##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 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 INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Condensed Consolidated Balance Sheets
as of March 31, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2006
and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22PART II: OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    22Item 1A.
    
    Risk Factors
    
    
    23Item 6.
    
    Exhibits
    
    
    23SIGNATURES
    
    
    24INDEX TO EXHIBITS
    
    
    25EX-10.1Exhibit 10.2EX-31.1EX-31.2EX-32.1
  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)
 March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,798
    
    
    $
    13,637Short-term investments
    
    
    15,133
    
    
    
    20,286Accounts receivable, net
    
    
    19,089
    
    
    
    18,778Inventories
    
    
    15,087
    
    
    
    13,373Prepaid expenses and other current assets
    
    
    468
    
    
    
    565Total current assets
    
    
    61,575
    
    
    
    66,639Property and equipment, net
    
    
    2,617
    
    
    
    2,410Goodwill
    
    
    10,570
    
    
    
    10,570Intangible assets, net
    
    
    2,562
    
    
    
    2,720Notes receivable and other assets
    
    
    1,358
    
    
    
    1,571Total assets
    
    $
    78,682
    
    
    $
    83,910LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,463
    
    
    $
    17,606Accrued expenses and other current liabilities
    
    
    2,830
    
    
    
    2,694Current portion of litigation settlement liability
    
    
    250
    
    
    
    3,000Current portion of non-current liabilities
    
    
    431
    
    
    
    437Total current liabilities
    
    
    18,974
    
    
    
    23,737Non-current portion of litigation settlement liability
    
    
    
    
    
    
    799Other non-current liabilities, less current portion
    
    
    
    
    
    
    25Total liabilities
    
    
    18,974
    
    
    
    24,561Stockholders equity:Common stock
    
    
    310
    
    
    
    308Additional paid-in capital
    
    
    162,223
    
    
    
    160,622Accumulated deficit
    
    
    (102,948
    )
    
    
    (101,685
    )Accumulated other comprehensive income
    
    
    123
    
    
    
    104Total stockholders equity
    
    
    59,708
    
    
    
    59,349Total liabilities and stockholders equity
    
    $
    78,682
    
    
    $
    83,910
  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 EndedMarch 31,2006
    
    
    2005Revenue
    
    $
    22,837
    
    
    $
    18,358Cost of revenue
    
    
    15,880
    
    
    
    12,881Gross profit
    
    
    6,957
    
    
    
    5,477Operating expenses:Marketing and sales
    
    
    2,029
    
    
    
    1,986Research and development
    
    
    1,873
    
    
    
    1,397General and administrative
    
    
    4,391
    
    
    
    3,059Total operating expenses
    
    
    8,293
    
    
    
    6,442Loss from operations
    
    
    (1,336
    )
    
    
    (965
    )Other income (expense):Interest income (expense), net
    
    
    303
    
    
    
    38Litigation settlement expense
    
    
    (250
    )
    
    
    Other income (expense), net
    
    
    20
    
    
    
    Net loss
    
    $
    (1,263
    )
    
    $
    (927
    )Basic and diluted net loss per common share
    
    $
    (0.04
    )
    
    $
    (0.03
    )Basic and diluted weighted average common shares outstanding
    
    
    30,929
    
    
    
    28,601
  4




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (1,263
    )
    
    $
    (927
    )Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:Provision for accounts receivable and sales returns and credits
    
    
    37
    
    
    
    94Depreciation and amortization
    
    
    459
    
    
    
    466Stock compensation expense
    
    
    518
    
    
    
    338Impairment of tooling equipment
    
    
    
    
    
    
    82Changes in operating assets and liabilities:Accounts receivable
    
    
    (347
    )
    
    
    148Inventories
    
    
    (1,714
    )
    
    
    (746
    )Prepaid expenses and other assets
    
    
    269
    
    
    
    157Accounts payable
    
    
    (2,143
    )
    
    
    1,179Accrued expenses and other current liabilities
    
    
    (2,620
    )
    
    
    (585
    )Net cash (used in) provided by operating activities
    
    
    (6,804
    )
    
    
    206Cash flows from investing activities:Purchase of property and equipment
    
    
    (469
    )
    
    
    (323
    )Sale of investments
    
    
    5,163
    
    
    
    Net cash provided by (used in) investing activities
    
    
    4,694
    
    
    
    (323
    )Cash flows from financing activities:Payment of non-current liabilities
    
    
    (25
    )
    
    
    (25
    )Net proceeds from issuance of common stock, exercise of options and
and warrants, and repayment of stock subscription notes receivable
    
