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 JUNE 30, 2003

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.)

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 August 11, 2003, there were 23,551,942 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
and six months ended June 30, 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, revenue 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, inventory valuation and goodwill, affect its more significant
judgments and estimates used in the preparation of its consolidated financial
statements. These policies are discussed in Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations.

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 and
six months ended June 30, 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. 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
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.................................................. 677
Adjustment to Portsmith opening balance sheet to record notes
receivable secured by shares of common stock........................................... (203)
Adjustment to the valuation of accounts
receivable recorded on iGo opening balance sheet....................................... (472)
------
Reported balance at June 30, 2003....................................................... $8,267
======

4. INTANGIBLE ASSETS

Intangible assets consist of the following at June 30, 2003 and December 31,
2002 (amounts in thousands):

Aggregate amortization expense for identifiable intangible assets totaled
$165,000 and $313,000 for the three and six months ended June 30, 2003,
respectively. Aggregate amortization expense for identifiable intangible assets
totaled $119,000 and $267,000 for the three and six months ended June 30, 2002,
respectively.

5. 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% (5.25% at June 30, 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 has a balance outstanding under the line of credit of
$2,208,000 at June 30, 2003. The line of credit is subject to financial
covenants. The Company was not in

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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.

6. 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 by the holder into shares of
the Company's common stock, at a conversion price of $3.00 per share. In June
2003, the note payable was converted to common stock. This conversion is
recorded as common stock subscribed at June 30, 2003, as the share certificate
had not yet been issued.

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.

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 375,209 shares of common stock, or
$464,000 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. In June 2003, the Company notified the former Portsmith shareholders
it would issue an additional 131,705 shares of common stock, valued at $2.18 per
share, representing an adjustment to a portion of the first component of the
earn-out and payment of a portion of the second component of the earn-out. These
shares were issued in July 2003, and the issuance is recorded as common stock
subscribed at June 30, 2003.

7. 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-1.11560 as of June 30, 2003. At June 30, 2003 and December 31, 2002, there
were 15,000,000 shares of Series C preferred stock authorized and 541,212 and
550,212 issued and outstanding, respectively. During the period from December
31, 2002 through June 30, 2003, 9,000 shares of Series C preferred stock were
converted into 9,591 shares of common stock at a rate of 1-to-1.06570.

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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.

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%.

As the closing price of the Company's common stock was greater than or
equal to $2.00 per share for ten consecutive trading days on June 6, 2003, all
issued and outstanding shares of Series E and Series F preferred stock
automatically converted into 1,594,458 shares of common stock at a conversion
rate of 1-to-1. Dividends on Series E and F preferred stock of $20,000 were
accrued at June 6, 2003. No shares of Series E and Series F preferred stock were
outstanding at June 30, 2003.

(b) Common Stock and Common Stock Subscribed

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 for that purpose, after payment of
dividends required to be paid on any outstanding shares of preferred stock. Upon
liquidation, holders of shares of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to the liquidation
preferences of any outstanding shares of preferred stock. Holders of shares of
common stock have no conversion, redemption or preemptive rights. At June 30,
2003 and December 31, 2002, there were 90,000,000 shares of common stock
authorized and 22,937,518 and 20,347,876 issued and outstanding, respectively.

Effective May 29, 2003, the Company issued 416,582 shares of common stock
for settlement of $650,000 of accounts payable to a vendor.

At June 30, 2003, the Company had subscriptions issued for 502,545 shares of
its common stock at a value of $1,700,000. Included in the common stock
subscribed at June 30, 2003 were 302,500 shares in connection with the
conversion of the outstanding principal balance of $908,000 of a convertible
subordinated promissory note at $3.00 per share (see Note 6). Also included is a
subscription for 131,705 shares of common stock, valued at $2.18 per share, to
former Portsmith shareholders representing an adjustment to a portion of the
first component of the earn-out and payment of a portion of the second component
of the earn-out. These shares were issued in July 2003 (see Note 6). Also
included are subscriptions for 38,107 shares in the aggregate to outside
directors relating to compensation for their services valued at $61,000. These
shares were issued in July 2003. Also included are subscriptions for 30,233
shares, or $91,000 in the aggregate, valued at an average price per share of
$3.02, to employees relating to the exercise of stock options for which the
Company received cash prior to June 30, 2003. These shares were issued in July
2003.

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 by the holder into shares of
the Company's common stock, at a conversion price of $3.00 per share. In June
2003, the note payable was converted to common stock. This conversion is
recorded as common stock subscribed at June 30, 2003, as the share certificate
had not yet been issued.

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8. NET LOSS PER SHARE

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

9. 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.

Two customers each accounted for 14% and a third customer accounted for 11%
of revenue for the six months ended June 30, 2003. Two customers accounted for
25% and 18% of revenue for the six months ended June 30, 2002.

Three customers' accounts receivable balances accounted for 19%, 17% and 12%
of net accounts receivable at June 30, 2003. Three customers' accounts
receivable balances accounted for 32%, 19% and 11% of net accounts receivable at
December 31, 2002.

Export sales were approximately 14% and 20% of the Company's revenue for the
six months ended June 30, 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
revenue 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.

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

10. 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.

11. SUBSEQUENT EVENT

On August 13, 2003, the Independent Financial Expert engaged to determine
the fair market value of Portsmith for the purpose of computing the earn-outs
due to the former Portsmith stockholders concluded its determination. Based upon
such final determination, the Company plans to issue 619,372 shares of common
stock, valued at $5.86 per share, to the former Portsmith stockholders
representing an adjustment to the previous share issuances and the final payment
of both components of the earn-out. Upon completion of this issuance, the
Company will have issued a total of 1,126,286 shares of common stock, valued at
$5.86 per share, representing aggregate earn-out consideration of $6,600,000
paid to the former Portsmith stockholders.

