
    )
    
    
    (1,956
    )
    
    
    (620
    )Pro forma
    
    $
    11,600
    
    
    $
    (1,548
    )
    
    $
    8,993
    
    
    $
    (2,627
    )Net income (loss) per share  basic:As reported
    
    $
    0.39
    
    
    $
    (0.04
    )
    
    $
    0.37
    
    
    $
    (0.07
    )Pro forma
    
    $
    0.38
    
    
    $
    (0.06
    )
    
    $
    0.31
    
    
    $
    (0.09
    )Net income (loss) per share  diluted:As reported
    
    $
    0.36
    
    
    $
    (0.04
    )
    
    $
    0.35
    
    
    $
    (0.07
    )Pro forma
    
    $
    0.36
    
    
    $
    (0.06
    )
    
    $
    0.29
    
    
    $
    (0.09
    )
  June 30,2005
    
    2004Expected life (years)
    
    
    3.0
    
    
    
    3.0Risk-free interest rate
    
    
    4.0
    %
    
    
    3.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    80.0
    %
    
    
    100.0
    %
 b. Restricted Stock Units
  7




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##### Table of Contents



(3) Investments
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    AggregateCost
    
    
    Holding Gains
    
    
    Holding Losses
    
    
    Fair ValueU.S. corporate securities:Commercial paper
    
    $
    2,975
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    2,973Corporate notes and bonds
    
    
    3,813
    
    
    
    
    
    
    
    (8
    )
    
    
    3,805Bankers acceptance
    
    
    987
    
    
    
    
    
    
    
    (2
    )
    
    
    9857,775
    
    
    
    
    
    
    
    (12
    )
    
    
    7,763U.S. government securities
    
    
    6,242
    
    
    
    
    
    
    
    (2
    )
    
    
    6,240$
    14,017
    
    
    $
    
    
    
    $
    (14
    )
    
    $
    14,003
 (4) Inventories
  June 30,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    2,338
    
    
    $
    2,122Finished goods
    
    
    5,181
    
    
    
    5,391$
    7,519
    
    
    $
    7,513
 (5) Goodwill
  High-Power
    
    
    itip
    
    
    ConnectivityGroup
    
    
    Division
    
    
    Group
    
    
    TotalReported balance at December 31, 2004
    
    $
    4,120
    
    
    $
    
    
    
    $
    7,824
    
    
    $
    11,944Miscellaneous direct acquisition costs related to
original indemnification of iGo officers
    
    
    408
    
    
    
    
    
    
    
    
    
    
    
    408Reported balance at June 30, 2005
    
    $
    4,528
    
    
    $
    
    
    
    $
    7,824
    
    
    $
    12,352
 (6) Intangible Assets
  June 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
    
    
    $
    (612
    )
    
    $
    1,335
    
    
    $
    2,258
    
    
    $
    (843
    )
    
    $
    1,415Patents and trademarks
    
    
    3
    
    
    
    1,762
    
    
    
    (717
    )
    
    
    1,045
    
    
    
    1,921
    
    
    
    (994
    )
    
    
    927Trade names
    
    
    10
    
    
    
    378
    
    
    
    (107
    )
    
    
    271
    
    
    
    378
    
    
    
    (88
    )
    
    
    290Customer list
    
    
    10
    
    
    
    662
    
    
    
    (341
    )
    
    
    321
    
    
    
    662
    
    
    
    (235
    )
    
    
    427Total
    
    
    
    
    
    $
    4,749
    
    
    $
    (1,777
    )
    
    $
    2,972
    
    
    $
    5,219
    
    
    $
    (2,160
    )
    
    $
    3,059
 8




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(7) Line of Credit
  (8) Non-current Liabilities
  June 30,
    
    
    December 31,2005
    
    
    2004Estimate of Invision earn-out
    
    $
    473
    
    
    $
    716Liability for license fee
    
    
    50
    
    
    
    75523
    
    
    
    791Less current portion
    
    
    85
    
    
    
    328Non-current liabilities, less current portion
    
    $
    438
    
    
    $
    463
   (9) Stockholders Equity
 ( a ) Convertible Preferred Stock
   ( b ) Common Stock
  9




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(10) Discontinued Operations
   Three Months Ended
    
    
    Six Months EndedJune 30, 2004
    
    
    June 30, 2004Revenue
    
    $
    410
    
    
    $
    877Cost of revenue
    
    
    163
    
    
    
