MOBILITY ELECTRONICS INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

OR

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

For the transition period from to
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Commission file number: 0-30907
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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.)

17800 N. PERIMETER DRIVE, SUITE 200
SCOTTSDALE, ARIZONA 85255
(480) 596-0061
(Address, zip code 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 [ ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

YES [ ] NO [X]

At May 8, 2003, there were 20,785,948 shares of the Registrant's Common
Stock outstanding.

MOBILITY ELECTRONICS, INC.
FORM 10-Q

TABLE OF CONTENTS

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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS:

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

See accompanying notes to unaudited condensed
consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

See accompanying notes to unaudited condensed
consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

See accompanying notes to unaudited condensed
consolidated financial statements.

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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 subsidiaries, Magma, Inc. ("Magma"), Portsmith, Inc. ("Portsmith"),
which includes Portsmith from February 1, 2002 (date of acquisition) and
Mobility 2001 Limited, Cutting Edge Software, Inc. ("Cutting Edge Software")
from August 20, 2002 (date of acquisition), and iGo Direct Corporation ("iGo")
from September 3, 2002 (date of acquisition). 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 accounting principles generally
accepted in the United States of America, 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, 2002 included in the
Company's Form 10-K, filed with the SEC. The results of operations for the three
months ended March 31, 2003 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 accounting principles generally accepted in the United States of
America 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.

The Company believes its critical accounting policies, consisting of
revenue recognition and goodwill, affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements.
These policies are discussed in the Company's Form 10-K for the year ended
December 31, 2002, filed with the SEC.

2. STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options and to adopt the
"disclosure only" alternative treatment under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Statement 123 requires the use of fair value option valuation models that were
not developed for use in valuing employee stock options. Under Statement 123,
deferred compensation is recorded for the excess of the fair value of the stock
on the date of the option grant, over the exercise price of the option. The
deferred compensation is amortized over the vesting period of the option.

Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under Statement 123, the Company's net loss and
net loss per share would have been increased to the pro forma amount indicated
below (amounts in thousands, except per share):

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The value of stock-based employee compensation expense for the three months
ended March 31, 2003 and 2002 was determined using the Black-Scholes method with
the following assumptions: (1) expected life of 2.5 years, (2) risk-free
interest rate of 3.0%, (3) dividend yield of 0%, and (4) volatility of 100%.

3. RECENTLY ADOPTED OR TO BE ADOPTED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement No.
143, "Accounting for Asset Retirement Obligations" ("Statement 143"). Statement
143 requires the Company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that result from
the acquisition, construction, development and/or normal use of the assets and
to record a corresponding asset which is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation.
The Company was required to adopt Statement 143 on January 1, 2003. The adoption
of Statement 143 did not have a material impact on the Company's results of
operations or financial position.

In June 2002, the FASB issued Statement No. 146, "Accounting for Exit or
Disposal Activities" ("Statement 146"). Statement 146 addresses the recognition,
measurement and reporting of costs associated with exit and disposal activities,
including restructuring activities. Statement 146 also addresses recognition of
certain costs related to terminating a contract that is not a capital lease,
costs to consolidate facilities or relocate employees and termination of
benefits provided to employees that are involuntarily terminated under the terms
of a one-time benefit arrangement that is not an ongoing benefit arrangement or
an individual deferred compensation contract. Statement 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. The
adoption of Statement 146 did not have a material impact on the Company's
results of operations or financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("Interpretation 45"). Interpretation 45
describes the disclosures to be made by a guarantor in interim and annual
financial statements about obligations under certain guarantees the guarantor
has issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and measurement
provisions of Interpretation 45 are applicable on a prospective basis to
guarantees issued or modified after December 15, 2002. The Company adopted the
disclosure provisions of Interpretation 45 effective December 31, 2002. While
the Company has various indemnity obligations included in contracts entered into
in the normal course of business, these obligations are primarily in the form of
indemnities that could result in immaterial increases of future costs, but do
not represent significant commitments or contingent liabilities of the
indebtedness of others.

In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF Issue No. 00-21 provides guidance on how to account for arrangements that
involve the delivery or performance of multiple products, services and/or rights
to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
provisions of EITF Issue No. 00-21 are not expected to have a material effect on
the Company's consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("Interpretation 46"). Interpretation 46 clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The recognition and
measurement provisions of Interpretation 46 are effective for newly created
variable interest entities formed after January 31, 2003, and for existing
variable interest entities, on the first interim or annual reporting period
beginning after June 15, 2003. The adoption of Interpretation 46 is not expected
to have a material effect on the Company's financial statements.

4. GOODWILL

On January 1, 2002, the Company adopted Statement 142, "Goodwill and Other
Intangible Assets". Under this accounting standard, goodwill and intangible
assets with indefinite lives are no longer subject to amortization but are
tested for impairment at least annually. Amortization is still required for
identifiable intangible assets with finite lives.

Statement 142 also requires the completion of the transitional impairment
test of the recorded goodwill as of the date this accounting standard is
adopted. The Company completed the first step of the transitional impairment
test during the year ended December 31, 2002, noting an indication of impairment
associated with the recorded goodwill balance of $5,627,000 as of January 1,
2002. As part of the transitional impairment test, the Company identified one
reporting unit within its one operating business segment. The Company then
completed the second step of the transitional impairment test. The Company

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recorded a goodwill impairment loss of $5,627,000 as a result of completing its
transitional impairment test, and recognized this loss as the effect of a change
in accounting principle as of January 1, 2002 in accordance with Statement 142.
This impairment loss was determined based on a comparison of the fair value of
the Company with its carrying amount, including goodwill that resulted from
prior business acquisitions. The results of the comparison and loss measurement
indicated that goodwill existing at the date of adoption of this accounting
standard was fully impaired.

