<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
OR
[ ] 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 86-0843914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7955 EAST REDFIELD ROAD
SCOTTSDALE, ARIZONA 85260
(480) 596-0061
(Address and telephone number of principal executive offices)
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 [X] NO [ ]
At September 30, 2000, there were 13,261,226 shares of the Registrant's
Common Stock outstanding.
<PAGE> 2
MOBILITY ELECTRONICS, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2000
and 1999 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 20
INDEX TO EXHIBITS 21
</TABLE>
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<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,188,757 $ 4,792,313
Accounts receivable, net 6,942,474 2,992,014
Inventories 3,813,992 1,554,016
Prepaid expenses and other current assets 903,515 682,728
------------- -------------
Total current assets 49,848,738 10,021,071
------------- -------------
Property and equipment, net 1,873,137 1,916,891
Other assets, net 3,742,533 2,961,375
------------- -------------
Total assets $ 55,464,408 $ 14,899,337
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,524,393 $ 2,298,946
Accrued expenses and other current liabilities 2,086,743 1,109,771
Notes payable 100,000 --
Current installments of long-term debt -- 993,138
Current installments of capital lease obligations 55,173 136,326
------------- -------------
Total current liabilities 6,766,309 4,538,181
------------- -------------
Lines of credit -- 2,728,538
Long-term debt, less current installments -- 5,285,750
Capital lease obligations, less current installments 3,043 36,636
------------- -------------
Total liabilities 6,769,352 12,589,105
------------- -------------
Stockholders' equity:
Convertible preferred stock - Series C, $.01 par value; authorized
15,000,000 shares; 1,899,896 and 2,399,102 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively 18,899 23,991
Common stock, $.01 par value; authorized 90,000,000
shares; 13,261,226 and 5,978,679 shares issued
and outstanding at September 30, 2000 and
December 31, 1999, respectively 132,612 59,787
Additional paid-in capital 108,966,815 51,719,778
Accumulated deficit (57,283,026) (46,659,488)
Stock subscription and deferred compensation (3,140,244) (2,833,836)
------------- -------------
Total stockholders' equity 48,695,056 2,310,232
------------- -------------
Total liabilities and stockholders' equity $ 55,464,408 $ 14,899,337
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Net product sales $ 6,604,618 $ 3,374,234 $ 17,896,303 $ 10,162,435
Technology transfer fees 1,000,000 -- 1,000,000 --
------------ ------------ ------------ ------------
Total revenue 7,604,618 3,374,234 18,896,303 10,162,435
Cost of revenue:
Product sales 5,073,578 2,550,558 13,502,911 8,809,552
Technology transfer 100,000 -- 100,000 --
------------ ------------ ------------ ------------
Total cost of revenue 5,173,578 2,550,558 13,602,911 8,809,552
------------ ------------ ------------ ------------
Gross profit 2,431,040 823,676 5,293,392 1,352,883
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 2,618,351 1,118,426 5,601,570 3,892,192
Research and development 1,399,844 547,918 3,278,050 2,737,623
General and administrative 1,268,032 705,973 3,143,301 2,222,347
Non-cash compensation 626,430 49,771 1,285,257 400,521
------------ ------------ ------------ ------------
Total operating expenses 5,912,657 2,422,088 13,308,178 9,252,683
------------ ------------ ------------ ------------
Loss from operations (3,481,617) (1,598,412) (8,014,786) (7,899,800)
Other income (expense):
Interest expense (62,657) (358,900) (819,040) (1,159,110)
Interest income 596,807 25,568 735,301 60,553
Non-cash deferred loan costs (1,611,304) (1,136,496) (2,527,303) (3,907,072)
Other, net -- -- 2,290 598
------------ ------------ ------------ ------------
Loss before provision for income taxes (4,558,771) (3,068,240) (10,623,538) (12,904,831)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss (4,558,771) (3,068,240) (10,623,538) (12,904,831)
Beneficial conversion costs of preferred stock -- -- (48,663) --
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (4,558,771) $ (3,068,240) $(10,672,201) $(12,904,831)
============ ============ ============ ============
Net loss per share:
Basic and diluted $ (0.37) $ (0.64) $ (1.26) $ (2.76)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic and diluted 12,305,815 4,791,274 8,499,915 4,667,699
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE> 5
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,623,538) $(12,904,831)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for doubtful accounts receivable 90,000 590,002
Provision for obsolete inventory 539,225 964,136
Depreciation and amortization 558,766 810,209
Amortization on deferred loan costs 2,726,647 3,907,072
Amortization on deferred compensation 1,285,257 92,521
Changes in operating assets and liabilities:
Accounts receivable (4,040,460) (822,278)
Inventories (2,799,202) 430,357
Prepaid expenses and other assets (222,247) 318,889
Accounts payable 2,225,447 (2,677,996)
Accrued expenses and other current liabilities 1,172,396 (353,970)
------------ ------------
Net cash used in operating activities (9,087,709) (9,645,889)
------------ ------------
Cash flows from investing activities:
Increase in note receivable (2,200,000) --
Purchase of stock warrant (1,200,000) --
Purchase of property and equipment (435,651) (645,039)
------------ ------------
Net cash used in investing activities (3,835,651) (645,039)
------------ ------------
Cash flows from financing activities:
Cash received from issuance of note payable -- 4,100,000
Repayment of lines of credit (2,728,538) (130,438)
Repayment of note payable (2,490,636) --
Repayment of long-term debt and capital lease obligations (3,693,572) (165,619)
Expenses related to conversion of debt into common stock -- (115,787)
Net proceeds from issuance of common stock 49,804,115 3,105,131
Net proceeds from issuance of preferred stock 4,996,148 1,980,129
Proceeds from exercise of warrants 432,287 177,641
------------ ------------
Net cash used in financing activities 46,319,804 8,951,057
------------ ------------
Effects of exchange rate changes on cash and cash equivalents -- 24,828
Net increase (decrease) in cash and cash equivalents 33,396,444 (1,315,043)
Cash and cash equivalents, beginning of period 4,792,313 2,432,703
------------ ------------
Cash and cash equivalents, end of period $ 38,188,757 $ 1,117,660
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
2000 1999
----------- ----------
<S> <C> <C>
Supplemental cash flow information:
Interest paid $ 783,595 $1,010,275
=========== ==========
Non-cash investing and financing activities:
Warrants issued in connection with the execution of debt instruments $ 365,328 $5,154,957
=========== ==========
Warrants issued in connection with the extension of notes payable $ 213,043 $ --
=========== ==========
Conversion of Series C preferred stock to common stock $ 5,524 $ --
=========== ==========
Debt converted to common stock $ 285,404 $ --
=========== ==========
Accrued bridge loan interest refinanced with extension of loans $ 160,042 $ --
=========== ==========
Conversion of bridge loans to 296,342 shares of common stock $ -- $2,370,740
=========== ==========
Issuance of 166,666 shares of Series C preferred stock for settlement
of accounts payable and inventory purchases $ -- $1,000,000
=========== ==========
Issuance of 38,500 shares of common stock for settlement for
contingent purchase price $ -- $ 308,000
=========== ==========
Options issued for services $ -- $ 67,443
=========== ==========
Stock subscription receivable $ 1,199,000 $ --
=========== ==========
Stock issued for services rendered $ 19,500 $ --
=========== ==========
Non-cash exercise of warrants $ 5,815 $ --
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-6-
<PAGE> 7
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
the accounts of Mobility Electronics, Inc. ("Mobility" or the "Company") which
was formerly known as Electronics Accessory Specialists International, Inc., and
its wholly-owned subsidiary, Mobility Electronics, L.L.C., including its three
operating subsidiaries, up to October 1999, being the month of the sale of the
subsidiaries. All significant intercompany balances and transactions have been
eliminated in the accompanying consolidated financial statements.
