##### 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 June 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.
    
    Financial Statements:
    
    
    1Condensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements Of Operations
    
    
    2Condensed Consolidated Statements Of Cash Flows
    
    
    3Notes To Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis Of Financial
Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    26PART II
    
    OTHER INFORMATION
    
    
    27Item 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 4.
    
    Submission of Matters to a Vote Of Security Holders
    
    
    28Item 5.
    
    Other Information
    
    
    28Item 9.
    
    Exhibits
    
    
    29SIGNATURES
    
    
    30EXHIBIT INDEX
    
    
    31EX-31.1EX-31.2EX-32.1
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PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS:
 MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 (unaudited)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,583
    
    
    $
    9,201Short-term investments
    
    
    4,113
    
    
    
    8,142Accounts receivable, net
    
    
    18,313
    
    
    
    20,855Inventories
    
    
    5,681
    
    
    
    12,350Prepaid expenses and other current assets
    
    
    460
    
    
    
    406Total current assets
    
    
    45,150
    
    
    
    50,954Property and equipment, net
    
    
    2,838
    
    
    
    2,980Goodwill
    
    
    3,912
    
    
    
    3,912Intangible assets, net
    
    
    2,691
    
    
    
    3,095Long-term investments
    
    
    1,746
    
    
    
    4,636Notes receivable and other assets
    
    
    1,662
    
    
    
    287Total assets
    
    $
    57,999
    
    
    $
    65,864LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    11,279
    
    
    $
    12,010Accrued expenses and other current liabilities
    
    
    3,779
    
    
    
    3,067Deferred revenue
    
    
    817
    
    
    
    1,357Current portion of non-current liabilities
    
    
    
    
    
    
    25Total current liabilities
    
    
    15,875
    
    
    
    16,459Minority interest
    
    
    127
    
    
    
    Total liabilities
    
    $
    16,002
    
    
    $
    16,459Stockholders equity:Common stock
    
    
    314
    
    
    
    317Additional paid-in capital
    
    
    166,844
    
    
    
    167,436Accumulated deficit
    
    
    (125,338
    )
    
    
    (118,527
    )Accumulated other comprehensive income
    
    
    177
    
    
    
    179Total stockholders equity
    
    
    41,997
    
    
    
    49,405Total liabilities and stockholders equity
    
    $
    57,999
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    19,508
    
    
    $
    26,147
    
    
    $
    38,371
    
    
    $
    48,984Cost of revenue
    
    
    17,389
    
    
    
    18,581
    
    
    
    30,846
    
    
    
    34,461Gross profit
    
    
    2,119
    
    
    
    7,566
    
    
    
    7,525
    
    
    
    14,523Operating expenses:Sales and marketing
    
    
    2,685
    
    
    
    2,256
    
    
    
    5,442
    
    
    
    4,285Research and development
    
    
    1,457
    
    
    
    1,897
    
    
    
    3,134
    
    
    
    3,770General and administrative
    
    
    4,744
    
    
    
    2,424
    
    
    
    8,330
    
    
    
    6,815Total operating expenses
    
    
    8,886
    
    
    
    6,577
    
    
    
    16,906
    
    
    
    14,870Income (loss) from operations
    
    
    (6,767
    )
    
    
    989
    
    
    
    (9,381
    )
    
    
    (347
    )Other income (expense):Interest income, net
    
    
    289
    
    
    
    315
    
    
    
    556
    
    
    
    618Litigation settlement expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )Gain on disposal of assets and other income, net
    
    
    1,837
    
    
    
    1
    
    
    
    2,141
    
    
    
    21Income (loss) before minority interest
    
    
    (4,641
    )
    
    
    1,305
    
    
    
    (6,684
    )
    
    
    42Minority interest
    
    
    (127
    )
    
    
    
    
    
    
    (127
    )
    
    
    Net income (loss)
    
    $
    (4,768
    )
    
    $
    1,305
    
    
    $
    (6,811
    )
    
    $
    42Net income (loss) per share:Basic
    
    $
    (0.15
    )
    
    $
    0.04
    
    
    $
    (0.22
    )
    
    $
    0.00Diluted
    
    $
    (0.15
    )
    
    $
    0.04
    
    
    $
    (0.22
    )
    
