UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

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

For the transition period from                      to                     

Commission file number: 0-30907

MOBILITY ELECTRONICS, INC.

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)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ      NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated Filer o      Accelerated Filer þ      Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o      NO þ

At August 7, 2007, there were 31,396,559 shares of the Registrant’s Common Stock outstanding.

 

 

MOBILITY ELECTRONICS, INC.
FORM 10-Q

TABLE OF CONTENTS

						PAGE NO.
PART I		FINANCIAL INFORMATION					1
		Item 1.		Financial Statements:			1
				Condensed Consolidated Balance Sheets			1
				Condensed Consolidated Statements Of Operations			2
				Condensed Consolidated Statements Of Cash Flows			3
				Notes To Condensed Consolidated Financial Statements			4
		Item 2.		Management’s Discussion and Analysis Of Financial Condition and Results of Operations			13
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			26
		Item 4.		Controls and Procedures			26
PART II		OTHER INFORMATION					27
		Item 1.		Legal Proceedings			27
		Item 1A.		Risk Factors			28
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			28
		Item 4.		Submission of Matters to a Vote Of Security Holders			28
		Item 5.		Other Information			28
		Item 9.		Exhibits			29
		SIGNATURES					30
		EXHIBIT INDEX					31
EX-31.1
EX-31.2
EX-32.1

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS:

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30,				December 31,
		2007				2006
ASSETS
Current assets:
Cash and cash equivalents		$	16,583			$	9,201
Short-term investments			4,113				8,142
Accounts receivable, net			18,313				20,855
Inventories			5,681				12,350
Prepaid expenses and other current assets			460				406
Total current assets			45,150				50,954
Property and equipment, net			2,838				2,980
Goodwill			3,912				3,912
Intangible assets, net			2,691				3,095
Long-term investments			1,746				4,636
Notes receivable and other assets			1,662				287
Total assets		$	57,999			$	65,864
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	11,279			$	12,010
Accrued expenses and other current liabilities			3,779				3,067
Deferred revenue			817				1,357
Current portion of non-current liabilities			—				25
Total current liabilities			15,875				16,459
Minority interest			127				—
Total liabilities		$	16,002			$	16,459
Stockholders’ equity:
Common stock			314				317
Additional paid-in capital			166,844				167,436
Accumulated deficit			(125,338	)			(118,527	)
Accumulated other comprehensive income			177				179
Total stockholders’ equity			41,997				49,405
Total liabilities and stockholders’ equity		$	57,999			$	65,864

See accompanying notes to unaudited condensed consolidated financial statements.

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Revenue		$	19,508			$	26,147			$	38,371			$	48,984
Cost of revenue			17,389				18,581				30,846				34,461
Gross profit			2,119				7,566				7,525				14,523
Operating expenses:
Sales and marketing			2,685				2,256				5,442				4,285
Research and development			1,457				1,897				3,134				3,770
General and administrative			4,744				2,424				8,330				6,815
Total operating expenses			8,886				6,577				16,906				14,870
Income (loss) from operations			(6,767	)			989				(9,381	)			(347	)
Other income (expense):
Interest income, net			289				315				556				618
Litigation settlement expense			—				—				—				(250	)
Gain on disposal of assets and other income, net			1,837				1				2,141				21
Income (loss) before minority interest			(4,641	)			1,305				(6,684	)			42
Minority interest			(127	)			—				(127	)			—
Net income (loss)		$	(4,768	)		$	1,305			$	(6,811	)		$	42
Net income (loss) per share:
Basic		$	(0.15	)		$	0.04			$	(0.22	)		$	0.00
Diluted		$	(0.15	)		$	0.04			$	(0.22	)		$	0.00
Weighted average common shares outstanding:
Basic			31,574				31,289				31,657				31,109
Diluted			31,574				32,723				31,657				32,629

See accompanying notes to unaudited condensed consolidated financial statements.

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Months Ended
		June 30,
		2007				2006
Cash flows from operating activities:
Net income (loss)		$	(6,811	)		$	42
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Minority interest			127				—
Provision for accounts receivable and sales returns and credits			188				170
Depreciation and amortization			1,039				968
Stock compensation expense			1,524				977
Impairment of tooling equipment			—				31
Gain on disposal of assets, net			(1,588	)			—
Changes in operating assets and liabilities:
Accounts receivable			2,355				(4,270	)
Inventories			6,669				(840	)
Prepaid expenses and other assets			175				1,029
Accounts payable			(910	)			(4,121	)
Accrued expenses and other current liabilities			172				(1,943	)
Net cash provided by (used in) operating activities			2,940				(7,957	)
Cash flows from investing activities:
Purchase of property and equipment			(509	)			(709	)
Proceeds from the sale of intangible assets			1,850				—
Sale of investments			5,062				10,800
Net cash provided by investing activities			6,403				10,091
Cash flows from financing activities:
Payment of non-current liabilities			(25	)			(25	)
Repurchase of common stock			(2,147	)			—
Net proceeds from issuance of common stock and exercise of options and warrants			206				582
Net cash provided by (used in) financing activities			(1,966	)			557
Effects of exchange rate changes on cash and cash equivalents			5				31
Net increase in cash and cash equivalents			7,382				2,722
Cash and cash equivalents, beginning of period			9,201				13,637
Cash and cash equivalents, end of period		$	16,583			$	16,359

See accompanying notes to unaudited condensed consolidated financial statements.

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation and Recent Accounting Pronouncements

     The accompanying condensed consolidated financial statements include the accounts of Mobility Electronics, Inc. and its wholly-owned subsidiaries, Mobility California, Inc., Mobility Idaho, Inc., Mobility 2001 Limited, Mobility Texas Inc., and iGo Direct Corporation, and as of April 16, 2007, the accounts of Mission Technology Group, in which the Company holds a 15% equity interest, pursuant to Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) (collectively, “Mobility” or the “Company”). Refer to Note 13 for further discussion of FIN 46R. All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

     The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles, pursuant to rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying condensed consolidated financial statements include normal recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2006 included in the Company’s Form 10-K, filed with the SEC. The results of operations for the three and six months ended June 30, 2007 are not necessarily indicative of results to be expected for the full year or any other period.

     The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make a number of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, sales returns, inventories, warranty obligations, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 157 (“SFAS 157”), “Fair Value Measurements,” which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 establishes a common definition of fair value, provides a framework for measuring fair value under U.S. GAAP and expands disclosures requirements about fair value measurements. SFAS 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, the adoption of SFAS 157 will have on its financial statements.

     In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation requires that the Company recognize in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 were effective beginning January 1, 2007 with the cumulative effect of the change in accounting principle recorded as an adjustment to the opening balance of retained earnings. The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements. See Note 8 for further discussion of the Company’s adoption of FIN 48.

     In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (“the FSP”). The FSP provides guidance about how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under the FSP, a tax position could be effectively settled on completion of examination by a taxing authority if the entity does not intend to appeal or litigate the result and it is remote that the taxing authority would examine or re-examine the tax position. Application of the FSP shall be upon the initial adoption date of FIN 48. The FSP did not have a material impact on the Company’s consolidated financial statements.

(2) Stock-based Compensation

     Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), requiring all share-based payments to employees, including grants of employee stock options, be measured at fair value and expensed in the consolidated statement of operations over the requisite service period (generally the vesting period). Upon adoption, the Company transitioned to SFAS 123R using the modified prospective application.

     Stock-based compensation expense includes compensation expense, recognized over the applicable requisite service periods, for new share-based awards and for share-based awards granted prior to, but not yet vested as of, the Company’s adoption of SFAS 123R on January 1, 2006. At June 30, 2007, there was no unrecognized stock-based compensation cost related to non-vested stock options and non-vested stock-based compensation, net of estimated forfeitures, totaled $5.8 million for restricted stock units. This expense for restricted stock units will be recognized over the remaining weighted average requisite service period which is approximately four years.