    
    286
    
    
    
    605Net cash provided by financing activities
    
    
    261
    
    
    
    580Effects of exchange rate changes on cash and cash equivalents
    
    
    10
    
    
    
    (1
    )Net (decrease) increase in cash and cash equivalents
    
    
    (1,839
    )
    
    
    462Cash and cash equivalents, beginning of period
    
    
    13,637
    
    
    
    12,768Cash and cash equivalents, end of period
    
    $
    11,798
    
    
    $
    13,230
  5




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




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##### Table of Contents



Three MonthsEndedMarch 31, 2005Net loss:As reported
    
    $
    (927
    )Total stock-based employee compensation expense
determined under fair-value-based method for all
rewards, net of tax of $0 for all periods
    
    
    (1,897
    )Pro forma
    
    $
    (2,824
    )Net loss per share  basic and diluted:As reported
    
    $
    (0.03
    )Pro forma
    
    $
    (0.10
    )
 ( a ) Stock Options
    WeightedAverageExerciseNumber
    
    
    PriceOutstanding, December 31, 2005
    
    
    1,182,746
    
    
    $
    4.92Granted
    
    
    
    
    
    
    Canceled
    
    
    (12,208
    )
    
    
    1.59Exercised
    
    
    (93,750
    )
    
    
    2.48Outstanding, March 31, 2006
    
    
    1,076,788
    
    
    $
    5.17
 7




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##### Table of Contents



Weighted

    
    Weighted
    
    
    
    
    
    
    WeightedAverage

    
    Average
    
    
    
    
    
    
    AverageOptions

    
    Remaining

    
    Exercise
    
    
    Options

    
    ExerciseRange of Exercise Prices
    
    Outstanding

    
    Contractual Life

    
    Price
    
    
    Exercisable

    
    Price$0.79-$1.28
    
    
    279,153
    
    
    
    2.44
    
    
    $
    1.07
    
    
    
    236,647
    
    
    $
    1.07$1.29-$6.38
    
    
    272,214
    
    
    
    1.90
    
    
    $
    2.61
    
    
    
    250,097
    
    
    $
    2.65$6.39-$9.01
    
    
    271,421
    
    
    
    4.12
    
    
    $
    7.98
    
    
    
    271,421
    
    
    $
    7.98$9.02-$11.95
    
    
    254,000
    
    
    
    3.72
    
    
    $
    9.43
    
    
    
    254,000
    
    
    $
    9.43$0.79-$11.95
    
    
    1,076,788
    
    
    
    3.03
    
    
    $
    5.17
    
    
    
    1,012,165
    
    
    $
    5.41
   ( b ) Restricted Stock Units
    2004 Directors Plan
    
    
    2004 Omnibus PlanWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageValue per
    
    
    
    
    
    
    Value perNumber

    
    Share
    
    
    Number

    
    ShareOutstanding, December 31, 2005
    
    
    141,900
    
    
    $
    8.51
    
    
    
    766,917
    
    
    $
    7.53Granted
    
    
    
    
    
    
    
    
    
    
    13,145
    
    
    
    10.65Canceled
    
    
    
    
    
    
    
    
    
    
    (86,727
    )
    
    
    7.35Released to common stock
    
    
    
    
    
    
    
    
    
    
    (13,141
    )
    
    
    7.32Released for settlement of taxes
    
    
    
    
    
    
    
    
    
    
    (4,859
    )
    
    
    7.32Outstanding, March 31, 2006
    
    
    141,900
    
    
    $
    8.51
    
    
    
    675,335
    
    
    $
    7.62
 ( c ) Employee Stock Purchase Plan
  (3) Investments
  8




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##### Table of Contents



Net UnrealizedAmortized
    
    
    Holding Gains
    
    
    AggregateCost
    
    
    (Losses)
    
    
    Fair ValueU.S. corporate securities:Commercial paper
    
    $
    5,860
    
    
    $
    (2
    )
    
    $
    5,858Corporate notes and bonds
    
    
    6,393
    
    
    
    (14
    )
    
    
    6,379Bankers acceptance
    
    
    1,899
    
    
    
    
    
    
    
    1,899U.S. government securities
    
    
    998
    
    
    
    (1
    )
    
    
    997$
    15,150
    
    
    $
    (17
    )
    
    $
    15,133
 (4) Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    4,806
    
    
    $
    2,946Finished goods
    
    
    10,281
    
    
    