    304Gross profit
    
    
    247
    
    
    
    573Selling, general and administrative expenses
    
    
    414
    
    
    
    741Total discontinued operations
    
    $
    (167
    )
    
    $
    (168
    )
 10




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##### Table of Contents



(11) Net Income (Loss) per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    

June 30,2005
    
    

2004
    
    

2005
    
    

2004Basic net income (loss) per share computation:Numerator:Income (loss) from continuing operations
    
    $
    11,659
    
    
    $
    (1,067
    )
    
    $
    10,949
    
    
    $
    (1,839
    )Discontinued operations
    
    
    
    
    
    
    (167
    )
    
    
    
    
    
    
    (168
    )Net income (loss)
    
    $
    11,659
    
    
    $
    (1,234
    )
    
    $
    10,949
    
    
    $
    (2,007
    )Denominator:Weighted average number of common shares outstanding
    
    
    30,278
    
    
    
    27,912
    
    
    
    29,439
    
    
    
    27,782Basic net income (loss) per share:Continuing operations
    
    $
    0.39
    
    
    $
    (0.04
    )
    
    $
    0.37
    
    
    $
    (0.07
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.01
    )Total basic net income (loss) per share
    
    $
    0.39
    
    
    $
    (0.04
    )
    
    $
    0.37
    
    
    $
    (0.07
    )Diluted net income (loss) per share computation:Numerator:Income (loss) from continuing operations
    
    $
    11,659
    
    
    $
    (1,067
    )
    
    $
    10,949
    
    
    $
    (1,839
    )Discontinued operations
    
    
    
    
    
    
    (167
    )
    
    
    
    
    
    
    (168
    )Net income (loss)
    
    $
    11,659
    
    
    $
    (1,234
    )
    
    $
    10,949
    
    
    $
    (2,007
    )Denominator:Weighted average number of common shares outstanding
    
    
    30,278
    
    
    
    27,912
    
    
    
    29,439
    
    
    
    27,782Effect of dilutive stock options, warrants, and restricted stock units
    
    
    1,584
    
    
    
    
    
    
    
    1,444
    
    
    
    Dilutive effect of preferred shares if converted to common shares
at the beginning of the period
    
    
    155
    
    
    
    
    
    
    
    212
    
    
    
    32,017
    
    
    
    27,912
    
    
    
    31,095
    
    
    
    27,782Stock options, warrants and restricted stock units not included in
dilutive net income (loss) per share since antidilutive
    
    
    
    
    
    
    2,337
    
    
    
    
    
    
    
    2,337Convertible preferred stock not included in dilutive net income (loss)
per share since antidilutive
    
    
    
    
    
    
    271
    
    
    
    
    
    
    
    271Diluted net income (loss) per share:Continuing operations
    
    $
    0.36
    
    
    $
    (0.04
    )
    
    $
    0.35
    
    
    $
    (0.07
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.01
    )Total diluted net income (loss) per share
    
    $
    0.36
    
    
    $
    (0.04
    )
    
    $
    0.35
    
    
    $
    (0.07
    )
 (12) Business Segments, Concentration of Credit Risk and Significant Customers
 i i i i
 11




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:High-Power Group
    
    $
    14,191
    
    
    $
    13,076
    
    
    $
    28,006
    
    
    $
    23,174itip Division
    
    
    1,141
    
    
    
    
    
    
    
    1,141
    
    
    
    Connectivity Group
    
    
    5,095
    
    
    
    3,575
    
    
    
    9,638
    
    
    
    7,521$
    20,427
    
    
    $
    16,651
    
    
    $
    38,785
    
    
    $
    30,695
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating income (loss):High-Power Group
    
    $
    3,027
    
    
    $
    1,672
    
    
    $
    4,561
    
    
    $
    2,590itip Division
    
    
    (599
    )
    
    
    
    
    
    
    (599
    )
    
    
    Connectivity Group
    
    
    554
    
    
    
    (81
    )
    
    
    1,114
    
    
    
    531Corporate
    
    
    (2,859
    )
    
    
    (2,610
    )
    
    
    (5,701
    )
    
    
    (4,914
    )$
    123
    
    
    $
    (1,019
    )
    
    $
    (625
    )
    
