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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-30907
 Mobility Electronics, Inc.
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
(State or Other Jurisdiction of Incorporation)
 0-30907
    
    86-0843914(Commission File Number)
    
    (IRS Employer Identification No.)17800 N. Perimeter Dr., Suite 200, Scottsdale, Arizona
    
    85255(Address of Principal Executive Offices)
    
    (Zip Code)
 (Registrants telephone number, including area code): (480) 596-0061   None   Common Stock, $0.01 par value
Series G Junior Participating Preferred Stock, $0.01 par value
 
 o þ
 o þ
 þ o
 o
  o þ o
 
 o þ
   
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



MOBILITY ELECTRONICS, INC.
FORM 10-K
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    10Item 1B. Unresolved Staff Comments
    
    
    20Item 2. Properties
    
    
    20Item 3. Legal Proceedings
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22PART IIItem 5. Market for Registrants Common Equity and Related
Stockholder Matters
    
    
    22Item 6. Selected Consolidated Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    24Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    66Item 9A. Controls and Procedures
    
    
    66Item 9B. Other Information
    
    
    67PART IIIItem 10. Directors and Executive Officers
    
    
    67Item 11. Executive Compensation
    
    
    67Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    67Item 13. Certain Relationships and Related Transactions
    
    
    67Item 14. Principal Accountant Fees and Services
    
    
    67PART IVItem 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
    
    
    68Signatures
    
    
    69Exhibit 10.27Exhibit 10.42Exhibit 10.43Exhibit 10.44Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
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DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
  
    
    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 inability to create broad consumer awareness and acceptance of our technology and products;
    
    the timing and success of competitive product development efforts, new product introductions and pricing;
    
    the timing of substantial customer orders;
    
    the lack of available qualified personnel;
    
    the inability to expand and protect our intellectual property;
    
    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.
  
 PART I
 
 Item 1. Business
 Our Company
  ® www.igo.com.
  2




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®
    Our Industry
 Bluetooth ®
  Market for Our Products
 
    
    Portable Computer Market. According to IDC, the worldwide market for portable
computers is expected to grow at a compounded annual growth rate, or CAGR, of about 17%
from approximately 65 million units in 2005 to about 121 million units in 2009. The U.S.
market is expected to grow at a CAGR of about 19% from approximately 22 million units in
2005 to about 44 million units in 2009.
    
    Low Power Mobile Electronic Devices. According to IDC, the worldwide market for low
power mobile electronic devices, which includes mobile phones, converged mobile devices,
portable digital assistants, or PDAs, portable compressed audio, digital cameras,
camcorders, portable game consoles and portable DVD players, is expected to grow at a
CAGR of about 5.8% from approximately 1.1 billion units in 2005 to about 1.3 billion
units in 2009. The U.S. market is expected to grow at a CAGR of about 3.4% from
approximately 237.7 million units in 2005 to about 271.3 million units in 2009.
    
    Handheld and Converged Mobile Device Market. According to IDC, the worldwide market
for handheld and converged mobile devices, which includes smartphones, PDAs, and other
handheld devices with telephony and data capabilities, is
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expected to grow at a CAGR of about 30.5% from approximately 64.8 million units in 2005
to about 188.2 million units in 2009. The U.S. market for handheld and converged mobile
devices is expected to grow at a CAGR of about 38.1% from approximately 7.3 million units
in 2005 to about 26.4 million units in 2008.
 Industry Challenges
 
    Power. Mobile electronic device users, by definition, largely require the use of
their devices while away from their home or office. Many mobile electronic devices offer
designs and form factors that support portability and travel comfort; however, these
mobile devices have limited battery life, which results in the need to frequently
connect to a power source to operate the device or recharge the battery. A number of
factors limit the efficient use and charging of these devices:-
    
    Most power adapters are compatible with either AC-only power sources
located in places such as a home, office or hotel room, or DC-only power sources
such as those located in automobiles, planes, and trains;-
    
    The majority of power adapters are model-specific requiring a mobile user
to carry a dedicated power adapter for each device;-
    
    Mobile electronic devices are generally packaged with only one power
adapter, forcing many users to purchase additional power adapters for convenience
and ease of use; and-
    
    Mobile electronic device users tend to carry multiple devices and at
times only one power source is available, such as an automobiles cigarette lighter,
limiting a users ability to recharge multiple devices.Mobile electronic device users, who usually have limited available space in their
briefcase or luggage, desire solutions that make their mobile experience more convenient.
We believe this creates the need for universal power adapters that have the ability to
simultaneously charge multiple mobile electronic devices.
    Handheld Connectivity. Handheld and converged mobile devices continue to face challenges with
respect to their ability to interface directly with a network and across various
software operating systems. Traditional connectivity devices, known as cradles, offer
limited options to communicate with networks, computer peripherals and display devices
without the presence of a portable or desktop computer. We believe the need exists for
solutions to address the connectivity problems associated with handheld and converged
mobile devices.
    Expansion and Docking. PCI slots are commonly used to expand and extend computing
capabilities. Computer manufacturers only provide a limited number of PCI slots in their
products, limiting the space available to add additional PCI cards. In addition to
expanding PCI slots, portable computer users also often wish to connect to external
devices when using their portable computers in a fixed setting. We believe this
provides an opportunity for solutions that conveniently and efficiently expand the
availability of PCI slots and provide a one-step procedure to connect external devices
to portable computers.
 Our Solutions
  Power
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Handheld
Connectivity.
 Expansion and Docking
 Our Strategy
  Continue To Develop Innovative Products
 Establish i tip TM Standard i i
 Leverage Our Strategic Relationships
 Expand Our OEM Relationships
 Pursue Strategic Acquisitions
 Our Products
  5




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Power
 
    
    Power Products for High-Power Mobile Electronic Devices. Since inception, we have
sold a variety of power products designed for use with portable computers. In early
2003, we introduced our first combination AC/DC universal power adapter, commonly
referred to as Juice®, which is designed to power portable computers and works with any
available power source, including the AC wall outlet in a home, office or hotel room, or
the DC cigarette lighter plug in an automobile, airplane or train. In addition, we
offer a range of DC-only power adapters, more commonly known as auto/air adapters, and a
range of AC-only power adapters. This family of portable computer power adapters
utilizes our patented intelligent and interchangeable tip technology which allows a
single power adapter to plug into a substantial portion of the portable computers in the
market. When our portable computer power adapters are combined with our optional iGo
DualPower accessory, the user can simultaneously charge multiple mobile electronic
devices, including mobile phones, smartphones, PDAs, digital cameras, camcorders, MP3
players, and portable game consoles, eliminating the need to carry multiple charging
adapters. Sales of our portable computer power products represented approximately 63%,
63%, and 55% of our total revenue for the years ended December 31, 2005, 2004 and 2003,
respectively.
    
    Power Products for Low-Power Mobile Electronic Devices.During 2004, we introduced
our first power adapters designed for use with mobile electronic products with power
requirements lower than portable computers, such as mobile phones, smartphones, PDAs,
digital cameras, camcorders, MP3 players, and portable game consoles. These products
include a range of DC cigarette lighter adapters, mobile AC adapters, and combination
AC/DC adapters. This family of power adapters also utilizes our patented intelligent
and interchangeable tip technology which allows a single power adapter to plug into a
substantial portion of mobile electronic devices other than portable computers. When
combined with our optional iGo DualPower accessory, the user of these power adapters can
simultaneously charge multiple mobile electronic devices. Sales of these power adapters
represented approximately 12% and 7% of our total revenue for the years ended December
31, 2005 and 2004, respectively.
 Handheld
Connectivity
 Expansion and Docking
  Accessories
 Sales and Marketing
  6




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Customers
  OEM/Private Label Resellers
    
    Retailers / DistributorsDell
    
    BrookstoneLenovo
    
    Ingram MicroMotorola
    
    IntertanSymbol
    
    RadioShackTargus
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Backlog
  Research and Development
   Manufacturing and Logistics
     Competition
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Proprietary Rights
    Employees
  Available Information
 http://www.mobilityelectronics.com
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Item 1A. Risk Factors
   Risks Related To Our Business
 If our revenue is not sufficient to absorb our expenses, we will not be profitable in the
future.
   
    
    we fail to complete development of these products in a timely manner;
    
    we fail to achieve the performance criteria required of these products by our customers; or
    
    competitors introduce similar or superior products.
  Our operating results are subject to significant fluctuations, and if our results are worse
than expected, our stock price could fall.
  
    
    the timing of our new product and technology introductions and product enhancements
relative to our competitors or changes in our or our competitors pricing policies;
    
    market acceptance of our power, handheld connectivity, and expansion and docking products;
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
    
    the size and timing of customer orders;
    
    our ability to effectively manage inventory levels;
    
    delay or failure to fulfill orders for our products on a timely basis;
    
    distribution of or changes in our revenue among OEMs, private-label resellers and distribution partners;
    
    our inability to accurately forecast our contract manufacturing needs;
    
    difficulties with new product production implementation or supply chain;
    
    our suppliers ability to perform under their contracts with us;
    
    product defects and other product quality problems which may result from the development of new products;
    
    the degree and rate of growth of the markets in which we compete and the accompanying demand for our products;
    
    our ability to expand our internal and external sales forces and build the required
infrastructure to meet anticipated growth; and
    
    seasonality of sales.
  If we fail to continue to introduce new products and product enhancements that achieve broad
market acceptance on a timely basis, we will not be able to compete effectively, and we will be
unable to increase or maintain our revenue.
  
    
    develop, in a timely manner, new products and services that keep pace with
developments in technology and customer requirements;
    
    meet potentially new manufacturing requirements and cover potentially higher manufacturing costs of new products;
    
    deliver new products and services through appropriate distribution channels; and
    
    respond effectively to new product announcements by our competitors by quickly introducing competing products.
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
    
    loss of or delay in revenue and loss of market share;
    
    negative publicity and damage to our reputation and brand;
    
    decline in the average selling price of our products and decline in our overall gross margins; and
    
    adverse reactions in our sales and distribution channels.
 The average selling prices of our products may decrease over their sales cycles, especially
upon the introduction of new products, which may negatively affect our gross margins.
  We depend on large purchases from a small number of significant customers, and any loss,
cancellation or delay in purchases by these customers could cause a shortfall in revenue, excess
inventory and inventory holding or obsolescence charges.
   Our success depends in part upon sales to OEMs, whose unpredictable demands and requirements
may subject us to potential adverse revenue fluctuations.
  
    
    competition faced by our OEM customers in their particular end markets;
    
    market acceptance of our technology and products by our OEM customers;
    
    technical challenges which may or may not be related to the components supplied by us;
    
    the technical, sales and marketing and management capabilities of our OEM customers; and
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
    
    the financial and other resources of our OEM customers.
  Our success is dependent in part upon our relationships with strategic private-label
resellers.
    