    10,427$
    15,087
    
    
    $
    13,373
 (5) Goodwill
  High-Power Group
    
    $
    3,578Connectivity Group
    
    
    6,992Reported balance at March 31, 2006
    
    $
    10,570
 (6) Intangible Assets
  March 31, 2006
    
    
    December 31, 2005Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetLife
    
    
    Intangible
    
    
    Accumulated
    
    
    Intangible
    
    
    Intangible
    
    
    Accumulated
    
    
    Intangible(Years)
    
    
    Assets
    
    
    Amortization
    
    
    Assets
    
    
    Assets
    
    
    Amortization
    
    
    AssetsAmortized intangible
assets:License fees
    
    
    7
    
    
    $
    1,947
    
    
    $
    (804
    )
    
    $
    1,143
    
    
    $
    1,947
    
    
    $
    (743
    )
    
    $
    1,204Patents and trademarks
    
    
    3
    
    
    
    2,055
    
    
    
    (1,040
    )
    
    
    1,015
    
    
    
    2,018
    
    
    
    (968
    )
    
    
    1,050Trade names
    
    
    10
    
    
    
    378
    
    
    
    (135
    )
    
    
    243
    
    
    
    378
    
    
    
    (126
    )
    
    
    252Customer list
    
    
    3
    
    
    
    662
    
    
    
    (501
    )
    
    
    161
    
    
    
    662
    
    
    
    (448
    )
    
    
    214Total
    
    
    
    
    
    $
    5,042
    
    
    $
    (2,480
    )
    
    $
    2,562
    
    
    $
    5,005
    
    
    $
    (2,285
    )
    
    $
    2,720
  9




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##### Table of Contents



(7) Line of Credit
  (8) Non-current Liabilities
  March 31,
    
    
    December 31,2006
    
    
    2005Estimate of Invision earn-out
    
    $
    406
    
    
    $
    412Liability for license fee
    
    
    25
    
    
    
    50431
    
    
    
    462Less current portion
    
    
    431
    
    
    
    437Non-current liabilities, less current portion
    
    $
    
    
    
    $
    25
   (9) Stockholders Equity
  10




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##### Table of Contents



(10) Net Loss per Share
  Three Months EndedMarch 31,2006
    
    
    2005Numerator:Net loss
    
    $
    (1,263
    )
    
    $
    (927
    )Denominator:Weighted average number of common shares outstanding  basic and diluted
    
    
    30,929
    
    
    
    28,601Net loss per share  basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.03
    )Stock options, warrants and restricted stock units not included in dilutive
Net loss per share since antidilutive
    
    
    4,321
    
    
    
    2,617Convertible preferred stock not included in dilutive net loss per share
since antidilutive
    
    
    
    
    
    
    266
 (11) Business Segments, Concentration of Credit Risk and Significant Customers
 i i i i
  Three Months EndedMarch 31,2006
    
    
    2005Revenues:High-Power Group
    
    $
    14,003
    
    
    $
    13,656itip Division
    
    
    2,676
    
    
    
    161Connectivity Group
    
    
    6,158
    
    
    
    4,541$
    22,837
    
    
    $
    18,358
 Three Months EndedMarch 31,2006
    
    
    2005Operating income (loss):High-Power Group
    
    $
    2,336
    
    
    $
    1,518itip Division
    
    
    (170
    )
    
    
    Connectivity Group
    
    
    889
    
    
    
    576Corporate
    
    
    (4,391
    )
    
    
    (3,059
    )$
    (1,336
    )
    
    $
    (965
    )
 11




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##### Table of Contents



March 31,
    
    
    December 31,2006
    
    
    2005Assets:High-Power Group
    
    $
    28,371
    
    
    $
    33,193itip Division
    
    
    4,250
    
    
    
    287Connectivity Group
    
    
    17,417
    
    
    
    14,961Corporate
    
    
    28,644
    
    
    
    35,469$
    78,682
    
    
    $
    83,910
   Three Months EndedMarch 31,2006
    
    
    2005High power mobile electronic power products
    
    $
    12,986
    
    
    $
    11,783Low power mobile electronic power products
    
    
    3,006
    
    
    
    1,154Handheld products
    
    
    4,579
    
    
    
    2,805Expansion and docking products
    
    
    1,579
    
    
    
    1,791Accessories and other products
    
    
    687
    
    
    
    825Total revenues
    
    $
    22,837
    
    
    $
    18,358
 Three Months EndedMarch 31,2006
    
    
    2005North America
    
    $
    19,996
    
    
    $
    15,569Europe
    
    
    1,347
    
    
    
    1,242Asia Pacific
    
    
    1,489
    
    
    