     For the three and six months ended June 30, 2007, the Company recorded in general and administrative expense pre-tax charges of $65,000 associated with the expensing of stock options. The expense associated with stock options for the three and six months ended June 30, 2007 resulted from a modification to a previously granted stock option, which resulted in a new measurement date for that option award. The Company used the Black-Scholes option valuation model to value the option award as of the new measurement date using the following assumptions: weighted average life of 2.6 years, risk free rate of 4.9%, volatility of 65%, and dividend rate of 0%. For the three and six months ended June 30, 2006, the Company recorded in general and administrative expense pre-tax charges of $19,000 and $172,000, respectively, associated with the expensing of stock options and employee stock purchase plan activity.

     For the three and six months ended June 30, 2007, the Company recorded in general and administrative expense pre-tax charges of $940,000 and $1,459,000, respectively, associated with the expensing of restricted stock unit activity. For the three and six months ended June 30, 2006, the Company recorded in general and administrative expense pre-tax charges of $440,000 and $805,000, respectively, associated with the expensing of restricted stock unit activity.

     On January 31, 2006, the Company’s Board of Directors decided to eliminate the Employee Stock Purchase Plan effective April 1, 2006. During the three months ended June 30, 2006, 4,815 shares were issued under the Purchase Plan for net proceeds of $34,000.

     On June 11, 2007, pursuant to the terms of the employment agreement dated May 1, 2007 by and between the Company and Michael D. Heil, the Company’s newly elected director, chief executive officer and president, Mr. Heil was awarded 1,000,000 restricted stock units outside of the Company’s 2004 Directors Plan and 2004 Omnibus Plan as an inducement award without stockholder approval pursuant to Nasdaq Marketplace Rule 4350(i)(1)(A)(iv). Pursuant to the terms of Mr. Heil’s agreement, 500,000 of the restricted stock units will vest in increments of 125,000 shares per year effective on June 11, 2008, June 11, 2009, June 11, 2010 and June 11, 2011, or earlier, in full, upon a change in control of Mobility or, on a pro rata basis, upon Mr. Heil’s death, disability or termination without cause and the other 500,000 restricted stock units granted to Mr. Heil will vest in increments of 250,000 RSUs, subject to the Company’s achievement of annual performance objectives for the 2009 and 2011 fiscal years, respectively. The 500,000 restricted stock units granted to Mr. Heil of which the vesting is subject to the Company’s achievement of future annual performance objectives will be valued and recorded if and when attainment of the performance goals is probable. During the current quarter, no expense was recognized for these performance-based awards as the probability criteria under SFAS 123(R) had not been met.

     The following table summarizes information regarding restricted stock unit activity under the 2004 Directors Plan, the 2004 Omnibus Plan, and the Nasdaq Rule 4350(i)(a)(iv) Grant for the six months ended June 30, 2007:

																		Nasdaq Rule
		2004 Directors Plan								2004 Omnibus Plan								4350(i)(1)(a)(iv) Grant
						Weighted								Weighted								Weighted
						Average								Average								Average
						Value per								Value per								Value per
		Number				Share				Number				Share				Number				Share
Outstanding, December 31, 2006			164,400			$	8.20				914,164			$	7.36				—			$	—
Granted			71,500				2.96				721,200				3.35				1,000,000				2.96
Canceled			—				—				(321,585	)			6.07				—				—
Released to common stock			(96,900	)			8.28				(140,037	)			7.37				—				—
Released for settlement of taxes			—				—				(57,804	)			7.28				—				—
Outstanding, June 30, 2007			139,000			$	5.44				1,115,938			$	5.14				1,000,000			$	2.96

(3) Investments

     The Company evaluates its investments in marketable securities in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, and has determined that all of its investments in marketable securities should be classified as available-for-sale and reported at fair value. The unrealized gains and losses on available-for-sale securities, net of taxes, are recorded in accumulated other comprehensive income. Realized gains and losses are included in interest income, net.

     The fair value of the Company’s investments in marketable securities is based on quoted market prices which approximate fair value due to the frequent resetting of interest rates. The Company assesses its investments in marketable securities for other-than-temporary declines in value by considering various factors that include, among other things, any events that may affect the creditworthiness of a security’s issuer, the length of time the security has been in a loss position, and the Company’s ability and intent to hold the security until a forecasted recovery of fair value.

     The Company generated net proceeds of $5,062,000 and $10,800,000 from the sale of available-for-sale marketable securities during the six months ended June 30, 2007 and 2006, respectively.

     As of June 30, 2007 and December 31, 2006 the amortized cost basis, unrealized holding gains, unrealized holding losses, and aggregate fair value by short-term major security type investments were as follows (amounts in thousands):

		June 30, 2007												December 31, 2006
						Net												Net
						Unrealized												Unrealized
						Holding												Holding
		Amortized				Gains				Aggregate Fair				Amortized				Gains				Aggregate
		Cost				(Losses)				Value				Cost				(Losses)				Fair Value
U.S. corporate securities:
Commercial paper		$	—			$	—			$	—			$	3,822			$	—			$	3,822
Corporate notes and bonds			2,416				(3	)			2,413				2,974				1				2,975
Asset backed securities – fixed			—				—				—				645				—				645
			2,416				(3	)			2,413				7,441				1				7,442
U.S. government securities			1,702				(2	)			1,700				700				—				700
		$	4,118			$	(5	)		$	4,113			$	8,141			$	1			$	8,142

     As of June 30, 2007 and December 31, 2006, the amortized cost basis, unrealized holding gains, unrealized holding losses, and aggregate fair value by long-term major security type investments were as follows (amounts in thousands):

		June 30, 2007												December 31, 2006
						Net												Net
						Unrealized												Unrealized
						Holding				Aggregate								Holding
		Amortized				Gains				Fair				Amortized				Gains				Aggregate
		Cost				(Losses)				Value				Cost				(Losses)				Fair Value
U.S. corporate securities:
Corporate notes and bonds		$	1,155			$	(4	)		$	1,151			$	2,344			$	(6	)		$	2,338
U.S. government securities			596				(1	)			595				2,297				1				2,298
		$	1,751			$	(5	)		$	1,746			$	4,641			$	(5	)		$	4,636

(4) Inventories

     Inventories consist of the following (amounts in thousands):

		June 30,				December 31,
		2007				2006
Raw materials		$	798			$	2,160
Finished goods			4,883				10,190
		$	5,681			$	12,350

     In February 2007, the Company sold substantially all of the assets, which consisted primarily of inventory, of its handheld connectivity business to CradlePoint, Inc. (“CradlePoint”) for $1,800,000 plus potential additional consideration based on future performance. At the closing, the Company received $50,000 in cash and a promissory note for $1,500,000, bearing interest at the rate of 6% annually, to be paid within two years as CradlePoint sells the inventory it acquired in the transaction. The contract terms specify that the Company will also receive (1) a cash payment of $250,000 in August 2007, (2) 5% of CradlePoint’s revenues for five years, with a minimum payment of $300,000 due within three years, and (3) 100% of the first $200,000, and 50% thereafter, of any sales beyond the first $1,800,000 of inventory purchased by CradlePoint at the closing.

     In July 2007, the Company determined it would reduce the number of stock keeping units, or SKUs, currently offered to eliminate low-volume products, such as customer-specific packaging options with limited distribution. The decision to reduce SKUs resulted in an inventory write-down of $3,734,000, which was recorded in the second quarter of 2007.

(5) Goodwill

     Goodwill by business segment is as follows (amounts in thousands):

High-Power Group		$	3,675
Low-Power Group			237
Reported balance at June 30, 2007		$	3,912

(6) Intangible Assets

     Intangible assets consist of the following at June 30, 2007 and December 31, 2006 (amounts in thousands):

						June 30, 2007												December 31, 2006
		Average				Gross								Net				Gross								Net
		Life				Intangible				Accumulated				Intangible				Intangible				Accumulated				Intangible
		(Years)				Assets				Amortization				Assets				Assets				Amortization				Assets
Amortized intangible assets:
License fees			7			$	334			$	(251	)		$	83			$	934			$	(571	)		$	363
Patents and trademarks			5				3,338				(1,598	)			1,740				3,134				(1,371	)			1,763
Trade names			10				429				(191	)			238				429				(168	)			261
Customer list			5				813				(183	)			630				813				(105	)			708
Total						$	4,914			$	(2,223	)		$	2,691			$	5,310			$	(2,215	)		$	3,095

     During 2006, the Company acquired substantially all of the assets of Think Outside, Inc. The intangible assets consisted of a customer list having a value of $780,000 and patents and trademarks having a value of $670,000.