    $
    (1,793
    )
  June 30,
    
    
    December 31,2005
    
    
    2004Assets:High-Power Group
    
    $
    26,499
    
    
    $
    29,246itip Division
    
    
    
    
    
    
    Connectivity Group
    
    
    15,894
    
    
    
    13,165Corporate
    
    
    37,431
    
    
    
    14,380$
    79,824
    
    
    $
    56,791
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004High-power mobile electronic power products
    
    $
    13,030
    
    
    $
    10,156
    
    
    $
    24,813
    
    
    $
    19,007Low-power mobile electronic power products
    
    
    1,510
    
    
    
    2,018
    
    
    
    2,664
    
    
    
    2,018Handheld products
    
    
    3,565
    
    
    
    2,217
    
    
    
    6,370
    
    
    
    4,403Expansion and docking products
    
    
    1,547
    
    
    
    1,448
    
    
    
    3,338
    
    
    
    3,406Accessories and other products
    
    
    775
    
    
    
    812
    
    
    
    1,600
    
    
    
    1,861Total revenues
    
    $
    20,427
    
    
    $
    16,651
    
    
    $
    38,785
    
    
    $
    30,695
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004North America
    
    $
    17,433
    
    
    $
    14,225
    
    
    $
    33,002
    
    
    $
    25,006Europe
    
    
    1,432
    
    
    
    1,807
    
    
    
    2,674
    
    
    
    4,769Asia Pacific
    
    
    1,562
    
    
    
    594
    
    
    
    3,109
    
    
    
    856All other
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    64$
    20,427
    
    
    $
    16,651
    
    
    $
    38,785
    
    
    $
    30,695
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004OEM and private-label-resellers
    
    
    63
    %
    
    
    57
    %
    
    
    63
    %
    
    
    63
    %Retailers and distributors
    
    
    22
    %
    
    
    33
    %
    
    
    22
    %
    
    
    25
    %Other
    
    
    15
    %
    
    
    10
    %
    
    
    15
    %
    
    
    12
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 12




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004High-power mobile electronic power products
    
    
    37
    %
    
    
    39
    %
    
    
    36
    %
    
    
    40
    %Low-power mobile electronic power products
    
    
    49
    %
    
    
    32
    %
    
    
    43
    %
    
    
    32
    %Handheld products
    
    
    37
    %
    
    
    32
    %
    
    
    35
    %
    
    
    34
    %Expansion and docking products
    
    
    61
    %
    
    
    59
    %
    
    
    61
    %
    
    
    59
    %Accessories and other products
    
    
    46
    %
    
    
    50
    %
    
    
    46
    %
    
    
    48
    %
      (13) Contingencies
  13




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
    
    the loss of, and failure to replace, any significant customers;
    
    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;
    
    the availability of qualified personnel;
    
    the performance of suppliers and subcontractors; and
    
    market demand and industry and general economic or business conditions.
  Overview
  i
 High-Power Group.
 14




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##### Table of Contents



i
 i tip Division. i i i i
 Connectivity Group. ®
    Critical Accounting Policies and Estimates
  15




---



##### Table of Contents



Revenue Recognition.
    Inventory Valuation.
 Goodwill and Intangible Assets Valuation. Goodwill and Other Intangible Assets
  16




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##### Table of Contents



Results of Operations
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    68.6
    %
    
    
    73.9
    %
    
    
    69.3
    %
    
    
    70.8
    %Gross profit
    
    
    31.4
    %
    
    
    26.1
    %
    
    
    30.7
    %
    
    
    29.2
    %Operating expenses:Sales and marketing
    
    
    9.4
    %
    
    
    8.8
    %
    
    
    10.1
    %
    
    
    10.2
    %Research and development
    
    
    7.4
    %
    
    
    7.7
    %
    
    
    7.5
    %
    
    
    8.8
    %General and administrative
    
    
    14.0
    %
    
    
    15.7
    %
    
    
    14.7
    %
    
    
    16.0
    %Total operating expenses
    
    
    30.8
    %
    
    
    32.2
    %
    
    
    32.3
    %
    
    
    35.0
    %Income (loss) from operations
    
    
    0.6
    %
    
    
    (6.1
    %)
    
    
    (1.6
    %)
    
    
    (5.8
    %)Other income (expense):Interest, net
    
    
    0.9
    %
    
    
    (0.3
    %)
    