As a result of the acquisitions of Portsmith, Cutting Edge Software and iGo
during 2002, the Company recorded additional goodwill of $8,265,000.

The changes in the carrying amount of goodwill follows (amounts in
thousands):

Reported balance at December 31, 2002 ....... $8,265
Miscellaneous direct acquisition costs ...... 97
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Reported balance at March 31, 2003 .......... $8,362
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5. INTANGIBLE ASSETS

Intangible assets consist of the following at March 31, 2003 and December
31, 2002 (amounts in thousands):

Aggregate amortization expense for identifiable intangible assets totaled
$148,000 for the three months ended March 31, 2003 and 2002, respectively.

6. LINE OF CREDIT

In October 2002, the Company entered into a $10,000,000 line of credit with
a bank. The line bears interest at prime plus 1.25% (5.5% at March 31, 2003),
interest only payments are due monthly, with final payment of interest and
principal due on July 31, 2004. The line of credit is secured by all assets of
the Company. The Company had not drawn against the line of credit as of March
31, 2003. The line of credit is subject to financial covenants. The Company was
not in compliance with certain covenants as of December 31, 2002. On March 26,
2003, the Company obtained a waiver from the bank for covenant defaults for the
period from September 30, 2002 through February 28, 2003. In addition, the bank
modified the financial net worth covenant under the line to $8.9 million as of
March 2003, $8.2 million from April through June 2003, $8.6 million from July
through September 2003 and $9.3 million thereafter. The Company is currently in
compliance with the covenants as modified.

7. LONG-TERM DEBT

Long-term debt consists of the following (amounts in thousands):

In connection with the settlement of a lawsuit, the Company entered into a
$990,000 convertible subordinated promissory note bearing interest at four
percent per year, payable in quarterly installments of principal of $82,500
beginning in January 2003, through December 2005. The outstanding principal of
the promissory note may be converted at any time into shares of the Company's
common stock, at a conversion price of $3.00 per share.

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In connection with its acquisition of Portsmith, the Company recorded a
long-term liability in the amount of $725,000 as an estimate of a component of
earn-out, as this component was determinable and issuable as of December 31,
2002. The earn-out is made up of two components. The first is calculated using a
formula based on Portsmith's revenue and net income performance, adjusted for
certain items, for the year 2002. The second component of the earn-out is based
on a percentage of the fair market value of Portsmith as a stand-alone entity as
of December 31, 2002, as mutually agreed upon by the Company and the former
Portsmith stockholders. In the event the parties are not able to come to an
agreement, the fair market value will be determined by an Independent Financial
Expert as defined in the agreement. As the amount of the second component of the
earn-out is not yet determinable or issuable, the Company has recorded no
liability for it.

Earn-out payments may be made in cash or shares of stock, at the Company's
discretion, with total shares of common stock issued to former Portsmith
stockholders not to exceed 3,023,863 shares. If the earn-out is paid in shares
of common stock, the number of shares to be issued is based on the earn-out in
dollars, divided by the market price of the Company's common stock as of the
date that the earn-out is finally determined.

In April 2003, the Company issued 374,589 shares of common stock, or
$464,490 in the aggregate, valued at $1.24 per share, to former Portsmith
shareholders representing payment of a portion of the first component of the
earn-out.

8. STOCKHOLDERS' EQUITY

(a) Convertible Preferred Stock

Series C preferred stock is convertible into shares of common stock. The
initial conversion rate was one for one, but is 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 rate of conversion was
1-to-1.06570 as of March 31, 2003. At March 31, 2003 and December 31, 2002,
there were 15,000,000 shares of Series C preferred stock authorized and 550,212
issued and outstanding. No shares of Series C preferred stock were converted to
shares of common stock during the three months ended March 31, 2003.

The Company may not pay any cash dividends on its common stock while any
Series C preferred stock remains 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.

Series E preferred stock is convertible into shares of common stock. The
initial conversion rate was one for one, but is 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 E preferred
stockholders paid for their shares. Such adjustments will be made according to
certain formulas that are designed to prevent dilution of the Series E preferred
stock. The Series E preferred stock will automatically convert into the number
of shares of common stock at the conversion rate then in effect at such time as
the closing price of the common stock for any ten consecutive trading days is
greater than or equal to $2.00 per share. The rate of conversion was 1-to-1 as
of March 31, 2003. At March 31, 2003 there were 1,400,000 shares of Series E
preferred stock authorized and 865,051 issued and outstanding. No shares of
Series E preferred stock were converted to shares of common stock during the
three months ended March 31, 2003.

Dividends accrue to holders of Series E preferred stock at the rate of 4%
of the issuance consideration, per share, per annum, and are payable quarterly,
in cash or in additional shares of Series E preferred stock at the discretion of
the Company's board of directors. No dividends will be paid on common stock,
unless all accumulated but unpaid dividends on all series of preferred stock for
all dividend periods have been declared and paid. Holders of Series E preferred
stock are entitled to vote on all matters submitted for a vote of the holders of
common stock. Holders are initially entitled to 0.85 votes for each share of
Series E preferred stock held. The votes per share may be adjusted if certain
events occur. Generally, an adjustment may result 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. In the event of
liquidation or dissolution, the holders of Series E 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

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for such payments prior to the holders of securities junior to the Series E
preferred stock receiving payments, but after payments to the Series C preferred
stockholders.

Series F preferred stock is convertible into shares of common stock. The
initial conversion rate was one for one, but is 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. Such
adjustments will be made according to certain formulas. The Series F preferred
stock will automatically convert into the number of shares of common stock at
the conversion rate then in effect at such time as when the closing price of the
common stock for any ten consecutive trading days is greater than or equal to
$2.00 per share. The rate of conversion was 1-to-1 as of March 31, 2003. At
March 31, 2003 there were 1,000,000 shares of Series E preferred stock
authorized and 729,407 issued and outstanding. No shares of Series F preferred
stock were converted to shares of common stock during the three months ended
March 31, 2003.