    
    the impact of possible recessionary environments in foreign economies;
    
    political and economic instability;
    
    unexpected changes in regulatory requirements;
    
    export restriction and availability of export licenses; and
    
    tariffs and other trade barriers.
 We outsource the manufacturing and fulfillment of our products, which limits our control of
the manufacturing process and may cause a delay in our ability to fill orders.
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Our reliance on sole sources for key components may inhibit our ability to meet customer
demand.
    If we fail to protect our intellectual property, our business and ability to compete could
suffer.
   14




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We may be subject to intellectual property infringement claims that are costly to defend and
could limit our ability to use certain technologies in the future.
   Acquisitions could have negative consequences, which could harm our business.
  
    
    difficulties in assimilating and integrating the operations, products and workforce
of the acquired companies;
    
    acquisitions may negatively impact our results of operations because they may require
large one-time charges or could result in increased debt or contingent liabilities,
adverse tax consequences, substantial depreciation or deferred compensation charges, or
the amortization or write down of amounts related to deferred compensation, goodwill and
other intangible assets;
    
    acquisitions may be dilutive to our existing stockholders;
    
    acquisitions may disrupt our ongoing business and distract our management; and
    
    key personnel of the acquired company may decide not to work for us.
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We may not be able to adequately manage our anticipated growth, which could impair our
efficiency and negatively impact operations.
  
    
    increase research and development resources;
    
    install and implement adequate controls and management information systems in an
effective, efficient and timely manner;
    
    increase the managerial skills of our supervisors;
    
    maintain and strengthen our relationships with our contract manufacturers and fulfillment providers; and
    
    more effectively manage our supply chain.
 Our
inventory management is complex and failure to properly manage
inventory growth may result in excess or obsolete inventory, the
write-down of which may negatively affect our operating results.
  We have experienced returns of our products, which could in the future harm our reputation and
negatively impact our operating results.
   We may have design quality and performance issues with our products that may adversely affect
our reputation and our operating results.
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We may incur product liability claims which could be costly and could harm our reputation.
  If we are unable to hire additional qualified personnel as necessary or if we lose key
personnel, we may not be able to successfully manage our business or achieve our objectives.
   We may not be able to secure additional financing to meet our future capital needs.
  Risks Related To Our Industry
 Intense competition in the market for mobile electronic devices could adversely affect our
revenue and operating results.
  17




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Should the market demand for mobile electronic devices decrease, we may not achieve
anticipated revenue.
  
    
    increased demand by consumers and businesses for mobile electronic devices; and
    
    the number and quality of mobile electronic devices in the market.
  If our products fail to comply with domestic and international government regulations, or if
these regulations result in a barrier to our business, our revenue could be negatively impacted.
  18




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Risks Related To Our Common Stock
 Our common stock price has been volatile, which could result in substantial losses for
stockholders.
  Our stock price may decline if additional shares are sold in the market.
   Our executive officers, directors and principal stockholders have substantial influence over
us.
   Provisions of our certificate of incorporation and bylaws could make a proposed acquisition
that is not approved by our board of directors more difficult.
  
    
    authorizing the issuance of preferred stock, with rights senior to those of the
common stockholders, without common stockholder approval;
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
    
    prohibiting cumulative voting in the election of directors;
    
    a staggered board of directors, so that no more than two of our six directors are elected each year; and
    
    limiting the persons who may call special meetings of stockholders.
 Our stockholder rights plan may make it more difficult for others to obtain control over us,
even if it would be beneficial to our stockholders.
  Delaware law may delay or prevent a change in control.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
  20




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Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
  High
    
    
    LowYear Ended December 31, 2004Quarter Ended March 31, 2004
    
    $
    9.46
    
    
    $
    6.00Quarter Ended June 30, 2004
    
    $
    10.62
    
    
    $
    6.65Quarter Ended September 30, 2004
    
    $
    8.75
    
    
    $
    5.94Quarter Ended December 31, 2004
    
    $
    10.00
    
    
    $
    6.51Year Ended December 31, 2005Quarter Ended March 31, 2005
    
    $
    8.72
    
    
    $
    6.15Quarter Ended June 30, 2005
    
    $
    9.99
    
    
    $
    6.99Quarter Ended September 30, 2005
    
    $
    13.38
    
    
    $
    9.15Quarter Ended December 31, 2005
    
    $
    11.93
    
    
    $
    8.10
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Item 6. Selected Consolidated Financial Data
  Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In thousands, except per share data)CONSOLIDATED STATEMENTS OF OPERATIONS DATA:Revenue
    
    $
    85,501
    
    
    $
    70,213
    
    
    $
    50,750
    
    
    $
    30,893
    
    
    $
    28,325Cost of revenue
    
    
    59,653
    
    
    
    49,294
    
    
    
    33,610
    
    
    
    23,946
    
    
    
    25,703Gross profit
    
    
    25,848
    
    
    
    20,919
    
    
    
    17,140
    
    
    
    6,947
    
    
    
    2,622Total operating expenses
    
    
    28,712
    
    
    
    22,617
    
    
    
    20,787
    
    
    
    19,943
    
    
    
    23,684Loss from operations
    
    
    (2,864
    )
    
    
    (1,698
    )
    
    
    (3,647
    )
    
    
    (12,996
    )
    
    
    (21,062
    )Interest, net
    
    
    813
    
    
    
    (72
    )
    
    
    (27
    )
    
    
    627
    
    
    
    1,313Gain (loss)
on disposal of assets
    
    
    11,639
    
    
    
    (15
    )
    
    
    (55
    )
    
    
    (40
    )
    
    
    Litigation
settlement expense
    
    
    (4,284
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    (12
    )
    
    
    51
    
    
    
    59
    
    
    
    (20
    )
    
    
    65Income (loss) from continuing operations before income taxes
    
    
    5,292
    
    
    
    (1,734
    )
    
    
    (3,670
    )
    
    
    (12,429
    )
    
    
    (19,684
    )Provision for income tax
    
    
    285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    5,007
    
    
    
    (1,734
    )
    
    
    (3,670
    )
    
    
    (12,429
    )
    
    
    (19,684
    )Loss from discontinued operations of handheld software
product line
    
    
    
    
    
    
    (466
    )
    
    
    (329
    )
    
    
    (807
    )
    
    
    Income (loss) before cumulative effect of change in
accounting principle
    
    
    5,007
    
    
    
    (2,200
    )
    
    
    (3,999
    )
    
    
    (13,236
    )
    
    
    (19,684
    )Cumulative effect of change in accounting principle(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,627
    )
    
    
    Net income (loss)
    
    
    5,007
    
    
    
    (2,200
    )
    
    
    (3,999
    )
    
    
    (18,863
    )
    
    
    (19,684
    )Beneficial conversion cost of preferred stock
    
    
    
    
    
    
    
    
    
    
    (445
    )
    
    
    
    
    
    
    Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    Net income (loss) attributable to common stockholders
    
    $
    5,007
    
    
    $
    (2,200
    )
    
    $
    (4,464
    )
    
    $
    (18,863
    )
    
    $
    (19,684
    )Net income (loss) per share  diluted:Diluted income (loss) per share from continuing operations
    
    $
    0.16
    
    
    $
    (0.06
    )
    
    $
    (0.16
    )
    
    $
    (0.73
    )
    
    $
    (1.33
    )Loss per share from discontinued operations
    
    
    
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    
    Diluted income (loss) per share before cumulative effect of
change in accounting principle(1)
    
    $
    0.16
    
    
    $
    (0.08
    )
    
    $
    (0.17
    )
    
    $
    (0.78
    )
    
    $
    (1.33
    )Cumulative effect of change in accounting principle(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.33
    )
    
    
    Diluted income (loss) per share
    
    $
    0.16
    
    
    $
    (0.08
    )
    
    $
    (0.17
    )
    
    $
    (1.11
    )
    
    $
    (1.33
    )Diluted income (loss) per share attributable to common
stockholders
    
    $
    0.16
    
    
    $
    (0.08
    )
    
    $
    (0.19
    )
    
    $
    (1.11
    )
    
    $
    (1.33
    )Weighted average common shares outstanding:Basic
    
    
    30,004
    
    
    
    28,027
    
    
    
    23,440
    
    
    
    17,009
    
    
    
    14,809Diluted
    
    
    32,003
    
    
    
    28,027
    
    
    
    23,440
    
    
    
    17,009
    
    
    
    14,809CONSOLIDATED BALANCE SHEET DATA:Cash, cash equivalents and short-term investments
    
    $
    33,923
    
    
    $
    12,768
    
    
    $
    11,024
    
    
    $
    3,166
    
    
    $
    14,753Working capital
    
    
    42,902
    
    
    
    23,376
    
    
    
    22,348
    
    
    
    5,645
    
    
    
    19,392Total assets
    
    
    83,910
    
    
    
    55,417
    
    
    
    49,833
    
    
    
    28,369
    
    
    
    35,037Long-term debt and other non-current liabilities,
less current portion
    
    
    824
    
    
    
    463
    
    
    
    526
    
    
    
    1,385
    
    
    
    Total stockholders equity
    
    
    59,349
    
    
    
    40,701
    
    
    
    40,642
    
    
    
    17,628
    
    
    
    30,148
 
 (1)
    
    See Critical Accounting Policies And Estimates  Goodwill under Item 7 for a description of
this item. 23




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations
should be read together with our selected consolidated financial data and the consolidated
financial statements and notes thereto contained in this report. The following discussion contains
forward-looking statements. Our actual results may differ significantly from the results discussed
in these forward-looking statements. Please see the Disclosure Concerning Forward-Looking
Statements and Risk Factors above for a discussion of factors that may affect our future
results.
 Overview
  i
 High-Power Group. i
 i tip Division. i i i i i i
 Connectivity Group. ®
 24




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##### Table of Contents



Critical Accounting Policies and Estimates
    Revenue Recognition.
   25




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Inventory Valuation.
 Goodwill and Intangible Assets Valuation. Goodwill and Other Intangible Assets
   Deferred Tax Valuation Allowance.
 26




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Results of Operations
  Year Ended December 31,2005
    
    2004
    
    2003Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    69.8
    %
    
    
    70.2
    %
    
    
    66.2
    %Gross profit
    
    
    30.2
    %
    
    
    29.8
    %
    
    
    33.8
    %Operating expenses:Sales and marketing
    
    
    9.1
    %
    
    
    9.8
    %
    
    
    13.2
    %Research and development
    
    
    7.7
    %
    
    
    7.0
    %
    
    
    8.5
    %General and administrative
    
    
    16.7
    %
    
    
    15.4
    %
    
    
    19.2
    %Total operating expenses
    
    
    33.5
    %
    
    
    32.2
    %
    
    
    40.9
    %Income (loss) from operations
    
    
    (3.3
    %)
    
    
    (2.4
    %)
    