The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with 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 our audited
consolidated financial statements and notes thereto for the fiscal year ended
December 31, 1999 included in our Registration Statement on Form S-1 as amended,
filed with the SEC. The results of operations for the three and nine months
ended September 30, 2000 are not necessarily indicative of results to be
expected for the full year or any other period.
2. INITIAL PUBLIC OFFERING
On June 30, 2000, the Company's registration statement on Form S-1
registering its initial public offering ("IPO") of 4,000,000 shares of common
stock became effective. At the offering price of $12.00 per share, the Company
received proceeds of approximately $44.6 million from the IPO, net of
underwriting discounts and commissions of approximately $3.4 million. Additional
offering expenses incurred include legal, accounting and printing expenses of
approximately $1.2 million, director and officers liability insurance of
$160,300, SEC and NASDAQ registration and filing fees of $140,855 and
miscellaneous expenses of $42,700 for a total of $1.5 million. The net cash
proceeds to the Company after the payment of the estimated total offering
expenses of $4.9 million was approximately $43.1 million. As part of the IPO,
the Company granted the underwriters a 30-day option from the effective date of
the IPO to purchase up to 600,000 additional shares of common stock to cover
over-allotments, if any. On July 28, 2000, the underwriters exercised their
30-day option in full and purchased 600,000 additional shares of common stock,
resulting in additional IPO proceeds received by the Company of approximately
$6.7 million, net of underwriting discounts and commissions of $504,000.
Including the underwriters' over-allotment option, the net cash proceeds
received by the Company after deducting the total offering expenses of $5.4
million was approximately $49.8 million.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and cash equivalents
Cash equivalents are short-term, highly liquid investments with
original maturity dates of three months or less. Cash equivalents are carried at
cost, which approximates fair market value. Cash and cash equivalents at
September 30, 2000 and December 31, 1999 consisted of cash on hand and amounts
on deposit with financial institutions.
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Cash and cash equivalents:
Cash $ 2,584,572 $ (195,014)
Certificates of deposit 235,601 --
Money market accounts 35,368,584 4,987,327
----------- -----------
Total cash and cash equivalents $38,188,757 $ 4,792,313
=========== ===========
</TABLE>
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<PAGE> 8
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(b) Revenue Recognition
Revenue from product sales is recognized upon shipment and transfer of
ownership from the Company or contract manufacturer to the customer. Provisions
for returns and credits are provided for in the same period the related sales
are recorded. Revenue from technology transfer fees, consisting of the licensing
and transferring of Split Bridge technology and architecture and related
training and implementation support services, is recognized ratably over the
term of the sales agreement.
(c) Segment Reporting
The Company has only one operating business segment, the sale of
peripheral computer equipment and related technology.
(d) Recent Accounting Pronouncements
During December 1999, the SEC released Staff Accounting Bulletin No.
101 (SAB No. 101), "Revenue Recognition in Financial Statements". SAB 101
summarizes the SEC staff's view in applying generally accepted accounting
principles to revenue recognition in financial statements. In March 2000, the
SEC staff issued SAB 101A to delay certain transition provisions of SAB 101. SAB
101A deferred the effective date for registrants with a fiscal year beginning
between December 16, 1999 and March 15, 2000. Those registrants may report a
change in accounting principle no later than their second fiscal quarter of the
fiscal year beginning after December 15, 1999. In periods subsequent to
transition, registrants should disclose the amount of revenue (if material to
income before income taxes) recognized in those periods that was included in the
cumulative effect adjustment. While the adoption of SAB 101 did not have a
material impact on our historical revenues through September 30, 2000, it will
have an impact on our revenue recognition policies as it pertains to licensing
fee revenue. In the future, the Company anticipates significant revenue from
licensing fees that will include up front payments which will be reported in
compliance with SAB 101.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133), which established accounting and
reporting standards for all derivative instruments and hedging activities. SFAS
No. 133 requires the recognition of all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
This new standard, as amended by SFAS No. 137 and No. 138, will be effective for
all fiscal years beginning after June 15, 2000. The Company will adopt SFAS No.
133 in Fiscal 2001. SFAS No. 133 is not expected to have a material impact on
the Company's result of operations or financial position.
4. OTHER ASSETS
At September 30, 2000, other assets primarily consisted of a note
receivable of $2.2 million and a cost investment of $1.2 million. At September
30, 1999, other assets primarily consisted of deferred loan costs of $2.1
million and deferred compensation of $400,000.
5. STOCKHOLDERS' EQUITY
(a) Preferred Stock
On March 6, 2000, the Company signed a Strategic Partner Agreement with
Cybex Computer Products Corporation ("Cybex"). The Company and Cybex have agreed
to license certain technology to each other and the Company has agreed to sell
certain of its products to Cybex on a private label basis. In conjunction with
this agreement, the Company sold Cybex 500,000 shares of $.01 par value Series D
preferred stock for $5,000,000, or $10.00 per share. On June 30, 2000, the first
trading date of the Company's initial public offering, the shares of Series D
preferred stock converted automatically into 438,595 shares of common stock at a
conversion rate of 1-to-0.87719 ($10.00 divided by 95% of the $12.00 initial
public offering price per share of common stock).
During January 2000, the Company completed a private placement and
issued 48,706 shares of Series C preferred
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<PAGE> 9
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
stock at $6.00 per share for total gross proceeds of $292,236. In conjunction
with this private placement, the Company issued a warrant for each share of
Series C preferred stock to purchase one additional share of common stock. The
total warrants issued of 48,706 are exercisable at $.02 per common stock share
and expire October 1, 2002. At the date of issuance of the Series C preferred
stock, a non-cash beneficial conversion adjustment of $48,663, which represents
a 17% discount to the fair market value of the common stock at the date of
issuance, has been recorded in the 2000 consolidated financial statements as an
increase and decrease to additional paid-in capital.