    1,547All other
    
    
    5
    
    
    
    $
    22,837
    
    
    $
    18,358
 Three Months EndedMarch 31,2006
    
    
    2005OEM and private-label-resellers
    
    
    62
    %
    
    
    64
    %Retailers and distributors
    
    
    27
    %
    
    
    24
    %Other
    
    
    11
    %
    
    
    12
    %100
    %
    
    
    100
    %
  Three Months EndedMarch 31,2006
    
    
    2005High power mobile electronic power products
    
    
    38
    %
    
    
    34
    %Low power mobile electronic power products
    
    
    50
    %
    
    
    35
    %Handheld products
    
    
    37
    %
    
    
    34
    %Expansion and docking products
    
    
    57
    %
    
    
    61
    %Accessories and other products
    
    
    48
    %
    
    
    46
    %
  12




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##### Table of Contents



(12) Contingencies
    (13) Subsequent Event
  
 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;
 13




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##### Table of Contents




    
    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. i
 i tip Division. i i i i i i
 Connectivity Group. ®
 14




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Critical Accounting Policies and Estimates
    Revenue Recognition.
    15




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##### Table of Contents



Inventory Valuation.
 Goodwill and Intangible Assets Valuation. Goodwill and Other Intangible Assets
   Deferred Tax Valuation Allowance.
 Results of Operations
  Three months endedMarch 31,2006
    
    
    2005Revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    69.5
    %
    
    
    70.2
    %Gross profit
    
    
    30.5
    %
    
    
    29.8
    %Operating expenses:Sales and marketing
    
    
    8.9
    %
    
    
    10.8
    %Research and development
    
    
    8.2
    %
    
    
    7.6
    %General and administrative
    
    
    19.2
    %
    
    
    16.7
    %Total operating expenses
    
    
    36.3
    %
    
    
    35.1
    %Loss from continuing operations
    
    
    -5.9
    %
    
    
    -5.3
    %Other income (expense):Interest, net
    
    
    1.3
    %
    
    
    0.2
    %Other, net
    
    
    -1.0
    %
    
    
    0.0
    %Net loss
    
    
    -5.5
    %
    
    
    -5.0
    %
 16




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Comparison of Three Months Ended March 31, 2006 and 2005
 Revenue .
 Increase
    
    
    Percentage changefrom same period
    
    
    from the same periodQ1 2006
    
    
    Q1 2005
    
    
    in the prior year
    
    
    in the prior yearHigh-Power Group
    
    $
    14,003
    
    
    $
    13,656
    
    
    $
    347
    
    
    
    2.5
    %itip Division
    
    
    2,676
    
    
    
    161
    
    
    
    2,515
    
    
    
    1,562.1
    %Connectivity Group
    
    
    6,158
    
    
    
    4,541
    
    
    
    1,617
    
    
    
    35.6
    %Total Revenue
    
    $
    22,837
    
    
    $
    18,358
    
    
    $
    4,479
    
    
    
    24.4
    %
 High-Power Group.
 i tip Division. t t t t
 Connectivity
Group.
 Cost of revenue, gross profit and gross margin .
 Increase from same
    
    
    Percentage change fromperiod in the prior
    
    the same period in theQ1 2006
    
    
    Q1 2005
    
    
    year
    
    

    prior yearCost of revenue
    
    $
    15,880
    
    
    $
    12,881
    
    
    $
    2,999
    
    
    
    23.3
    %Gross profit
    
    $
    6,957
    
    
    $
    5,477
    
    
    $
    1,480
    
    
    
    27.0
    %Gross margin
    
    
    30.5
    %
    
    
    29.8
   %
    
    
    0.7
    %
    
    
    2.3
    %
  17




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Sales and marketing .
 Increase
    
    Percentage changefrom same period
    
    
    from the same periodQ1 2006
    
    Q1 2005
    
    in the prior year
    
    in the prior yearSales and marketing
    
    $
    2,029
    
    
    $
    1,986
    
    
    $
    43
    
    
    
    2.2
    %
  Research and development .
 Increase
    
    Percentage changefrom same period
    
    from the same periodQ1 2006
    
    Q1 2005
    
    in the prior year
    
    in the prior yearResearch and development
    
    $
    1,873
    
    
    $
    1,397
    
    
    $
    476
    
    
    
    34.1
        %
  General and administrative.
 Increase
    
    Percentage changefrom same period
    
    from the same periodQ1 2006
    
    Q1 2005
    
    in the prior year
    
    in the prior yearGeneral and administrative
    
    $
    4,391
    
    
    $
    3,059
    
    
    $
    1,332
    
    
    