    
    (7.2
    %)Other income (expense):Interest, net
    
    
    1.0
    %
    
    
    (0.1
    %)
    
    
    (0.1
    %)Other, net
    
    
    8.6
    %
    
    
    (0.0
    %)
    
    
    0.0
    %Provision for income tax
    
    
    (0.3
    %)
    
    
    0.0
    %
    
    
    0.0
    %Income (loss) from continuing operations
    
    
    5.9
    %
    
    
    (2.5
    %)
    
    
    (7.2
    % )Loss from discontinued operations
    
    
    0.0
    %
    
    
    (0.7
    %)
    
    
    (0.6
    %)Net income (loss)
    
    
    5.9
    %
    
    
    (3.1
    %)
    
    
    (7.9
    %)
 Comparison of Years Ended December 31, 2005, 2004, and 2003
 Revenue .
 Annual Amount
    
    Increase
    
    Percentage ChangeYear
    
    (Thousands)
    
    from Prior Year
    
    from Prior Year2005
    
    $
    85,501
    
    
    $
    15,288
    
    
    
    21.8
    %2004
    
    
    70,213
    
    
    
    19,463
    
    
    
    38.4
    %2003
    
    
    50,750
    
    
    
    
    
    
    
    
  High-Power Group.
 Annual Amount
    
    Increase
    
    Percentage ChangeYear
    
    (Thousands)
    
    from Prior Year
    
    from Prior Year2005
    
    $
    63,118
    
    
    $
    9,794
    
    
    
    18.4
    %2004
    
    
    53,324
    
    
    
    18,476
    
    
    
    53.0
    %2003
    
    
    34,848
    
    
    
    
    
    
    
    
 27




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##### Table of Contents



i tip Division. i i
 Annual Amount
    
    Increase
    
    Percentage ChangeYear
    
    (Thousands)
    
    from Prior Year
    
    from Prior Year2005
    
    $
    4,024
    
    
    $
    4,024
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
 i i i
 Connectivity Group.
 Annual Amount
    
    Increase
    
    Percentage ChangeYear
    
    (Thousands)
    
    from Prior Year
    
    from Prior Year2005
    
    $
    18,359
    
    
    $
    1,470
    
    
    
    8.7
    %2004
    
    
    16,889
    
    
    
    987
    
    
    
    6.2
    %2003
    
    
    15,902
    
    
    
    
    
    
    
    
  28




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Cost of revenue, gross profit and gross margin .
 Cost of revenue:
 Annual Amount
    
    Increase
    
    Percentage ChangeYear
    
    (Thousands)
    
    From Prior Year
    
    from Prior Year2005
    
    $
    59,653
    
    
    $
    10,359
    
    
    
    21.0
    %2004
    
    
    49,294
    
    
    
    15,684
    
    
    
    46.7
    %2003
    
    
    33,610
    
    
    
    
    
    
    
    
 Gross profit and gross margin:
 Increase in grossAnnual Amount
    
    
    
    
    
    profit
    
    Percentage ChangeYear
    
    (Thousands)
    
    Gross Margin
    
    from Prior Year
    
    From Prior Year2005
    
    $
    25,848
    
    
    
    30.2
    %
    
    $
    4,929
    
    
    
    23.6
    %2004
    
    
    20,919
    
    
    
    29.8
    %
    
    
    3,779
    
    
    
    22.0
    %2003
    
    
    17,140
    
    
    
    33.8
    %
    
    
    
    
    
    
    
   29




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##### Table of Contents



Sales and marketing .
 Annual Amount
    
    Increase/(Decrease)
    
    Percentage ChangeYear
    
    (Thousands)
    
    from Prior Year
    
    from Prior Year2005
    
    $
    7,812
    
    
    $
    926
    
    
    
    13.4
    %2004
    
    
    6,886
    
    
    
    175
    
    
    
    2.6
    %2003
    
    
    6,711
    
    
    
    
    
    
    
    
   Research and development .
 Annual Amount
    
    Increase/(Decrease)
    
    Percentage ChangeYear
    
    (Thousands)
    
    from Prior Year
    
    from Prior Year2005
    
    $
    6,596
    
    
    $
    1,702
    
    
    
    34.8
    %2004
    
    
    4,894
    
    
    
    561
    
    
    
    12.9
    %2003
    
    
    4,333
    
    
    
    
    
    
    
    
   30




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##### Table of Contents



General and administrative.
 Annual Amount
    
    Increase
    
    Percentage ChangeYear
    
    (Thousands)
    
    From Prior Year
    
    from Prior Year2005
    
    $
    14,304
    
    
    $
    3,467
    
    
    
    32.0
    %2004
    
    $
    10,837
    
    
    $
    1,094
    
    
    
    11.2
    %2003
    
    
    9,743
    
    
    
    
    
    
    
    
   Interest, net .
 Annual Amount
    
    Increase (Decrease)
    
    Percentage ChangeYear
    
    (Thousands)
    
    from Prior Year
    
    from Prior Year2005
    
    $
    813
    
    
    $
    885
    
    
    
    1229.1
    %2004
    
    
    (72
    )
    
    
    (45
    )
    
    
    (166.7
    %)2003
    
    
    (27
    )
    
    
    
    
    
    
    
   31




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##### Table of Contents



Gain (loss) on disposal of assets .
 Annual Amount
    
    Increase
    
    Percentage ChangeYear
    
    (Thousands)
    
    from Prior Year
    
    from Prior Year2005
    
    $
    11,639
    
    
    $
    11,654
    
    
    
    77,693.3
    %2004
    
    
    (15
    )
    
    
    40
    
    
    
    72.7
    %2003
    
    
    (55
    )
    
    
    
    
    
    
    
  Litigation settlement .
 Income taxes .
 Operating Outlook
  
    
    Continued growth in sales of power products for high-power ME devices driven by further
growth in private label reseller accounts, expanded international distribution, and the
expansion and/or development of new OEM programs;
    
    Improved economics in the low power business resulting from new pricing with RadioShack;
    
    Continued growth in sales of power products for low-power ME devices driven by new
direct and indirect retail relationships such as Sears, Best Buy On-Line, and CompUSA as a
result of our partnerships with Monster Cable, Motorola and Targus;
    
    The continued penetration of both the domestic and international wireless carrier and
distributor markets, including a test program with a Tier 1 U.S. carrier scheduled for late
in the first quarter of 2006;
    
    A strong new product pipeline that will provide consumers with innovative power products
offering a broad range of features and price points;
    
    Incremental revenue generated from expansion into new power areas such as rechargeable
batteries/chargers, including the planned introduction of a variety of jointly developed
power products with Energizer; and
    
    Penetration of the in-box OEM market for low-power ME devices.
    32




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Liquidity and Capital Resources
  Year Ended December 31,2005
    
    2004
    
    2003Net cash provided by (used in) operating activities
    
    $
    (775
    )
    
    $
    474
    
    
    $
    (9,867
    )Net cash used in investing activities
    
    
    (10,032
    )
    
    
    (722
    )
    
    
    (679
    )Net cash provided by financing activities
    
    
    11,915
    
    
    
    1,894
    
    
    
    18,219Foreign currency exchange impact on cash flow
    
    
    (73
    )
    
    
    56
    
    
    
    106Net cash provided by (used in) discontinued
operations
    
    
    (166
    )
    
    
    41
    
    
    
    79Increase (decrease) in cash and cash equivalents
    
    $
    869
    
    
    $
    1,744
    
    
    $
    7,858Cash and cash equivalents at beginning of year
    
    $
    12,768
    
    
    $
    11,024
    
    
    $
    3,166Cash and cash equivalents at end of year
    
    $
    13,637
    
    
    $
    12,768
    
    
    $
    11,024
 Cash and Cash Flow
 
    
    Net cash provided by (used in) operating activities.Cash was used by operating
activities for the year ended December 31, 2005 primarily as a result of our net income
being offset by the non-operating gain on sale of intellectual property assets, combined
with non-cash expenses such as depreciation and amortization, provisions for doubtful
accounts and sales returns and credits and amortization of deferred compensation and net
cash provided by changes in working capital. In 2006, we expect to generate positive
cash flow from operating activities from expected operating income, offset partially by
cash used to fund further working capital needs. Our consolidated cash flow operating
metrics are as follows:
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Days outstanding in ending accounts
receivable (DSOs)
    
    
    80
    
    
    
    88
    
    
    
    82Inventory turns
    
    
    4
    
    
    
    7
    
    
    
    4
 The improvement in DSOs during 2005 compared to 2004 is primarily due to revenue growth
driven by large key customers who generally tend to pay within stated payment terms. The
increase in DSOs during 2004 compared to 2003 is primarily due to the timing of certain
shipments to RadioShack in October 2004 for which payment was received shortly after
December 31, 2004. We anticipate continued improvement in DSOs during 2006 as we
continue to
 33




---



##### Table of Contents



leverage our key OEM, private-label reseller and retail customer relationships to
drive further revenue growth. The decline in inventory turns is primarily due to
investment in low-power inventories in anticipation of 2006 revenue. We expect to manage
inventory growth during 2006 and we expect inventory turns to improve as we increase
sales volumes in 2006.
    
    Net cash used in investing activities.For the year ended December 31, 2005, net
cash used in investing activities was primarily for the purchase of $20.3 million of
short-term investments, combined with purchases of property and equipment, and partially
offset by the $11.7 million net proceeds from the sale of intellectual property assets.
We anticipate future investment in capital equipment, primarily for information
technology related hardware and software and 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 year ended December 31, 2005 was primarily from net proceeds received in
connection with equity investments made by Motorola and RadioShack during 2005 of
approximately $10.0 million, combined with net proceeds from exercise of stock options
of approximately $1.8 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.
  Financing Facilities.
 Contractual Obligations.
 Payment due by period2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    More than 5 yearsOperating lease obligations
    
    $
    846
    
    
    $
    831
    
    
    $
    490
    
    
    $
    19
    
    
    $
    
    
    
    $
    Purchase obligations
    
    
    22,726
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    437
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    24,009
    
    
    $
    856
    
    
    $
    490
    
    
    $
    19
    
    
    $
    
    
    
    $
    
  Off-Balance Sheet Arrangements.
 Acquisitions and Divestitures.
 34




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Liquidity Outlook.
 Recent Accounting Pronouncements
    35




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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    36




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Item 8. Financial Statements and Supplementary Data
 MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageManagements Report on Internal Control Over Financial Reporting
    
    
    38Reports of Independent Registered Public Accounting Firm
    
    
    39Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    41Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
    
    
    42Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for the years ended December 31, 2005, 2004 and 2003
    
    
    43Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    
    44Notes to Consolidated Financial Statements
    
    
    46
 37




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
      MOBILITY ELECTRONICS, INC.By:/s/ Charles R. MolloCharles R. MolloPresident and Chief Executive Officer/s/ Joan W. BrubacherJoan W. BrubacherExecutive Vice President and Chief Financial Officer
 38