The Series C preferred stock is convertible into shares of common
stock. The rate of conversion is 1-to-0.68995 as of September 30, 2000. The
initial conversion rate was 1-for-1, but was subject to change if certain events
occur. Generally, the conversion rate will be adjusted if the Company issues any
non-cash dividends on outstanding securities, splits its securities or otherwise
effects a change to the number of its outstanding securities. The conversion
rate will also be adjusted if the Company issues additional securities at a
price that is less than the price that the Series C preferred stockholders paid
for their shares. Such adjustments will be made according to certain formulas
that are designed to prevent dilution of the Series C preferred stock. The
Series C preferred stock can be converted at any time at the option of the
holder, and will convert automatically, immediately prior to the consummation of
a firm commitment public offering of common stock pursuant to a registration
statement filed with the Securities and Exchange Commission having a per share
price equal to or greater than $24.00 per share and a total gross offering
amount of not less than $15,000,000.
The Company may not pay any cash dividends on its common stock while
any Series C preferred stock remain outstanding without the consent of the
Series C preferred stockholders. Holders of Series C preferred stock are
entitled to vote on all matters submitted for a vote of the holders of common
stock. Holders will be entitled to one vote for each share of common stock into
which one share of Series C preferred stock could then be converted. In the
event of liquidation or dissolution, the holders of Series C preferred stock
will be entitled to receive the amount they paid for their stock, plus accrued
and unpaid dividends out of the Company's assets legally available for such
payments prior to the holders of securities junior to the Series C preferred
stock receiving payments.
(b) Common Stock
On March 10, 2000, the Company's Board of Directors authorized, and on
March 31, 2000 the Company's stockholders approved, a 1-for-2 reverse stock
split, and post-split adjustment of the number of authorized shares of common
stock to 90,000,000 shares. All share information included in the accompanying
condensed consolidated financial statements has been retroactively adjusted to
reflect this reverse split and post-split adjustment.
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 therefor, 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.
6. LONG-TERM DEBT
On February 29, 2000, the Company amended certain of its Bridge Notes
to extend the maturity date of $1,225,000 of those Bridge Notes and related
accrued interest of approximately $160,000 from March 31, 2000 to the earlier of
an initial public offering or other equity infusion of $10,000,000 or greater,
or March 31, 2001. In addition, the annual interest rate was increased to 14%.
In conjunction with the extension of the maturity date, the Company issued
warrants to purchase 138,502 shares of common stock valued at $213,043. The
value of the warrants is charged to interest expense over the term of the
related debt. These warrants are exercisable for common stock at an exercise
price of $.02 per share. The Bridge Note extension agreement also provides that
the holders of the Bridge Notes have the option, within 15 days following the
closing of an initial public offering, to convert any or all of the outstanding
principal balance and accrued but unpaid interest into shares of common stock at
a conversion price of 95% of the offering price of the initial public offering
(this price was $11.40 per share after the IPO). In July 2000, $327,009 of
principal and accrued interest of Bridge Notes was converted into 26,685 shares
of common stock and the balance of the outstanding Bridge
Notes and accrued interest were paid in full except for $100,000, which
is expected to be converted into common stock at a later date.
-9-
<PAGE> 10
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In July 2000, $8,395 of convertible debentures were converted into
1,086 shares of common stock at a conversion rate of $7.73 per share. The
balance of the convertible debentures and accrued interest thereon was paid in
full. All other long-term debt of the Company was also paid in full in July
2000.
7. LINES OF CREDIT
On March 13, 2000, the Company entered into agreements to extend the
maturity date of the lines of credit and promissory note agreements due March
31, 2000 to March 31, 2001. On July 14, 2000 the Company's lines of credit and
accrued interest thereon were paid in full. The Company has available credit of
$3,000,000 under the domestic line of credit and $750,000 under the foreign line
of credit.
8. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Two customers accounted for 27.6% and 24.6% of total revenue of the
Company for the nine months ended September 30, 2000. Three customers accounted
for 13.2%, 11.8% and 10.8% of total revenue of the Company for the nine months
ended September 30, 1999.
9. CONTINGENCIES AND LITIGATION
The Company is involved in various claims and legal actions in the
ordinary course of business. In the opinion of management, based on consultation
with legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity. Accordingly, the accompanying condensed consolidated
financial statements do not include a provision for losses, if any, that might
result from the ultimate disposition of these matters.
10. NET LOSS PER SHARE
The computation of basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (4,558,771) $ (3,068,240) $(10,623,538) $(12,904,831)
Beneficial conversion costs of preferred stock -- -- (48,663) --
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (4,558,771) $ (3,068,240) $(10,672,201) $(12,904,831)
============ ============ ============ ============
Weighted average common shares outstanding -
basic and diluted 12,305,815 4,791,274 8,499,915 4,667,699
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.37) $ (0.64) $ (1.26) $ (2.76)
============ ============ ============ ============
</TABLE>
The following table summarizes securities outstanding which were not
included in the calculation of diluted net loss per share since their inclusion
would be antidilutive:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Stock options and warrants 2,509,376 2,147,933 2,509,376 2,147,933
============ ============ ============ ============
Convertible preferred stock 1,889,886 1,166,358 1,889,886 1,166,358
============ ============ ============ ============
</TABLE>
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<PAGE> 11
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. SUBSEQUENT EVENT
On October 2, 2000, Mobility entered into an Agreement and Plan of
Merger (the "Agreement") with Magma, Inc., a wholly-owned subsidiary of Mobility
Electronics, Mesa Ridge Technologies, Inc. doing business as MAGMA, a California
corporation and a designer and manufacturer of PCI expansion products and
solutions, ("MAGMA") and all of the shareholders of MAGMA whereby MAGMA merged
with and into our wholly-owned subsidiary. Mobility Electronics, Inc. acquired
all of the outstanding voting stock of MAGMA (the "MAGMA Stock").
Pursuant to the Agreement, Mobility acquired all of the public and
private rights, privileges, powers, assets and liabilities and obligations of
MAGMA.
In consideration therefore, we paid the MAGMA shareholders $2 million
in cash and $6 million of Mobility's common stock (562,098 shares). In addition,
contingent earn out payments are to be made depending on MAGMA's performance
over the next two years. The source of the funds for the consideration paid came
from proceeds of the IPO.
The acquisition of the MAGMA Stock will be treated as a purchase for
financial reporting purposes. Prior to the execution of the Agreement and Plan
of Merger, there was no material relationship between Mobility Electronics, or
its affiliates and MAGMA, or between any officers or directors of Mobility
Electronics, or its affiliates, and the officers and directors of MAGMA, or its
affiliates.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This quarterly report contains forward-looking statements that involve
risks and uncertainties. The statements contained in this report that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Without limiting the foregoing, the words "may," "will," "should,"
"could," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" and similar expressions are intended to
identify forward-looking statements. All forward-looking statements included in
this quarterly report are based on information available to us up to and
including the date of this document, and we assume no obligation to update any
such forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, set forth elsewhere in this quarterly report. You should also carefully
review the risks outlined in other documents that we file from time to time with
the Securities and Exchange Commission.