Dividends accrue to holders of Series E preferred stock at the rate of 4%
of the issuance consideration, per share, per annum, and are payable quarterly,
in cash or in additional shares of Series F preffered stock at the discretion of
the Company's board of directors. No dividends will be paid on common stock,
unless all accumulated but unpaid dividends on all series of preferred stock for
all dividend periods have been declared and paid. Holders of Series F 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 F preferred stock could then be converted.
In the event of liquidation or dissolution, the holders of Series F 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 F
preferred stock receiving payments, but after payments to the Series C preferred
stockholders.

In January 2003, the Company issued and sold 865,051 shares of newly
designated Series E preferred stock, par value $0.01 per share ("Series E
Stock"), at a purchase price of $0.7225 per share, and 729,407 shares of newly
designated Series F preferred stock, par value $0.01 per share ("Series F
Stock"), at a purchase price of $0.85 per share. In connection with this sale,
the Company also issued warrants to purchase an aggregate of 559,084 shares of
common stock, par value $0.01 per share, of the Company. The warrants issued to
holders of Series E Stock permit them to purchase an aggregate of 216,263 shares
of common stock, at an exercise price of $0.867 per share (the "Series E
Warrants"), and the warrants issued to holders of Series F Stock permit them to
purchase an aggregate of 342,821 shares of common stock, at an exercise price of
$1.02 per share (the "Series F Warrants"). The Series E Stock was purchased by a
single non-affiliated investor, while the Series F Stock was purchased by
certain officers and directors of the Company and their affiliates.

At the date of issuance of the Series E and Series F shares, a non-cash
beneficial conversion adjustment of $445,000, which represents a 15% discount to
the fair value of the common stock at the date of issuance of the Series E
shares and an estimate of the fair value of the Series E and Series F Warrants
using the Black-Scholes model, was recorded in the 2003 condensed consolidated
financial statements as an increase and decrease to additional paid-in capital.
The beneficial conversion adjustment resulted in an increase to net loss
attributable to common stockholders of $445,000, or $0.02 per common share. The
beneficial conversion adjustment was recorded upon the issuance of the Series E
and Series F convertible preferred stock, as the Series E and Series F shares
were immediately convertible upon issuance.

The following assumptions were used to determine the Black-Scholes value of
the Series E and Series F Warrants: (1) expected life of 3 years, (2) risk-free
interest rate of 3.0%, (3) dividend yield of 0%, and (4) volatility of 100%.

(b) Common Stock

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. At March 31,
2003 and December 31, 2002, there were 90,000,000 shares of common stock
authorized and 20,375,738 and 20,347,876 issued and outstanding, respectively.

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9. NET LOSS PER SHARE

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

10. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND BUSINESS SEGMENTS

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 22%, 15% and 10% of net sales for the three
months ended March 31, 2003. Two customers accounted for 24% and 18% of net
sales for the three months ended March 31, 2002.

Two customers' accounts receivable balances accounted for 25% and 17% of
net accounts receivable at March 31, 2003. Three customers' accounts receivable
balances accounted for 32%, 19% and 11% of net accounts receivable at December
31, 2002.

Export sales were approximately 16% and 22% of the Company's net sales for
the three months ended March 31, 2003 and 2002, respectively. The principal
international market served by the Company was Europe.

The Company is engaged in the business of the sale of computer peripheral
products. While the Company's chief operating decision maker (CODM) evaluates
revenues and gross profits based on products lines, routes to market and
geographies, the CODM only evaluates operating results for the Company taken as
a whole. As a result, in accordance with FASB Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information", the Company has
determined it has one operating business segment, the sale of computer
peripheral products.

The following tables summarize the Company's revenues by product line, as
well as its revenues by geography (in thousands).

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11. 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.

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

Certain statements under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following:

- loss of, and failure to replace, any significant customers;

- timing and success of new product introductions;

- product developments, introductions and pricing of competitors;

- timing of substantial customer orders;

- availability of qualified personnel;

- performance of suppliers and subcontractors;

- market demand and industry and general economic or business
conditions;

- the "Risk Factors" set forth in our Registration Statement on
Form S-3 (No. 333-102926); and

- other factors to which this report refers.

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

We design, develop and market power, connectivity, and accessory products
and solutions for the mobile computing user. This includes (1) various AC and DC
power adapters and batteries that allow the user to power a notebook computer in
an office, a home, a car, an airplane, or a boat, (2) a variety of cradle and
connectivity products and software for handheld devices, (3) a variety of
accessories for portable computers such as monitor stands, travel adapters, and
the like, and (4) universal docking products and remote peripheral component
interface, or PCI bus, technology and products using our proprietary PCI
expansion and Split Bridge(R) technologies. To date, our revenues have come
predominantly from AC and DC power adapters, accessories, handheld connectivity
products, and expansion products. We expect revenues from those products to
continue and also expect to see increasing revenues primarily from current and
new power and handheld products and solutions as we further expand our markets
and distribution channels for these products.

We sell our products to OEMs, distributors, resellers, retailers, and
end-users. A substantial portion of our net product sales is concentrated among
a number of OEMs, including Symbol, IBM, Gateway, Hewlett-Packard, NEC, and
Toshiba. A portion of our sales to IBM are made through Kingston Technologies,
which acts as our fulfillment hub manager for sales in the United States and
Malaysia. Direct sales to OEMs accounted for approximately 51% of net product
sales for the three months ended March 31, 2003 and approximately 77% of net
product sales for the three months ended March 31, 2002. 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. 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% and 8% of net product
sales for the three months ended March 31, 2003 and 2002, respectively. The
major distributors are allowed to return up to 20% 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.

We derive a significant portion of our net product sales outside the United
States, principally in Europe. International sales accounted for approximately
16% of our net product sales for the three months ended March 31, 2003 and
approximately 22%

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for the three months ended March 31, 2002. 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.