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework . Internal
ControlIntegrated Framework
   
 39




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal
ControlIntegrated Framework
  
 40




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004(In thousands, exceptshare amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,637
    
    
    $
    12,768Short-term investments
    
    
    20,286
    
    
    
    Accounts receivable, net
    
    
    18,778
    
    
    
    16,905Inventories
    
    
    13,373
    
    
    
    7,513Prepaid expenses and other current assets
    
    
    565
    
    
    
    443Total current assets
    
    
    66,639
    
    
    
    37,629Property and equipment, net
    
    
    2,410
    
    
    
    2,127Goodwill
    
    
    10,570
    
    
    
    10,570Intangible assets, net
    
    
    2,720
    
    
    
    3,059Other assets
    
    
    1,571
    
    
    
    2,032$
    83,910
    
    
    $
    55,417LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    17,606
    
    
    $
    12,411Accrued expenses and other current liabilities
    
    
    2,694
    
    
    
    1,514Current portion of litigation settlement liability
    
    
    3,000
    
    
    
    Current portion of long-term debt and other non-current liabilities
    
    
    437
    
    
    
    328Total current liabilities
    
    
    23,737
    
    
    
    14,253Non-current portion of litigation settlement liability
    
    
    799
    
    
    
    Long-term debt and other non-current liabilities, less current portion
    
    
    25
    
    
    
    463Total liabilities
    
    
    24,561
    
    
    
    14,716Commitments and contingencies (notes 3, 10, 11 and 18)Stockholders equity:Convertible preferred stock  Series C, $.01 par value; authorized
15,000,000 shares; zero and 270,541 issued and outstanding at
December 31, 2005 and 2004, respectively
    
    
    
    
    
    
    3Common stock, $.01 par value; authorized 90,000,000 Shares;
30,844,581 and 28,490,373 shares issued and outstanding at December
31, 2005 and 2004, respectively
    
    
    308
    
    
    
    285Additional paid-in capital
    
    
    166,000
    
    
    
    147,547Accumulated deficit
    
    
    (101,685
    )
    
    
    (106,692
    )Stock subscription notes and deferred compensation
    
    
    (5,378
    )
    
    
    (646
    )Accumulated other comprehensive income
    
    
    104
    
    
    
    204Total stockholders equity
    
    
    59,349
    
    
    
    40,701$
    83,910
    
    
    $
    55,417
  41




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, exceptper share amounts)Revenue
    
    $
    85,501
    
    
    $
    70,213
    
    
    $
    50,750Cost of revenue
    
    
    59,653
    
    
    
    49,294
    
    
    
    33,610Gross profit
    
    
    25,848
    
    
    
    20,919
    
    
    
    17,140Operating expenses:Marketing and sales
    
    
    7,812
    
    
    
    6,886
    
    
    
    6,711Research and development
    
    
    6,596
    
    
    
    4,894
    
    
    
    4,333General and administrative
    
    
    14,304
    
    
    
    10,837
    
    
    
    9,743Total operating expenses
    
    
    28,712
    
    
    
    22,617
    
    
    
    20,787Loss from operations
    
    
    (2,864
    )
    
    
    (1,698
    )
    
    
    (3,647
    )Other income (expense):Interest income (expense), net
    
    
    813
    
    
    
    (72
    )
    
    
    (27
    )Gain (loss) on disposal of assets
    
    
    11,639
    
    
    
    (15
    )
    
    
    (55
    )Litigation settlement expense
    
    
    (4,284
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    (12
    )
    
    
    51
    
    
    
    59Income (loss) from continuing operations before provision for income taxes
    
    
    5,292
    
    
    
    (1,734
    )
    
    
    (3,670
    )Provision for income taxes
    
    
    285
    
    
    
    
    
    
    
    Net income (loss) from continuing operations
    
    
    5,007
    
    
    
    (1,734
    )
    
    
    (3,670
    )Loss from discontinued operations of handheld software product line
    
    
    
    
    
    
    (466
    )
    
    
    (329
    )Net income (loss)
    
    
    5,007
    
    
    
    (2,200
    )
    
    
    (3,999
    )Beneficial conversion costs of preferred stock
    
    
    
    
    
    
    
    
    
    
    (445
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    (20
    )Net income (loss) attributable to common stockholders
    
    $
    5,007
    
    
    $
    (2,200
    )
    
    $
    (4,464
    )Net income (loss) per share  basic:Income (loss) per share from continuing operations
    
    $
    0.17
    
    
    $
    (0.06
    )
    
    $
    (0.16
    )Income (loss) per share from discontinued operations
    
    $
    
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )Net income (loss) per share
    
    $
    0.17
    
    
    $
    (0.08
    )
    
    $
    (0.17
    )Income (loss) per share attributable to common stockholders
    
    $
    0.17
    
    
    $
    (0.08
    )
    
    $
    (0.19
    )Net income (loss) per share  diluted:Income (loss) per share from continuing operations
    
    $
    0.16
    
    
    $
    (0.06
    )
    
    $
    (0.16
    )Income (loss) per share from discontinued operations
    
    $
    
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )Net income (loss) per share
    
    $
    0.16
    
    
    $
    (0.08
    )
    
    $
    (0.17
    )Income (loss) per share attributable to common stockholders
    
    $
    0.16
    
    
    $
    (0.08
    )
    
    $
    (0.19
    )Weighted average common shares outstanding:Basic
    
    
    30,004
    
    
    
    28,027
    
    
    
    23,440Diluted
    
    
    32,003
    
    
    
    28,027
    
    
    
    23,440
  42




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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME (LOSS)
 Stock
    
    
    AccumulatedConvertible
    
    
    Common Stock
    
    
    Additional
    
    
    
    
    
    
    Subscriptions
    
    
    Other
    
    
    NetPreferred
    
    
    
    
    
    
    
    
    
    
    Paid-In
    
    
    Accumulated
    
    
    and Deferred
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Income(Loss)
    
    
    Equity(In thousands, except share amounts)Balances at December 31, 2002
    
    
    6
    
    
    
    20,347,876
    
    
    
    203
    
    
    
    119,444
    
    
    
    (100,493
    )
    
    
    (1,574
    )
    
    
    42
    
    
    
    17,628Issuance of common stock for warrants exercised
    
    
    
    
    
    
    392,712
    
    
    
    4
    
    
    
    296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Issuance of common stock for options exercised
    
    
    
    
    
    
    650,487
    
    
    
    7
    
    
    
    1,546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,553Issuance of common stock under Employee Stock
Purchase Plan
    
    
    
    
    
    
    78,374
    
    
    
    1
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102Issuance of common stock for acquisitions
    
    
    
    
    
    
    1,112,665
    
    
    
    11
    
    
    
    6,895
    
    
    
    
    
    
    
    (203
    )
    
    
    
    
    
    
    6,703Common stock issued for cash and note receivable,
net of registration costs of $1,197
    
    
    
    
    
    
    2,429,981
    
    
    
    24
    
    
    
    13,974
    
    
    
    
    
    
    
    (195
    )
    
    
    
    
    
    
    13,803Issuance of Series E & F preferred stock for cash,
net of registration costs of $76
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    1,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,614Beneficial conversion costs of Series E & F
preferred stock issuance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (445
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (445
    )Dividends paid on Series E & F preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )Conversion of Series E & F preferred stock into
common stock
    
    
    (16
    )
    
    
    1,594,458
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Series C preferred stock into common
stock
    
    
    (3
    )
    
    
    241,785
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock for settlement of
accounts payable and long-term debt
    
    
    
    
    
    
    762,658
    
    
    
    8
    
    
    
    1,803
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,811Reduction of stock subscription receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )
    
    
    
    
    
    
    1,395
    
    
    
    
    
    
    
    1,303Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    90Value of options and warrants issued to consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93Comprehensive income (loss):Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    106Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,999
    )
    
    
    
    
    
    
    
    
    
    
    (3,999
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,893
    )Balances at December 31, 2003
    
    
    3
    
    
    
    27,610,996
    
    
    
    276
    
    
    
    145,194
    
    
    
    (104,492
    )
    
    
    (487
    )
    
    
    148
    
    
    
    40,642Issuance of common stock for warrants exercised
    
    
    
    
    
    
    192,384
    
    
    
    2
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205Issuance of common stock for options exercised
    
    
    
    
    
    
    593,658
    
    
    
    6
    
    
    
    1,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,264Issuance of common stock under Employee Stock
Purchase Plan
    
    
    
    
    
    
    16,301
    
    
    
    
    
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93Issuance of common stock for board compensation
    
    
    
    
    
    
    12,473
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    123Conversion of Series C preferred stock into common
stock
    
    
    
    
    
    
    64,561
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Reduction of stock subscription receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    333Issuance of restricted stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    697
    
    
    
    
    
    
    
    (697
    )
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    184Comprehensive income (loss):Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    56Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,200
    )
    
    
    
    
    
    
    
    
    
    
    (2,200
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,144
    )Balances at December 31, 2004
    
    $
    3
    
    
    
    28,490,373
    
    
    $
    285
    
    
    $
    147,547
    
    
    $
    (106,692
    )
    
    $
    (646
    )
    
    $
    204
    
    
    $
    40,701Conversion of Series C preferred stock into common
stock
    
    
    (3
    )
    
    
    276,596
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock for warrants exercised
    
    
    
    
    
    
    5,529
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Issuance of common stock for options exercised
    
    
    
    
    
    
    623,955
    
    
    
    6
    
    
    
    1,817
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,823Issuance of common stock under Employee Stock
Purchase Plan
    
    
    
    
    
    
    27,565
    
    
    
    
    
    
    
    189
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189Issuance of common stock for acquisitions
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170Issuance of stock awards
    
    
    
    
    
    
    14,006
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Issuance of common stock for board compensation
    
    
    
    
    
    
    12,672
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    91Common stock issued to strategic partners, net of
issuance costs of $225,000
    
    
    
    
    
    
    1,379,312
    
    
    
    14
    
    
    
    9,761
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,775Repayment of stock subscription receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    150Issuance of restricted stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,359
    
    
    
    
    
    
    
    (6,359
    )
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,498
    
    
    
    
    
    
    
    1,498Retirement of shares
    
    
    
    
    
    
    (427
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Unrealized Loss on Available for Sale Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    (73
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,007
    
    
    
    
    
    
    
    
    
    
    
    5,007Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,907Balances at December 31, 2005
    
    
    
    
    
    
    30,844,581
    
    
    $
    308
    
    
    $
    166,000
    
    
    $
    (101,685
    )
    
    $
    (5,378
    )
    
    $
    104
    
    
    $
    59,349
  43




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except share amounts)Cash flows from operating activities:Net income (loss)
    
    $
    5,007
    
    
    $
    (2,200
    )
    
    $
    (3,999
    )Less income (loss) from discontinued operation
    
    
    