    
    0.6
    %
    
    
    (0.2
    %)Other, net
    
    
    57.0
    %
    
    
    (0.0
    %)
    
    
    30.0
    %
    
    
    0.1
    %Provision for income tax
    
    
    (1.4
    %)
    
    
    0.0
    %
    
    
    (0.7
    %)
    
    
    0.0
    %Income (loss) from continuing operations
    
    
    57.1
    %
    
    
    (6.4
    %)
    
    
    28.2
    %
    
    
    (6.0
    %)Loss from discontinued operations
    
    
    0.0
    %
    
    
    (1.0
    %)
    
    
    0.0
    %
    
    
    (0.5
    %)Net income (loss)
    
    
    57.1
    %
    
    
    (7.4
    %)
    
    
    28.2
    %
    
    
    (6.5
    %)
 Comparison of Three Months Ended June 30, 2005 and 2004
 Revenue .
 Percentage changeIncrease
    
    
    from the samefrom same period in
    
    
    period in the priorQ2 2005
    
    
    Q2 2004
    
    
    the prior year
    
    
    yearHigh-Power Group
    
    $
    14,191
    
    
    $
    13,076
    
    
    $
    1,115
    
    
    
    8.5%itip Division
    
    
    1,141
    
    
    
    
    
    
    
    1,141
    
    
    
    Connectivity Group
    
    
    5,095
    
    
    
    3,575
    
    
    
    1,520
    
    
    
    42.5%Total Revenue
    
    $
    20,427
    
    
    $
    16,651
    
    
    $
    3,776
    
    
    
    22.7%
 High-Power Group. i
 i tip Division. i i i
 17




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##### Table of Contents



i
 Connectivity Group.
 Cost of revenue, gross profit and gross margin .
 Percentage changeIncrease from same
    
    
    from the sameperiod in the prior
    
    
    period in the priorQ2 2005
    
    
    Q2 2004
    
    
    year
    
    
    yearCost of revenue
    
    $
    14,016
    
    
    $
    12,305
    
    
    $
    1,711
    
    
    
    13.9%Gross profit
    
    $
    6,411
    
    
    $
    4,346
    
    
    $
    2,065
    
    
    
    47.5%Gross margin
    
    
    31.4
    %
    
    
    26.1
    %
    
    
    5.3%
    
    
    
    20.3%
  Sales and marketing .
 Percentage changeIncrease
    
    
    from the samefrom same period in
    
    
    period in the priorQ2 2005
    
    
    Q2 2004
    
    
    the prior year
    
    
    yearSales and marketing
    
    $
    1,912
    
    
    $
    1,468
    
    
    $
    444
    
    
    
    30.2%
  Research and development .
 Percentage changeIncrease
    
    
    from the samefrom same period in
    
    
    period in the priorQ2 2005
    
    
    Q2 2004
    
    
    the prior year
    
    
    yearResearch and development
    
    $
    1,517
    
    
    $
    1,287
    
    
    $
    230
    
    
    
    17.9%
  General and administrative.
 18




---



##### Table of Contents



Percentage changeIncrease
    
    
    from the samefrom same period in
    
    
    period in the priorQ2 2005
    
    
    Q2 2004
    
    
    the prior year
    
    
    yearGeneral and administrative
    
    $
    2,859
    
    
    $
    2,610
    
    
    
    $249
    
    
    
    9.6%
  Interest income (expense) net.
 Percentage changeIncrease
    
    
    from the samefrom same period in
    
    
    period in the priorQ2 2005
    
    
    Q2 2004
    
    
    the prior year
    
    
    yearInterest income
    
    $
    207
    
    
    $
    29
    
    
    $
    178
    
    
    
    613.8%Interest expense
    
    
    24
    
    
    
    75
    
    
    
    (51)
    
    
    
    (68.0)%Interest income
(expense), net
    
    $
    183
    
    
    $
    (46
    )
    
    $
    229
    
    
    
    497.8%
 Other income (expense) net .
 Income taxes .
 Comparison of Six Months Ended June 30, 2005 and 2004
 Revenue .
 Percentage changeIncrease
    
    
    from the sameSix Months
    
    
    Six Months Ended
    
    
    from same period in
    
    
    period in the priorEnded June 30, 2005
    
    
    June 30, 2004
    
    
    the prior year
    
    
    yearHigh-Power Group
    
    
    $28,006
    
    
    