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 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.

We have experienced significant operating losses since inception and, as of
March 31, 2003, we have an accumulated deficit of approximately $101.6 million.
These accumulated losses have resulted in decreases in cash and cash
equivalents. If we do not achieve continued revenue growth sufficient to absorb
our recent and planned expenditures, we could experience additional losses and
corresponding decreases in cash and cash equivalents in future periods.

Operating expenses for the three months ended March 31, 2003 totaled $5.3
million as compared to $4.4 million for the three months ended March 31, 2002.
The increase is primarily attributable to additional expenses as a result of our
acquisitions of Portsmith, Cutting Edge Software, and iGo during 2002. We
anticipate that in the future we will make additional investments in our sales
and marketing activities and, as a result, operating expenses will increase. We
intend to make such investments on an ongoing basis, from cash generated from
operations and, if available, from lines of credit and other sources of
financing, as we develop and introduce new products and expand into new markets.
We expect that such increases in spending will result in increases in revenues
and resulting gross profits, which should result in turning our net losses into
net profits.

Recent general economic conditions have contributed to a slow-down in sales
of computers and computer-related products and accessories. This economic
slow-down has had a negative impact on our revenues. If we are not able to grow
revenues in future periods, we are likely to continue to incur net losses and
our cash equivalents are likely to continue to decrease.

In October 2000, we acquired all of the assets of Mesa Ridge Technologies,
Inc. d/b/a MAGMA, a privately held company. MAGMA provides a range of PCI
expansion products for the computer industry which utilize traditional PCI
bridge technology and MAGMA's patented expansion technology. The acquisition of
MAGMA solidified our position as a market leader in the PCI expansion business
by providing products, distribution channels, key customers, and additional
resources that can leverage our Split Bridge technology and accelerate our
growth and development in this market segment.

In February 2002, we acquired Portsmith, Inc., an industry leader in
providing connectivity solutions for handheld computing devices. This
acquisition provides us with an entrance into the rapidly growing handheld
computing device market and reinforces our focus on delivering powerful mobile
computing solutions. Portsmith currently provides a range of Ethernet, modem,
and other connectivity products for the most popular handheld devices such as
Palm, Handspring Visor, Compaq IPAQ, and other mainstream PDA products, and
intends to undertake a number of important product development programs that
expand on these solutions.

In August 2002, we acquired Cutting Edge Software, Inc., a leading
developer and provider of software solutions for handheld computing devices.
Cutting Edge Software currently provides software that allows users of Palm
operating system devices to utilize popular word processing, spreadsheet and
presentation programs. Cutting Edge Software has also developed software that
allows users to remotely access files stored on a desktop computer from a
wireless PDA or smartphone. This acquisition, in conjunction with the Portsmith
acquisition, enhances our product and service offering within the rapidly
growing wireless handheld computing device market.

In September 2002, we acquired iGo Corporation (now iGo Direct
Corporation), a leading computer solutions provider. iGo distributes its
products through distributors and directly through its catalog and internet
channels, and is a well-recognized brand name in the portable computer power
products and accessories market. We believe the acquisition of iGo will broaden
our revenue base and strengthen our distribution capabilities and brand
identity.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements 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, we evaluate our
estimates, including those related to bad debts, inventories, warranty
obligations, and contingencies and litigation. We base our estimates on
historical experience and on various other assumptions

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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. There
have been no significant changes in the company's critical accounting policies
during the first quarter of 2003.

RESULTS OF OPERATIONS

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

Comparison of Three Months Ended March 31, 2003 and 2002

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. Allowances for returns
and credits are made in the same period the related sales are recorded. Net
product sales increased 80.5% to $11.9 million for the three months ended March
31, 2003 from $6.6 million for the three months ended March 31, 2002. The
increase in net product sales revenues is primarily due to the introduction of
our new Juice(TM) combination AC/DC power adapter in January 2003. As a result,
sales of power products increased by approximately $3.2 million during the three
months ended March 31, 2003 as compared to the same period in the prior year.
Sales of handheld connectivity products increased by approximately $1.6 million
during the three months ended March 31, 2003 as compared to the same period in
the prior year. This increase was due, in part, to an entire quarter of sales in
2003 compared to only two months of sales during the same period in the prior
year as our acquisition of Portsmith was completed in February 2002. During
2003, we anticipate revenues will continue to increase primarily as a result of
further market penetration of new combination AC and DC power adapter products
and increased sales of handheld connectivity and software products.

Technology transfer fees. Technology transfer fees consist of revenue from
the licensing and transferring by the Company of its Split Bridge 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 March 31,

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2003, we recognized a technology transfer fee of $53,000 or 0.4% of total
revenue. Technology transfer fees represented revenue of $316,000, or 4.6% of
total revenues, for the three months ended March 31, 2002.

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 and
quality assurance, and depreciation of equipment and indirect manufacturing
costs. Cost of revenue - product sales increased 53.4% to $7.8 million for the
three months ended March 31, 2003 from $5.1 million for the three months ended
March 31, 2002. The increase in cost of revenue - product sales was due
primarily to the 80.5% volume decrease in net product sales. Cost of revenue -
product sales as a percentage of net product sales decreased to 65.3% for the
three months ended March 31, 2003 from 76.8% for the three months ended March
31, 2002. The reduction in cost of revenues -- product sales as a percentage of
net product sales is primarily attributable to the spreading of fixed overhead
expenses over increases in sales volumes and higher product margins as a result
of the introduction of new products during the first quarter of 2003. We
anticipate cost of revenue -- product sales as a percentage of net product sales
to continue to decrease as future sales volumes increase and with the further
market penetration and introduction of new, higher-margin products.

Cost of revenue - technology transfer. Cost of revenue - technology
transfer consist of engineering expenses related to the Split Bridge technology.
There was no cost of revenue - technology transfer for the three months ended
March 31, 2003 and 2002, as the technology transfer fees for the periods
consisted solely of fees for existing technology.