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

Certain statements contained in this report constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. The words "believe," "expect," "anticipate" and other similar
statements of expectations identify forward-looking statements. Forward-looking
statements in this report include expectations regarding future gross margin
percentages; projections of future revenue; the availability of cash and
liquidity for the next twelve months; expectations of industry trends; beliefs
relating to the Company's distribution capabilities and brand identity; and
expectations regarding the visibility and exposure of the Company's products.
These forward-looking statements are based largely on management's expectations
and 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. Certain risks that could cause results to differ materially from
management's expectations are described below in this report under the heading
"Risk Factors." Additional factors that could cause actual results to differ
materially from those expressed in these forward-looking statements 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; and

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

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

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 use our proprietary technology to design and develop products that
make mobile electronic devices more efficient and cost effective, thus enabling
professionals and consumers greater utilization of their mobile devices and the
ability to access information more readily. Our products include power, handheld
connectivity and PCI expansion products.

We sell our products to OEMs, distributors, resellers, retailers and
end-users. A substantial portion of our revenue is concentrated among a selected
number of OEMs, including IBM and Symbol. We expect that we will continue to be
dependent upon a number of OEMs and resellers for a significant portion of our
revenue in future periods.

We recently entered into strategic reseller agreements with Fellowes
and Kensington, which require certain minimum purchase commitments, to market
and distribute our power products on a private label basis. We sell to retailers
including

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CompUSA and RadioShack and through distributors such as Ingram Micro and Tech
Data. Direct sales to OEMs and resellers accounted for approximately 43% and 70%
of revenue for the six months ended June 30, 2003 and June 30, 2002,
respectively. Sales through retailers and distributors accounted for
approximately 43% and 9% of revenue for the six months ended June 30, 2003 and
June 30, 2002 respectively. We also sell directly to end users through our
company websites.

We derive a portion of our revenue outside the United States,
principally in Europe. International sales accounted for approximately 14% and
20% of our revenue for each of the six months ended June 30, 2003 and June 30,
2002, respectively. International sales can be denominated in currencies other
than U.S. dollars, which can have a foreign currency exchange impact on our
financial statements.

COMPANY BACKGROUND

We were formed as a limited liability company under the laws of the
State of Delaware in May 1995, and were converted to a Delaware C-Corporation by
a merger effected in August 1996, in which we were the surviving entity. We
changed our name from Electronics Accessory Specialists International, Inc. to
Mobility Electronics, Inc. on July 23, 1998.

Our early focus was on the development of DC power adapters and remote
peripheral component interface, or PCI, bus technology and products based on our
proprietary Split Bridge(R) technology. We invested heavily in our Split Bridge
technology. While we have had some success with Split Bridge in the corporate
notebook computer market with sales of universal docking stations, it became
clear in early 2002 that this would not be the substantial opportunity we
originally envisioned. While we continue to produce and sell products and
selectively evaluate opportunities using our Split Bridge technology, we are no
longer committing substantial resources to this technology.

In 2002, we repositioned ourselves as a provider of power and
connectivity products for mobile electronic devices, including notebook
computers, personal digital assistants, or PDAs, mobile phones, smartphones,
digital cameras and DVD players. Through a combination of acquisitions and
internal development, we created a much broader base of innovative products for
use with mobile electronic devices by capitalizing on our base of technology and
distribution channels. We focus on power, handheld connectivity and PCI
expansion products.

ACQUISITIONS

We have made selective acquisitions to enable us to consolidate our
leadership position in our existing markets. We intend to continue to evaluate
selective acquisition opportunities to expand our capability and product
offerings.

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 and accessories
market. We believe the acquisition of iGo broadens our revenue base and
substantially strengthens our distribution capabilities and brand identity.

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 and
Symbian operating systems 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 February 2002, we acquired Portsmith, Inc., an industry leader in
providing connectivity solutions for handheld computing devices. This
acquisition provided us with an entrance into the rapidly growing handheld
computing device market. Portsmith currently provides a range of Ethernet, modem
and other connectivity products for handheld devices such as Palm, Handspring
Visor, HP iPAQ and other mainstream PDA products, and intends to undertake a
number of important product development programs that expand on these solutions.

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.

DESCRIPTION OF OPERATING ACCOUNTS

REVENUE. Revenue generally consists of sales of product, net of returns
and allowances. To date, our revenue has come predominantly from AC and DC power
adapters, handheld connectivity products, expansion products, and accessories.

COST OF REVENUE. Cost of revenue generally consists of costs associated
with components, outsourced manufacturing and in-house labor associated with
assembly, testing, packaging, shipping and quality assurance, depreciation of
equipment and indirect manufacturing costs.

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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.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and personnel-related costs, outside consulting, lab costs
and travel related costs of our product development group.

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

INTEREST, NET. Interest, net consists primarily of interest earned on
our cash balances and short-term investments, net of interest expense. Our
interest expense relates to our line of credit entered into in October 2002.

RESULTS OF OPERATIONS

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

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002

REVENUE. Revenue increased by $6.4 million, or 96.2%, to $13.1 million
for the three months ended June 30, 2003 from $6.7 million for the three months
ended June 30, 2002. The increase in revenue is primarily due to the
introduction of our new Juice(TM) combination AC/DC universal power adapter in
January 2003. As a result, sales of power products increased by $5.0 million, or
445.6%, to $6.1 million during the three months ended June 30, 2003 as compared
to $1.1 million for the three months ended June 30, 2002. Sales of handheld
connectivity products increased by approximately $1.5 million, or 65.6%, to $3.8
million during the three months ended June 30, 2003 as compared to $2.3 million
for the same period in the prior year. During 2003, we anticipate overall
revenue 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.