    $23,174
    
    
    
    $4,832
    
    
    
    20.9%itip Division
    
    
    1,141
    
    
    
    
    
    
    
    1,141
    
    
    
    Connectivity Group
    
    
    9,638
    
    
    
    7,521
    
    
    
    2,117
    
    
    
    28.1%Total Revenue
    
    
    $38,785
    
    
    
    $30,695
    
    
    
    $8,090
    
    
    
    26.4%
 High-Power Group.
 19




---



##### Table of Contents



i tip Division. i i i i
 Connectivity Group.
 Cost of revenue, gross profit and gross margin .
 Percentage changeIncrease from same
    
    
    from the sameSix Months
    
    
    Six Months Ended
    
    
    period in the prior
    
    
    period in the priorEnded June 30, 2005
    
    
    June 30, 2004
    
    
    year
    
    
    yearCost of revenue
    
    $
    26,897
    
    
    $
    21,737
    
    
    $
    5,160
    
    
    
    23.7%Gross profit
    
    $
    11,888
    
    
    $
    8,958
    
    
    $
    2,930
    
    
    
    32.7%Gross margin
    
    
    30.7%
    
    
    
    29.2%
    
    
    
    1.5%
    
    
    
    5.1%
  Sales and marketing .
 Percentage changeIncrease
    
    
    from the sameSix Months
    
    
    Six Months Ended
    
    
    from same period in
    
    
    period in the priorEnded June 30, 2005
    
    
    June 30, 2004
    
    
    the prior year
    
    
    yearSales and marketing
    
    $
    3,898
    
    
    $
    3,126
    
    
    $
    772
    
    
    
    24.7%
  Research and development .
 Percentage changeIncrease
    
    
    from the sameSix Months
    
    
    Six Months Ended
    
    
    from same period in
    
    
    period in the priorEnded June 30, 2005
    
    
    June 30, 2004
    
    
    the prior year
    
    
    yearResearch and development
    
    $
    2,914
    
    
    $
    2,711
    
    
    $
    203
    
    
    
    7.5%
  20




---



##### Table of Contents



General and administrative.
 Six Months
    
    Six Months Ended
    
    Increase
    
    Percentage changeEnded June
    
    June
    
    from same period
    
    from the same period30, 2005
    
    30, 2004
    
    in the prior year
    
    in the prior yearGeneral and
administrative
    
    $
    5,701
    
    
    $
    4,914
    
    
    $
    787
    
    
    
    16.0
    %
  Interest income (expense) net.
 Increase
    
    Percentage changefrom same period
    
    from the same periodQ2 2005
    
    Q2 2004
    
    in the prior year
    
    in the prior yearInterest income
    
    $
    267
    
    
    $
    67
    
    
    $
    200
    
    
    
    298.5
    %Interest expense
    
    
    46
    
    
    
    133
    
    
    
    (87
    )
    
    
    (65.4
    )%Interest income
(expense), net
    
    $
    221
    
    
    $
    (66
    )
    
    $
    287
    
    
    
    434.8
    %
 Other income (expense) net .
 Income taxes .
 Operating Outlook
  
    
    Continued growth in sales of itip products driven by new products, new accounts and the
continued ramp-up of new distribution partners such as The Carphone Warehouse, Monster
Cable, Targus, Micro Innovations, the Source by Circuit City, Apple and the palmOne and
Treo online stores.
    
    Continued growth in sales of high-power products as accounts such as Wal-Mart, PC World,
Staples, Xantrex, and The Sharper Image begin and/or continue to ramp-up.
    
    The continued rollout of our itip products to wireless carriers, distributors and
retailers through Motorolas distribution channels.
    
    Incremental revenue generated from expansion into new power areas such as rechargeable
batteries/chargers, portable power inverters, and solar-powered chargers.
    