     On April 16, 2007, the Company sold a portfolio of patents and patents pending related to its PCI expansion and docking technology for gross proceeds of $1,850,000. The net book value of this portfolio of patents was $28,000, resulting in a gain on the sale of these assets of $1,822,000. Per the terms of the agreement, the Company received a perpetual, non-exclusive license to utilize the patent portfolio, and granted a sublicense to Mission Technology Group in its ongoing connectivity business. The Company will further continue to retain all of its patents and patents pending related to its power and other technologies.

     In connection with the April 2007 sale of patents, the Company disposed of a license asset related to its PCI expansion and docking business, which had a gross value of $400,000, accumulated amortization of $163,000, and a net book value of $237,000, resulting in a loss on disposition of $237,000.

     Aggregate amortization expense for identifiable intangible assets totaled $197,000 and $387,000 for the three and six months ended June 30, 2007, respectively. Aggregate amortization expense for identifiable intangible assets totaled $217,000 and $414,000 for the three and six months ended June 30, 2006, respectively.

(7) Line of Credit

     In July 2006, the Company entered into a $10,000,000 line of credit with a bank, bearing interest at prime or LIBOR plus 2%, interest only payments due monthly, with final payment of interest and principal due on July 28, 2008. In addition, the Company pays a quarterly facility fee of 0.125% on any unused portion of the revolving loan commitment. The line of credit is secured by all assets of the Company. The Company had no outstanding balance against the line of credit at June 30, 2007. The line of credit became subject to financial covenants that began on March 31, 2007. The Company was not in compliance with its financial covenants as of June 30, 2007. The Company has obtained a financial covenant waiver from its bank as of June 30, 2007.

(8) Income Taxes

     No provision for income taxes was required for the three and six months ended June 30, 2007 and 2006. Based on historical operating losses and projections for future taxable income, it is more likely than not that the Company will not fully realize the benefits of its net operating loss carryforwards. The Company has not, therefore, recorded a tax benefit from its net operating loss carryforwards for either of the three months ended June 30, 2007 or June 30, 2006.

     In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation requires that the Company recognize in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

     The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the adoption, the Company recognized no material adjustment to income tax accounts that existed as of December 31, 2006. At June 30, 2007, there are no additional unrecognized tax benefits. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in general and administrative expense. As of both the date of adoption, the Company had accrued $124,000 of potential interest and penalties related to uncertain tax positions. As a result of its historical net operating losses, the statute of limitations remains open for each tax year since the Company was formed in 1996. The Company is not currently under examination by any taxing authorities.

(9) Stockholders’ Equity

     Holders of shares of common stock are entitled to one vote per share on all matters submitted to a vote of the Company’s stockholders. There is no right to cumulative voting for the election of directors. Holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors out of funds legally available therefore, after payment of dividends required to be paid on any outstanding shares of preferred stock. Upon liquidation, holders of shares of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the liquidation preferences of any outstanding shares of preferred stock. Holders of shares of common stock have no conversion, redemption or preemptive rights. At June 30, 2007 and December 31, 2006, there were 90,000,000 shares of common stock authorized and 31,363,309 and 31,722,466 issued and outstanding, respectively.

     In May 2007, the Company’s board of directors authorized, and the Company repurchased 689,656 shares of its common stock at a price of $3.11 per share, or a total price of $2,147,382 in a private transaction. The Company immediately retired these shares upon repurchase based on approval received from its Board of Directors.

(10) Net Loss per Share

     The computation of basic and diluted net income (loss) per share follows (in thousands, except per share amounts):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Basic net income (loss) per share computation:
Numerator:
Net income (loss)		$	(4,768	)		$	1,305			$	(6,811	)		$	42
Denominator:
Weighted average number of common shares outstanding			31,574				31,289				31,657				31,109
Basic net income (loss) per share:		$	(0.15	)		$	0.04			$	(0.22	)		$	0.00
Diluted net income (loss) per share computation:
Numerator:
Net income (loss)		$	(4,768	)		$	1,305			$	(6,811	)		$	42
Denominator:
Weighted average number of common shares outstanding			31,574				31,289				31,657				31,109
Effect of dilutive stock options, warrants, and restricted stock units			—				1,434				—				1,520
			31,574				32,723				31,657				32,629
Diluted net income (loss) per share:		$	(0.15	)		$	0.04			$	(0.22	)		$	0.00
Stock options not included in dilutive net income per share since antidilutive			354				492				354				381
Warrants not included in dilutive net income per share since antidilutive			1,195				1,195				1,195				1,190

(11) Business Segments, Concentration of Credit Risk and Significant Customers

     The Company is engaged in the business of selling accessories for computers and mobile electronic devices. The Company has three operating business segments, consisting of the High-Power Group, Low-Power Group, and Connectivity Group. The Company’s chief operating decision maker (“CODM”) continues to evaluate revenues and gross profits based on products lines, routes to market and geographies.

     In February 2007, the Company sold substantially all of the assets, which consisted primarily of inventory, of its handheld hardware product line. The operating results of the handheld hardware product line were historically included in the results of the Connectivity Group. In April 2007, the Company sold substantially all of the assets, which consisted primarily of inventory, of its expansion and docking product line to Mission Technology Group. The operating results of Mission Technology Group are included in the consolidated financial statements pursuant to FIN 46R and are presented in the results of the Connectivity Group.

     The following tables summarize the Company’s revenues, operating results and assets by business segment (amounts in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Revenues:
High-Power Group		$	11,073			$	16,327			$	24,333			$	30,330
Low-Power Group			6,533				3,835				10,744				6,511
Connectivity Group			1,902				5,985				3,294				12,143
		$	19,508			$	26,147			$	38,371			$	48,984

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Operating income (loss):
High-Power Group		$	(1,996	)		$	3,366			$	(72	)		$	5,702
Low-Power Group			(253	)			(75	)			(370	)			(245	)
Connectivity Group			227				122				(609	)			1,011
Corporate			(4,745	)			(2,424	)			(8,330	)			(6,815	)
		$	(6,767	)		$	989			$	(9,381	)		$	(347	)

     The Company’s corporate function supports its various business segments and, as a result, the Company attributes the aggregate amount of its general and administrative expense to corporate as opposed to allocating it to individual business segments.

		June 30,				December 31,
		2007				2006
Assets:
High-Power Group		$	22,181			$	26,253
Low-Power Group			9,876				13,362
Connectivity Group			3,499				4,220
Corporate			22,443				22,029
		$	57,999			$	65,864

     The Company’s cash and investments are used to support its various business segments and, as a result, the Company considers its aggregate cash and investments to be corporate assets as opposed to assets of individual business segments.

     The following tables summarize the Company’s revenues by product line, as well as its revenues by geography and the percentages of revenue by route to market (amounts in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
High-power mobile electronic power products		$	11,034			$	15,899			$	24,117			$	28,884
Low-power mobile electronic power products			5,559				3,608				8,943				6,614
Handheld products			24				4,439				204				9,018
Expansion and docking products			1,889				1,389				3,109				2,968
Portable keyboard products			974				167				1,797				167
Accessories and other products			28				645				201				1,333
Total revenues		$	19,508			$	26,147			$	38,371			$	48,984

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
North America (principally United States)		$	16,325			$	22,002			$	31,491			$	41,998
Europe			605				1,871				1,760				3,218
Asia Pacific			2,577				2,220				5,113				3,709
All other			1				54				7				59
		$	19,508			$	26,147			$	38,371			$	48,984

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
OEM and private-label-resellers			56	%			61	%			60	%			62	%
Retailers and distributors			39	%			31	%			34	%			29	%
Other			5	%			8	%			6	%			9	%
			100	%			100	%			100	%			100	%

     The following table summarizes the Company’s profit margins by product lines. Profit margins, as indicated below, are computed on the basis of direct product cost only, which does not include overhead cost that is factored into consolidated gross profit margin.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
High-power mobile electronic power products			38	%			38	%			38	%			38	%
Low-power mobile electronic power products			45	%			46	%			46	%			48	%
Handheld products			53	%			37	%			10	%			37	%
Expansion and docking products			60	%			59	%			59	%			58	%
Accessories and other products			53	%			48	%			52	%			48	%

     Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions and generally limits the amount of credit exposure to the amount of FDIC coverage. However, periodically during the year, the Company maintains cash in financial institutions in excess of the FDIC insurance coverage limit of $100,000. The Company performs ongoing credit evaluations of its customers’ financial condition but does not typically require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

     Three customers accounted for 36%, 24%, and 11%, respectively, of net sales for the six months ended June 30, 2007. Three customers accounted for 25%, 16%, and 15%, respectively, of net sales for the six months ended June 30, 2006.