    
    
    
    466
    
    
    
    329Income (loss) from continuing operations
    
    
    5,007
    
    
    
    (1,734
    )
    
    
    (3,670
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Provisions for doubtful accounts and sales returns and credits
    
    
    434
    
    
    
    358
    
    
    
    1,024Depreciation and amortization
    
    
    1,978
    
    
    
    1,952
    
    
    
    1,565Write-down of tooling equipment
    
    
    82
    
    
    
    
    
    
    
    (Gain) loss on disposal of assets
    
    
    (11,639
    )
    
    
    15
    
    
    
    55Amortization of deferred compensation
    
    
    1,498
    
    
    
    184
    
    
    
    90Expense for stock to be issued for litigation settlement
    
    
    799
    
    
    
    
    
    
    
    Compensation
expense settled with stock, options or warrants
    
    
    163
    
    
    
    
    
    
    
    50Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (2,435
    )
    
    
    (5,900
    )
    
    
    (5,021
    )Inventories
    
    
    (5,860
    )
    
    
    725
    
    
    
    (3,825
    )Prepaid expenses and other assets
    
    
    (71
    )
    
    
    (898
    )
    
    
    (748
    )Accounts payable
    
    
    5,162
    
    
    
    5,927
    
    
    
    1,412Accrued expenses and other current liabilities
    
    
    4,107
    
    
    
    (155
    )
    
    
    (799
    )Net cash provided by (used in) operating activities from
continuing operations
    
    
    (775
    )
    
    
    474
    
    
    
    (9,867
    )Net cash provided by (used in) operating activities from
discontinued operations (revised  Note 2)
    
    
    (166
    )
    
    
    44
    
    
    
    112Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,411
    )
    
    
    (1,110
    )
    
    
    (683
    )Purchase of investments
    
    
    (20,313
    )
    
    
    
    
    
    
    Proceeds from sale of intangible assets
    
    
    11,692
    
    
    
    
    
    
    
    Proceeds from sale of handheld software product line
    
    
    
    
    
    
    388
    
    
    
    Proceeds from sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    4Net cash used in investing activities from continuing operations
    
    
    (10,032
    )
    
    
    (722
    )
    
    
    (679
    )Net cash used in investing activities from discontinued operations
(revised  Note 2)
    
    
    
    
    
    
    (3
    )
    
    
    (33
    )Cash flows from financing activities:Repayment of stock subscription receivables
    
    
    150
    
    
    
    333
    
    
    
    1,395Repayment of long-term debt and capital lease obligations
    
    
    (25
    )
    
    
    (125
    )
    
    
    (83
    )Net proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    1,169Net proceeds from sale of common stock
    
    
    9,962
    
    
    
    216
    
    
    
    13,905Proceeds from exercise of warrants and options
    
    
    1,828
    
    
    
    1,470
    
    
    
    1,853Dividends paid on convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    (20
    )Net cash provided by financing activities from continuing operations
    
    
    11,915
    
    
    
    1,894
    
    
    
    18,219Net increase in cash from continuing operations
    
    
    1,108
    
    
    
    1,646
    
    
    
    7,673Net increase (decrease) in cash from discontinued operations
    
    
    (166
    )
    
    
    41
    
    
    
    79Effects of exchange rates on cash and cash equivalents
    
    
    (73
    )
    
    
    56
    
    
    
    106Net increase in cash and cash equivalents
    
    
    869
    
    
    
    1,744
    
    
    
    7,858Cash and cash equivalents, beginning of year
    
    
    12,768
    
    
    
    11,024
    
    
    
    3,166Cash and cash equivalents, end of year
    
    $
    13,637
    
    
    $
    12,768
    
    
    $
    11,024
 44




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS  (Continued)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except share amounts)Supplemental disclosure of cash flow information:Interest paid
    
    $
    25
    
    
    $
    33
    
    
    $
    57Supplemental schedule of noncash investing and financing activities:Common stock issued in connection with acquisitions, net
    
    $
    170
    
    
    $
    
    
    
    $
    6,703Issuance of 826,617 restricted stock units for deferred compensation to employees and
board members
    
    $
    6,358
    
    
    $
    
    
    
    $
    Issuance of 82,200 restricted stock units for settlement of compensation to board members
    
    $
    
    
    
    $
    697
    
    
    $
    Warrants issued in connection with the execution and/or extension of line of credit
    
    $
    
    
    
    $
    
    
    
    $
    25Issuance of 416,582 shares of common stock for settlement of accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    812Issuance of 43,576 shares of common stock for settlement of compensation
    
    $
    
    
    
    $
    
    
    
    $
    91Issuance of 302,500 shares of common stock for settlement of Long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    908Stock subscription receivable
    
    $
    
    
    
    $
    
    
    
    $
    195
  45




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005, 2004 and 2003
 (1) Nature of Business
   (2) Summary of Significant Accounting Policies
 ( a ) Use of Estimates
   ( b ) Principles of Consolidation
  ( c ) Revenue Recognition
  ( d ) Cash and Cash Equivalents
  ( e ) Short-Term Investments
  46




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  ( f ) Accounts Receivable
  ( g ) Inventories
  ( h ) Property and Equipment
  ( i ) Goodwill
  ( j ) Intangible Assets
  ( k ) Warranty Costs
  47




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 ( l ) Income Taxes
   ( m ) Net Income (Loss) per Common Share
  ( n ) Employee Stock Options
     48




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Years Ended December 31,2005
    
    
    2004
    
    
    2003Net income (loss) applicable to common stockholders:As reported
    
    $
    5,007
    
    
    $
    (2,200
    )
    
    $
    (4,464
    )Total stock-based employees compensation expense determined under
fair-value-based method for all rewards, net of tax
    
    
    (1,906
    )
    
    
    (1,115
    )
    
    
    (651
    )Pro forma
    
    $
    3,101
    
    
    $
    (3,315
    )
    
    $
    (5,115
    )Net income (loss) per share attributable to common stockholders  basic:As reported
    
    $
    0.17
    
    
    $
    (0.08
    )
    
    $
    (0.19
    )Pro forma
    
    $
    0.10
    
    
    $
    (0.12
    )
    
    $
    (0.22
    )Net income (loss) per share attributable to common stockholders  diluted:As reported
    
    $
    0.16
    
    
    $
    (0.08
    )
    
    $
    (0.19
    )Pro forma
    
    $
    0.10
    
    
    $
    (0.12
    )
    
    $
    (0.22
    )
  Years Ended December 31,2004
    
    2003Expected life (years)
    
    
    3.0
    
    
    
    3.5Risk-free interest rate
    
    
    3.25
    %
    
    
    3.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    80.0
    %
    
    
    100.0
    %
 ( o ) Fair Value of Financial Instruments
  ( p ) Research and Development
  ( q ) Foreign Currency Translation
  49




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 ( r ) Segment Reporting
 i i i i
 ( s ) Reclassifications
  ( t ) Recently Issued Accounting Pronouncements
     50




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    (3) Acquisition
   (4) Investments
   51




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Amortized
    
    
    Net Unrealized
    
    
    AggregateCost
    
    

Holding
Gains (Losses)
    
    

Fair ValueCorporate securities:Commercial paper
    
    $
    6,831
    
    
    $
    (3
    )
    
    $
    6,828Corporate notes and bonds
    
    
    8,295
    
    
    
    (21
    )
    
    
    8,274Certificates of deposit
    
    
    1,801
    
    
    
    
    
    
    
    1,801Asset backed securities  fixed
    
    
    900
    
    
    
    
    
    
    
    90017,827
    
    
    
    (24
    )
    
    
    17,803U.S. government securities
    
    
    2,486
    
    
    
    (3
    )
    
    
    2,483$
    20,313
    
    
    $
    (27
    )
    
    $
    20,286
 (5) Inventories
  December 31,2005
    
    
    2004Raw materials
    
    $
    2,946
    
    
    $
    2,122Finished goods
    
    
    10,427
    
    
    
    5,391$
    13,373
    
    
    $
    7,513
 (6) Property and Equipment
  December 31,2005
    
    
    2004Furniture and fixtures
    
    $
    524
    
    
    $
    483Store, warehouse and related equipment
    
    
    1,554
    
    
    
    1,019Computer equipment
    
    
    3,315
    
    
    
    2,839Tooling
    
    
    2,927
    
    
    
    2,706Leasehold improvements
    
    
    574
    
    
    
    5448,894
    
    
    
    7,591Less accumulated depreciation and amortization
    
    
    (6,484
    )
    
    
    (5,464
    )Property and equipment, net
    
    $
    2,410
    
    
    $
    2,127
 (7) Goodwill
  High-Power Group
    
    $
    3,578Connectivity Group
    
    
    6,992$
    10,570
  52




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (8) Intangible Assets
  December 31, 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
    
    
    $
    (743
    )
    
    $
    1,204
    
    
    $
    2,258
    
    
    $
    (843
    )
    
    $
    1,415Patents and trademarks
    
    
    3
    
    
    
    2,018
    
    
    
    (968
    )
    
    
    1,050
    
    
    
    1,921
    
    
    
    (994
    )
    
    
    927Trade names
    
    
    10
    
    
    
    378
    
    
    
    (126
    )
    
    
    252
    
    
    
    378
    
    
    
    (88
    )
    
    
    290Customer list
    
    
    3
    
    
    
    662
    
    
    
    (448
    )
    
    
    214
    
    
    
    662
    
    
    
    (235
    )
    
    
    427Total
    
    
    
    
    
    $
    5,005
    
    
    $
    (2,285
    )
    
    $
    2,720
    
    
    $
    5,219
    
    
    $
    (2,160
    )
    
    $
    3,059
  AmortizationYear
    
    Expense2006
    
    $
    7432007
    
    
    5412008
    
    
    4952009
    
    
    3732010
    
    
    270
   Gross
    
    
    
    
    
    
    NetIntangible
    
    
    Accumulated
    
    
    IntangibleAssets
    
    
    Amortization
    
    
    AssetsSoftware
    
    $
    1,100
    
    
    $
    (409
    )
    
    $
    691Non-compete agreements
    
    
    84
    
    
    
    (61
    )
    
    
    23Patents and trademarks
    
    
    64
    
    
    
    
    
    
    
    64Customer list
    
    
    43
    
    
    
    (9
    )
    
    
    34Total
    
    $
    1,291
    
    
    $
    (479
    )
    
    $
    812
 (9) Line of Credit
  53




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (10) Long-Term Debt and Other Non-current Liabilities
  December 31,2005
    
    
    2004Estimate of Invision earn-out
    
    $
    412
    
    
    $
    716Liability for license fee
    
    
    50
    
    
    
    75462
    
    
    
    791Less current portion
    
    
    437
    
    
    