The following discussion and analysis of our financial condition and
results of operations should be read together with our condensed consolidated
financial statements and notes thereto contained in this report.
OVERVIEW
Mobility designs, develops and markets technology and products for the
computer industry as well as for a broad range of related microprocessor
applications. These technologies and products allow the connection of the
computer to various peripherals using a remote peripheral component interface,
or PCI bus, technology. Our proprietary Split Bridge(TM) technology consists of
a Split Bridge(TM) link, typically two customized semiconductors, or chips, two
connectors and a high-speed cable. Our technology for the first time allows any
computer's primary PCI bus, which is the heart of the computer, to be extended
to a remote location of up to 15 feet with virtually no software requirements or
performance degradation. This enables architectural designs of computer systems
and applications that previously were not feasible.
Mobility was founded in May 1995 to develop products for the portable
computer market. Initial sales were generated primarily from reselling
third-party power products. In mid-1996 we began manufacturing and shipping our
first port replicator and monitor stand products to Toshiba. During 1997 we
expanded our product offering to include port replicators for other computer
original equipment manufacturers, or OEMs, to meet the growing end user demand
for such products. After reviewing our financial performance relative to the
mechanical port replicator product line, we determined that we needed to
discontinue this product line. The then available technology required each port
replicator to be unique to each portable computer. It typically took two months
to design a unit and an additional month to implement production and have
product available in the market. Lifecycles of portable computers vary, but they
average approximately nine months. With one-third of the lifecycle consumed in
design and production implementation, it was difficult to generate sufficient
unit volume over the
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<PAGE> 12
remaining life of the portable computer to amortize the design and tooling
costs. In addition, once the portable computer was replaced in the market by a
new model, we faced the economic issues associated with the distribution
channel's return of unsold product. This resulted in obsolete inventory, as the
unit was model specific to the discontinued portable computer.
The product line abandonment plan involved a migration from the
mechanical port replicator product offering to a universal line of docking
stations. In the first quarter of 1998 we began to pursue a technology that
would enable us to create a new universal docking product category which would
allow portable computer users to configure a flexible, high performance docking
solution that would be compatible with essentially all makes and models of
portable computers. In doing so, we developed our Split Bridge(TM) technology,
which technology has far reaching applications. In the first quarter of 1999 we
changed our overall business strategy to pursue the development and
commercialization of our Split Bridge(TM) technology as our primary focus.
Universal docking stations are a natural application for the Split
Bridge(TM) technology. These docking stations represent the first commercial
application of the technology. A line of products was designed around our Split
Bridge(TM) technology and existing USB technology. The universal nature of the
product line overcomes the issues that made the mechanical port replicator
financially unviable. Specifically, the products are not model specific to
portable computers and therefore provide leverage to the engineering and tooling
cost. In addition, the products are compatible with virtually all PCI-based
computers, which eliminates the inventory obsolescence issues, as the products
will be compatible with new portable computer models into the foreseeable
future.
We also evaluated our basic business strategy relative to the power
products and monitor stand product lines and determined that a fundamental
change was required. During the first half of 1999, we implemented a
manufacturing strategy that migrated in-house production to contract
manufacturers in Taiwan. This decision was made to take advantage of lower costs
offered by contract manufacturers and the ability to reduce in-house fixed
overhead expenses. Implementation of this strategy was completed in September
1999. The outsourcing of manufacturing allows us to concentrate our efforts on
technological development and application.
As a result of the product line abandonment plan and our outsourcing of
manufacturing, we experienced significant improvement in gross margins in the
third quarter of 1999. The new universal connectivity product line has been set
up to use our contract manufacturer in Malaysia and the product cost is
predictable based upon committed price quotations.
We sell our products directly to OEMs and the retail channel, as well
as through distributors. We have also established a few select worldwide private
label accounts, most notably IBM, NEC and Targus. A substantial portion of our
net product sales are concentrated among a number of OEMs, including Compaq,
Dell, Hewlett-Packard, IBM, NEC, Targus and Toshiba. Direct sales to OEMs
accounted for approximately 74.5% of net product sales for the nine months ended
September 30, 2000 and 54.3% of net product sales for the nine months ended
September 30, 1999. We expect that we will continue to be dependent upon a
number of OEMs for a significant portion of our net product sales in future
periods, although no OEM is presently obligated to purchase a specified amount
of products.
A portion of our sales to distributors and resellers is generally under
terms that provide for certain stock balancing return privileges and price
protection. Sales to this channel have increased and are expected to further
increase significantly. Accordingly, we make a provision for estimated sales
returns and other allowances related to those sales. Returns, which have been
netted in the product sales presented herein, were approximately 4.8% of net
product sales for the nine months ended September 30, 2000 and 6.0% of net
product sales for the nine months ended September 30, 1999. The major
distributors are allowed to return up to 15.0% of their prior quarter's
purchases under the stock balancing programs, provided that they place a new
order for equal or greater dollar value of the stock balancing return.
Historically, the returns have been primarily mechanical port replicators that
are associated with portable computers that have been replaced in the market. It
is anticipated that the return activity will continue to diminish due to the
nature of the universal docking station and the reduced obsolescence issues.
We derive a significant portion of our net product sales outside the
United States, principally in France, Germany and the United Kingdom, to OEMs,
retailers and a limited number of independent distributors. We expect product
sales outside the United States to continue to account for a large portion of
our future net product sales. International sales are generally denominated in
the currency of our foreign customers. A decrease in the value of foreign
currencies relative to the U.S. dollar could result in a significant decrease in
U.S. dollar sales received by us for our international sales. That risk may be
increased as a result of the introduction in January 1999 of the new "Euro"
currency in European countries that are part of the European Monetary Union, or
EMU. During 2002, all EMU countries are expected to completely replace their
national currencies with the Euro. However, we cannot determine the impact this
may have on our business because a significant amount of uncertainty exists as
to the effect the Euro will have on the marketplace and because all of the final
rules and regulations have not yet been defined and finalized by the European
Commission regarding the Euro currency. We intend to develop and implement a
plan to mitigate this risk once the final rules and regulations are established.
We have not engaged in hedging transactions with respect to our net foreign
currency exposure. To the extent that we implement hedging activities in the
future with respect to foreign currency transactions, there can be no assurance
that we will be successful in such hedging activities.
Various factors have in the past affected and may continue in the
future to affect our gross profits, including but not limited to, our product
mix, lower volume production and higher fixed costs for newly introduced product
platforms and
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<PAGE> 13
technologies, market acceptance of newly introduced products and the position of
our products in their respective lifecycles. The initial stages of our product
introductions are generally characterized by lower volume production which is
accompanied by higher costs, especially for specific products which are
initially purchased in small volumes during the development lifecycle.