COST OF REVENUE. Cost of revenue increased by $3.3 million, or 64.8%,
to $8.5 million for the three months ended June 30, 2003 from $5.2 million for
the three months ended June 30, 2002. The increase in cost of revenue was due
primarily to the 96.2% increase in revenue. Cost of revenue as a percentage of
revenue decreased to 64.7% for the three months ended June 30, 2003 from 77.0%
for the three months ended June 30, 2002. The reduction in cost of revenue as a
percentage of revenue is primarily attributable to the spreading of fixed
overhead expenses over increases in sales volumes and higher product margins as
a result of the increase in sales of new power products during the three months
ended June 30, 2003. We anticipate cost of revenue as a percentage of revenue
to continue to decrease as future sales volumes increase and with the further
market penetration and introduction of new, higher-margin products.

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GROSS PROFIT. Gross profit increased by $3.1 million, or 201.6%, to
$4.6 million for the three months ended June 30, 2003, from $1.5 million for the
three months ended June 30, 2002. Gross margins increased to 35.3% for the three
months ended June 30, 2003 from 23.0% for the three months ended June 30, 2002.
The increase in gross margins was primarily due 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. We expect gross profit to increase in future
periods due to projected future revenue increases and as a result of the
introduction of new, higher margin products, as those products become an
increasingly larger portion of revenue.

SALES AND MARKETING. Sales and marketing expenses increased by
$133,000, or 7.9% to $1.8 million for the three months ended June 30, 2003 from
$1.7 million for the three months ended June 30, 2002. The increase was
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 revenue, sales and marketing expenses decreased to 13.9% for the
three months ended June 30, 2003 from 25.2% for the three months ended June 30,
2002.

RESEARCH AND DEVELOPMENT. Research and development expenses increased
by $129,000, or 11.5%, to $1.2 million for the three months ended June 30, 2003
from $1.1 million for the three months ended June 30, 2002. Research and
development expenses as a percentage of revenue decreased to 9.5% for the three
months ended June 30, 2003 from 16.7% for the three months ended June 30, 2002.
The increase was due to investment in the development of Juice and related
follow-on products in the power category. We anticipate increases in research
and development expenses during 2003 as we continue to develop new power and
handheld connectivity products.

GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $1.2 million, or 65.7% to $3.0 million for the three months ended
June 30, 2003 from $1.8 million for the three months ended June 30, 2002. The
increase was 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 litigation of the
Comarco matter, of $577,000, an increase of $239,000 in bad debt expense, and
information system consolidation and integration efforts during the three months
ended June 30, 2003. General and administrative expenses as a percentage of
revenue decreased to 22.7% for the three months ended June 30, 2003 from 26.9%
for the three months ended June 30, 2002.

INTEREST, NET. Interest, net decreased by $148,000 to $(1,000) for the
three months ended June 30, 2003 from $147,000 for the three months ended June
30, 2002. The decrease was primarily due to the reduction in average cash
balance and interest paid on borrowings during the three months ended June 30,
2003 compared to the three months ended June 30, 2002.

INCOME TAXES. We have incurred losses from inception to date;
therefore, no provision for income taxes was required for the three months ended
June 30, 2003 and 2002. Based on historical operating losses and projections for
future taxable income, it is more likely than not that we will not fully realize
the benefits of the net operating loss carryforwards. Thus, we have not recorded
a tax benefit from our net operating loss carryforwards for the three months
ended June 30, 2003.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002

REVENUE. Revenue increased by $11.5 million, or 84.4%, to $25.1 million
for the six months ended June 30, 2003 from $13.6 million for the six months
ended June 30, 2002. The increase in revenue is primarily due to the
introduction of our new Juice combination AC/DC universal power adapter in
January 2003. As a result, sales of power products increased by $8.2 million, or
267.7%, to $11.3 million during the six months ended June 30, 2003 as compared
to $3.1 million for the six months ended June 30, 2002. Sales of handheld
connectivity products increased by approximately $3.1 million, or 79.8%, to $6.9
million during the six months ended June 30, 2003 as compared to $3.8 million
for the same period in the prior year. The increase in handheld products revenue
was due, in part, to an entire six months of sales in 2003 compared to five
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 overall
revenue 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.

COST OF REVENUE. Cost of revenue increased by $6.0 million, or 59.1%,
to $16.3 million for the six months ended June 30, 2003 from $10.2 million for
the six months ended June 30, 2002. The increase in cost of revenue was due
primarily to the 84.4% increase in revenue. Cost of revenue as a percentage of
revenue decreased to 64.9% for the six months ended June 30, 2003 from 75.2% for
the six months ended June 30, 2002. The reduction in cost of revenue as a
percentage of revenue 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 six months of
2003. We anticipate cost of revenue as a percentage of revenue to continue to
decrease as future sales volumes increase and with the further market
penetration and introduction of new, higher-margin products.

GROSS PROFIT. Gross profit increased by $5.4 million, or 160.9%, to
$8.8 million for the six months ended June 30, 2003, from $3.4 million for the
six months ended June 30, 2002. Gross margins increased to 35.1% for the six
months ended June 30, 2003 from 24.8% for the six months ended June 30, 2002.
The increase in gross margins was primarily due to the introduction of the 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. We expect gross profit to increase in future periods due to
projected future revenue increases and as a result of the introduction of new,
higher margin products, as those products become an increasingly larger portion
of revenue.

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SALES AND MARKETING. Sales and marketing expenses increased by
$574,000, or 18.2% to $3.7 million for the six months ended June 30, 2003 from
$3.1 million for the six months ended June 30, 2002. The increase was 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
revenue, sales and marketing expenses decreased to 14.8% for the six months
ended June 30, 2003 from 23.1% for the six months ended June 30, 2002.

RESEARCH AND DEVELOPMENT. Research and development expenses decreased
by $165,000, or 6.9%, to $2.2 million for the six months ended June 30, 2003
from $2.4 million for the six months ended June 30, 2002. Research and
development expenses as a percentage of revenue decreased to 9.0% for the six
months ended June 30, 2003 from 17.7% for the six months ended June 30, 2002.
The decrease was due to reductions in engineering expenses and staff as a result
of the completion of the development of our Split Bridge technology, which was
largely completed in 2000 and the early part of 2001, and was partially offset
by investment in the development of Juice and related follow-on products in the
power category. We anticipate increases in research and development expenses
during 2003 as we continue to develop new power and handheld connectivity
products.

GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $1.9 million, or 56.3%, to $5.4 million for the six months ended
June 30, 2003 from $3.5 million for the six months ended June 30, 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 was also due to costs incurred in connection with litigation of the
Comarco matter of $738,000 and an increase of $259,000 in bad debt expense.
General and administrative expenses as a percentage of revenue decreased to
21.5% for the six months ended June 30, 2003 from 25.3% for the six months ended
June 30, 2002.

INTEREST, NET. Interest, net decreased by $390,000 to $11,000 for the
six months ended June 30, 2003 from $401,000 for the six months ended June 30,
2002. The decrease was primarily due to the reduction in average cash balance
and interest paid on borrowings during the six months ended June 30, 2003
compared to the six months ended June 30, 2002.

INCOME TAXES. We have incurred losses from inception to date;
therefore, no provision for income taxes was required for the six months ended
June 30, 2003 and 2002. Based on historical operating losses and projections for
future taxable income, it is more likely than not that we will not fully realize
the benefits of the net operating loss carryforwards. Thus, we have not recorded
a tax benefit from our net operating loss carryforwards for the six months ended
June 30, 2003.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations primarily through equity and debt
financing, as the cash used to fund our operating activities has exceeded cash
generated by revenue. As of June 30, 2003, we had approximately $795,000 in cash
and cash equivalents and $6.6 million in working capital. As of December 31,
2002, we had approximately $3.2 million in cash and cash equivalents and $5.6
million in working capital.

Net cash used in operating activities was $5.9 million and $2.4 million
for the six months ended June 30, 2003 and 2002, respectively. Cash used in
operating activities for the six months ended June 30, 2003 was primarily
attributed to our net loss and increases in accounts receivable, inventories,
prepaid expenses and other assets. Cash used in operating activities was
offset, in part, by an increase in accounts payable and accrued expense of $3.0
million, non-cash expenses such as depreciation of property and equipment and
amortization of intangible assets of $850,000, and other non-cash expenses of
$453,000.

Net cash used in investing activities was $392,000 for the six months
ended June 30, 2003 and net cash provided by investing activities was $51,000
for the six months ended June 30, 2002. For the six months ended June 30, 2003,
net cash used in investing activities was primarily for the purchase of property
and equipment.

Net cash provided by financing activities was $3.9 million and $57,000
for the six months ended June 30, 2003 and 2002, respectively. Net cash provided
by financing activities for the six months ended June 30, 2003 was primarily
from net borrowings under our line of credit of $2.2 million and net proceeds
from the sale of Series E and Series F preferred stock of $1.2 million.

As of June 30, 2003, we had approximately $88 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.

As of June 30, 2003, we had future commitments relating to payments of
an 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. As of December 31,
2002, we recorded a long-term liability in the amount of $725,000 as an estimate
of this

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component of the earn-out. In April 2003, we settled a portion of the revenue
earn-out through the issuance of 375,209 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 us and the former Portsmith stockholders. In June
2003, we notified the former Portsmith shareholders we would issue an additional
131,705 shares of common stock, valued at $2.18 per share, representing an
adjustment to a portion of the first component of the earn-out and payment of a
portion of the second component of the earn-out. These shares were issued in
July 2003, and the issuance is recorded as common stock subscribed at June 30,
2003. To date, a total of 506,914 shares of common stock, valued at $2.18 per
share, have been issued in connection with both components of the earn-out.

As we were not able to reach mutual agreement with the former Portsmith
stockholders on the fair market value of Portsmith as a stand-alone entity as of
December 31, 2002, an Independent Financial Expert was engaged to determine the
fair market value, as defined in the agreement. On August 13, 2003, the
Independent Financial Expert concluded its determination. Based upon such final
determination, we plan to issue 619,372 shares of common stock, valued at $5.86
per share, to former Portsmith stockholders representing an adjustment to the
previous share issuances and the final payment of both components of the
earn-out. Upon completion of this issuance, we will have issued a total of
1,126,286 shares of common stock, valued at $5.86 per share, representing
aggregate earn-out consideration of $6,600,000 paid to the former Portsmith
stockholders.

The price per share used by us to calculate the remaining shares to be
issued is based upon our interpretation of the Portsmith Agreement and Plan of
Merger. However, we are in disagreement with the former Portsmith stockholders
regarding this interpretation, the resolution of which may result in the
issuance of additional shares of common stock to the former Portsmith
stockholders. Earn-out payments may be made in cash or shares of stock, at our
discretion, with the total shares of stock issued to former Portsmith
stockholders not to exceed 3,023,863 shares without stockholder approval. We
anticipate that additional payments, if any, will be made entirely in shares of
common stock and that no future cash payments will be required.

In October 2002, we entered into a $10.0 million bank line of credit.
The line bears interest at prime plus 1.25%, which was 5.25% as of June 30,
2003, interest only payments due monthly, with final payment of interest and
principal due on July 31, 2004. The line of credit is secured by all of our
assets and subject to financial covenants, with which we were in compliance as
of June 30, 2003. We had an outstanding balance of $2.2 million against this
line of credit as of June 30, 2003. Under the terms of the line, we can borrow
up to 80% of eligible accounts receivable. At June 30, 2003, our net borrowing
base capacity was $4.7 million.

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, or 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, or 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, Inc. On June 6, 2003, all
outstanding shares of Series E Stock and Series F Stock were converted into
common stock at a ratio of 1-to-1.