    328Long-term debt, less current portion
    
    $
    25
    
    
    $
    463
   (11) Lease Commitments
   2006
    
    
    8462007
    
    
    8312008
    
    
    4902009
    
    
    192010
    
    
    Thereafter
    
    
    $
    2,186
 (12) Income Taxes
  54




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Federal statutory rate
    
    $
    1,799
    
    
    $
    (748
    )
    
    $
    (1,360
    )Meals, entertainment and other non-deductible expenses
    
    
    36
    
    
    
    21
    
    
    
    15State income taxes
    
    
    93
    
    
    
    
    
    
    
    Foreign rate differential
    
    
    14
    
    
    
    13
    
    
    
    29Gain on sale of assets of Texas subsidiary
    
    
    143
    
    
    
    246
    
    
    
    Reduction of net operating loss due to Section 382 limitation
    
    
    18,678
    
    
    
    
    
    
    
    Change in deferred tax valuation allowance
    
    
    (21,934
    )
    
    
    468
    
    
    
    296Nondeductible litigation settlement expense
    
    
    1,456
    
    
    
    
    
    
    
    Cancellation of debt
    
    
    
    
    
    
    
    
    
    
    1,020Income tax provision (benefit)
    
    $
    285
    
    
    $
    
    
    
    $
    
    December 31,2005
    
    
    2004Deferred tax assets:Net operating loss carry forward for federal income taxes
    
    $
    29,192
    
    
    $
    52,315Net operating loss carry forward for foreign income taxes
    
    
    1,551
    
    
    
    1,446Net operating loss carry forward for state income taxes
    
    
    2,184
    
    
    
    3,556Depreciation and amortization
    
    
    149
    
    
    
    Intangibles
    
    
    818
    
    
    
    Accrued liabilities
    
    
    1,042
    
    
    
    88Reserves
    
    
    135
    
    
    
    117Bad debts
    
    
    137
    
    
    
    146Tax credits
    
    
    466
    
    
    
    181Inventory obsolescence
    
    
    560
    
    
    
    677Total gross deferred tax assets
    
    
    36,234
    
    
    
    58,526Deferred tax liabilities:Depreciation and amortization
    
    
    
    
    
    
    (330
    )Acquisitions
    
    
    (225
    )
    
    
    (253
    )Total gross deferred tax liabilities
    
    
    (225
    )
    
    
    (583
    )Net deferred tax assets
    
    
    36,009
    
    
    
    57,943Less valuation allowance
    
    
    (36,009
    )
    
    
    (57,943
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  55




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   (13) Stockholders Equity
 ( a ) Convertible Preferred Stock and Related Warrants
       56




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  ( b ) Common Stock and Related Warrants
      ( c ) Stock Subscription
     57




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   (14) Employee Benefit Plans
 ( a ) Retirement Plan
  ( b ) Stock Options
   Years Ended December 31,2004
    
    2003Expected life (years)
    
    
    3.0
    
    
    
    3.5Risk-free interest rate
    
    
    3.25
    %
    
    
    3.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    80.0
    %
    
    
    100.0
    %
 58




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Weighted AverageExercise Price perNumber
    
    
    
    ShareOutstanding, December 31, 2002
    
    
    2,579,597
    
    
    $
    2.35Granted
    
    
    1,210,410
    
    
    
    3.98Canceled
    
    
    (790,432
    )
    
    
    2.79Exercised
    
    
    (650,487
    )
    
    
    2.39Outstanding, December 31, 2003
    
    
    2,349,088
    
    
    
    3.03Granted
    
    
    419,000
    
    
    
    7.93Canceled
    
    
    (232,271
    )
    
    
    5.15Exercised
    
    
    (593,658
    )
    
    
    2.13Outstanding, December 31, 2004
    
    
    1,942,159
    
    
    
    4.11Granted
    
    
    
    
    
    
    Canceled
    
    
    (135,458
    )
    
    
    2.53Exercised
    
    
    (623,955
    )
    
    
    2.90Outstanding, December 31, 2005
    
    
    1,182,746
    
    
    $
    4.92
  Weighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageOptions
    
    
    Remaining
    
    
    Exercise
    
    
    Options
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Contractual Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.79-$1.28
    
    
    310,242
    
    
    
    2.66
    
    
    $
    1.08
    
    
    
    184,223
    
    
    $
    1.10$1.29-$3.15
    
    
    301,178
    
    
    
    1.76
    
    
    $
    2.16
    
    
    
    267,994
    
    
    $
    2.21$3.16-$8.82
    
    
    298,326
    
    
    
    4.36
    
    
    $
    7.61
    
    
    
    293,827
    
    
    $
    7.66$8.83-$11.95
    
    
    273,000
    
    
    
    3.99
    
    
    $
    9.40
    
    
    
    273,000
    
    
    $
    9.40$0.79-$11.95
    
    
    1,182,746
    
    
    
    3.17
    
    
    $
    4.92
    
    
    
    1,019,044
    
    
    $
    5.51
 ( c ) Restricted Stock Units
   59




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Weighted AverageNumber
    
    
    Value per ShareOutstanding, January 1, 2004
    
    
    
    
    
    
    Granted
    
    
    82,200
    
    
    $
    8.48Canceled
    
    
    
    
    
    
    Released to common stock
    
    
    
    
    
    
    Released for settlement of taxes
    
    
    
    
    
    
    Outstanding, December 31, 2004
    
    
    82,200
    
    
    
    8.48Granted
    
    
    59,700
    
    
    
    8.54Canceled
    
    
    
    
    
    
    Released to common stock
    
    
    
    
    
    
    Released for settlement of taxes
    
    
    
    
    
    
    Outstanding, December 31, 2005
    
    
    141,900
    
    
    $
    8.51
  Weighted AverageNumber
    
    
    Value per ShareOutstanding, January 1, 2005
    
    
    
    
    
    
    Granted
    
    
    894,448
    
    
    $
    7.51Canceled
    
    
    (119,422
    )
    
    
    7.35Released to common stock
    
    
    (6,006
    )
    
    
    7.33Released for settlement of taxes
    
    
    (2,103
    )
    
    
    7.33Outstanding, December 31, 2005
    
    
    766,917
    
    
    $
    7.53
 ( d ) Employee Stock Purchase Plan
  (15) Discontinued Operations
   Years Ended December 31,2004
    
    
    2003Revenue
    
    $
    1,063
    
    
    $
    1,120Cost of Revenue
    
    
    319
    
    
    
    278Gross profit
    
    
    744
    
    
    
    842Selling, general and administrative expenses
    
    
    1,210
    
    
    
    1,171Total discontinued operations
    
    $
    (466
    )
    
    $
    (329
    )
 60




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (16) Net Income (Loss) per Share
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Basic net income (loss) per share computation:Numerator:Income (loss) from continuing operations
    
    $
    5,007
    
    
    $
    (1,734
    )
    
    $
    (3,670
    )Discontinued operations
    
    
    
    
    
    
    (466
    )
    
    
    (329
    )Net income (loss)
    
    
    5,007
    
    
    
    (2,200
    )
    
    
    (3,999
    )Beneficial conversion costs of preferred stock
    
    
    
    
    
    
    
    
    
    
    (445
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    (20
    )Net income (loss) attributable to common stockholders
    
    $
    5,007
    
    
    $
    (2,200
    )
    
    $
    (4,464
    )Denominator:Weighted average number of common shares outstanding
    
    
    30,004
    
    
    
    28,027
    
    
    
    23,440Basic net income (loss) per share:Continuing operations
    
    $
    .017
    
    
    $
    (0.06
    )
    
    $
    (0.16
    )Discontinued operations
    
    $
    
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )Net income (loss) per share attributable to common stockholders
    
    $
    .017
    
    
    $
    (0.08
    )
    
    $
    (0.19
    )Diluted net income (loss) per share computation:Numerator:Income (loss) from continuing operations
    
    $
    5,007
    
    
    $
    (1,734
    )
    
    $
    (3,670
    )Discontinued operations
    
    
    
    
    
    
    (466
    )
    
    
    (329
    )Net income (loss)
    
    
    5,007
    
    
    
    (2,200
    )
    
    
    (3,999
    )Beneficial conversion costs of preferred stock
    
    
    
    
    
    
    
    
    
    
    (445
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    (20
    )Net income (loss) attributable to common stockholders
    
    $
    5,007
    
    
    $
    (2,200
    )
    
    $
    (4,464
    )Denominator:Weighted average number of common shares outstanding
    
    
    30,004
    
    
    
    28,027
    
    
    
    23,440Effect of dilutive stock options, warrants, and restricted stock units
    
    
    1,894
    
    
    
    
    
    
    
    Effect of common shares issuable upon conversion of preferred shares
    
    
    105
    
    
    
    
    
    
    
    32,003
    
    
    
    28,027
    
    
    
    23,440Stock options, warrants and restricted stock units not included in
dilutive net income (loss) per share since antidilutive
    
    
    
    
    
    
    2,077
    
    
    
    2,596Convertible preferred stock not included in dilutive net income
(loss) per share since antidilutive
    
    
    
    
    
    
    271
    
    
    
    330Diluted net income (loss) per share:Continuing operations
    
    $
    .016
    
    
    $
    (0.06
    )
    
    $
    (0.16
    )Discontinued operations
    
    $
    
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )Net income (loss) per share attributable to common stockholders
    
    $
    .016
    
    
    $
    (0.08
    )
    
    $
    (0.19
    )
 61




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (17) Business Segments, Concentration of Credit Risk and Significant Customers
 i i i i
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Revenue:High-Power Group
    
    $
    63,118
    
    
    $
    53,324
    
    
    $
    34,848itip Division
    
    
    4,024
    
    
    
    
    
    
    
    Connectivity Group
    
    
    18,359
    
    
    
    16,889
    
    
    
    15,902$
    85,501
    
    
    $
    70,213
    
    
    $
    50,750
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Operating income (loss):High-Power Group
    
    $
    12,676
    
    
    $
    7,246
    
    
    $
    4,579itip Division
    
    
    (2,472
    )
    
    
    
    
    
    
    Connectivity Group
    
    
    1,235
    
    
    
    1,892
    
    
    
    1,517Corporate
    
    
    (14,303
    )
    
    
    (10,836
    )
    
    
    (9,743
    )$
    (2,864
    )
    
    $
    (1,698
    )
    
    $
    (3,647
    )
  December 31,2005
    
    
    2004Assets:High-Power Group
    
    $
    33,480
    
    
    $
    28,704itip Division
    
    
    
    
    
    
    Connectivity Group
    
    
    14,961
    
    
    
    12,333Corporate
    
    
    35,469
    
    
    
    14,380$
    83,910
    
    
    $
    55,417
   Revenue by Product LineYears Ended December 31,2005
    
    
    2004
    
    
    2003High-power mobile electronic power products
    
    $
    53,917
    
    
    $
    44,130
    
    
    $
    27,757Low-power mobile electronic power products
    
    
    10,233
    
    
    