    $
    0.00Weighted average common shares outstanding:Basic
    
    
    31,574
    
    
    
    31,289
    
    
    
    31,657
    
    
    
    31,109Diluted
    
    
    31,574
    
    
    
    32,723
    
    
    
    31,657
    
    
    
    32,629
  2




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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    (6,811
    )
    
    $
    42Adjustments to reconcile net income (loss) to net cash provided by
(used in)
operating activities:Minority interest
    
    
    127
    
    
    
    Provision for accounts receivable and sales returns and credits
    
    
    188
    
    
    
    170Depreciation and amortization
    
    
    1,039
    
    
    
    968Stock compensation expense
    
    
    1,524
    
    
    
    977Impairment of tooling equipment
    
    
    
    
    
    
    31Gain on disposal of assets, net
    
    
    (1,588
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    2,355
    
    
    
    (4,270
    )Inventories
    
    
    6,669
    
    
    
    (840
    )Prepaid expenses and other assets
    
    
    175
    
    
    
    1,029Accounts payable
    
    
    (910
    )
    
    
    (4,121
    )Accrued expenses and other current liabilities
    
    
    172
    
    
    
    (1,943
    )Net cash provided by (used in) operating activities
    
    
    2,940
    
    
    
    (7,957
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (509
    )
    
    
    (709
    )Proceeds from the sale of intangible assets
    
    
    1,850
    
    
    
    Sale of investments
    
    
    5,062
    
    
    
    10,800Net cash provided by investing activities
    
    
    6,403
    
    
    
    10,091Cash 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
    
    
    206
    
    
    
    582Net cash provided by (used in) financing activities
    
    
    (1,966
    )
    
    
    557Effects of exchange rate changes on cash and cash equivalents
    
    
    5
    
    
    
    31Net increase in cash and cash equivalents
    
    
    7,382
    
    
    
    2,722Cash and cash equivalents, beginning of period
    
    
    9,201
    
    
    
    13,637Cash and cash equivalents, end of period
    
    $
    16,583
    
    
    $
    16,359
  3




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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation and 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
    
    
    
    721,200
    
    
    
    3.35
    
    
    
    1,000,000
    
    
    
    2.96Canceled
    
    
    
    
    
    
    
    
    
    
    (321,585
    )
    
    
    6.07
    
    
    
    
    
    
    
    Released to common stock
    
    
    (96,900
    )
    
    
    8.28
    
    
    
    (140,037
    )
    
    
    7.37
    
    
    
    
    
    
    
    Released for settlement of taxes
    
    
    
    
    
    
    
    
    
    
    (57,804
    )
    
    
    7.28
    
    
    
    
    
    
    
    Outstanding, June 30, 2007
    
    
    139,000
    
    
    $
    5.44
    
    
    
    1,115,938
    
    
    $
    5.14
    
    
    
    1,000,000
    
    
    $
    2.96
 (3) Investments
     June 30, 2007
    
    
    December 31, 2006Net
    
    
    
    
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedHolding
    
    
    
    
    
    
    
    
    
    
    HoldingAmortized
    
    
    Gains
    
    
    Aggregate Fair
    
    
    Amortized
    
    
    Gains
    
    
    AggregateCost
    
    
    (Losses)
    
    
    Value
    
    
    Cost
    
    
    (Losses)
    
    
    Fair ValueU.S. corporate securities:Commercial paper
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,822
    
    
    $
    
    
    
    $
    3,822Corporate notes and bonds
    
    
    2,416
    
    
    
    (3
    )
    
    
    2,413
    
    
    
    2,974
    
    
    
    1
    
    
    
    2,975Asset backed securities  fixed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    645
    
    
    
    
    
    
    
    6452,416
    
    
    
    (3
    )
    
    
    2,413
    
    
    
    7,441
    
    
    
    1
    
    
    
    7,442U.S. government securities
    
    
    1,702
    
    
    
    (2
    )
    
    
    1,700
    
    
    
    700
    
    
    
    
    
    
    
    700$
    4,118
    
    
    $
    (5
    )
    
    $
    4,113
    
    
    $
    8,141
    
    
    $
    1
    
    
    $
    8,142
 6




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June 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
    
    $
    1,155
    
    
    $
    (4
    )
    