    The anticipated introduction of jointly developed itip products with Energizer in early
2006.
 21




---



##### Table of Contents




    
    Improved economics in the itip Division resulting from the new terms in place with
RadioShack that will take full effect at the beginning of 2006.
 i
    Liquidity and Capital Resources
  Six Months Ended June 30,2005
    
    
    2004Net cash provided by (used in) operating activities
    
    $
    48
    
    
    $
    (615
    )Net cash used in investing activities
    
    
    (1,711
    )
    
    
    (586
    )Net cash provided by financing activities
    
    
    10,798
    
    
    
    668Foreign currency exchange impact on cash flow
    
    
    (29
    )
    
    
    5Net cash used in discontinued operations
    
    
    (95
    )
    
    
    (98
    )Increase (decrease) in cash and cash equivalents
    
    $
    9,011
    
    
    $
    (626
    )Cash and cash equivalents at beginning of period
    
    $
    12,768
    
    
    $
    11,024Cash and cash equivalents at end of period
    
    $
    21,779
    
    
    $
    10,398
 Cash and Cash Flow
 
    
    Net cash provided by (used in) operating activities.Cash was provided by operating
activities for the six months ended June 30, 2005 primarily from operating income. In
2005, we expect to generate positive cash flow from operating activities as we expect
our operating results to be at or near breakeven with non-cash items and changes in
working capital to have a relatively neutral effect on cash flows. Our consolidated
cash flow operating metrics are as follows:
 June 30,2005
    
    2004Days outstanding in ending accounts receivable (DSOs)
    
    
    77
    
    
    
    95Inventory turns
    
    
    7
    
    
    
    6
 The improvement in DSOs at June 30, 2005 compared to June 30, 2004, is primarily due
to the gross-up of accounts receivable from RadioShack with respect to sales of products
manufactured by RadioShack but for which we did not recognize revenue during the six
months ended June 30, 2004. For the six months ended June
 22




---



##### Table of Contents



30, 2005 we were able to offset similar accounts receivable with corresponding accounts
payable. Also, the improvement is a result of more timely collection of accounts
receivable. We expect DSOs to remain consistent or to improve slightly throughout the
remainder of 2005 as we continue to leverage our key OEM, private-label reseller and
retail customer relationships. The improvement in inventory turns is primarily due to
increased sales during the six months ended June 30, 2005 without a corresponding
increase in inventory. We expect to continue to manage inventory growth during the
remainder of 2005, and we expect inventory turns to remain consistent or improve slightly
as we increase sales volumes in the remainder of 2005.
 
    
    Net cash used in investing activities.As a result of funds received during the six
months ended June 30, 2005 in connection with the sale of intellectual property assets
and equity investments made by RadioShack and Motorola, we invested $14.0 million in
various short and long-term corporate and government securities. These investments
were partially offset by gross proceeds of $13.0 million received in connection with
our sale of intellectual property assets during the six months ended June 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 six months ended June 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, we may issue
additional shares of stock in the future to generate cash for growth opportunities.
  Financing Facilities.
 Contractual Obligations.
 Payment due by period2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    More than 5 yearsOperating lease obligations
    
    $
    390
    
    
    $
    688
    
    
    $
    678
    
    
    $
    375
    
    
    $
    
    
    
    $
    Inventory Purchase obligations
    
    
    22,725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    85
    
    
    
    413
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    23,200
    
    
    $
    1,101
    
    
    $
    703
    
    
    $
    375
    
    
    $
    
    
    
    $
    
 Off-Balance Sheet Arrangements.
 Acquisitions and dispositions.
 23




---



##### Table of Contents



Liquidity Outlook.
 Recent Accounting Pronouncements
     24




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
  
 PART II: OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  25




---



##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  26




---



##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    The re-election of Jeffrey R. Harris and William O. Hunt as Class II members of our
Board of Directors to serve until the 2008 annual meeting of stockholders and until their
respective successors have been elected and qualified; and2.
    
    The selection of KPMG LLP as our independent registered public accounting firm for the
year ending December 31, 2005.
  Shares
    
    Shares
    
    
    
    
    
    Abstention/Voted
    
    Voted
    
    Shares
    
    BrokerFor
    
    Against
    
    Withheld
    
    Non-Votes1. Election of Directors:Jeffrey R. Harris
    
    
    25,492,266
    
    
    
    
    
    
    
    665,923
    
    
    
    William O. Hunt
    
    
    25,398,025
    
    
    
    
    
    
    
    760,164
    
    
    
    2. Ratification of KPMG LLP
as independent registered
public accounting firm
    
    
    25,730,036
    
    
    
    139,835
    
    
    
    
    
    
    
    288,318
  
 ITEM 6. EXHIBITS
  27




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 SIGNATURES
  MOBILITY ELECTRONICS, INC.Dated: August 9, 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) 28




---



##### 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 29