    4,813
    
    
    
    Handheld products
    
    
    12,171
    
    
    
    10,453
    
    
    
    9,774Expansion and docking products
    
    
    6,279
    
    
    
    6,802
    
    
    
    6,736Accessories and other products
    
    
    2,901
    
    
    
    4,015
    
    
    
    6,483Total revenues
    
    $
    85,501
    
    
    $
    70,213
    
    
    $
    50,750
 62




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Years Ended December 31,2005
    
    2004
    
    2003High-power mobile electronic power products
    
    
    36
    %
    
    
    38
    %
    
    
    45
    %Low-power mobile electronic power products
    
    
    40
    %
    
    
    40
    %
    
    
    Handheld products
    
    
    36
    %
    
    
    34
    %
    
    
    26
    %Expansion and docking products
    
    
    60
    %
    
    
    59
    %
    
    
    52
    %Accessories and other products
    
    
    68
    %
    
    
    52
    %
    
    
    63
    %
  Revenue by GeographyYears Ended December 31,2005
    
    
    2004
    
    
    2003North America
    
    $
    73,142
    
    
    $
    57,646
    
    
    $
    43,664Europe
    
    
    5,986
    
    
    
    7,874
    
    
    
    6,042Asia Pacific
    
    
    6,353
    
    
    
    4,534
    
    
    
    951All other
    
    
    20
    
    
    
    159
    
    
    
    93$
    85,501
    
    
    $
    70,213
    
    
    $
    50,750
 % of Revenue by Route to MarketYears Ended December 31,2005
    
    
    2004
    
    
    2003OEM and private-label-resellers
    
    
    63
    %
    
    
    61
    %
    
    
    45
    %Retailers and distributors
    
    
    27
    %
    
    
    27
    %
    
    
    45
    %Other
    
    
    10
    %
    
    
    12
    %
    
    
    10
    %100
    %
    
    
    100
    %
    
    
    100
    %
      (18) Contingencies
  63




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   (19) Related Party Transactions
   (20) Supplemental Financial Information
  Balance at
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning of
    
    
    Costs and
    
    
    
    
    
    
    End ofYear
    
    
    Expenses
    
    
    Utilization
    
    
    YearAllowance for doubtful accounts:Year ended December 31, 2005
    
    $
    311
    
    
    $
    
    
    
    $
    (5
    )
    
    $
    316Year ended December 31, 2004
    
    $
    424
    
    
    $
    (122
    )
    
    $
    (9
    )
    
    $
    311Year ended December 31, 2003
    
    $
    239
    
    
    $
    421
    
    
    $
    236
    
    
    $
    424Allowance for sales returns:Year ended December 31, 2005
    
    $
    183
    
    
    $
    434
    
    
    $
    386
    
    
    $
    231Year ended December 31, 2004
    
    $
    124
    
    
    $
    480
    
    
    $
    421
    
    
    $
    183Year ended December 31, 2003
    
    $
    211
    
    
    $
    603
    
    
    $
    690
    
    
    $
    124
 (21) Subsequent Event
  64




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##### Table of Contents



MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (22) Quarterly Financial Data (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterYear ended December 31, 2005:Net revenue
    
    $
    18,358
    
    
    $
    20,427
    
    
    $
    23,104
    
    
    $
    23,612Gross profit
    
    $
    5,477
    
    
    $
    6,411
    
    
    $
    7,425
    
    
    $
    6,535Operating expenses
    
    $
    (6,442
    )
    
    $
    (6,479
    )
    
    $
    (7,824
    )
    
    $
    (7,967
    )Gain on disposal of assets
    
    $
    
    
    
    $
    11,639
    
    
    $
    
    
    
    $
    Litigation settlement expense
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (4,284
    )Income (loss) from continuing operations
    
    $
    (927
    )
    
    $
    11,468
    
    
    $
    (142
    )
    
    $
    (5,392
    )Net income (loss)
    
    $
    (927
    )
    
    $
    11,468
    
    
    $
    (142
    )
    
    $
    (5,392
    )Net income (loss) per share:Basic
    
    $
    (0.03
    )
    
    $
    0.38
    
    
    $
    (0.00
    )
    
    $
    (0.18
    )Diluted
    
    $
    (0.03
    )
    
    $
    0.36
    
    
    $
    (0.00
    )
    
    $
    (0.18
    )Year ended December 31, 2004:Net revenue
    
    $
    14,044
    
    
    $
    16,651
    
    
    $
    18,959
    
    
    $
    20,559Gross profit
    
    $
    4,612
    
    
    $
    4,346
    
    
    $
    5,857
    
    
    $
    6,104Operating expenses
    
    $
    (5,796
    )
    
    $
    (5,641
    )
    
    $
    (5,734
    )
    
    $
    (5,445
    )Income (loss) from continuing operations
    
    $
    (1,180
    )
    
    $
    (1,344
    )
    
    $
    90
    
    
    $
    700Loss from discontinued operations
    
    $
    (1
    )
    
    $
    (169
    )
    
    $
    (296
    )
    
    $
    Net income (loss)
    
    $
    (1,181
    )
    
    $
    (1,513
    )
    
    $
    (206
    )
    
    $
    700Net income (loss) per share:Basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    (0.01
    )
    
    $
    0.02
 65




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Restatement
of Previously Issued Consolidated Financial Statements 
  Changes in Internal Control Over Financial Reporting Business Combinations
 66




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##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Executive Officers, Directors and Key Employees
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  67




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
 Financial Statements
  Exhibits
  Mobility Electronics, iGo, iGo DualPower, and Juice 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.
 68




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##### Table of Contents



SIGNATURES
  MOBILITY ELECTRONICS, INC./s/ Charles R. MolloCharles R. MolloPresident, Chief Executive Officer and
Chairman of the Board (Principal Executive Officer) POWER OF ATTORNEY
   SIGNATURES
    
    TITLEPresident, Chief Executive Officer and/s/ Charles R. Mollo
    
    Chairman of the Board (Principal Executive Officer)Charles R. MolloChief Financial Officer and Executive Vice President/s/ Joan W. Brubacher
    
    (Principal Financial and Accounting Officer)Joan W. Brubacher/s/ William O. Hunt
    
    DirectorWilliam O. Hunt/s/ Jerre L. Stead
    
    DirectorJerre L. Stead/s/ Jeffrey R. Harris
    
    DirectorJeffrey R. Harris/s/ Larry M. Carr
    
    DirectorLarry M. Carr/s/ Robert W. Shaner
    
    DirectorRobert W. Shaner
 69




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document2.1
    
    Agreement and Plan of Merger dated October 2, 2000, by and among the Company, Mesa Ridge Technologies,
Inc. d/b/a MAGMA and the stockholders of MAGMA (1)***2.2
    
    Agreement and Plan of Merger dated as of February 20, 2002, by and among Portsmith, Inc., certain holders
of the outstanding capital stock of Portsmith, Mobility Electronics, Inc. and Mobility Europe Holdings,
Inc. (2)***2.3
    
    Agreement and Plan of Merger dated March 23, 2002, by and among Mobility Electronics, Inc., iGo
Corporation and IGOC Acquisition (2)***2.4
    
    Agreement and Plan of Merger by and among Cutting Edge Software, Inc., Jeff Musa, Mobility Electronics,
Inc. and CES Acquisition, Inc. dated August 20, 2002 (3)***2.5
    
    Agreement and Plan of Merger among Cutting Edge Software, Inc. and CES II Acquisition, Inc. dated August
21, 2002 (4)***3.1
    
    Certificate of Incorporation of the Company (5)3.2
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of June 17, 1997 (6)3.3
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of September 10, 1997 (5)3.4
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of July 20, 1998 (5)3.5
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of February 3, 2000 (5)3.6
    
    Articles of Amendment to the Certificate of Incorporation of the Company dated as of March 31, 2000 (6)3.7
    
    Certificate of Designations, Preferences, Rights and Limitations of Series C Preferred Stock (5)3.8
    
    Certificate of the Designations, Preferences, Rights and Limitations of Series D Preferred Stock (7)3.9
    
    Certificate of the Designations, Preferences, Rights and Limitations of Series E Preferred Stock of
Mobility Electronics, Inc. (8)3.10
    
    Certificate of the Designations, Preferences, Rights and Limitations of Series F Preferred Stock of
Mobility Electronics, Inc. (8)3.11
    
    Certificate of Designations, Preferences, Rights and Limitations of Series G Junior Participating
Preferred Stock of Mobility Electronics, Inc. (9)3.12
    
    Amended and Restated Bylaws of the Company (23)4.1
    
    Specimen of Common Stock Certificate (10)4.2
    
    Form of Warrant to Purchase Shares of common stock of the Company used with the Series C Preferred Stock
Private Placements (6)**4.3
    
    Form of Series C Preferred Stock Purchase Agreement used in 1998 and 1999 Private Placements (5)**4.4
    
    Form of Series C Preferred Stock and Warrant Purchase Agreement used in 1999 and 2000 Private Placements
(5)**4.5
    
    Form of Warrant to Purchase common stock of the Company issued to certain holders in connection with the
Contribution and Indemnification Agreement by and among Janice L. Breeze, Jeffrey S. Doss, Charles S.
Mollo, Cameron Wilson, the Company and certain Stockholders of the Company, dated November 2, 1999 (7)**4.6
    
    Lockup Agreement by and between Mobility Electronics, Inc. and Jeff Musa dated August 20, 2002 (4)4.7
    
    Form of Series E Preferred Stock and Warrant Purchase Agreement (8)**4.8
    
    Form of Series F Preferred Stock and Warrant Purchase Agreement (8)**4.9
    
    Form of Warrant issued to purchasers of Series E Stock (8)




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##### Table of Contents



ExhibitNumber
    
    Description of Document4.10
    
    Form of Warrant issued to purchasers of Series F Stock (8)4.11
    
    Registration Rights Agreement by and between Jeff Musa and the Company (Exhibit H on the Agreement and
Plan of Merger by and among Cutting Edge Software, Inc., Jeff Musa, the Company and CES Acquisition, Inc.,
dated August 20, 2002) (10)4.12
    
    Rights Agreement between the Company and Computershare Trust Company, dated June 11, 2003 (9)4.13
    
    Form of Common Stock Purchase Agreement relating to private placement completed August 29, 2003.**(11)4.14
    
    Form of Warrant to Purchase Common Stock of the Company issued to Silicon Valley Bank on September 3,
2003.(12)4.15
    
    $25 Million Threshold Warrant to Purchase Shares of Common Stock issued to Motorola, Inc., dated as of
March 31, 2005(24)4.16
    
    $50 Million Threshold Warrant to Purchase Shares of Common Stock issued to Motorola, Inc., dated as of
March 31, 2005(24)4.17
    