    $
    1,151
    
    
    $
    2,344
    
    
    $
    (6
    )
    
    $
    2,338U.S. government securities
    
    
    596
    
    
    
    (1
    )
    
    
    595
    
    
    
    2,297
    
    
    
    1
    
    
    
    2,298$
    1,751
    
    
    $
    (5
    )
    
    $
    1,746
    
    
    $
    4,641
    
    
    $
    (5
    )
    
    $
    4,636
 (4) Inventories
  June 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    798
    
    
    $
    2,160Finished goods
    
    
    4,883
    
    
    
    10,190$
    5,681
    
    
    $
    12,350
   (5) Goodwill
  High-Power Group
    
    $
    3,675Low-Power Group
    
    
    237Reported balance at June 30, 2007
    
    $
    3,912
 (6) Intangible Assets
  June 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
    
    
    $
    (251
    )
    
    $
    83
    
    
    $
    934
    
    
    $
    (571
    )
    
    $
    363Patents and trademarks
    
    
    5
    
    
    
    3,338
    
    
    
    (1,598
    )
    
    
    1,740
    
    
    
    3,134
    
    
    
    (1,371
    )
    
    
    1,763Trade names
    
    
    10
    
    
    
    429
    
    
    
    (191
    )
    
    
    238
    
    
    
    429
    
    
    
    (168
    )
    
    
    261Customer list
    
    
    5
    
    
    
    813
    
    
    
    (183
    )
    
    
    630
    
    
    
    813
    
    
    
    (105
    )
    
    
    708Total
    
    
    
    
    
    $
    4,914
    
    
    $
    (2,223
    )
    
    $
    2,691
    
    
    $
    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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(10) Net Loss per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic net income (loss) per share computation:Numerator:Net income (loss)
    
    $
    (4,768
    )
    
    $
    1,305
    
    
    $
    (6,811
    )
    
    $
    42Denominator:Weighted average number of common shares outstanding
    
    
    31,574
    
    
    
    31,289
    
    
    
    31,657
    
    
    
    31,109Basic net income (loss) per share:
    
    $
    (0.15
    )
    
    $
    0.04
    
    
    $
    (0.22
    )
    
    $
    0.00Diluted net income (loss) per share computation:Numerator:Net income (loss)
    
    $
    (4,768
    )
    
    $
    1,305
    
    
    $
    (6,811
    )
    
    $
    42Denominator:Weighted average number of common shares outstanding
    
    
    31,574
    
    
    
    31,289
    
    
    
    31,657
    
    
    
    31,109Effect of dilutive stock options, warrants, and
restricted stock units
    
    
    
    
    
    
    1,434
    
    
    
    
    
    
    
    1,52031,574
    
    
    
    32,723
    
    
    
    31,657
    
    
    
    32,629Diluted net income (loss) per share:
    
    $
    (0.15
    )
    
    $
    0.04
    
    
    $
    (0.22
    )
    
    $
    0.00Stock options not included in dilutive net income per
share since antidilutive
    
    
    354
    
    
    
    492
    
    
    
    354
    
    
    
    381Warrants not included in dilutive net income per share
since antidilutive
    
    
    1,195
    
    
    
    1,195
    
    
    
    1,195
    
    
    
    1,190
 (11) Business Segments, Concentration of Credit Risk and Significant Customers
   9




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:High-Power Group
    
    $
    11,073
    
    
    $
    16,327
    
    
    $
    24,333
    
    
    $
    30,330Low-Power Group
    
    
    6,533
    
    
    
    3,835
    
    
    
    10,744
    
    
    
    6,511Connectivity Group
    
    
    1,902
    
    
    
    5,985
    
    
    
    3,294
    
    
    
    12,143$
    19,508
    
    
    $
    26,147
    
    
    $
    38,371
    
    
    $
    48,984
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating income (loss):High-Power Group
    
    $
    (1,996
    )
    
    $
    3,366
    
    
    $
    (72
    )
    
    $
    5,702Low-Power Group
    
    
    (253
    )
    
    
    (75
    )
    
    
    (370
    )
    
    
    (245
    )Connectivity Group
    
    
    227
    
    
    
    122
    
    
    
    (609
    )
    