Gross profit. Gross profit increased to 35.0% of total revenue for the
three months ended March 31, 2003 from 26.7% of total revenue for the three
months ended March 31, 2002. The gross profit rate increase is due primarily to
the introduction of the new Juice combination AC/DC power adapter product in
January 2003. Gross profit was also positively impacted by the spreading of
fixed overhead expenses over increases in sales volumes.

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 30.2% to $1.9 million for the
three months ended March 31, 2003 from $1.5 million for the three months ended
March 31, 2002. The increase is primarily the result of increases in selling and
marketing programs resulting from our acquisitions of Portsmith, Cutting Edge
Software and iGo. As a percentage of total revenue, sales and marketing expenses
decreased to 15.9% for the three months ended March 31, 2003 from 21.1% for the
three months ended March 31, 2002.

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 decreased 22.8% to $1.0 million for the three
months ended March 31, 2003 from $1.3 million for the three months ended March
31, 2002. Research and development expenses as a percentage of total revenue
decreased to 8.3% for the three months ended March 31, 2003 from 18.7% for the
three months ended March 31, 2002. The decrease is due to reductions in
engineering expenses and staff as a result of completion of the development of
our Split Bridge technology, which was largely completed in 2000 and the early
part of 2001.

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 professional fees, depreciation and amortization and
related expenses. General and administrative expenses also include 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. General and administrative expenses
increased 46.2% to $2.4 million for the three months ended March 31, 2003 from
$1.6 million for the three months ended March 31, 2002. The increase is due
primarily to the increase in infrastructure relating to our acquisitions of
Portsmith, Cutting Edge Software and iGo during 2002. The increase is also due
to costs incurred in connection with information system consolidation and
integration efforts during the three months ended March 31, 2003. General and
administrative expenses as a percentage of total revenue decreased to 20.1% for
the three months ended March 31, 2003 from 23.8% for the three months ended
March 31, 2002. As we begin to recognize increased revenues from the sales of
our products, we anticipate that general and administrative expenses, as a
percentage of revenue, will continue to decrease.

Interest, net. Interest, net consists primarily of interest earned on our
cash balances and short-term investments, net of interest expense. Net interest
income for three months ended March 31, 2003 was $12,000 compared to $254,000
for the three months ended March 31, 2002. The change was primarily due to the
reduction in cash balance from March 31, 2002 to March 31, 2003.

Income taxes. We have incurred losses from inception to date; therefore, no
provision for income taxes was required for the three months ended March 31,
2003 and 2002. We have not recorded a tax benefit from net operating loss
carryforwards for the three months ended March 31, 2003 as, based on the levels
of historical taxable income and projections for future taxable income over the
periods in which deferred tax assets are deductible, it is more likely than not
that we will not fully realize the benefits of the net operating loss
carryforwards.

-15-

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have funded our operations primarily through debt and
equity financing, as the cash consumed by our operating activities has exceeded
cash generated by revenues. At March 31, 2003 we had approximately $1.0 million
in cash and cash equivalents and $5.9 million in working capital. At December
31, 2002 we had approximately $3.2 million in cash and cash equivalents and $5.6
million in working capital.

Our operating activities used cash of $3.2 million and $0.2 million for the
three months ended March 31, 2003 and 2002, respectively. Net cash used in
operating activities for the three months ended March 31, 2003 was primarily
attributed to our net loss and increases in accounts receivable, inventories,
prepaid expenses and other current assets. Cash used in operating activities was
offset, in part, by an increase in accounts payable and accrued expense of $0.3
million, non-cash expenses such as depreciation of property and equipment and
amortization of intangible assets of $0.4 million, and other non-cash expenses
of $0.2 million.

Our investing activities used cash of approximately $147,000 for the three
months ended March 31, 2003 and generated cash of approximately $139,000 for the
three months ended March 31, 2002. For the three months ended March 31, 2003,
cash used in investing activities was for the purchase of property and
equipment.

Our net financing activities provided cash of approximately $1.1 million
and $19,000 for the three months ended March 31, 2003 and 2002, respectively.
Net cash was provided by financing activities for the three months ended March
31, 2003 primarily from net proceeds from the sale of Series E and Series F
preferred stock.

At March 31, 2003, we had approximately $87.0 million of federal, foreign
and state 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.

At December 31, 2002, we had future commitments relating to payments of
earn-out to former Portsmith stockholders in connection with our February 2002
acquisition of Portsmith. The earn-out is made up of two components. The first
is calculated using a formula based on Portsmith's revenue and net income
performance, adjusted for certain items, for the year 2002. The Company has
recorded a long-term liability in the amount of $725,000 as an estimate of this
component of the earn-out. In April 2003, we settled a portion of the revenue
earn-out through the issuance of 374,589 shares of common stock, valued at $1.24
per share. The second component of the earn-out is based on a percentage of the
fair market value of Portsmith as a stand-alone entity as of December 31, 2002,
as mutually agreed upon by the Company and the former Portsmith stockholders. In
the event that the parties are not able to come to an agreement, the fair market
value will be determined by an Independent Financial Expert as defined in the
agreement. As the amount of this component of the earn-out is not yet
determinable or issuable, the Company has recorded no liability for it. Earn-out
payments may be made in cash or shares of stock, at our discretion, with total
shares of stock issued to former Portsmith stockholders not to exceed 3,023,863
shares without stockholder approval. We anticipate the payment of earn-out will
be made entirely in shares of common stock and that no future cash payments will
be required.