     Three customers’ accounts receivable balances accounted for 50%, 26% and 11%, respectively, of net accounts receivable at June 30, 2007. Three customers’ accounts receivable balances accounted for 32%, 22% and 16%, respectively, of net accounts receivable at June 30, 2006.

     Allowance for doubtful accounts was $376,000 and $286,000 at June 30, 2007 and December 31, 2006, respectively. Allowance for sales returns was $373,000 and $350,000 at June 30, 2007 and December 31, 2006, respectively.

     Export sales were approximately 19% and 14% of the Company’s net sales for the six months ended June 30, 2007 and 2006, respectively. The principal international markets served by the Company were Europe and Asia Pacific.

(12) Contingencies

     During the quarter ended June 30, 2007, the Company accrued a $325,000 liability for payroll related taxes and potential interest and penalties in connection with the Company’s previously announced voluntary review of historical stock option granting practices and determination that certain grants had intrinsic value on the applicable measurement dates of the stock option grants.

     The Company procures its products primarily from supply sources based in Asia. Typically, the Company places purchase orders for completed products and takes ownership of the finished inventory upon completion and delivery from its supplier. Occasionally, the Company presents its suppliers with ‘Letters of Authorization’ for the suppliers to procure long-lead raw components to be used in the manufacture of the Company’s products. These Letters of Authorization indicate the Company’s commitment to utilize the long-lead raw components in production. As of June 30, 2007, based on a change in strategic direction, the Company determined it would not procure certain products for which it had outstanding Letters of Authorization with suppliers. The Company believes it is probable that it will be required to pay suppliers for certain Letter of Authorization commitments, and has estimated and accrued a liability in the amount of $667,000 at June 30, 2007.

     Certain former officers of iGo Corporation are seeking potential indemnification claims against the Company’s wholly owned subsidiary, iGo Direct Corporation, relating to a Securities and Exchange Commission matter involving such individuals (but not involving the Company) that relates to matters that arose prior to the Company’s acquisition of iGo Corporation in September 2002. The potential loss to the Company as a result of these claims is not currently estimable. The Company is pursuing coverage and reimbursement under iGo’s directors’ and officers’ liability insurance policy as it relates to this potential iGo indemnification matter.

     The Company is from time to time involved in various legal proceedings incidental to the conduct of its business. The Company believes that the outcome of all such pending legal proceedings will not in the aggregate have a material adverse effect on its business, financial condition, results of operations or liquidity.

(13) Variable Interest Entities

     Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) requires the “primary beneficiary” of a variable interest entity (“VIE”) to include the VIE’s assets, liabilities and operating results in its consolidated financial statements. In general, a VIE is a corporation, partnership, limited-liability corporation, trust or any other legal structure used to conduct activities or hold assets that either (i) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (ii) has a group of equity owners that are unable to make significant decisions about its activities, or (iii) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations.

     In April 2007, the Company completed a sale of the assets of its expansion and docking business to Mission Technology Group (“Mission”), an entity that was formed by a former officer of the Company, in exchange for $3,930,000 of notes receivable and a 15% common equity interest. There was no cash equity contributed to Mission at its formation and Mission’s equity consists solely of its operating profit. Accordingly, the Company has determined that Mission does not have sufficient equity to carry out its principal operating activities without subordinated financial support, and that Mission qualifies as a VIE under FIN 46R. The Company has also determined that its 15% equity interest and its $3,930,000 notes receivable qualify as variable interests under FIN 46R. Furthermore, as Mission is obligated to repay the promissory notes it issued to the Company, the Company has determined that it is the primary beneficiary of the VIE, and accordingly, must include the assets, liabilities and operating results of Mission in its consolidated financial statements. The Company reports as “minority interest” the portion of the Company’s net earnings which is attributable to the collective ownership interests of minority investors. Minority interest represents the 85% share in the net earnings of Mission held by other owners.

     The following table summarizes the balance sheet effect of consolidating Mission of as of June 30, 2007:

(Amounts in thousands)		VIE				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	800			$	16,583
Short-term investments			—				4,113
Accounts receivable, net			539	*			18,313
Inventories			787				5,681
Prepaid expenses and other current assets			74				460
Total current assets			2,200				45,150
Property and equipment, net			335				2,838
Goodwill			—				3,912
Intangible assets, net			—				2,691
Long-term investments			—				1,746
Notes receivable (payable) and other assets			(1,969)	*			1,662
Total assets		$	566			$	57,999
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	303			$	11,279
Accrued expenses and other current liabilities			114	*			3,779
Deferred revenue			—				817
Total current liabilities			417				15,875
Minority interest			127				127
Total liabilities			544				16,002
Stockholders’ equity:			22				41,997
Total liabilities and stockholders’ equity		$	566			$	57,999

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This report contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “expect,” “anticipate,” “estimate” and other similar statements of expectations identify forward-looking statements. Forward-looking statements in this report include, without limitation, expectations regarding our anticipated revenue, expenses and net income for the third quarter of 2007; expectations regarding restructuring charges to be incurred in the third quarter of 2007 and the related estimation that the restructuring action and other expense cuts in non-strategic areas will reduce total operating expenses by approximately $1 million per quarter beginning in the fourth quarter of 2007; the anticipated increase in outside legal expense resulting from ongoing intellectual property litigation; the expectation that we will not receive significant additional orders for our power products from Dell; the belief that our high-power program with Lenovo has ended and the expectation that sales to Lenovo will not continue after the third quarter of 2007; the expectation that we will not record any income tax expense in 2007; the expectation that a reduction in product SKUs offered by the Company will decrease engineering expenses and facilitate improved inventory management; the expectation that the Company can significantly reduce the number of tip SKUs currently offered and still maintain compatibility with approximately 94% of consumer electronics devices in product categories currently supported; the anticipated discontinuation of expenditures on national advertising campaigns and increased focus on marketing efforts that directly support sell-through of products to end-users, including co-op advertising plans with major customers in the retail and wireless carrier channels, in-store merchandising and training of store sales personnel; the expected availability of cash and liquidity; expected market and industry trends; beliefs relating to our distribution capabilities and brand identity; expectations regarding the success of new product introductions; the anticipated strength, and ability to protect, our intellectual property portfolio; and our expectations regarding the outcome and anticipated impact of various legal proceedings in which we are involved. These forward-looking statements are based largely on our management’s expectations and involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include those set forth in other reports that we file with the Securities and Exchange Commission. Additional factors that could cause actual results to differ materially from those expressed in these forward-looking statements include, among others, the following:

	•		the loss of, and failure to replace, any significant customers;
	•		the inability to timely and successfully complete product development efforts and introduce new products, including internal development projects and those being pursued with strategic partners;
	•		the ineffectiveness of our sales and marketing strategy;
	•		the inability to create broad consumer awareness and acceptance for our products and technology;
	•		the timing and success of competitive product development efforts, new product introductions and pricing;
	•		the ability to expand and protect our proprietary rights and intellectual property;
	•		the timing of substantial customer orders;
	•		the lack of available qualified personnel;
	•		the inability to successfully resolve pending and unanticipated legal matters;
	•		the lack of available qualified suppliers and subcontractors and/or their inability to meet our specification, performance, and quality requirements; and
	•		market demand and industry and general economic or business conditions.

     In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will prove to be accurate. We undertake no obligation to publicly update or revise any forward-looking statements, or any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements.