    
    1,011Corporate
    
    
    (4,745
    )
    
    
    (2,424
    )
    
    
    (8,330
    )
    
    
    (6,815
    )$
    (6,767
    )
    
    $
    989
    
    
    $
    (9,381
    )
    
    $
    (347
    )
  June 30,
    
    
    December 31,2007
    
    
    2006Assets:High-Power Group
    
    $
    22,181
    
    
    $
    26,253Low-Power Group
    
    
    9,876
    
    
    
    13,362Connectivity Group
    
    
    3,499
    
    
    
    4,220Corporate
    
    
    22,443
    
    
    
    22,029$
    57,999
    
    
    $
    65,864
  10




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006High-power mobile electronic power products
    
    $
    11,034
    
    
    $
    15,899
    
    
    $
    24,117
    
    
    $
    28,884Low-power mobile electronic power products
    
    
    5,559
    
    
    
    3,608
    
    
    
    8,943
    
    
    
    6,614Handheld products
    
    
    24
    
    
    
    4,439
    
    
    
    204
    
    
    
    9,018Expansion and docking products
    
    
    1,889
    
    
    
    1,389
    
    
    
    3,109
    
    
    
    2,968Portable keyboard products
    
    
    974
    
    
    
    167
    
    
    
    1,797
    
    
    
    167Accessories and other products
    
    
    28
    
    
    
    645
    
    
    
    201
    
    
    
    1,333Total revenues
    
    $
    19,508
    
    
    $
    26,147
    
    
    $
    38,371
    
    
    $
    48,984
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006North America (principally United States)
    
    $
    16,325
    
    
    $
    22,002
    
    
    $
    31,491
    
    
    $
    41,998Europe
    
    
    605
    
    
    
    1,871
    
    
    
    1,760
    
    
    
    3,218Asia Pacific
    
    
    2,577
    
    
    
    2,220
    
    
    
    5,113
    
    
    
    3,709All other
    
    
    1
    
    
    
    54
    
    
    
    7
    
    
    
    59$
    19,508
    
    
    $
    26,147
    
    
    $
    38,371
    
    
    $
    48,984
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006OEM and private-label-resellers
    
    
    56
    %
    
    
    61
    %
    
    
    60
    %
    
    
    62
    %Retailers and distributors
    
    
    39
    %
    
    
    31
    %
    
    
    34
    %
    
    
    29
    %Other
    
    
    5
    %
    
    
    8
    %
    
    
    6
    %
    
    
    9
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006High-power mobile electronic power products
    
    
    38
    %
    
    
    38
    %
    
    
    38
    %
    
    
    38
    %Low-power mobile electronic power products
    
    
    45
    %
    
    
    46
    %
    
    
    46
    %
    
    
    48
    %Handheld products
    
    
    53
    %
    
    
    37
    %
    
    
    10
    %
    
    
    37
    %Expansion and docking products
    
    
    60
    %
    
    
    59
    %
    
    
    59
    %
    
    
    58
    %Accessories and other products
    
    
    53
    %
    
    
    48
    %
    
    
    52
    %
    
    
    48
    %
      11




---



##### Table of Contents



(12) Contingencies
     (13) Variable Interest Entities
   12




---



##### Table of Contents



(Amounts in thousands)
    
    VIE
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    800
    
    
    $
    16,583Short-term investments
    
    
    
    
    
    
    4,113Accounts receivable, net
    
    
    539
    *
    
    
    18,313Inventories
    
    
    787
    
    
    
    5,681Prepaid expenses and other current assets
    
    
    74
    
    
    
    460Total current assets
    
    
    2,200
    
    
    
    45,150Property and equipment, net
    
    
    335
    
    
    
    2,838Goodwill
    
    
    
    
    
    
    3,912Intangible assets, net
    
    
    
    
    
    
    2,691Long-term investments
    
    
    
    
    
    
    1,746Notes receivable (payable) and other assets
    
    
    (1,969)
    *
    
    
    1,662Total assets
    
    $
    566
    
    
    $
    57,999LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    303
    
    
    $
    11,279Accrued expenses and other current liabilities
    
    
    114
    *
    
    
    3,779Deferred revenue
    
    
    
    
    
    
    817Total current liabilities
    
    
    417
    
    
    
    15,875Minority interest
    
    
    127
    
    
    
    127Total liabilities
    
    
    544
    
    
    
    16,002Stockholders equity:
    
    
    22
    
    
    
    41,997Total liabilities and stockholders equity
    
    $
    566
    
    
    $
    57,999
 
 *
    
    Reflects the elimination of intercompany accounts and notes receivable. 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  13




---



##### 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.
 Low-Power Group.
 14




---



##### Table of Contents



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 inventory write-down we
recorded in the second quarter of 2007.
    