INTERNAL SOURCES OF LIQUIDITY

During the year ended December 31, 2002, we began several initiatives to
address our overall business structure, including evaluating our key product
lines, distribution channels, our cost structure, and cash management. In
connection with these initiatives, we completed three acquisitions during 2002
and completed development of a new combination AC/DC power adapter product. In
the fourth quarter of 2002, we began to see favorable results from our
acquisition efforts. We continued to see the favorable results from the 2002
acquisitions during the three months ended March 31, 2003 as well as very
favorable results from our new AC/DC power adapter product. We believe the
continued benefits of these measures will allow us to generate sufficient
operating funds from internal sources to satisfy our liquidity requirements
through 2003.

Through the remainder of 2003, we anticipate further improvement in our
operating performance as a result of the 2002 initiatives. In the first quarter
of 2003, our revenues grew to approximately $11.9 million from $10.3 million in
the fourth quarter of 2002. With the introduction of our new Juice combination
AC/DC power adapter product in the first quarter of 2003, we expect steady
revenue growth through 2003. We also expect improvement in gross margins as
increased sales volumes are spread over our semi-fixed operating overhead
structure and with the introduction of new, higher margin products. We expect
operating expenses to increase slightly throughout 2003. As a result of planned
increases in sales, improvements in gross margins, and leveraging of our
operating expense structure, we expect to generate cash working profits in 2003.
However, we expect to continue to use cash in 2003 to finance growth in accounts
receivable and inventories associated with our projected revenue growth, capital
expenditures and repayments of long-term debt.

-16-

EXTERNAL SOURCES OF LIQUIDITY

In October 2002, we entered into a $10,000,000 line of credit with a bank.
The line bears interest at prime plus 1.25% (5.5% at December 31, 2002),
interest only payments due monthly, with final payment of interest and principal
on July 31, 2004. The line of credit is secured by all of our assets. The line
of credit is subject to financial covenants, with which we are currently in
compliance. As of May 1, 2003, we have drawn approximately $1.5 million against
the line of credit. Under the terms of the line, we can borrow up to 80% of
eligible accounts receivable, offset by a $1.5 million stop-loss provision. At
March 31, 2003, our net borrowing base capacity was approximately $3.7 million.
We expect our borrowing base will increase throughout 2003 as a result of
projected growth in accounts receivable associated with projected sales growth.

In January 2003, we raised $1.2 million from an offering of preferred
stock. Specifically, we issued and sold 865,051 shares of newly designated
Series E preferred stock, par value $0.01 per share ("Series E Stock"), at a
purchase price of $0.7225 per share, and 729,407 shares of newly designated
Series F preferred stock, par value $0.01 per share ("Series F Stock"), at a
purchase price of $0.85 per share. In connection with this sale, we also issued
warrants to purchase an aggregate of 559,084 shares of our common stock. The
warrants issued to holders of Series E Stock permit them to purchase an
aggregate of 216,263 shares of common stock, at an exercise price of $0.867 per
share and the warrants issued to holders of Series F Stock permit them to
purchase an aggregate of 342,821 shares of common stock, at an exercise price of
$1.02 per share. The Series E Stock was purchased by a single non-affiliated
investor, while the Series F Stock was purchased by certain of our officers,
directors and affiliates including Charles Mollo, Jeffrey Harris, Larry Carr,
Joan Brubacher, Timothy Jeffries, Janice Breeze-Mollo, Oxley LLLP, New Vistas
Investment Corporation and New Horizons Enterprises.

We believe our cash and cash equivalents on hand and cash sources, both
internal and external, discussed above will be sufficient to satisfy our
expected cash and working capital requirements for the next twelve months.

INFLATION

We do not believe inflation has a material effect on our operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement No.
143, "Accounting for Asset Retirement Obligations" ("Statement 143"). Statement
143 requires us to record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition,
construction, development and/or normal use of the assets and to record a
corresponding asset which is depreciated over the life of the asset. Subsequent
to the initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. We were
required to adopt Statement 143 on January 1, 2003. The adoption of Statement
143 did not have a material impact on our results of operations or financial
position.

In June 2002, the FASB issued Statement No. 146, "Accounting for Exit or
Disposal Activities" ("Statement 146"). Statement 146 addresses the recognition,
measurement and reporting of costs associated with exit and disposal activities,
including restructuring activities. Statement 146 also addresses recognition of
certain costs related to terminating a contract that is not a capital lease,
costs to consolidate facilities or relocate employees and termination of
benefits provided to employees that are involuntarily terminated under the terms
of a one-time benefit arrangement that is not an ongoing benefit arrangement or
an individual deferred compensation contract. Statement 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. The
adoption of Statement 146 did not have a material impact on the our results of
operations or financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("Interpretation 45"). Interpretation 45
describes the disclosures to be made by a guarantor in interim and annual
financial statements about obligations under certain guarantees the guarantor
has issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and measurement
provisions of Interpretation 45 are applicable on a prospective basis to
guarantees issued or modified after December 15, 2002. We adopted the disclosure
provisions of Interpretation 45 effective December 31, 2002. While we have
various indemnity obligations included in contracts entered into in the normal
course of business, these obligations are primarily in the form of indemnities
that could result in immaterial increases of future costs, but do not represent
significant commitments or contingent liabilities of the indebtedness of others.

In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF Issue No. 00-21 provides guidance on how to account for arrangements that
involve the delivery or performance of multiple products, services and/or rights
to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
provisions of EITF

-17-

Issue No. 00-21 are not expected to have a material effect on our consolidated
financial statements.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("Interpretation 46"). Interpretation 46 clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The recognition and
measurement provisions of Interpretation 46 are effective for newly created
variable interest entities formed after January 31, 2003, and for existing
variable interest entities, on the first interim or annual reporting period
beginning after June 15, 2003. The adoption of Interpretation 46 is not expected
to have a material effect on our financial statements.

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.

ITEM 4. CONTROLS AND PROCEDURES

Based upon their evaluations of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as of a date
within 90 days of the filing date of this report, the Chief Executive Officer
and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures were adequate and designed to ensure that information
required to be disclosed by the Company in this report is recorded, processed,
summarized and reported by the filing date of this report, and that such
information is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.