RESULTS OF OPERATIONS
The following table presents certain selected consolidated financial data
for the periods indicated expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Net product sales 86.9% 100.0% 94.7% 100.0%
Technology transfer fees 13.1% 0.0% 5.3% 0.0%
------ ------ ------ ------
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue:
Product sales 66.7% 75.6% 71.5% 86.7%
Technology transfer 1.3% 0.0% 0.5% 0.0%
------ ------ ------ ------
Total cost of revenue 68.0% 75.6% 72.0% 86.7%
------ ------ ------ ------
Gross profit 32.0% 24.4% 28.0% 13.3%
Operating expenses:
Sales and marketing 34.4% 33.2% 29.6% 38.3%
Research and development 18.4% 16.2% 17.3% 26.9%
General and administrative 16.7% 20.9% 16.6% 21.9%
Non-cash compensation 8.2% 1.5% 6.8% 3.9%
------ ------ ------ ------
Total operating expenses 77.8% 71.8% 70.4% 91.0%
------ ------ ------ ------
Loss from operations (45.8)% (47.4)% (42.4)% (77.7)%
Other income (expense):
Interest expense (0.8)% (10.6)% (4.3)% (11.4)%
Interest income 7.8% 0.8% 3.9% 0.6%
Non-cash deferred loan costs (21.2)% (33.7)% (13.4)% (38.4)%
Other, net 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------
Loss before provision for income taxes (60.0)% (90.9)% (56.2)% (126.9)%
Provision for income taxes 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------
Net loss (60.0)% (90.9)% (56.2)% (126.9)%
Beneficial conversion costs of preferred stock 0.0% 0.0% (0.3)% 0.0%
------ ------ ------ ------
Net loss attributable to common stockholders (60.0)% (90.9)% (56.5)% (126.9)%
====== ====== ====== ======
</TABLE>
Comparison of Three Months Ended September 30, 2000 and 1999
Net product sales. Net product sales consist of sales of product net of
returns and allowances. We recognize sales at the time goods are shipped and the
ownership of the goods is transferred to the customer, and maintain a reserve
for stock rotation transactions with the distribution channel. Net product sales
increased 95.7% to $6.6 million for the three months ended September 30, 2000
from $3.4 million for the three months ended September 30, 1999. There were
several factors that contributed to the sales growth, with sales of new
products, which are based on our Split Bridge(TM) technology, being a
contributor. Sales from new products totaled $1.2 million for the three months
ended September 30, 2000, which represented 18.1% of total net product sales.
Sales of our core product lines, power products and monitor stands, increased
116.9% to $5.3 million, which accounted for 80.3 % of total net product sales
for the three months ended September 30, 2000 from $2.4 million for the three
months ended September 30, 1999. Sales of mechanical port replicators decreased
91.3% to $80,000 for the three months ended September 30, 2000 from $920,000 for
the three months ended September 30, 1999. This decrease was anticipated based
upon our 1998 decision to abandon this product line which was implemented in the
first quarter of 1999.
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<PAGE> 14
Technology transfer fees. Technology transfer fees consist of revenue
from the licensing and transferring by the Company of its Split Bridge(TM)
technology and architecture and related training and implementation support
services. Revenue from technology transfer fees is recognized ratably over the
term of the sales agreement. During the three months ended September 30, 2000,
the Company, for the first time, licensed and transferred its Split Bridge(TM)
technology and as a result, recognized a portion of a technology transfer fee of
$1.0 million or 13.1% of total revenue.
Cost of revenue - product sales. Cost of revenue - product sales
consists primarily of costs associated with components, outsourced manufacturing
and in-house labor associated with assembly, testing, packaging, shipping,
quality assurance, depreciation of equipment and indirect manufacturing costs.
Cost of revenue - product sales increased 98.9% to $5.1 million for the three
months ended September 30, 2000 from $2.6 million for the three months ended
September 30, 1999. The increase in cost of revenue - product sales was
primarily the result of the volume increase in net product sales. Cost of
revenue - product sales as a percentage of total revenue decreased to 66.7% for
the three months ended September 30, 2000 from 75.6% for the three months ended
September 30, 1999.
Cost of revenue - technology transfer. Cost of revenue - technology
transfer consists of engineering expenses related to the Split Bridge(TM)
technology. The cost of revenue - technology transfer was $100,000, and as a
percentage of total revenue was 1.3%, for the three months ended September 30,
2000.
Gross profit. Gross profit increased to 32.0% of total revenue for the
three months ended September 30, 2000 from 24.4% of total revenue for the three
months ended September 30, 1999. The gross profit rate improvement had two
primary drivers: the shift of manufacturing to outsourced contract manufacturers
during 1999 and a change in our sales mix from mechanical port replicators which
have low gross margin percentages to new products which have higher gross margin
percentages.
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. Sales and marketing expenses increased 134.1% to $2.6 million for
the three months ended September 30, 2000 from $1.1 million for the three months
ended September 30, 1999. The increase was primarily due to the launch of the
new universal product line. Spending was increased on demand creation activities
including advertising, trade shows and retail promotions. As a percentage of
total revenue, sales and marketing expenses were relatively consistent at 34.4%
for the three months ended September 30, 2000 and 33.2% for the three months
ended September 30, 1999. We expect sales and marketing expenses to increase in
the future as we continue to launch new product lines.
Research and development. Research and development expenses consist
primarily of salaries and personnel-related costs, facilities, outside
consulting, lab costs and travel related costs of our product development group.
Research and development expenses increased 155.5% to $1.4 million for the three
months ended September 30, 2000 from $548,000 for the three months ended
September 30, 1999. Research and development expenses as a percentage of total
revenue increased slightly to 18.4% for the three months ended September 30,
2000 from 16.2% for the three months ended September 30, 1999. We expect
research and development costs to increase in the future as we continue to
develop next generation ASIC chips in order to keep us at the leading edge of
universal docking and remote PCI bus applications.
General and administrative. General and administrative costs consist
primarily of salaries and other personnel-related costs of our finance, human
resources, informational systems, corporate development and other administrative
personnel, professional fees, bad debt, depreciation and amortization and
related expenses. General and administrative costs increased 79.6% to $1.3
million for the three months ended September 30, 2000 from $706,000 for the
three months ended September 30, 1999. The increase was primarily attributed to
the recruiting and relocation expenses and salaries of personnel hired to build
the infrastructure to support our growth. As a percentage of total revenue,
general and administrative expenses decreased to 16.7% for the three months
ended September 30, 2000 from 20.9% for the three months ended September 30,
1999. We expect general and administrative costs to increase in the future. We
are currently building infrastructure to manage our anticipated growth. In
addition, we expect higher legal, accounting and other expenses associated with
being a public company.