    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
   15




---



##### Table of Contents



®
 Critical Accounting Policies and Estimates
  Variable Interest Entities.
  16




---



##### Table of Contents



Results of Operations
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    89.1
    %
    
    
    71.1
    %
    
    
    80.4
    %
    
    
    70.4
    %Gross profit
    
    
    10.9
    %
    
    
    28.9
    %
    
    
    19.6
    %
    
    
    29.6
    %Operating expenses:Sales and marketing
    
    
    13.8
    %
    
    
    8.6
    %
    
    
    14.2
    %
    
    
    8.7
    %Research and development
    
    
    7.5
    %
    
    
    7.3
    %
    
    
    8.2
    %
    
    
    7.7
    %General and administrative
    
    
    24.3
    %
    
    
    9.3
    %
    
    
    21.7
    %
    
    
    13.9
    %Total operating expenses
    
    
    45.6
    %
    
    
    25.2
    %
    
    
    44.1
    %
    
    
    30.4
    %Income (loss) from operations
    
    
    (34.7
    %)
    
    
    3.8
    %
    
    
    (24.5
    %)
    
    
    (0.7
    %)Other income (expense):Interest, net
    
    
    1.5
    %
    
    
    1.2
    %
    
    
    1.4
    %
    
    
    1.3
    %Other, net
    
    
    9.4
    %
    
    
    0.0
    %
    
    
    5.6
    %
    
    
    (0.5
    %)Minority interest
    
    
    (0.7
    %)
    
    
    0.0
    %
    
    
    (0.3
    %)
    
    
    0.0
    %Net income (loss)
    
    
    (24.5
    %)
    
    
    5.0
    %
    
    
    (17.8
    %)
    
    
    0.1
    %
 Comparison of Three Months Ended June 30, 2007 and 2006
 Revenue .
 Three Months
    
    
    Three Months
    
    
    Increase/(decrease)
    
    
    Percentage changeEnded
    
    
    Ended
    
    
    from same period
    
    
    from the same periodJune 30, 2007
    
    
    June 30, 2006
    
    
    in the prior year
    
    
    in the prior yearHigh-Power Group
    
    $
    11,073
    
    
    $
    16,327
    
    
    $
    (5,254
    )
    
    
    (32.2
    )%Low-Power Group
    
    
    6,533
    
    
    
    3,835
    
    
    
    2,698
    
    
    
    70.4
    %Connectivity Group
    
    
    1,902
    
    
    
    5,985
    
    
    
    (4,083
    )
    
    
    (68.2
    )%Total Revenue
    
    $
    19,508
    
    
    $
    26,147
    
    
    $
    (6,639
    )
    
    
    (25.4
    )%
 High-Power Group.
 17




---



##### Table of Contents



Low-Power Group.
 Connectivity Group.
 Cost of revenue, gross profit and gross margin .
 Three Months
    
    Three Months
    
    Increase (decrease)
    
    Percentage change fromEnded
    
    Ended
    
    from same period in
    
    the same period in theJune 30, 2007
    
    June 30, 2006
    
    the prior year
    
    prior yearCost of revenue
    
    $
    17,389
    
    
    $
    18,581
    
    
    $
    (1,192
    )
    
    
    (6.4
    )%Gross profit
    
    $
    2,119
    
    
    $
    7,566
    
    
    $
    (5,447
    )
    
    
    (72.0
    )%Gross margin
    
    
    10.9
    %
    
    
    28.9
    %
    
    
    (18.0
    )%
    
    
    (62.3
    )%
  Sales and marketing .
 Three Months
    
    Three Months
    
    Increase
    
    Percentage changeEnded
    
    Ended
    
    from same period
    
    from the same periodJune 30, 2007
    
    June 30, 2006
    
    in the prior year
    
    in the prior yearSales and marketing
    
    $
    2,685
    
    
    $
    2,256
    
    
    $
    429
    
    
    