In the second quarter of 2003, various parties began exercising stock
options and warrants, resulting in net proceeds of $313,000. Based on the
exercise prices of options and warrants exercisable as of June 30, 2003 and the
current levels of our stock price, we expect additional proceeds from the
exercise of these options and warrants. In June and July 2003, various notes
receivable secured by shares of common stock, totaling $429,000 in principal and
$68,000 in accrued interest, were repaid, resulting in gross proceeds of
$497,000.

We believe that our existing cash and cash equivalents on hand,
combined with cash available from our line of credit, will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
12 months. If we require additional capital resources to grow our business
internally or to acquire complementary technologies and businesses at any time
in the future, we may seek to sell additional equity or debt securities. The
sale of additional equity or convertible debt securities would result in more
dilution to our stockholders. Financing arrangements may not be available to us,
or may be available in amounts or on terms unacceptable to us.

INFLATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

On May 15, 2003, the Financial Accounting Standards Board issued
Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. The Statement requires issuers
to classify as liabilities (or assets in some circumstance) three classes of
freestanding financial instruments that embody obligations for the issuer.
Generally, the Statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. We adopted the provisions of
the Statement on July 1, 2003. There was no impact from the adoption of this
statement.

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

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beginning after June 15, 2003. We adopted the provisions of Interpretation 46
for existing variable interest entities on July 1, 2003. There was no impact
from the adoption of this statement.

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 periods beginning after June 15, 2003. We adopted
the provisions of EITF Issue No. 00-21 on July 1, 2003. There was no impact from
the adoption of this statement.

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, revenue and expenses and related disclosure of
contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including those
related to bad debt expense, warranty obligations and contingencies and
litigation. We base our 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.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:

REVENUE RECOGNITION. Revenue from product sales is recognized upon
shipments and transfers of ownership from us or our contract manufacturers to
the customers. Allowances for sales returns and credits are provided for in the
same period the related sales are recorded. Should the actual return or sales
credit rates differ from our estimates, revisions to the estimated allowance for
sales returns and credits may be required.

Our recognition of revenue from product sales to distributors,
resellers and retailers, or the "distribution channel", is affected by
agreements we have giving certain customers rights to return our product at any
time after purchase. We also have agreements with certain customers that allow
them to receive credit for subsequent price reductions, or "price protection".
At the time we recognize revenue, upon shipment and transfer of ownership, we
reduce our measurements of those sales and the related cost of sales by our
estimates of future returns and price protection. We also reduce our
measurements of accounts receivable by the estimated profit margins associated
with returns, calculated using sales price less cost of sales. Gross sales to
the distribution channel accounted for approximately 43% for the six months
ended June 30, 2003 and 12% of revenue for the year ended December 31, 2002.

For our products, a historical correlation exists between the amount of
distribution channel inventory and the amount of returns that actually occur.
The greater the inventory held by our distributors, the more product returns we
expect. For each of our products, we monitor levels of product sales and
inventory at our distributors' warehouses and at retailers as part of our effort
to reach an appropriate accounting estimate for returns. In estimating returns,
we analyze historical returns, current inventory in the distribution channel,
current economic trends, changes in consumer demand, introduction of new
competing products and acceptance of our products.

In recent years, as a result of a combination of the factors described
above, we have reduced our gross sales to reflect our estimated amounts of
returns and price protection. It is also possible that returns could increase
rapidly and significantly in the future. Accordingly, estimating product returns
requires significant management judgment. In addition, different return
estimates that we reasonably could have used would have had a material impact on
our reported sales and thus have had a material impact on the presentation of
the results of operations. For those reasons, we believe that the accounting
estimate related to product returns and price protection is a critical
accounting estimate.

INVENTORY VALUATION. Inventories consist of finished goods and
component parts purchased both partially and fully assembled. We have all normal
risks and rewards of our inventory held by contract manufacturers. Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Inventories include material and overhead costs. Overhead costs are allocated to
inventory based on a percentage of material costs. We monitor usage reports to
determine if the carrying value of any items should be adjusted due to lack of
demand for the items. We make a downward adjustment to the value of our
inventory for estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.

GOODWILL. In conjunction with the implementation of Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets",
SFAS No. 142, we performed a goodwill impairment evaluation as of January 1,
2002 relating to the goodwill that was recorded at December 31, 2001. Based on
the results of that impairment evaluation, we determined the

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recorded goodwill at December 31, 2001 of approximately $5.6 million was fully
impaired. We recorded the impairment write-down as a cumulative effect of change
in accounting principle in accordance with the new accounting standard.

As a result of our acquisitions of Portsmith, Cutting Edge Software and
iGo during 2002, we have recorded additional goodwill of approximately $8.3
million as of June 30, 2003. In accordance with SFAS No. 142, we evaluated the
newly acquired goodwill for impairment and determined that the recorded goodwill
was not impaired as of December 31, 2002.

The impairment evaluation process is based on both a discounted future
cash flow approach and a market comparable approach. The discounted cash flow
approach uses our estimates of future market growth rates, market share, revenue
and costs, as well as appropriate discount rates. If we fail to achieve our
assumed revenue growth rates or assumed gross margin, we may incur charges for
impairment of goodwill in the future. For these reasons, we believe that the
accounting estimate related to goodwill impairment is a critical accounting
estimate.

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.

See "Liquidity and Capital Resources" for further discussion of our
financing facilities and capital structure. Market risk, calculated as the
potential change in fair value of our cash and line of credit resulting from a
hypothetical 1.0% (100 basis point) change in interest rates, was not material
at June 30, 2003.

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 the end of
the period covered by 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:

The Company has been involved in three lawsuits with Comarco Wireless
Technologies, Inc. The first, styled Mobility Electronics Inc. v. Comarco, Inc.
and Comarco Wireless Technologies, Inc. was filed August 10, 2001 in the United
States District Court for the District of Arizona. In this suit, Mobility
alleged infringement by Comarco of Mobility's U.S. Patent No. 5,347,211 entitled
"Selectable Output Power Converter." Mobility also sought a declaratory judgment
of non-infringement, patent invalidity and/or patent unenforceability of three
patents owned by Comarco, U.S. Patent Nos. 6,172,884, 6,091,661 and 5,838,554.