There were no significant changes in internal controls or in other factors
that could significantly affect internal controls to the date of such
evaluation, and there were no corrective actions with regard to significant
deficiencies and material weaknesses in internal controls, subsequent to the
evaluation described above.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS:

Mobility Electronics, Inc. v. Comarco, Inc. and Comarco Wireless
Technologies, Inc. was filed on August 10, 2001 in the United States District
Court for the District of Arizona. In this lawsuit, we allege infringement of
U.S. Patent No. 5,347,211 entitled "Selectable Output Power Converter." Our
Amended Complaint also seeks declaratory judgments of non-infringement, patent
invalidity and/or patent unenforceability of three patents allegedly owned by
Comarco: U.S. Patent Nos. 6,172,884, 6,091,661 and 5,838,554. The defendants
filed a motion to dismiss which was denied by the court. On February 4, 2003, we
moved to amend our Complaint again, including adding Targus Group International
as a defendant for infringement of our Patent No. 5,347,211. This Motion was
granted, and our Second Amended Complaint adding Targus Group International was
filed on March 3, 2003. We intend to vigorously pursue our claims in this
litigation.

Comarco Wireless Technologies, Inc. v. Xtend Micro Products, Inc. and iGo
Corporation (n/k/a iGo Direct Corporation); No. CIV-02-2201 was filed on June
21, 2002 in the United States District Court for the District of Arizona. This
suit is currently pending in Phoenix. Xtend Micro Products is a subsidiary of
our subsidiary, iGo Direct Corporation. It was initially filed in California but
was transferred to Phoenix based on the motion of iGo Corporation and Xtend
Micro Products, the two defendants. It has been consolidated for purposes of
discovery with the case referenced above brought by us against Comarco, Inc. and
Comarco Wireless Technologies. In this litigation, Comarco claims infringement
of its U.S. Patent Nos. 6,172,884 and 6,091,661. We intend to vigorously pursue
our defenses.

Comarco Wireless Technologies, Inc. v. Mobility Electronics, Inc., Hipro
Electronics Company, Ltd., and iGo Direct Corporation; No. CIV-03-0202; in the
United States District Court for the District of Arizona. Comarco instituted yet
a third lawsuit involving the same patents when it filed its complaint in this
case on January 31, 2003 in the United States District Court for the District of
Arizona. This case, by order of the court, has been consolidated with the case
previously filed by Mobility for purposes of discovery. In this case, Comarco
claims infringement of its U.S. Patent Nos. 6,172,884 and 6,091,661. Comarco has
filed a motion for preliminary injunction which is set for hearing on June 12,
2003. Discovery is ongoing. We

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intend to vigorously defend against the claims in the lawsuit as well as pursue
our own claims that were brought in the previously filed suit.

Holmes Lundt and Leslie Lundt v. Mobility Electronics, Inc. and Portsmith,
Inc., pending in the District Court of the Fourth Judicial District of Idaho,
Ada County, Cause No. CV-0C-0302562D. On April 2, 2003, Holmes Lundt, former
President and CEO of Portsmith, Inc., our wholly-owned subsidiary, and his wife
filed this suit against us and Portsmith. The lawsuit arises out of our
acquisition of Portsmith from the plaintiffs and others, and also arises out of
our termination of Mr. Lundt. The plaintiffs are alleging breach of contract,
misrepresentation, and breach of an alleged covenant of good faith and fair
dealing, and are seeking monetary damages as well as injunctive relief and/or
rescission of the Portsmith merger agreement. The plaintiffs obtained an ex
parte temporary restraining order on April 3, 2003, which order, in essence,
reinstated Mr. Lundt to his former positions with Portsmith and restrained us
from participating in the management of Portsmith, and contemporaneously applied
for a preliminary injunction. At an evidentiary hearing held on April 9, 2003,
the Court dissolved the temporary restraining order and denied plaintiffs'
request for a preliminary injunction. We have filed an answer in the lawsuit and
have also filed counterclaims and affirmative defenses against the plaintiffs.
We intend to vigorously defend against the claims in the lawsuit as well as
pursue our own claims against the plaintiffs.

We are from time to time involved in various legal proceedings other than
those set forth above incidental to the conduct of our business. We believe that
the outcome of all such pending legal proceedings will not in the aggregate have
a material adverse effect on our business, financial condition, results of
operations or liquidity.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In January 2003, we issued and sold 865,051 shares of newly designated
Series E preferred stock, par value $0.01 per share ("Series E Stock"), at a
purchase price of $0.7225 per share, and 729,407 shares of newly designated
Series F preferred stock, par value $0.01 per share ("Series F Stock"), at a
purchase price of $0.85 per share. In connection with this sale, we also issued
warrants to purchase an aggregate of 559,084 shares of our common stock. The
warrants issued to holders of Series E Stock permit them to purchase an
aggregate of 216,263 shares of common stock, at an exercise price of $0.867 per
share and the warrants issued to holders of Series F Stock permit them to
purchase an aggregate of 342,821 shares of common stock, at an exercise price of
$1.02 per share. The Series E Stock was purchased by a single non-affiliated
investor, while the Series F Stock was purchased by certain of our officers,
directors and affiliates including Charles Mollo, Jeffrey Harris, Larry Carr,
Joan Brubacher, Timothy Jeffries, Janice Breeze-Mollo, Oxley LLLP, New Vistas
Investment Corporation and New Horizons Enterprises.

Our Series C, Series E and Series F preferred stock have rights superior to
those of the common stockholders. See note 8(a) to the condensed consolidated
financial statements for a description of those rights.