    19.0
    %
  18




---



##### Table of Contents



Research and development .
 Three Months
    
    Three Months
    
    Decrease from
    
    Percentage change fromEnded
    
    Ended
    
    same period
    
    the same period in theJune 30, 2007
    
    June 30, 2006
    
    in the prior year
    
    prior yearResearch and development
    
    $
    1,457
    
    
    $
    1,897
    
    
    $
    (440
    )
    
    
    (23.2
    )%
  General and administrative.
 Three Months
    
    Three Months
    
    Increase
    
    Percentage changeEnded
    
    Ended
    
    from same period
    
    from the same periodJune 30, 2007
    
    June 30, 2006
    
    in the prior year
    
    in the prior yearGeneral and administrative
    
    $
    4,744
    
    
    $
    2,424
    
    
    $
    2,320
    
    
    
    95.7
    %
  Interest income (expense) net.
 Gain on disposal of assets and other income (expense) net .
 Minority interest.
 Income taxes .
 19




---



##### Table of Contents



Comparison of Six months Ended June 30, 2007 and 2006
 Revenue .
 Six months
    
    
    Six months
    
    
    Increase/(decrease)
    
    
    Percentage changeEnded
    
    
    Ended
    
    
    from same period
    
    
    from the same periodJune 30, 2007
    
    
    June 30, 2006
    
    
    in the prior year
    
    
    in the prior yearHigh-Power Group
    
    $
    24,334
    
    
    $
    30,330
    
    
    $
    (5,996
    )
    
    
    (19.8
    )%Low-Power Group
    
    
    10,744
    
    
    
    6,511
    
    
    
    4,233
    
    
    
    65.0
    %Connectivity Group
    
    
    3,293
    
    
    
    12,143
    
    
    
    (8,850
    )
    
    
    (72.9
    )%Total Revenue
    
    $
    38,371
    
    
    $
    48,984
    
    
    $
    (10,613
    )
    
    
    (21.7
    )%
 High-Power Group.
 Low-Power Group.
 Connectivity Group.
 20




---



##### Table of Contents



Cost of revenue, gross profit and gross margin .
 Six months
    
    Six monthsEnded
    
    Ended
    
    Increase (decrease)
    
    Percentage change fromJune 30,
    
    June 30,
    
    from same period in
    
    the same period in the2007
    
    2006
    
    the prior year
    
    prior yearCost of revenue
    
    $
    30,846
    
    
    $
    34,461
    
    
    $
    (3,615
    )
    
    
    (10.5
    )%Gross profit
    
    $
    7,525
    
    
    $
    14,523
    
    
    $
    (6,998
    )
    
    
    (48.2
    )%Gross margin
    
    
    19.6
    %
    
    
    29.6
    %
    
    
    (10.0
    )%
    
    
    (33.8
    )%
  Sales and marketing .
 Six months
    
    Six months
    
    Increase
    
    Percentage changeEnded
    
    Ended
    
    from same period
    
    from the same periodJune 30, 2007
    
    June 30, 2006
    
    in the prior year
    
    in the prior yearSales and marketing
    
    $
    5,442
    
    
    $
    4,285
    
    
    $
    1,157
    
    
    
    27.0
    %
  Research and development .
 Six months
    
    Six months
    
    Decrease from
    
    Percentage change fromEnded
    
    Ended
    
    same period
    
    the same period in theJune 30, 2007
    
    June 30, 2006
    
    in the prior year
    
    prior yearResearch and development
    
    $
    3,134
    
    
    $
    3,770
    
    
    $
    (636
    )
    
    
    (16.9
    )%
  General and administrative.
 21




---



##### Table of Contents



Six months
    
    Six months
    
    Increase
    
    Percentage changeEnded
    
    Ended
    
    from same period
    
    from the same periodJune 30, 2007
    
    June 30, 2006
    
    in the prior year
    
    in the prior yearGeneral and administrative
    
    $
    8,330
    
    
    $
    6,815
    
    
    $
    1,515
    
    
    