     Mobility Electronics^® and iGo^® are trademarks or registered trademarks of Mobility Electronics, Inc. or its subsidiaries in the United States and other countries. Other names and brands may be claimed as the property of others.

Overview

     Increased functionality and the ability to access and manage information remotely are driving the proliferation of mobile electronic devices and applications. The popularity of these devices is benefiting from reductions in size, weight and cost and improvements in functionality, storage capacity and reliability. Each of these devices needs to be powered and connected when in the home, the office, or on the road, and can be accessorized, representing an opportunity for one or more of our products.

     We use our proprietary technology to design and develop products that make computers and mobile electronic devices more efficient and cost effective, thus enabling professionals and consumers higher utilization of their mobile devices and the ability to access information more readily. Our products include power products for high-power mobile electronic devices, such as portable computers; power products for low-power mobile electronic devices, such as mobile phones, PDAs, and MP3 players; foldable keyboards; and accessory products. As of the end of 2006, we were organized in three business segments, which consist of the High-Power Group, the Low-Power Group and the Connectivity Group. In February 2007, we sold substantially all of the assets, which consisted primarily of inventory, of our handheld hardware product line. The operating results of the handheld hardware product line were historically included in the results of the Connectivity Group. In April 2007, we sold substantially all of the remaining assets of our Connectivity Group. The operating results of Mission Technology Group, which purchased substantially all of the assets of our expansion and docking product line, are consolidated with our operating results pursuant to FIN 46R and are included in the Connectivity Group.

     High-Power Group. Our High-Power Group is focused on the development, marketing and sales of power products and accessories for mobile electronic devices with high power requirements, which consist primarily of portable computers. These devices also allow users to simultaneously charge one or more low-power mobile electronic devices with our optional iGo dualpower and power splitter accessories. We sell these products to OEMs, private-label resellers, distributors, resellers and retailers. We supplied OEM–specific, high-power adapter products to Dell through the first quarter of 2007 and we currently supply Lenovo, although we do not expect that sales to Lenovo will continue after the third quarter of 2007. We have entered into a strategic reseller agreement with Targus to market and distribute high-power adapter products on a private-label basis. We sell to retailers such as RadioShack and through distributors such as Ingram Micro. High-Power Group revenue accounted for approximately 63% of revenue for the six months ended June 30, 2007 and approximately 62% of revenue for the six months ended June 30, 2006.

     Low-Power Group. Over the last three years, our development efforts have focused significantly on our patented power products for low-power mobile electronic devices. In particular, we are collaborating with many of our strategic partners to develop and market new and innovative power adapters specifically designed for the low-power mobile electronic device market, including cigarette lighter adapters, mobile AC adapters, low-power universal AC/DC adapters, and low-power universal battery products. Each of these power devices is designed, or is being designed, to incorporate our patented tip technology. Our low-power adapters also allow users to simultaneously charge a second device with our optional iGo power splitter accessory. In April 2005, we formed the Low-Power Group, which is specifically focused on the development,

marketing and sale of our low-power products. Low-power product revenue accounted for approximately 28% of revenue for the six months ended June 30, 2007 and 13% of revenue for the six months ended June 30, 2006.

     In May 2006, we acquired the foldable keyboard business of Think Outside, Inc. These Bluetooth foldable keyboard products enhance the functionality of converged mobile devices by providing users with a portable, full-sized keyboard solution for rapid and user-friendly data input that folds into a compact size for easy storage. Sales of these foldable keyboard products represented approximately 5% of our total revenue for the six months ended June 30, 2007. Since our acquisition of this business in May 2006, the market for foldable keyboards has declined significantly. We are currently evaluating our long-term strategy for this product line. We account for our foldable keyboard business as part of our Low-Power Group.

     Distribution Channels. Sales to OEMs and private-label resellers accounted for approximately 60% of revenue for the six months ended June 30, 2007 and approximately 62% of revenue for the six months ended June 30, 2006. Sales through retailers and distributors accounted for approximately 34% of revenue for the six months ended June 30, 2007 and approximately 29% of revenue for the six months ended June 30, 2006. The balance of our revenue during these periods was derived from direct sales to end-users. In the future, we expect that we will be dependent upon a relatively small number of customers for a significant portion of our revenue, including most notably RadioShack, Targus, and Superior Communications. We intend to develop relationships with a broader set of distributors who have strong relationships with retailers and wireless carriers to expand the market availability of our iGo branded products. We believe that these relationships will allow us to diversify our customer base, add stability and decrease our traditional reliance upon a limited number of OEMs and private label resellers. We also believe that these relationships will significantly increase the availability and exposure of our products, particularly among large national and international retailers and wireless carriers.

     Strategy. Our continued focus is on proliferating power products that incorporate our patented tip technology for both high- and low-power mobile electronic devices and on acquiring or developing complementary businesses and products. Our long-term goal is to establish an industry standard for all mobile electronic device power products based on our patented tip technology. Our ability to execute successfully on our near and long-term objectives depends largely upon the general market acceptance of our tip technology which allows users to charge multiple devices with a single power product and our ability to protect our proprietary rights to this technology. Additionally, we must execute on the customer relationships that we have developed and continue to design, develop, manufacture and market new and innovative technologies and products that are embraced by these customers and the overall market in general. Specifically, we are currently implementing the following strategic initiatives:

	•		Focus on High-Volume SKUs – We intend to reduce the number of stock keeping units, or SKUs, we currently offer to eliminate low-volume products, such as customer-specific packaging options with limited distribution. In addition, we will focus on offering compatible tips only for those mobile electronic devices that meet specific sales volume criteria and will discontinue tips for devices that fall below that threshold. We have determined that we can significantly reduce the number of tip SKUs currently offered and still maintain compatibility with approximately 94% of consumer electronics devices in product categories currently supported. The reduction in SKUs is expected to decrease our engineering expenses and facilitate improved inventory management. The decision to reduce SKUs significantly contributed to the inventory write-down we recorded in the second quarter of 2007.
	•		Focus Marketing Expense on Sell-Through Initiatives – We intend to discontinue expenditures on national advertising campaigns that have not proven to positively impact sales. Our future marketing expenditures will be focused on efforts that directly support sell-through of our products to end-users, including co-op advertising plans with major customers in the retail and wireless carrier channels, in-store merchandising and training of store sales personnel.

Recent Developments

     In the first quarter of 2007 we sold, or entered into agreements to sell, substantially all of the assets of our handheld connectivity and expansion and docking businesses, all of which we included in our Connectivity Group, in three separate transactions.

     The first transaction, which was completed in February 2007, involved the sale of substantially all of the assets of our handheld connectivity business to CradlePoint for $1.8 million plus potential additional consideration based on future performance. At the closing, we received $50,000 in cash and a promissory note for $1.5 million, bearing interest at the rate of 6% annually, to be paid within two years as CradlePoint sells the inventory acquired in the transaction. The contract terms state that we will also receive (1) a cash payment of $250,000 in August 2007, (2) 5% of CradlePoint’s revenues for five years,

with a minimum payment of $300,000 due within three years, and (3) 100% of the first $200,000, and 50% thereafter, of any sales beyond the first $1.8 million of inventory purchased by CradlePoint at the closing.

     The second and third transactions involved the sale of substantially all of the assets of our expansion and docking business. The initial agreements for these transactions were executed in February 2007 and the transactions were completed in April 2007. In one transaction, we sold a portfolio of patents and patents pending relating to our PCI expansion and docking technology to A.H. Cresant Group LLC. In the other transaction, we sold substantially all of the assets related to our expansion and docking business to Mission, an entity that is owned by Randy Jones, our former Senior Vice President and General Manager, Connectivity. As a result of these two transactions, the Company received total net proceeds of approximately $4.8 million consisting of $925,000 in cash, two promissory notes totaling approximately $3.9 million. At the closing, we received a 15% fully-diluted equity interest in Mission. Given the related party nature of this transaction, we retained an independent, third party financial advisor to assist us. In determining the sales price for these assets and liabilities, we evaluated past performance and expected future performance, and received an opinion from our financial advisor that the consideration to be received was fair from a financial point of view. Our Board of Directors approved these transactions following a separate review and recommended approval of the Mission transaction by our Audit Committee. We present the assets, liabilities and operating results of Mission in our consolidated financial statements pursuant to FIN 46R.