That suit was consolidated for purpose of discovery with a suit styled
Comarco Wireless Technologies, Inc. v. Xtend Micro Products, Inc. and iGo
Corporation (n/k/a iGo Direct Corporation), No. CIV-02-2201 initially filed on
June 21, 2002 in the United States District Court for the Central District of
California but transferred to the United States District Court for the District
of Arizona. Xtend Micro Products is a subsidiary of Mobility's subsidiary, iGo
Direct Corporation.

Also consolidated with those two cases was a case filed January 31, 2003
styled 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. In that litigation,
Comarco filed a Motion for Preliminary Injunction which was heard on June 12,
2003. On June 18, 2003 the Arizona Court issued its oral ruling denying
Comarco's Motion for Preliminary Injunction. Following that action by the Court,
Mobility settled its disputes with Comarco and all three cases were

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resolved by settlement agreement dated July 12, 2003. Pursuant to the settlement
agreement, the Court will dismiss each of these three lawsuits.

Holmes Lundt, Leslie Lundt and Dan Axtman v. Mobility Electronics, Inc.
Portsmith, Inc., Charles R. Mollo, Joan W. Brubacher, Jeffrey R. Harris, Robert
P. Dilworth, Larry M. Carr, William O. Hunt, Jerre L. Stead and Darryl Baker,
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 was amended recently to
add Mr. Dan Axtman, a former employee of Portsmith, as a plaintiff, and several
officers and directors of the Company, as defendants. 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,
fraud, securities fraud, and breach of an alleged covenant of good faith and
fair dealing, conspiracy, and are seeking monetary damages 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

From April 14, 2003 through July 2, 2003, the Company issued 506,914 shares
of common stock to the former stockholders of Portsmith in connection with the
acquisition of Portsmith.

Effective May 29, 2003, the Company agreed with Jackson Walker L.L.P., the
Company's legal counsel, to pay for certain legal fees in shares of our common
stock. As a result the Company issued 289,012 shares for payment of $361,000 of
legal services and 127,570 shares for the payment of $289,000 of legal services.

Effective June 6, 2003, 865,051 shares of Series E preferred stock
converted into 865,051 shares of common stock and 729,407 shares of Series F
preferred stock converted into 729,407 shares of common stock.

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.

We are currently restricted from paying dividends in accordance with the
terms of our bank line of credit. Additionally, we may not pay any cash
dividends on our common stock without the consent of the Series C preferred
stockholders.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None

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

The annual meeting was held on May 21, 2003, at which meeting stockholders
were asked to consider and vote upon the election of a director whose term of
office expired in 2003. Charles R. Mollo was re-elected to the board of
directors to serve until the annual meeting of stockholders to be held in 2006,
with 17,154,954 shares voting for, 0 shares voting against, 244,932 shares
abstaining and 4,500 broker non-votes.

Jerre L. Stead and Larry M. Carr will continue to serve as directors of
the Company until the annual meeting of stockholders to be held in 2004.
Jeffrey R. Harris and William O. Hunt will continue to serve as directors of
the Company until the annual meeting of stockholders to be held in 2005.

-19-

ITEM 5. OTHER INFORMATION:

The information set forth below regarding Risk Factors and Business
that would otherwise be filed in a separate Form 8-K is being filed under this
Item 5.

RISK FACTORS

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND ALL OTHER INFORMATION
CONTAINED IN OUR PUBLIC FILINGS BEFORE MAKING AN INVESTMENT DECISION ABOUT OUR
COMMON STOCK. WHILE THE RISKS DESCRIBED BELOW ARE THE ONES WE BELIEVE ARE MOST
IMPORTANT FOR YOU TO CONSIDER, THESE RISKS ARE NOT THE ONLY ONES THAT WE FACE.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, OPERATING RESULTS
OR FINANCIAL CONDITION COULD SUFFER, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.

RISKS RELATED TO OUR BUSINESS

If our revenue is not sufficient to absorb our expenses, we will not be
profitable in the future.

We have experienced significant operating losses since inception and,
as of June 30, 2003, have an accumulated deficit of $103.0 million. We intend to
make expenditures, specifically in research and development, on an ongoing
basis, primarily from cash generated from operations and, if available, from
lines of credit, as we develop and introduce new products and expand into new
markets. If we do not achieve revenue growth sufficient to absorb our planned
expenses, we will experience additional losses in future periods. In addition,
there can be no assurance that we will achieve or sustain profitability.

Our future success is dependent on market acceptance of our power products. If
acceptance of these products does not continue to grow, we will be unable to
increase or sustain our revenue, and our business will be severely harmed. If we
do not gain market acceptance of our products and technology, we will be unable
to achieve anticipated revenue or maintain revenue.

If we do not achieve widespread market acceptance of our power products
and technology, we may not maintain our existing revenue or achieve anticipated
revenue. For example, we currently derive a material portion of our revenue from
the sale of our recently introduced Juice product. Juice is a power charging
product, which is a combination AC/DC power adapter for notebook computers,
PDAs, and mobile phones. Combination AC/DC power adapters represent a new
product category in the mobile electronic industry. We anticipate that a
material portion of our revenue in the foreseeable future will be derived from
Juice and similar power products in this new market category that we are
currently developing or plan to develop. We can give no assurance that this
market category will develop sufficiently to cover our expenses and costs or
that we will be able to develop similar power products. Moreover, our power
products may not achieve widespread market acceptance if:

o we fail to complete development of these products in
a timely manner;

o we fail to achieve the performance criteria required
of these products by our customers; or

o competitors introduce similar or superior products.