    22.2
    %
  Interest income (expense) net.
 Gain on disposal of assets and other income (expense) net .
 Litigation settlement .
 Minority interest.
 Income taxes .
 Operating Outlook
  
    
    Termination of Motorola Sales Representative Agreement We terminated the sales
representative and distribution agreements that we had previously entered into with
Motorola, Inc. in March 2005. As a result of the termination of these agreements,
Motorola will forgo its right to receive a 24.5% share of the net profit generated from
our sale of power products for low-power mobile electronic devices.
 22




---



##### Table of Contents




    
    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 expect to record a restructuring charge of approximately $400,000 in the third
quarter of 2007 related to the reduction in workforce. 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 intellectual property
litigation that we recently initiated.
    
    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. The decision to
reduce SKUs significantly contributed to the inventory write-down recorded in the
second quarter of 2007.
    
    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 major customers in the retail and wireless carrier channels, in-store
merchandising and training of store sales personnel.
    Liquidity and Capital Resources
  Six Months Ended June 30,2007
    
    
    2006Net cash provided by (used in) operating activities
    
    $
    2,940
    
    
    $
    (7,957
    )Net cash provided by investing activities
    
    
    6,403
    
    
    
    10,091Net cash provided by (used in) financing activities
    
    
    (1,966
    )
    
    
    557Foreign currency exchange impact on cash flow
    
    
    5
    
    
    
    31Increase in cash and cash equivalents
    
    $
    7,382
    
    
    $
    2,722Cash and cash equivalents at beginning of period
    
    $
    9,201
    
    
    $
    13,637Cash and cash equivalents at end of period
    
    $
    16,583
    
    
    $
    16,359
 Cash and Cash Flow
 23




---



##### Table of Contents




    
    Net cash provided by operating activities.Cash was provided by operating activities
for the six months ended June 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 cash in operating activities as we expect to incur
operating losses, 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 30,2007
    
    2006Days outstanding in ending accounts receivable (DSOs)
    
    
    86
    
    
    
    87Inventory turns
    
    
    11
    
    
    
    5
 The decrease in DSOs at June 30, 2007 compared to June 30, 2006, was primarily due
to the timing of payments received from our large private-label reseller customer,
Targus. We expect DSOs to improve during 2007 as we expect to improve collections from
Targus. 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 continue to improve as we focus on
our strategy to grow low-power and high-power revenues in 2007.
    
    Net cash provided by investing activities.For the six months ended June 30, 2007,
net cash was provided by investing activities as we generated proceeds from the sale of
investments of $5.1 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.
    
    Net cash used in financing activities.Net cash was used in financing activities
for the six months ended June 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.
 24




---



##### Table of Contents



Contractual Obligations.
 Payment due by period2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    More than 5 yearsOperating lease obligations
    
    $
    444
    
    
    $
    492
    
    
    $
    19
    
    
    $
    
    
    
    $
    
    
    
    $
    Inventory Purchase obligations
    
    
    15,264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    15,708
    
    
    $
    492
    
    
    $
    19
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Off-Balance Sheet Arrangements.
 Acquisitions and Dispositions.
   Liquidity Outlook.
 25




---



##### Table of Contents



Recent Accounting Pronouncements
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 26




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
 
 PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
     27




---



##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities
 MaximumNumber (orApproximatedDollar Value) ofTotal Number of
    
    
    Shares that mayShares Purchased as
    
    
    yet be PurchasedTotal Number of
    
    
    Average Price Paid
    
    
    Part of a Publicly
    
    
    Under the PlanPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Announced Plan (1)
    
    
    or Program (1)April 1  30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1  31, 2007
    
    
    689,656
    
    
    $
    3.11
    
    
    
    
    
    
    
    June 1  30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    689,656
    
    
    $
    3.11
    
    
    
    
    
    
    
    
 
 (1)
    
    All of the shares were purchased in a privately-negotiated transaction and not part of any
plan or program. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Nominee
    
    For
    
    Withheld AuthorityLarry M. Carr
    
    
    26,487,770
    
    
    
    285,423
  
 ITEM 5. OTHER INFORMATION
   28




---



##### Table of Contents



ITEM 9. EXHIBITS
  29




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 SIGNATURES
  MOBILITY ELECTRONICS, INC.Dated:      August 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 30




---



##### 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 31