The issuances set forth above were made in reliance upon the exemptions
from registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), contained in Section 4(2) on the basis that such transactions
did not involve a public offering. When appropriate, the Company determined that
the purchasers of securities described below were sophisticated investors who
had the financial ability to assume the risk of their investment in the
Company's securities and acquired such securities for their own account and not
with a view to any distribution thereof to the public. The certificates
evidencing the securities bear legends stating that the securities are not to be
offered, sold or transferred other than pursuant to an effective registration
statement under the Securities Act or an exemption from such registration
requirements.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

None

ITEM 5. OTHER INFORMATION:

None

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:

(a) Exhibits:

EXHIBIT NUMBER DESCRIPTION

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 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 Note issued in July 1999 Private
Placement.(1)**

4.9 13% Bridge Note Conversion Notice expired June 30,
1999.(1)

4.10 Form of Series C Preferred Stock Purchase Agreement
used in 1998 and 1999 Private Placements.(1)**

4.11 Form of Series C Preferred Stock and Warrant Purchase
Agreement used in 1999 and 2000 Private
Placements.(1)**

4.12 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)

4.13 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)

-20-

EXHIBIT NUMBER DESCRIPTION

4.14 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 Series C Preferred Stock and Warrant Purchase
Agreement dated October 29, 1999, between the Company
and Seligman Communications and Information Fund,
Inc.(1)

4.16 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)

4.17 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)**

4.18 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
November 2, 1999.(2)**

4.19 Form of Warrant to Purchase Common Stock of the
Company issued in the 1997 Private Placement.(2)**

4.20 Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)**

4.21 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 dated October 29, 1999.(2)

4.22 Form of Warrant to Purchase Shares of Common Stock
issued in connection with the Loan Extension
Agreement dated February 29, 2000.(2)

4.23 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)

4.24 Registration Rights granted by the Company to Avocent
Computer Products Corporation in connection with the
Strategic Partner Agreement dated March 6, 2000.(3)

4.25 13% Bridge Note Conversion Notice used in July 1999
Private Placement.(5)

4.26 Lockup Agreement by and between Mobility Electronics,
Inc. and Jeff Musa dated August 20, 2002(6)**

4.27 Form of Series E Preferred Stock and Warrant Purchase
Agreement(7)**

4.28 Form of Series F Preferred Stock and Warrant Purchase
Agreement(7)**

4.29 Certificate of the Designations, Preferences, Rights
and Limitations of Series E Preferred Stock of
Mobility Electronics, Inc.(7)

4.30 Certificate of the Designations, Preferences, Rights
and Limitations of Series F Preferred Stock of
Mobility Electronics, Inc.(7)

-21-

EXHIBIT NUMBER DESCRIPTION

4.31 Form of Warrant issued to purchasers of Series E
Stock(7)

4.32 Form of Warrant issued to purchasers of Series F
Stock(7)

24.1 None

99.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002.*

99.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002.*

- ----------

* Filed herewith

** Each of these agreements is identical in all material respects except for
the Purchasers.

(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 on Form S-1 dated March 28, 2000.

(3) Previously filed as an exhibit to Amendment No. 2 to Registration Statement
No. 333-30264 on Form S-1 dated May 4, 2000.

(4) Previously filed as an exhibit to Amendment No. 3 to Registration Statement
No. 333-30264 on Form S-1 dated May 18, 2000.

(5) Previously filed as an exhibit to Form 10-Q for the quarter ended March 31,
2001 dated May 14, 2001.

(6) Previously filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 2002.

(7) Previously filed as an exhibit to Current Report on Form 8-K No. 000-30907
filed on January 14, 2003.

(b) Reports on Form 8-K:

On January 21, 2003, the Company filed a Report on Form 8-K under
Item 5, Other Events and Required FD Disclosure and Item 7,
Financial Statements and Exhibits, reporting its issuance of
shares of Series E and Series F preferred stock.

-22-

On February 3, 2003, the Company filed a Report on Form 8-K under
Item 5, Other Events and Required FD Disclosure and Item 7,
Financial Statements and Exhibits, updating the pro forma
financial statements in connection with the acquisition of iGo.

On February 7, 2003, the Company filed a Report on Form 8-K under
Item 5, Other Events and Required FD Disclosure and Item 7,
Financial Statements and Exhibits, reporting the resignation of
Jeffrey S. Doss as a director and executive officer of the
Company.

-23-

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

SIGNATURES

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: May 15, 2003 By: /s/ CHARLES R. MOLLO
--------------------
Charles R. Mollo
President, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)

By: /s/ JOAN W. BRUBACHER
---------------------
Joan W. Brubacher
Executive Vice President and Chief
Financial Officer and Authorized
Officer of Registrant
(Principal Financial and Accounting
Officer)

-24-

CERTIFICATIONS

I, Charles R. Mollo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mobility Electronics,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

May 15, 2003

/s/ Charles R. Mollo
- -------------------------------------
Charles R. Mollo
President and Chief Executive Officer

-25-

I, Joan W. Brubacher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mobility Electronics,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

May 15, 2003

/s/ Joan W. Brubacher
- ---------------------------------------
Joan W. Brubacher
Executive Vice President and Chief Financial Officer

-26-

MOBILITY ELECTRONICS, INC.

INDEX TO EXHIBITS

-27-

-28-

- ----------

* Filed herewith

** Each of these agreements is identical in all material respects except for
the Purchasers.

(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 on Form S-1 dated March 28, 2000.

(3) Previously filed as an exhibit to Amendment No. 2 to Registration Statement
No. 333-30264 on Form S-1 dated May 4, 2000.

(4) Previously filed as an exhibit to Amendment No. 3 to Registration Statement
No. 333-30264 on Form S-1 dated May 18, 2000.

(5) Previously filed as an exhibit to Form 10-Q for the quarter ended March 31,
2001 dated May 14, 2001.

(6) Previously filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 2002.

(7) Previously filed as an exhibit to Current Report on Form 8-K No. 000-30907
filed on January 14, 2003.

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.

-29-