Non-cash compensation. Non-cash compensation, which is the result of
the issuance of common stock, warrants and stock options at a price deemed to be
less than market value to employees and outside consultants for services
rendered increased to $626,000 for the three months ended September 30, 2000
from $50,000 for the three months ended September 30, 1999. As a percentage of
total revenue, non-cash compensation was 8.2% and 1.5% for the three months
ended September 30, 2000 and 1999, respectively.
Interest expense, net. Interest expense consists of interest on our
bank revolving lines of credit and promissory notes as well as our subordinated
debt and convertible debentures, partially offset by interest earned on our cash
balances and short-term investments. Net interest expense (income) for the three
months ended September 30, 2000 was ($534,000) compared to $333,000 for the
three months ended September 30, 1999. The change was primarily due to the
paydown of debt with our IPO proceeds and interest earned on our IPO proceeds.
Non-cash deferred loan costs. In March and July, 1999 we issued
convertible bridge loan debt that included warrants. During the three months
ended September 30, 2000, the bridge loan was paid down and as a result, we
recognized a charge for
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<PAGE> 15
deferred loan expense of $1.6 million relative to such warrants. For the three
months ended September 30, 1999, non-cash deferred loan costs were $1.1 million.
Income taxes. We have incurred losses from inception to date;
therefore, no provision for income taxes was required for the three months ended
September 30, 2000 and 1999.
Comparison of Nine Months Ended September 30, 2000 and 1999
Net product sales. Net product sales increased 76.1% to $17.9 million
for the nine months ended September 30, 2000 from $10.2 million for the nine
months ended September 30, 1999. Sales of new products, which are based on our
Split Bridge(TM) technology, contributed to the growth in net product sales.
Sales from new products totaled $5.0 million for the nine months ended September
30, 2000 which represented 27.9% of total net product sales. Sales of our core
product lines, power products and monitor stands increased 93.5% to $12.2
million, which accounted for 68.1% of total net product sales for the nine
months ended September 30, 2000 from $6.3 million for the nine months ended
September 30, 1999. Sales of mechanical port replicators decreased 82.0% to
$700,000 for the nine months ended September 30, 2000 from $3.8 million for the
nine months ended September 30, 1999. This decrease was anticipated based upon
our 1998 decision to abandon this product line which was implemented in the
first quarter of 1999.
Technology transfer fees. Technology transfer fees were $1.0 million
for the nine months ended September 30, 2000. The technology transfer fees were
due to the licensing and transferring by the Company of its Split Bridge(TM)
technology and related support services resulting in the recognition of a
portion of a technology transfer fee of $1.0 million or 5.3% of total revenue.
Cost of revenue - product sales. Cost of revenue - product sales
increased 53.3% to $13.5 million for the nine months ended September 30, 2000
from $8.8 million for the nine months ended September 30, 1999. The increase in
cost of revenue - product sales was primarily the result of the volume increase
in net product sales. Cost of revenue - product sales as a percentage of total
revenue decreased to 71.5% for the nine months ended September 30, 2000 from
86.7% for the nine months ended September 30, 1999.
Cost of revenue - technology transfer. The cost of revenue - technology
transfer was $100,000, and as a percentage of total revenue was 0.5%, for the
nine months ended September 30, 2000.
Gross profit. Gross profit increased to 28.0% of total revenue for the
nine months ended September 30, 2000 from 13.3% of total revenue for the nine
months ended September 30, 1999. The gross profit rate improvement had two
primary drivers: the shift of manufacturing to outsourced contract manufacturers
during 1999 and a change in our sales mix from mechanical port replicators which
have low gross margin percentages to new products which have higher gross margin
percentages.
Sales and marketing. Sales and marketing expenses increased 43.9% to
$5.6 million for the nine months ended September 30, 2000 from $3.9 million for
the nine months ended September 30, 1999. The increase was partly due to a
decrease in spending in the second quarter of 1999 from relatively high levels
in the first quarter of that year as a result of the decision to abandon the
mechanical dock business and reposition the Company to pursue a universal line
of docking stations. Sales and marketing expenses as a percentage of total
revenue decreased to 29.6% for the nine months ended September 30, 2000 from
38.3% for the nine months ended September 30, 1999 primarily due to net sales
increasing at a greater rate than our sales and marketing expenses. We expect
sales and marketing expenses to increase in the future as we continue to launch
new product lines and as sales increase.
Research and development. Research and development expenses increased
19.7% to $3.3 million for the nine months ended September 30, 2000 from $2.7
million for the nine months ended September 30, 1999. Research and development
expenses as a percentage of total revenue decreased to 17.3% for the nine months
ended September 30, 2000 from 26.9% for the nine months ended September 30,
1999. The reduction was the result of discontinuing development of mechanical
docking products which was engineering intensive due to the model specific
nature of the product and the short lifecycle of the host portable computer. We
expect research and development costs to increase in the future as we continue
to develop next generation ASIC chips in order to keep us at the leading edge of
universal docking and remote PCI bus applications.
General and administrative. General and administrative costs increased
41.4% to $3.1 million for the nine months ended September 30, 2000 from $2.2
million for the nine months ended September 30, 1999. The increase was primarily
attributed to the recruiting and relocation expenses and salaries of personnel
hired to build the infrastructure to support our growth. As a percentage of
total revenue, general and administrative expenses decreased to 16.6% for the
nine months ended September 30, 2000 from 21.9% for the nine months ended
September 30, 1999.
Non-cash compensation. Non-cash compensation which is the result of the
issuance of common stock, warrants and stock options at a price deemed to be
less than market value to employees and outside consultants for services
rendered increased 220.9% to $1.3 million for the nine months ended
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<PAGE> 16
September 30, 2000 from $401,000 for the nine months ended September 30, 1999.
As a percentage of total revenue, non-cash compensation was 6.8% and 3.9% for
the nine months ended September 30, 2000 and 1999, respectively.
Interest expense, net. Net interest expense decreased to $84,000 for
the nine months ended September 30, 2000 from $1.1 million for the nine months
ended September 30, 1999. The decrease was primarily due to the paydown of debt
with our IPO proceeds and interest earned on our IPO proceeds.
Non-cash deferred loan costs. In March and July, 1999 we issued
convertible bridge loan debt that included warrants. During the nine months
ended September 30, 2000, the bridge loan was paid down and as a result, we
recognized a charge for deferred loan expense of $2.5 million relative to such
warrants. For the nine months ended September 30, 1999, non-cash deferred loan
costs were $3.9 million.
Income taxes. We have incurred losses from inception to date;
therefore, no provision for income taxes was required for the nine months ended
September 30, 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2000, the Company's registration statement on Form S-1
registering its initial public offering of 4,000,000 shares of common stock
became effective (the "IPO"). At the offering price of $12.00 per share, the
Company received proceeds of approximately $43.1 million, net of underwriting
discounts, commissions and other expenses, from the IPO. As part of the IPO,
the Company granted the underwriters a 30-day option to purchase up to 600,000
additional shares of common stock to cover over-allotments, if any. On July 28,
2000, the underwriters exercised their 30-day option in full and purchased
600,000 additional shares of common stock, resulting in additional IPO proceeds
due to the Company of approximately $6.7 million, net of underwriting discounts,
commissions and other expenses.