    $25 Million Threshold Warrant to Purchase Shares of Common Stock issued to RadioShack Corporation, dated
as of March 31, 2005(24)4.18
    
    $50 Million Threshold Warrant to Purchase Shares of Common Stock issued to RadioShack Corporation, dated
as of March 31, 2005(24)4.19
    
    Strategic Partners Investment Agreement by and among Mobility Electronics, Inc., RadioShack Corporation
and Motorola, Inc., dated as of March 31, 2005(24)10.1
    
    Robert P. Dilworth Nonqualified Stock Option Agreement dated May 21, 1999.(5)+10.2
    
    Charles R. Mollo Option Agreement dated December 1, 1999.(5)+10.3
    
    Jeffrey S. Doss Option Agreement dated December 1, 1999.(5)10.4
    
    Jeffrey S. Doss Pledge Agreement dated December 1, 1999.(5)10.5
    
    Jeffrey S. Doss Promissory Note in favor of the Company dated December 1, 1999 in the principal amount of
$300,000.(5)10.6
    
    First Amendment to Option Agreement dated December 1, 1999 between Jeffrey S. Doss and the Company.(5)+10.7
    
    William O. Hunt Non-qualified Stock Option Agreement dated December 8, 1999.(7)+10.8
    
    Amended and Restated 1996 Long Term Incentive Plan, as amended on January 13, 2000.(5)+10.9
    
    Employee Stock Purchase Plan(13)+10.10
    
    Form of Stock Purchase Agreement, dated as of March 2, 2001, by and between the Company and each of
Jeffrey S. Doss, Donald W. Johnson and La Luz Enterprises, L.L.C.(14)**10.11
    
    Form of Promissory Note, dated March 2, 2001, in the principal amount of $199,311, and issued by each of
Jeffrey S. Doss, Donald W. Johnson and La Luz Enterprises, L.L.C. to the Company.(14)**10.12
    
    Form of Pledge and Security Agreement, dated as of March 2, 2001, by and between the Company and each of
Jeffrey S. Doss, Donald W. Johnson and La Luz Enterprises, L.L.C.(14)**10.13
    
    Guaranty, dated as of March 2, 2001, issued by Charles R. Mollo in favor of the Company.(14)10.14
    
    Stock Escrow Agreement entered into as of February 20, 2002, by and among Holmes Lundt as the
representative of the holders of outstanding capital stock of Portsmith, Inc., Mobility Electronics, Inc.,
and Jackson Walker L.L.P.(4)10.15
    
    Form of Promissory Note in the principal amount of $70,000 dated May 7, 2002 by and between the Company
and each of Joan W. Brubacher, Darryl S. Baker, Ed Romascan and Tim S. Jeffries.**(20)




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##### Table of Contents



ExhibitNumber
    
    Description of Document10.16
    
    Form of Pledge and Security Agreement, dated as of May 7, 2002 by and between the Company and each of Joan
W. Brubacher, Darryl S. Baker, Ed Romascan and Tim S. Jeffries.**(20)10.17
    
    Letter Agreement with Jackson Walker L.L.P. dated September12, 2002.(3)10.18
    
    Letter Agreement with Jackson Walker L.L.P. dated May 29, 2003.(15)10.19
    
    Loan and Security Agreement dated September 27, 2002 between Silicon Valley Bank, Mobility Electronics,
Inc., Portsmith, Inc., and Magma, Inc.(16)10.20
    
    Intellectual Property Security Agreement dated September 27, 2002 by and between Silicon Valley Bank and
Mobility Electronics, Inc.(16)10.21
    
    Continuing Guaranty dated September 27, 2002 by Cutting Edge Software, Inc. in favor of Silicon Valley
Bank.(16)10.22
    
    Intellectual Property Security Agreement dated September 27, 2002 by and between Silicon Valley Bank and
Cutting Edge Software, Inc.(16)10.23
    
    Amendment to Loan Documents by and between Silicon Valley Bank, the Company and certain of its
subsidiaries, dated January 31, 2003 (12)10.24
    
    Amendment to Loan Documents by and between Silicon Valley Bank, the Company and certain of its
subsidiaries, dated March 31, 2003 (12)10.25
    
    Amendment to Loan Documents by and between Silicon Valley Bank, the Company and certain of its
subsidiaries, dated August 25, 2003 (12)10.26
    
    Amendment to Loan Documents by and between Silicon Valley Bank, the Company and certain of its
subsidiaries, dated as of July 31, 2004 (21)10.27
    
    Amendment to Loan Documents by and between Silicon Valley Bank, the Company and certain of its
subsidiaries, dated as of February 17, 2006*10.28
    
    Purchase Agreement dated as of November 15, 2002, by and between Richard C. Liggitt and Mobility
Electronics, Inc.(17)10.29
    
    Compromise Settlement Agreement dated November 15, 2002, by and between Mobility Electronics, Inc.,
Portsmith, Inc., Holmes Lundt, Jess Asla, Richard Neff, Dan Axtman and Richard C. Liggitt.(17)10.30
    
    Form of Indemnity Agreement executed between the Company and certain officers and directors.(18)**10.31
    
    Form of Indemnity Agreement executed between the Company and its officers and directors.(7)**10.32
    
    Amended and Restated Promissory Note by and between Jeffrey S. Doss and the Company dated February 1,
2003.(19)10.33
    
    Amended and Restated Pledge and Security by and between Jeffrey S. Doss and the Company dated February 1,
2003.(19)10.34
    
    Asset Purchase Agreement by and among InVision Wireless, LLC, InVision Software Inc. and Mobility
Electronics, dated as of November 14, 2003 (22)10.35
    
    Standard Multi-Tenant Office Lease by and between Mobility Electronics, Inc. and I.S. Capital, LLC, dated
July 17, 2002 (22)10.36
    
    Amendment to Lease Agreement by and between Mobility Electronics, Inc. and I.S. Capital, LLC, dated
February 1, 2003 (22)10.37
    
    Second Amendment to Lease Agreement by and between Mobility Electronics, Inc. and I.S. Capital, LLC, dated
January 15, 2004 (22)




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##### Table of Contents



ExhibitNumber
    
    Description of Document10.38
    
    Third Amendment to Lease Agreement by and between the Company and Mountain Valley Community Church,
effective as of October 6, 2004 (21)10.39
    
    Amended and Restated Employment Agreement by and between the Company and Charles R. Mollo dated April 14,
2004(15)+10.40
    
    Employment Agreement by and between the Company and Joan W. Brubacher dated April 14, 2004 (15)+10.41
    
    Employment Agreement by and between the Company and Tim Jeffries dated April 14, 2004 (15)+10.42
    
    Amended and Restated Form of Mobility Electronics, Inc. Omnibus Long-Term Incentive Plan Restricted Stock
Unit Award Agreement*+10.43
    
    Amended and Restated Form of Mobility Electronics, Inc. Non-Employee Director Long-Term Incentive Plan
Restricted Stock Unit Award Agreement (Annual Committee Grants)*+10.44
    
    Amended and Restated Form of Mobility Electronics, Inc. Non-Employee Director Long-Term Incentive Plan
Restricted Stock Unit Award Agreement (Election / Re-Election Committee Grants)*+10.45
    
    Sales Representative Agreement by and between Mobility Electronics, Inc. and Motorola, Inc., dated as of
March 31, 2005(24)#10.46
    
    Sales Representative Agreement by and between Mobility Electronics, Inc. and RadioShack Corporation, dated
as of March 31, 2005(24)#10.47
    
    Patent Purchase Agreement between Mobility Electronics, Inc. and Tao Logic Systems LLC(25) ***21.1
    
    Subsidiaries.
 
    
    iGo Direct Corporation (Delaware)
    
    Mobility 2001 Limited (United Kingdom)
    
    Mobility California, Inc. (Delaware)
    
    Mobility Idaho, Inc. (Delaware)
    
    Mobility Texas, Inc. (Texas)
 23.1
    
    Consent of KPMG LLP.*24.1
    
    Power of Attorney (included on page 69 of this Annual Report on Form 10-K)31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
 
 *
    
    Filed herewith**
    
    Each of these agreements is identical in all material respects except for the Purchasers.***
    
    Schedules and similar attachments have been omitted from these agreements. The registrant
will furnish supplementally a copy of any omitted schedule or attachment to the Commission
upon request.+
    
    Management or compensatory plan or agreement.#
    
    Portions of these exhibits have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange
Commission.(1)
    
    Previously filed as an exhibit to Current Report on Form 8-K dated October 17, 2000.(2)
    
    Previously filed as an exhibit to Form 10-K for the year ended December 31, 2001.(3)
    
    Previously filed as an exhibit to Registration Statement No. 333-99845 on Form S-3 dated
September 19, 2002.(4)
    
    Previously filed as an exhibit to Form 10-K for the year ended December 31, 2002.(5)
    
    Previously filed as an exhibit to Registration Statement No. 333-30264 dated February 11,
2000.(6)
    
    Previously filed as an exhibit to Amendment No. 2 to Registration Statement No. 333-30264 on
Form S-1 dated May 4, 2000.(7)
    
    Previously filed as an exhibit to Amendment No. 1 to Registration Statement No. 333-30264 on
Form S-1 dated March 28, 2000.(8)
    
    Previously filed as an exhibit to Current Report on Form 8-K filed on January 14, 2003.




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##### Table of Contents



(9)
    
    Previously filed as an exhibit to Current Report on Form 8-K filed on June 19, 2003.(10)
    
    Previously filed as an exhibit to Amendment No. 3 to Registration Statement No. 333-30264 on
Form S-1 dated May 18, 2000.(11)
    
    Previously filed as an exhibit to Registration Statement No. 333-108623 on Form S-3 filed on
September 9, 2003.(12)
    
    Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2003.(13)
    
    Previously filed as an exhibit to Registration Statement No. 333-69336 on Form S-8 filed on
September 13, 2001.(14)
    
    Previously filed as an exhibit to Form 10-K for the period ended December 31, 2000.(15)
    
    Previously filed as an exhibit to Form 10-Q for the quarter ended March 31, 2004.(16)
    
    Previously filed as an exhibit to Amendment No. 1 to Registration Statement No. 333-99845 on
Form S-3 dated November 21, 2002.(17)
    
    Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2002.(18)
    
    Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2001.(19)
    
    Previously filed as an exhibit to Current Report on Form 8-K dated February 7, 2003.(20)
    
    Previously filed as an exhibit to Form 10-Q for the quarter ended June 30, 2002.(21)
    
    Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2004.(22)
    
    Previously filed as an exhibit to Form 10-K for the period ended December 31, 2003.(23)
    
    Previously filed as an exhibit to Registration Statement No. 333-116182 dated June 4, 2004.(24)
    
    Previously filed as an exhibit to Current Report on Form 8-K dated April 5, 2005.(25)
    
    Previously filed as an exhibit to Form 10-Q for the period ended March 31, 2005.