    43.5
    %
  Interest income (expense) net.
 Increase
        

    Percentage changefrom same period
        

    from the same periodQ1 2006
    
    
    Q1 2005
    
    

    in the prior year
        

    in the prior yearInterest income
    
    $
    323
    
    
    $
    60
    
    
    $
    263
    
    
    
    438.3
    %Interest expense
    
    $
    (20
    )
    
    $
    (22
    )
    
    $
    (2
    )
    
    
    (9.1
    )%Net interest income
(expense)
    
    $
    303
    
    
    $
    38
    
    
    $
    265
    
    
    
    697.4
    %
 Other income (expense) net .
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##### Table of Contents



Litigation settlement .
 Income taxes .
 Operating Outlook
      Liquidity and Capital Resources
  Three Months Ended March 31,2006
    
    
    2005Net cash (used in) provided by operating activities
    
    $
    (6,804
    )
    
    $
    206Net cash provided by (used in) investing activities
    
    
    4,694
    
    
    
    (323
    )Net cash provided by financing activities
    
    
    261
    
    
    
    580Foreign currency exchange impact on cash flow
    
    
    10
    
    
    
    (1
    )(Decrease) increase in cash and cash equivalents
    
    $
    (1,839
    )
    
    $
    462Cash and cash equivalents at beginning of period
    
    $
    13,637
    
    
    $
    12,768Cash and cash equivalents at end of period
    
    $
    11,798
    
    
    $
    13,230
 Cash and Cash Flow
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##### Table of Contents




    
    Net cash used in operating activities.Cash was used in operating activities for the
three months ended March 31, 2006 primarily to fund operating losses and working
capital necessary to support our growing revenue base. Specifically, cash was used to
pay suppliers for inventory growth and we used $3.0 million in connection with the
settlement of the Portsmith litigation during the three months ended March 31, 2006.
Later in 2006, we expect to generate positive cash flow from operating activities as we
expect our operating results to be positive and 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:
 March 31,2006
    
    2005Days outstanding in ending accounts receivable (DSOs)
    
    
    75
    
    
    
    82Inventory turns
    
    
    4
    
    
    
    6
 The improvement in DSOs at March 31, 2006 compared to March 31, 2005, is primarily
due to revenue growth driven by large key customers who generally tend to pay within
stated payment terms. We expect DSOs to continue to improve during 2006 as we continue to
leverage our key OEM, private-label reseller and retail customer relationships. The
decline in inventory turns is primarily due to investment in low-power inventories in
anticipation of revenue later in 2006. We expect to manage inventory growth during 2006
and we expect inventory turns to improve as we increase sales volumes in 2006.
    
    Net cash provided by (used in) investing activities.For the three months ended
March 31, 2006, net cash was provided by investing activities as we generated proceeds
from the sale of investments of $5.2 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 provided by financing activities.Net cash provided by financing
activities for the three months ended March 31, 2006 was primarily from net proceeds
from the exercises of stock options and warrants. 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 period2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    More than 5 yearsOperating lease obligations
    
    $
    630
    
    
    $
    831
    
    
    $
    490
    
    
    $
    19
    
    
    $
    
    
    
    $
    Inventory Purchase obligations
    
    
    21,620
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    22,250
    
    
    $
    856
    
    
    $
    490
    
    
    $
    19
    
    
    $
    
    
    
    $
    
 20




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##### Table of Contents



Off-Balance Sheet Arrangements.
 Acquisitions and dispositions.
   Liquidity Outlook.
 Recent Accounting Pronouncements
    21




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting
 
 PART II: OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  22




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
  23




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 SIGNATURES
  MOBILITY ELECTRONICS, INC.Dated: May 10, 2006
    
    By:
    
    /s/ Charles R. MolloCharles R. MolloPresident, Chief Executive Officerand Chairman of the Board(Principal Executive Officer)By:
    
    /s/ Joan W. BrubacherJoan W. BrubacherExecutive Vice President and Chief Financial Officerand Authorized Officer of Registrant(Principal Financial Officer)By:
    
    /s/ Darryl S. BakerDarryl S. BakerVice President, Chief Accounting Officer and Controller
 24




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document10.1
    
    Mobility Electronics, Inc. 2006 Executive Bonus Plan+*10.2
    
    Amendment to Loan
Documents by and between Silicon Valley Bank, the Company and certain
of its subsidiaries, dated as of May 9, 2006.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002*
 
 +
    
    Management or compensatory plan or agreement.*
    
    Filed herewith 25