     Our Connectivity Group was historically focused on the development, marketing and sales of connectivity and expansion and docking products. Our early focus was on the development of remote peripheral component interface, or PCI, bus technology and products based on proprietary Split Bridge ^® technology. We invested heavily in Split Bridge technology and while we had some success with Split Bridge in the corporate portable computer market with sales of universal docking stations, it became clear in early 2002 that this would not be the substantial opportunity we originally envisioned. In May 2005, we sold substantially all of our intellectual property relating to Split Bridge technology which resulted in a gain on the sale of these assets of $11.6 million. Connectivity Group revenue accounted for approximately 9% of revenue for the six months ended June 30, 2007 and approximately 25% of revenue for the six months ended June 30, 2006. The operating results of Mission are included in the results of the Connectivity Group.

Critical Accounting Policies and Estimates

     There were no changes in our critical accounting policies from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2006 during the six months ended June 30, 2007, except as set forth below.

     Variable Interest Entities. Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) requires the “primary beneficiary” of a variable interest entity (“VIE”) to include the VIE’s assets, liabilities and operating results in its consolidated financial statements. In general, a VIE is a corporation, partnership, limited-liability corporation, trust or any other legal structure used to conduct activities or hold assets that either (i) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (ii) has a group of equity owners that are unable to make significant decisions about its activities, or (iii) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations.

     In April 2007, we completed a sale of the assets of our expansion and docking business to Mission Technology Group (“Mission”), an entity that was formed by a former officer of the Company, in exchange for $3.9 million of notes receivable and a 15% common equity interest. There was no cash equity contributed to Mission at its formation and Mission’s equity consists solely of its operating profit. Accordingly, we have determined that Mission does not have sufficient equity to carry out its principal operating activities without subordinated financial support, and that Mission qualifies as a VIE under FIN 46R. We have also determined that our 15% equity interest and our $3.9 million notes receivable qualify as variable interests under FIN 46R. Furthermore, as Mission is obligated to repay the promissory notes it issued to us, we have determined that we are the primary beneficiary of the VIE, and accordingly, must include the assets, liabilities and operating results of Mission in our consolidated financial statements. We consider the consolidation of variable interest entities to be a critical accounting policy.

Results of Operations

     The following table presents certain selected consolidated financial data for the periods indicated expressed as a percentage of total revenue:

		Three months ended								Six months ended
		June 30,								June 30,
		2007				2006				2007				2006
Revenue			100.0	%			100.0	%			100.0	%			100.0	%
Cost of revenue			89.1	%			71.1	%			80.4	%			70.4	%
Gross profit			10.9	%			28.9	%			19.6	%			29.6	%
Operating expenses:
Sales and marketing			13.8	%			8.6	%			14.2	%			8.7	%
Research and development			7.5	%			7.3	%			8.2	%			7.7	%
General and administrative			24.3	%			9.3	%			21.7	%			13.9	%
Total operating expenses			45.6	%			25.2	%			44.1	%			30.4	%
Income (loss) from operations			(34.7	%)			3.8	%			(24.5	%)			(0.7	%)
Other income (expense):
Interest, net			1.5	%			1.2	%			1.4	%			1.3	%
Other, net			9.4	%			0.0	%			5.6	%			(0.5	%)
Minority interest			(0.7	%)			0.0	%			(0.3	%)			0.0	%
Net income (loss)			(24.5	%)			5.0	%			(17.8	%)			0.1	%

Comparison of Three Months Ended June 30, 2007 and 2006

     Revenue. Revenue generally consists of sales of products, net of returns and allowances. To date, our revenues have come predominantly from power adapters, handheld products, expansion and docking products, and accessories. The following table summarizes the year-over-year comparison of our revenue for the periods indicated (amounts in thousands):

		Three Months				Three Months				Increase/(decrease)				Percentage change
		Ended				Ended				from same period				from the same period
		June 30, 2007				June 30, 2006				in the prior year				in the prior year
High-Power Group		$	11,073			$	16,327			$	(5,254	)			(32.2	)%
Low-Power Group			6,533				3,835				2,698				70.4	%
Connectivity Group			1,902				5,985				(4,083	)			(68.2	)%
Total Revenue		$	19,508			$	26,147			$	(6,639	)			(25.4	)%

     High-Power Group. The decrease in High-Power Group revenue was primarily due to declines in sales to OEMs and retailers and distributors. Overall sales of OEM–specific, high-power products decreased by $3.4 million, or 55.7%, to $2.7 million during the three months ended June 30, 2007 as compared to $6.1 million during the three months ended June 30, 2006. Specifically, sales to Dell decreased by $3.8 million, to $399,000 for the three months ended June 30, 2007 from $4.2 million for the three months ended June 30, 2006. We do not expect to receive significant additional orders for our power products from Dell, as Dell has selected a different sourcing solution. Sales to Lenovo increased by $285,000, to $2.1 million for the three months ended June 30, 2007 from $1.8 million for the three months ended June 30, 2006. We have been notified by Lenovo that they have also selected a different sourcing solution for their combination AD/DC power adapter. Accordingly, we do not anticipate additional orders for our power products from Lenovo beyond the third quarter of 2007. Sales of high-power products developed specifically for private-label resellers decreased by $380,000, or 5.4%, to $7.0 million during the three months ended June 30, 2007 as compared to $7.3 million during the three months ended June 30, 2006, due primarily to decreased sales to Targus during the three months ended June 30, 2007. Sales of iGo branded high-power products to retailers and distributors, decreased by $2.0 million, or 60.6% to $1.3 million during the three months ended June 30, 2007 as compared to $3.3 million during the three months ended June 30, 2006, due primarily to reduced sales of high-power products to RadioShack, Ingram Micro and Brookstone during the three months ended June 30, 2007.

     Low-Power Group. The increase in Low-Power Group revenue was primarily due to continued sales growth of our family of low-power and keyboard products as a result of what we believe to be increased consumer awareness and further market penetration of our products and technology. Sales of iGo branded low-power products to RadioShack increased by $1.5 million, or 50.0%, to $4.5 million during the three months ended June 30, 2007 as compared to $3.0 million during the three months ended June 30, 2006. Sales of low-power products to other customers increased by approximately $434,000, or 62.5%, to $1,128,000 during the three months ended June 30, 2007 as compared to $694,000 during the three months ended June 30, 2006. Sales of foldable keyboard products, a product line that was acquired in May 2006, contributed $974,000 to Low-Power Group revenue for the three months ended June 30, 2007, compared to $167,000 for the three months ended June 30, 2006. Our low-power strategy is to gain further market penetration into mobile wireless carriers, distributors and retailers through our own sales efforts, as well as those of our primary low-power distributor, Superior Communications.

     Connectivity Group. During 2006, we experienced a significant decrease in business from our primary customer for handheld cradle products. As a result of this decline in business and in order to allow us to focus our limited resources on strategic growth of our Low-Power Group and High-Power Group business segments, in early 2007, we entered into three separate transactions to divest of the expansion and docking products and handheld products that comprised the Connectivity Group. See — “Recent Developments” for more information. Connectivity Group revenue includes $1.9 million in Mission Technology Group’s sales of docking and expansion products for the three months ended June 30, 2007. Compared to the three months ended June 30, 2006, expansion and docking revenue increased by $500,000. We recorded no revenue from sales of handheld hardware products during the three months ended June 30, 2007, as compared to $4.4 million for the three months ended June 30, 2006.