-20-

In addition, the retail version of the Juice product includes a
universal feature that allows a single version of the product to be used with
almost any notebook computer. If notebook computer manufacturers choose to
design and manufacture their products in such a way as to limit the use of
universal devices with their computers, it could reduce the applicability of a
universal device and limit market acceptance of the product at the retail level.

Our operating results are subject to significant fluctuations, and if our
results are worse than expected, our stock price could fall.

Our operating results have fluctuated in the past, and may continue to
fluctuate in the future. It is likely that in some future quarter or quarters
our operating results will be below the expectations of securities analysts and
investors. If this happens, the market price for our common stock may decline
significantly. The factors that may cause our operating results to fall short of
expectations include:

o the timing of our new product and technology introductions and product
enhancements relative to our competitors or changes in our or our
competitors' pricing policies;

o market acceptance of our power, handheld connectivity, and PCI
expansion products;

o the size and timing of customer orders;

o delay or failure to fulfill orders for our products on a timely basis;

o distribution of or changes in our revenue among OEMs, private-label
resellers and distribution partners;

o our inability to accurately forecast our contract manufacturing needs;

o difficulties with new product production implementation or supply
chain;

o our suppliers' ability to perform under their contracts with us;

o product defects and other product quality problems which may result
from the development of new products;

o the degree and rate of growth of the markets in which we compete and
the accompanying demand for our products;

o our ability to expand our internal and external sales forces and build
the required infrastructure to meet anticipated growth; and

o seasonality of sales.

Many of these factors are beyond our control. For these reasons, you
should not rely on period-to-period comparisons and short-term fluctuations of
our financial results to forecast our future long-term performance.

If we fail to continue to introduce new products and product enhancements that
achieve broad market acceptance on a timely basis, we will not be able to
compete effectively, and we will be unable to increase or maintain our revenue.

The market for our products is highly competitive and in general is
characterized by rapid technological advances, changing customer needs and
evolving industry standards. If we fail to continue to introduce new products
and product enhancements that achieve broad market acceptance on a timely basis,
we will not be able to compete effectively, and we will be unable to increase or
maintain our revenue. Our future success will depend in large part upon our
ability to:

-21-

o develop, in a timely manner, new products and services that keep pace
with developments in technology and customer requirements;

o meet potentially new manufacturing requirements and cover potentially
higher manufacturing costs of new products;

o deliver new products and services through appropriate distribution
channels; and

o respond effectively to new product announcements by our competitors by
quickly introducing competing products.

We may not be successful in developing and marketing, on a timely and
cost-effective basis, either enhancements to existing products or new products
that respond to technological advances and satisfy increasingly sophisticated
customer needs. If we fail to introduce or sell new products, our operating
results may suffer. In addition, if new industry standards emerge that we do not
anticipate or adapt to, our products could be rendered obsolete and our business
could be materially harmed. Alternatively, any delay in the development of
technology upon which our products are based could result in our inability to
introduce new products as planned. The success and marketability of technology
and products developed by others is beyond our control.

We have experienced delays in releasing new products in the past, which
resulted in lower quarterly revenue than expected. For example, our recent
introduction of our AC/DC power combination product, Juice 70, was delayed
approximately 13 weeks due to necessary modifications required to meet safety
certification and production start up requirements. Further, our efforts to
develop new and similar products could be delayed due to unanticipated
manufacturing requirements and costs. Delays in product development and
introduction could result in:

o loss of or delay in revenue and loss of market share;

o negative publicity and damage to our reputation and
brand;

o decline in the average selling price of our products
and decline in our overall gross margins; and

o adverse reactions in our sales and distribution
channels.

The average selling prices of our products may decrease over their sales cycles,
especially upon the introduction of new products, which may negatively affect
our gross margins.

Our products may experience a reduction in the average selling prices
over their respective sales cycles. Further, as we introduce new or next
generation products, sales prices of previous generation products may decline
substantially. In order to sell products that have a falling average selling
price and maintain margins at the same time, we need to continually reduce
product and manufacturing costs. To manage manufacturing costs, we must
collaborate with our third-party manufacturers to engineer the most
cost-effective design for our products. There can be no assurances we will be
successful in our efforts to reduce these costs. In order to do so, we must
carefully manage the price paid for components used in our products as well as
manage our freight and inventory costs to reduce overall product costs. If we
are unable to reduce the cost of older products as newer products are
introduced, our average gross margins may decline.

-22-

We depend on large purchases from a few significant customers, and any loss,
cancellation or delay in purchases by these customers could cause a shortfall in
revenue.

We have historically derived a substantial portion of our revenue from
a relatively small number of customers. Our five largest customers comprised 55%
of our revenue for the six months ended June 30, 2003 and 58% for the year ended
December 31, 2002. These customers typically do not have minimum purchase
requirements and can stop purchasing our products at any time or with very short
notice. In addition, most customer agreements are short term and non-exclusive
and provide for purchases on a purchase order basis. We expect that a small
number of customers will continue to represent a substantial percentage of our
sales.

For example, IBM, which currently buys power products and
private-labeled monitor stands, accounted for 14% of our revenue for the six
months ended June 30, 2003 and 20% for year ended December 31, 2002. Symbol,
which buys handheld connectivity devices, accounted for 14% of our revenue for
the six months ended June 30, 2003 and 20% for the year ended December 31, 2002.
In the event IBM, Symbol or any of our other major customers reduce, delay or
cancel orders with us, and we are not able to sell our products to new
customers at comparable levels, our revenue could decline significantly. In
addition, any difficulty in collecting amounts due from one or more key
customers would negatively impact our result of operations.

Our success depends in part upon sales to OEMs, whose unpredictable demands and
requirements may subject us to potential adverse revenue fluctuations.