Since inception, we have funded our operations primarily through debt
and equity financing, as the cost of our operating activities have exceeded our
sales. Our operating activities used cash of $9.1 million and $9.7 million for
the nine months ended September 30, 2000 and 1999, respectively. Net cash used
in operating activities for the nine months ended September 30, 2000 was
primarily attributed to our net loss and an increase in accounts receivable and
inventories, offset in part by a decrease in amortization of deferred loan costs
and deferred compensation, non-cash expenses.
Our investing activities used cash of $3.8 million and $645,000 for the
nine months ended September 30, 2000 and 1999, respectively. From inception
through September 30, 2000, cash used in investing activities was primarily
attributable to the issuance of a note receivable and the purchase of a stock
warrant.
Our financing activities provided cash of $46.3 million and $9.0
million for the nine months ended September 30, 2000 and 1999, respectively. Net
cash provided by financing activities for the nine months ended September 30,
2000 was primarily from net proceeds from the issuance of common stock in our
IPO.
Our cash and cash equivalents increased to $38.2 million at September
30, 2000, compared to $4.8 million at December 31, 1999. Our net working capital
at those same dates was $43.1 million and $5.5 million, respectively. At
September 30, 2000 our available sources of liquidity other than our cash and
cash equivalents were foreign and domestic lines of credit with Bank of America
totaling $3.75 million.
We believe that our existing sources of liquidity and net proceeds from
the IPO will be sufficient to satisfy our expected working capital, debt
repayment requirements and capital expenditures needs for at least the next
twelve months.
At December 31, 1999 we had $32.0 million of federal net operating loss
carryforwards which expire at various dates. We anticipate that the sale of
common stock in the IPO coupled with prior sales of common stock will cause an
annual limitation on the use of our net operating loss carryforwards pursuant to
the change in ownership provisions of Section 382 of the Internal Revenue Code
of 1986, as amended. This limitation is expected to have a material effect on
the timing of our ability to use the net operating loss carryforward in the
future. Additionally, our ability to use the net operating loss carryforward is
dependent upon our level of future profitability, which cannot be determined.
YEAR 2000 READINESS
To date, we have not experienced any significant Year 2000 problems
with our products and business systems and do not expect that we will do so in
the future. We continue to monitor these systems to ensure that latent
date-related matters that may arise are properly and timely addressed. Costs
associated with the evaluation and modification of the products and business
systems were expensed as incurred and were not material to the financial
position or results of operations.
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<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks in the ordinary course of our
business. These risks result primarily from changes in foreign currency exchange
rates and interest rates. In addition, our international operations are subject
to risks related to differing economic conditions, changes in political climate,
differing tax structures and other regulations and restrictions.
To date we have not utilized derivative financial instruments or
derivative commodity instruments. We do not expect to employ these or other
strategies to hedge market risk in the foreseeable future. We invest our cash in
money market funds, which are subject to minimal credit and market risk. We
believe that the market risks associated with these financial instruments are
immaterial.
Our revolving lines of credit and certain other debt obligations are
subject to variable rate interest which could be adversely affected by increases
in rates. During October 2000, all of our debt was paid-off with proceeds from
our IPO which minimizes this interest rate risk.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
We are not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following information relates to the use of proceeds from our IPO
and updates such information previously reported. The effective date of our
Registration Statement on Form S-1, commission file number 333-30264, relating
to our IPO was June 30, 2000.
From the effective date of the Registration Statement on June 30, 2000
through September 30, 2000, which was the end of the reporting period, we used
net proceeds from the IPO to repay indebtedness of approximately $8.4 million,
made a loan to Portsmith LLC of $2.2 million, provided for working capital needs
of $1.4 million and purchased a stock warrant from 2C Computing, Inc. of $1.2
million. Subsequent to September 30, 2000, we used $2 million of the net
proceeds from the offering as consideration paid, in part, for the acquisition
of Mesa Ridge Technologies, Inc. (d/b/a MAGMA).
All of the above listed payments were direct or indirect payments to
persons other than: directors, officers, general partners or their associates,
persons owning ten percent or more of any class of our equity securities, or our
affiliates.
Effective June 30, 2000, we entered into a Consulting Agreement with
Portsmith LLC (n/k/a Portsmith, Incorporated) ("Portsmith") pursuant to which
Portsmith agreed to perform certain consulting services for us. In connection
therewith, we agreed to sell Portsmith 100,000 shares of our Common Stock at a
purchase price of $12.00 per share, with $1,198,000 of such purchase price being
paid pursuant to the issuance to us by Portsmith of a non-recourse promissory
note, secured by a pledge of such shares. The basis for the exemption from
registration is Section 4(2) of the Securities Act.
On October 2, 2000, we entered into and closed an Agreement and Plan of
Merger by and among Mobility Electronics, a wholly-owned subsidiary of Mobility
Electronics and MAGMA in which MAGMA merged with and into our wholly-owned
subsidiary. As part of the merger we issued 562,098 shares of Common Stock, that
were not registered under the Securities Act, to the former shareholders of
MAGMA and also paid the shareholders $2 million in cash. Those shareholders are
also entitled to contingent earn out payments depending on MAGMA's performance
during the next two years. The basis for the exemption from registration is
Section 4(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
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<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of June 17, 1997.(3)
3.3 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of September 10 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
3.9 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of March 31, 2000.(3)
4.1 -- Specimen of Common Stock Certificate.(4)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company and
Miram International, Inc. dated July 29, 1997. (1)
4.4 -- Form of Unit Purchase Agreement used in 1998 Private
Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's Common stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's common stock and
warrants to purchase 500 shares of the Company's Common Stock.
(1)
4.6 -- Form of Warrant to Purchase Shares of common stock of the
Company used with the 13% Bridge Notes and Series C Preferred
Stock Private Placements. (3)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placements.(1)
4.10 -- 13% Bridge Note Conversion Notice expired June 30, 1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used in
1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreements used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement executed May 3,
1999, between the Company, Philips Semiconductors VLSI, Inc.