     Cost of revenue, gross profit and gross margin. Cost of revenue generally consists of costs associated with components, outsourced manufacturing and in-house labor associated with assembly, testing, packaging, shipping and quality assurance, depreciation of equipment and indirect manufacturing costs. Gross profit is the difference between revenue and cost of revenue. Gross margin is gross profit stated as a percentage of revenue. The following table summarizes the year-over-year comparison of our cost of revenue, gross profit and gross margin for the periods indicated (amounts in thousands):

		Three Months				Three Months				Increase (decrease)				Percentage change from
		Ended				Ended				from same period in				the same period in the
		June 30, 2007				June 30, 2006				the prior year				prior year
Cost of revenue		$	17,389			$	18,581			$	(1,192	)			(6.4	)%
Gross profit		$	2,119			$	7,566			$	(5,447	)			(72.0	)%
Gross margin			10.9	%			28.9	%			(18.0	)%			(62.3	)%

     The decrease in cost of revenue was primarily due to the 25.4% volume decrease in revenue, combined with the impact of increased indirect product overhead expenses. Indirect product overhead expenses increased by $3.1 million, or 114.8%, to $5.8 million during the three months ended June 30, 2007 as compared to $2.7 million during the three months ended June 30, 2006, despite reduced sales volumes. The increase in indirect product overhead costs compared to lower sales revenue is due primarily to charges taken for excess and or obsolete low-power and keyboard inventories and the liability recorded related to commitments to long-lead components not expected to be consumed totaling $4.4 million during the three months ended June 30, 2007, compared to $715,000 for the three months ended June 30, 2006. Excluding these charges, indirect product overhead expenses decreased $575,000 for the three months ended June 30, 2007, compared to the same period for 2006, primarily from the savings associated with the sale of the handheld hardware business to CradlePoint in March 2007. As a result of these factors, cost of revenue as a percentage of revenue increased to 89.1% for the three months ended June 30, 2007 from 71.1% for the three months ended June 30, 2006.

     Sales and marketing. Sales and marketing expenses generally consist of salaries, commissions and other personnel-related costs of our sales, marketing and support personnel, advertising, public relations, promotions, printed media and travel. The following table summarizes the year-over-year comparison of our sales and marketing expenses for the periods indicated (amounts in thousands):

Three Months

Three Months

Increase

Percentage change

Ended

Ended

from same period

from the same period

June 30, 2007

June 30, 2006

in the prior year

in the prior year

Sales and marketing

$

2,685

$

2,256

$

429

19.0

%

     The increase in sales and marketing expenses primarily resulted from an increased investment in advertising campaigns of approximately $251,000 and an increase in website development expenses of approximately $115,000. As a

percentage of revenue, sales and marketing expenses increased to 13.8% for the three months ended June 30, 2007 from 8.6% for the three months ended June 30, 2006.

     Research and development. Research and development expenses consist primarily of salaries and personnel-related costs, outside consulting, lab costs and travel-related costs of our product development group. The following table summarizes the year-over-year comparison of our research and development expenses for the periods indicated (amounts in thousands):

		Three Months				Three Months				Decrease from				Percentage change from
		Ended				Ended				same period				the same period in the
		June 30, 2007				June 30, 2006				in the prior year				prior year
Research and development		$	1,457			$	1,897			$	(440	)			(23.2	)%

     The decrease in research and development expenses primarily resulted from reduced investment in development of handheld hardware and docking and expansion products in connection with our disposition of those product lines. As a percentage of revenue, research and development expenses increased to 7.5% for the three months ended June 30, 2007 from 7.3% for the three months ended June 30, 2006.

     General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related expenses of our finance, human resources, information systems, corporate development and other administrative personnel, as well as facilities, professional fees, depreciation and amortization and related expenses. The following table summarizes the year-over-year comparison of our general and administrative expenses for the periods indicated (amounts in thousands):

Three Months

Three Months

Increase

Percentage change

Ended

Ended

from same period

from the same period

June 30, 2007

June 30, 2006

in the prior year

in the prior year

General and administrative

$

4,744

$

2,424

$

2,320

95.7

%

     The increase in general and administrative expenses primarily resulted from a recovery under our directors’ and officers’ liability insurance policy of $1.5 million during the three months ended June 30, 2006 in connection with legal fees that had been incurred and expensed in prior periods. Also contributing to the increase were costs of $614,000 relating to the retirement of our former Chief Executive Officer and an increase of $437,000 in non-cash equity compensation, primarily resulting from accelerated vesting of restricted stock units in connection with the retirement of our former Chief Executive Officer. General and administrative expenses as a percentage of revenue increased to 24.3% for the three months ended June 30, 2007 from 9.3% for the three months ended June 30, 2006.

     Interest income (expense) net. During the three months ended June 30, 2007, we earned $289,000 of net interest income, compared to net interest income of $315,000 during the three months ended June 30, 2006. The decrease in net interest income is primarily the result of reductions in investments.

     Gain on disposal of assets and other income (expense) net. Gain on disposal of assets and other income (expense), net was $1.8 million for the three months ended June 30, 2007 and $1,000 for the three months ended June 30, 2006. During the three months ended June 30, 2007, we recorded a gain on the sale of intellectual property assets, net of loss on the disposal of related license assets in the amount of $1.6 million. Also included in other income for the three months ended June 30, 2007 was $105,000 of gain realized relating the sale of handheld software assets in 2004. We had recorded a deferred gain of $881,000 in connection with this transaction. Our collections against the notes receivable in this transaction exceeded the amount of deferred gain during the quarter ended June 30, 2007. We will continue to recognize portions of the remaining deferred gain as we receive further collections against the related notes receivable.

     Minority interest. Minority interest represents the portion of our net earnings which is attributable to the collective ownership interests of minority investors. As previously discussed, we have included the operating results of Mission, in which we maintain a 15% equity interest, in our consolidated financial statements. Minority interest represents the 85% share in the net earnings of Mission held by other owners.

     Income taxes. No provision for income taxes was required for the three months ended June 30, 2007 and 2006. Based on historical operating losses and projections for future taxable income, it is more likely than not that we will not fully realize the benefits of the net operating loss carryforwards. We have not, therefore, recorded a tax benefit from our net operating loss carryforwards for either of the three months ended June 30, 2007 or June 30, 2006.

Comparison of Six months Ended June 30, 2007 and 2006

     Revenue. Revenue generally consists of sales of products, net of returns and allowances. To date, our revenues have come predominantly from power adapters, handheld products, expansion and docking products, and accessories. The following table summarizes the year-over-year comparison of our revenue for the periods indicated (amounts in thousands):

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

     High-Power Group. The decrease in High-Power Group revenue was primarily due to declines in sales to OEMs and retailers and distributors. Overall sales of OEM–specific, high-power products decreased by $3.6 million, or 32.0%, to $7.7 million during the six months ended June 30, 2007 as compared to $11.3 million during the six months ended June 30, 2006. Specifically, sales to Dell decreased by $4.6 million, to $3.2 million for the six months ended June 30, 2007 from $7.7 million for the six months ended June 30, 2006. We do not expect to receive significant additional orders for our power products from Dell, as Dell has selected a different sourcing solution. Sales to Lenovo increased by $1.1 million, to $4.1 million for the six months ended June 30, 2007 from $3.0 million for the six months ended June 30, 2006. We have been notified by Lenovo that they have also selected a different sourcing solution for their combination AD/DC power adapter. Accordingly, we do not anticipate additional orders for our power products from Lenovo beyond the third quarter of 2007. Sales of high-power products developed specifically for private-label resellers decreased by $725,000, or 5.4%, to $12.6 million during the six months ended June 30, 2007 as compared to $13.4 million during the six months ended June 30, 2006, due primarily to decreased sales to Targus during the six months ended June 30, 2007. Sales of iGo branded high-power products to retailers and distributors, decreased by $1.8 million, or 31.6% to $3.9 million during the six months ended June 30, 2007 as compared to $5.7 million during the six months ended June 30, 2006, due primarily to reduced sales of high-power products to RadioShack during the six months ended June 30, 2007.

     Low-Power Group. The increase in Low-Power Group revenue was primarily due to continued sales growth of our family of low-power and keyboard products as a result of what we believe to be increased consumer awareness and further market penetration of our products and technology. Sales of iGo branded low-power products to RadioShack increased by $2 million, or 37.7%, to $7.3 million during the six months ended June 30, 2007 as compared to $5.3 million during the six months ended June 30, 2006. Sales of low-power products to other customers increased by approximately $300,000, or 21.4%, to $1.7 million during the six months ended June 30, 2007 as compared to $1.4 million during the six months ended June 30, 2006. Sales of foldable keyboard products, a product line that was acquired in May 2006, contributed $1.8 million to Low-Power Group revenue for the six months ended June 30, 2007, compared to $167,000 for the six months ended June 30, 2006, as a result of our acquisition of this product line from Think Outside, Inc., which occurred in May 2006. Our low-power strategy is to gain further market penetration into mobile wireless carriers, distributors and retailers through our own sales efforts, as well as those of our primary low-power distributor, Superior Communications.