(f/k/a VLSI Technology, Inc.) and Seligman Communications and
Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova Capital
Corporation (f/k/a Sirrom Capital Corporation) dated as of
March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement dated
October 29, 1999, between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among Janice
L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron Wilson,
the Company and certain Stockholders of the Company dated
April 20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company issued
to certain holders in Connection with that certain
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
April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company issued
to certain holders in Connection with that certain
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.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company issued
in the 1997
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and Seligman Communications and
Information Fund, Inc. entered into in connection with The
Series C Preferred Stock and Warrant Purchase Agreement Series
C Preferred Stock and Warrant Purchase Agreement dated October
29, 1999.(2)
</TABLE>
-18-
<PAGE> 19
<TABLE>
<S> <C> <C>
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued in
connection with the Loan Extension Agreement dated February
29, 2000.(2)
4.25 -- Investors' Rights Agreement executed May 3, 1999 between the
Company, Philips Semiconductors VLSI, Inc. f/k/a VLSI
Technology, Inc.) and Seligman Communications and Information
Fund, Inc.(3)
4.26 -- Registration Rights granted by the Company to Cybex Computer
Products Corporation in connection with the Strategic Partner
Agreement dated March 6, 2000.(3)
4.27 -- 13% Bridge Note Conversion Notice used in July 1999 Private
Placement.(4)
10.1 -- Strategic Partnership Agreement dated July 12, 2000 made by
and between the Company and 2C Computing, Inc.(5)
10.2 -- License Agreement dated July 12, 2000 made by and between the
Company and 2C Computing, Inc.(5)
10.3 -- Agreement and Plan of Merger dated October 2, 2000 made by and
among the Company, Magma, Inc., Mesa Ridge Technologies, Inc.
(d/b/a MAGMA) and all of the shareholders of MAGMA.(7)
10.4 -- Consulting Agreement dated June 30, 2000 made by and between
the Company and Portsmith LLC.(6)
10.5 -- Promissory Note dated June 30, 2000 issued by Portsmith LLC to
the Company.(6)
24.1 -- None
27.1 -- Financial Data Schedule.(8)
</TABLE>
----------
(1) Previously filed as an exhibit to Registration Statement No. 333-30264
dated February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 1 to Registration Statement
No. 333-30264 dated March 28, 2000.
(3) Previously filed as an exhibit to Amendment No. 2 to Registration Statement
No. 333-30264 dated May 4, 2000.
(4) Previously filed as an exhibit to Amendment No. 4 to Registration Statement
No. 333-30264 dated May 26, 2000.
(5) Previously filed as an exhibit to Post-Effective Amendment No. 1 to
Registration Statement No. 333-30264 dated July 24, 2000.
(6) Previously filed as an exhibit to Form 10-Q dated August 14, 2000.
(7) Previously filed as an exhibit to Form 8-K dated October 17, 2000.
(8) Filed herewith.
(b) Reports on Form 8-K: None filed during the quarter ended
September 30, 2000, however, a Form 8-K dated October 17, 2000
was filed to report the acquisition of Mesa Ridge Technologies,
Inc. (d/b/a MAGMA) under Item 2.
-19-
<PAGE> 20
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOBILITY ELECTRONICS, INC.
Dated: November 14, 2000 By: /s/ RICHARD W. WINTERICH
----------------- ----------------------------------------
Richard W. Winterich
Vice President and Chief Financial Officer
and Authorized Officer of Registrant
(Principal Financial and Accounting Officer)
-20-
<PAGE> 21
MOBILITY ELECTRONICS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of June 17, 1997.(3)
3.3 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of September 10 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
3.9 -- Articles of Amendment to the Certificate of Incorporation of
the Company dated as of March 31, 2000.(3)
4.1 -- Specimen of Common Stock Certificate.(4)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company and
Miram International, Inc. dated July 29, 1997. (1)
4.4 -- Form of Unit Purchase Agreement used in 1998 Private Placements
for the Purchase of Up To 900 Units, Each Consisting of 1,000
shares of the Company's Common stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private Placements
for the Purchase of Up To 875 Units, Each Consisting of 2,000
shares of the Company's Common stock and warrants to purchase
500 shares of the Company's Common Stock. (1)
4.6 -- Form of Warrant to Purchase Shares of common stock of the
Company used With the 13% Bridge Notes and Series C Preferred
Stock Private Placements. (3)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placements.(1)
4.10 -- 13% Bridge Note Conversion Notice expired September 30,
1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used in
1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreements used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement executed May 3,
1999, between the Company, Philips Semiconductors VLSI, Inc.
(f/k/a VLSI Technology, Inc.) and Seligman Communications and
Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova Capital
Corporation (f/k/a Sirrom Capital Corporation) dated as of
March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement dated
October 29, 1999, Between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among Janice
L. Breeze, Jeffrey S. Doss, Charles R. Mollo, Cameron Wilson,
the Company and certain Stockholders of the Company dated April
20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company issued
to certain holders in Connection with that certain 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 April 20,
1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company issued
to certain holders in Connection with that certain 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.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company issued
in the 1997
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C>
4.23 -- Investor Rights Agreement dated October 29, 1999 by and between
the Company and Seligman Communications and Information Fund,
Inc. entered into in connection with The Series C Preferred
Stock and Warrant Purchase Agreement Series C Preferred Stock
And Warrant Purchase Agreement dated October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued in
connection with the Loan Extension Agreement dated February 29,
2000.(2)
4.25 -- Investors' Rights Agreement executed May 3, 1999 between the
Company, Philips Semiconductors VLSI, Inc. f/k/a VLSI
Technology, Inc.) and Seligman Communications And Information
Fund, Inc.(3)
4.26 -- Registration Rights granted by the Company to Cybex Computer
Products Corporation in connection with the Strategic Partner
Agreement dated March 6, 2000.(3)
4.27 -- 13% Bridge Note Conversion Notice used in July 1999 Private
Placement.(4)
10.1 -- Strategic Partnership Agreement dated July 12, 2000 made by and
between the Company and 2C Computing, Inc.(5)
10.2 -- License Agreement dated July 12, 2000 made by and between the
Company and 2C Computing, Inc.(5)
10.3 -- Agreement and Plan of Merger dated October 2, 2000 made by and
among the Company, Magma, Inc., Mesa Ridge Technologies, Inc.
(d/b/a MAGMA) and all of the shareholders of MAGMA.(7)
10.4 -- Consulting Agreement dated June 30, 2000 made by and between
the Company and Portsmith LLC.(6)
10.5 -- Promissory Note dated June 30, 2000 issued by Portsmith LLC to
the Company.(6)
24.1 -- None
27.1 -- Financial Data Schedule.(8)
</TABLE>
----------
(1) Previously filed as an exhibit to Registration Statement No. 333-30264
dated February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 1 to Registration Statement
No. 333-30264 dated March 28, 2000.
(3) Previously filed as an exhibit to Amendment No. 2 to Registration Statement
No. 333-30264 dated May 4, 2000.
(4) Previously filed as an exhibit to Amendment No. 4 to Registration Statement
No. 333-30264 dated May 26, 2000.
(5) Previously filed as an exhibit to Post-Effective Amendment No. 1 to
Registration Statement No. 333-30264 dated July 24, 2000.
(6) Previously filed as an exhibit to Form 10-Q dated August 14, 2000.
(7) Previously filed as an exhibit to Form 8-K dated October 17,2000.
(8) Filed herewith.
All other schedules and exhibits are omitted because they are not applicable
or because the required information is contained in the Financial Statements or
Notes thereto.
22