     Connectivity Group. During 2006, we experienced a significant decrease in business from our primary customer of handheld cradle products. As a result of this decline in business and in order to allow us to focus our limited resources on strategic growth of our Low-Power Group and High-Power Group business segments, in early 2007, we entered into three separate transactions to divest of the expansion and docking products and handheld products that comprised the Connectivity Group. See - “Recent Developments” for more information. Connectivity Group revenue includes $1.9 million in Mission Technology Group’s sales of docking and expansion products for the six months ended June 30, 2007. Compared to the six months ended June 30, 2006, expansion and docking revenue increased by $140,000. Revenue from sales of handheld hardware products during the six months ended June 30, 2007 was $204,000, as compared to $9.0 million for the six months ended June 30, 2006.

     Cost of revenue, gross profit and gross margin. Cost of revenue generally consists of costs associated with components, outsourced manufacturing and in-house labor associated with assembly, testing, packaging, shipping and quality assurance, depreciation of equipment and indirect manufacturing costs. Gross profit is the difference between revenue and cost of revenue. Gross margin is gross profit stated as a percentage of revenue. The following table summarizes the year-over-year comparison of our cost of revenue, gross profit and gross margin for the periods indicated (amounts in thousands):

		Six months				Six months
		Ended				Ended				Increase (decrease)				Percentage change from
		June 30,				June 30,				from same period in				the same period in the
		2007				2006				the prior year				prior year
Cost of revenue		$	30,846			$	34,461			$	(3,615	)			(10.5	)%
Gross profit		$	7,525			$	14,523			$	(6,998	)			(48.2	)%
Gross margin			19.6	%			29.6	%			(10.0	)%			(33.8	)%

     The decrease in cost of revenue is primarily due to the 21.7% volume decrease in revenue, combined with the impact of increased indirect product overhead expenses. Indirect product overhead expenses increased by $3.0 million, or 57.7%, to $8.2 million during the six months ended June 30, 2007 as compared to $5.2 million during the six months ended June 30, 2006, despite reduced sales volumes. The increase in indirect product overhead costs compared to lower sales revenue is due primarily to charges taken for excess and or obsolete low-power and keyboard inventories and the liability recorded related to commitments to long-lead components not expected to be consumed totaling $4.7 million during the six months ended June 30, 2007, compared to $1.1 million for the six months ended June 30, 2006. Excluding these charges, indirect product overhead expenses decreased $447,000 for the six months ended June 30, 2007 compared to the same period for 2006, primarily from the savings associated with the sale of the handheld hardware business to CradlePoint in March 2007. As a result of these factors, cost of revenue as a percentage of revenue increased to 80.4% for the six months ended June 30, 2007 from 70.4% for the six months ended June 30, 2006.

     Sales and marketing. Sales and marketing expenses generally consist of salaries, commissions and other personnel-related costs of our sales, marketing and support personnel, advertising, public relations, promotions, printed media and travel. The following table summarizes the year-over-year comparison of our sales and marketing expenses for the periods indicated (amounts in thousands):

Six months

Six months

Increase

Percentage change

Ended

Ended

from same period

from the same period

June 30, 2007

June 30, 2006

in the prior year

in the prior year

Sales and marketing

$

5,442

$

4,285

$

1,157

27.0

%

     The increase in sales and marketing expenses primarily resulted from an increased investment in advertising campaigns of approximately $593,000 and an increase in website development expenses of approximately $144,000. The increase is also partially attributable to an increase in sales personnel expenses of approximately $313,000 in connection with the addition of new sales and marketing professionals. As a percentage of revenue, sales and marketing expenses increased to 14.2% for the six months ended June 30, 2007 from 8.7% for the six months ended June 30, 2006.

     Research and development. Research and development expenses consist primarily of salaries and personnel-related costs, outside consulting, lab costs and travel-related costs of our product development group. The following table summarizes the year-over-year comparison of our research and development expenses for the periods indicated (amounts in thousands):

		Six months				Six months				Decrease from				Percentage change from
		Ended				Ended				same period				the same period in the
		June 30, 2007				June 30, 2006				in the prior year				prior year
Research and development		$	3,134			$	3,770			$	(636	)			(16.9	)%

     The decrease in research and development expenses primarily resulted from reduced investment in development of handheld hardware and docking and expansion products in connection with our disposition of those product lines. As a percentage of revenue, research and development expenses increased to 8.2% for the six months ended June 30, 2007 from 7.7% for the six months ended June 30, 2006.

     General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related expenses of our finance, human resources, information systems, corporate development and other administrative personnel, as well as facilities, professional fees, depreciation and amortization and related expenses. The following table

summarizes the year-over-year comparison of our general and administrative expenses for the periods indicated (amounts in thousands):

Six months

Six months

Increase

Percentage change

Ended

Ended

from same period

from the same period

June 30, 2007

June 30, 2006

in the prior year

in the prior year

General and administrative

$

8,330

$

6,815

$

1,515

22.2

%

     The increase in general and administrative expenses primarily resulted from a recovery under our directors’ and officers’ liability insurance policy of $1.5 million during the six months ended June 30, 2006 in connection with legal fees that had been incurred and expensed in prior periods. Also contributing to the increase in general and administrative expenses was the $614,000 expense related to the retirement of our former Chief Executive Officer and an increase of $437,000 in non-cash equity compensation, primarily resulting from accelerated vesting of restricted stock units in connection with the retirement of our former Chief Executive Officer. These increases were offset, in part, by decreases in outside legal expenses of approximately $530,000 and a decrease in professional accounting fees of $220,000. General and administrative expenses as a percentage of revenue increased to 21.7% for the six months ended June 30, 2007 from 13.9% for the six months ended June 30, 2006.

     Interest income (expense) net. During the six months ended June 30, 2007, we earned $556,000 of net interest income, compared to net interest income of $618,000 during the six months ended June 30, 2006. The decrease in net interest income is primarily the result of reductions in investments.

     Gain on disposal of assets and other income (expense) net. Gain on disposal of assets and other income (expense), net was $1.8 million for the six months ended June 30, 2007 and $1,000 for the six months ended June 30, 2006. During the six months ended June 30, 2007, we recorded a gain on the sale of intellectual property assets, net of loss on the disposal of related license assets in the amount of $1.6 million. Also included in other income for the six months ended June 30, 2007 was $155,000 of gain realized from the sale of handheld software assets in 2004. We had recorded a deferred gain of $881,000 in connection with this transaction. Our collections against the notes receivable in this transaction exceeded the amount of deferred gain during the quarter ended June 30, 2007. We will continue to recognize portions of the remaining deferred gain as we receive further collections against the related notes receivable.

     Litigation settlement. Litigation settlement consists of expenses incurred as a result of our settlement of litigation resulting from the matter of Thomas de Jong vs. Mobility Electronics, Inc. and iGo Direct Corporation. Mr. de Jong was a former officer of iGo Corporation and is currently subject to an ongoing investigation by the Securities and Exchange Commission. Mr. de Jong had sought advancement and indemnification from us for legal fees incurred by him in connection with this investigation. Under the terms of the settlement, we agreed to reimburse Mr. de Jong up to a fixed amount of legal fees and expenses incurred by him with respect to this matter.

     Minority interest. Minority interest represents the portion of our net earnings which is attributable to the collective ownership interests of minority investors. As previously discussed, we have included the operating results of Mission, in which we maintain a 15% equity interest, in our consolidated financial statements. Minority interest represents the 85% share in the net earnings of Mission held by other owners.

     Income taxes. No provision for income taxes was required for the six months ended June 30, 2007 and 2006. Based on historical operating losses and projections for future taxable income, it is more likely than not that we will not fully realize the benefits of the net operating loss carryforwards. We have not, therefore, recorded a tax benefit from our net operating loss carryforwards for either of the six months ended June 30, 2007 or June 30, 2006.

Operating Outlook