We expect that we will continue to be dependent upon a limited number
of OEMs for a significant portion of our revenue in future periods. No OEM is
presently obligated either to purchase a specified amount of products or to
provide us with binding forecasts of product purchases for any period. Our
products are typically one of many related products used by portable computer
users. Demand for our products is therefore subject to many risks beyond our
control, including, among others:

o competition faced by our OEM customers in their particular end markets;

o market acceptance of our technology and products by our OEM customers;

o technical challenges which may or may not be related to the components
supplied by us;

o the technical, sales and marketing and management capabilities of our
OEM customers; and

o the financial and other resources of our OEM customers.

The reduction, delay or cancellation of orders from our significant OEM
customers, or the discontinuance of the use of our products by our end users may
subject us to potential adverse revenue fluctuations.

Our success is dependent in part upon our relationships with two strategic
private-label resellers.

-23-

During the second quarter of 2003, we entered into relationships with
Kensington and Fellowes to sell our power products on a private-label basis. We
expect these relationships to be critical to our success. Under the terms of our
agreements with both Kensington and Fellowes, our direct access to international
markets or to certain U.S. markets has been limited. Further, each agreement
provides that we may not enter into any more than one additional broad-based
distribution agreement, thereby currently preventing us from entering into any
other broad-based distribution agreements. Accordingly, our success will depend
in part upon their ability and willingness to effectively and widely distribute
and market our products. For example, because the Fellowes distribution chain
includes large retailers such as Wal-Mart, Sears, Office Depot, Office Max,
Staples and Target, we are precluded from distributing to these retailers
directly. As of June 30, 2003, we have only filled one purchase order from
Kensington and have not yet shipped any product to Fellowes. If either
Kensington or Fellowes does not purchase the volume of products that we
anticipate, our results of operations will suffer. Following the first initial
purchase orders, Fellowes does not have minimum purchase requirements under its
agreement. In order for Kensington to maintain certain benefits under the
agreement, it must purchase a minimum amount in the first year.

Success of the relationship with Kensington and Fellowes will also
depend in part upon the success of each of them in marketing and selling our
products on a private-label basis outside of the United States. The
international sales by our private-label resellers are subject to a number of
risks that could limit sales of our products. These risks include:

o the impact of possible recessionary environments in foreign economies;

o political and economic instability;

o unexpected changes in regulatory requirements;

o export restriction and availability of export licenses; and

o tariffs and other trade barriers.

We outsource the manufacturing and fulfillment of our products, which limits our
control of the manufacturing process and may cause a delay in our ability to
fill orders.

Most of our products are produced under contract manufacturing
arrangements with several manufacturers in China, Taiwan and the United States.
Our reliance on third party manufacturers exposes us to risks, which are not in
our control, and our revenue could be negatively impacted. Any termination of or
significant disruption in our relationship with our manufacturers may prevent us
from filling customer orders in a timely manner, as we generally do not maintain
large inventories of our products, and will negatively impact our revenue.

Our use of contract manufacturers reduces control over product quality
and manufacturing yields and costs. We depend upon our contract manufacturers to
deliver products that are free from defects, competitive in cost and in
compliance with our specifications and delivery schedules. Moreover, although
arrangements with such manufacturers may contain provisions for warranty
obligations on the part of contract manufacturers, we remain primarily
responsible to our customers for warranty obligations. Disruption in supply, a
significant increase in the cost of the assembly of our products, failure of a
contract manufacturer to remain competitive in price, the failure of a contract
manufacturer to comply with any of our procurement needs or the financial
failure or bankruptcy of a contract manufacturer could delay or interrupt our
ability to manufacture or deliver our products to customers on a timely basis.
In addition, a recurrence of the Severe Acute

-24-

Respiratory Syndrome, or SARS, outbreak in China could result in quarantines or
closures of our third party manufacturers or their suppliers.

Hipro is currently the exclusive manufacturer of our Juice products.
Our agreement with Hipro does not permit us to second source our Juice product
from any other manufacturer. On occasion, however, OEMs require a relationship
with a second qualified manufacturer. Accordingly, unless Hipro allows us to
secure a second source for such customers or we are not able to find a
manufacturer willing to operate in a back-up relationship to Hipro in
circumstances where Hipro can not meet our manufacturing needs, our exclusive
arrangement may prevent us from working with some OEMs. In addition, Hipro
manufactures our products on a purchase order basis and does not dedicate
manufacturing capacity to us. Any disruption in our relationship with Hipro
and/or the inability of Hipro to meet our manufacturing needs could harm our
business. In order to replace Hipro we would have to identify and qualify an
alternative supplier. This process could take several months to complete and
would significantly impair our ability to fulfill customer orders.

We generally provide our third-party contract manufacturers with a
rolling forecast of demand which they use to determine our material and
component requirements. Lead times for ordering materials and components vary
significantly and depend on various factors, such as the specific supplier,
contract terms and demand and supply for a component at a given time. Some of
our components have long lead times. For example, certain electronic components
used in our Juice product have lead times that range from six to ten weeks. If
our forecasts are less than our actual requirements, our contract manufacturers
may be unable to manufacture products in a timely manner. If our forecasts are
too high, our contract manufacturers will be unable to use the components they
have purchased on our behalf, which may require us to purchase the components
from them before they are used in the manufacture of our products.

We rely on a contract fulfillment provider to warehouse our iGo branded
finished goods inventory and to ship our iGo branded products to our customers.
We do not have a long-term contract with our fulfillment provider. Any
termination of or significant disruption in our relationship with our
fulfillment provider may prevent customer orders from being fulfilled in a
timely manner, as it would require that we relocate our finished goods inventory
to another warehouse facility and arrange for shipment of products to our
customers.

Our reliance on sole sources for key components may inhibit our ability to meet
customer demand.

The principal components of our products are purchased from outside
vendors. Several of these vendors are the sole source of supply of the
components that they supply. Examples of sole source critical components include
two different programmable microprocessors used in various models of our
handheld connectivity products. We do not have long term supply agreements with
the manufacturers of these components or with our contract manufacturers. We
obtain both components and products under purchase orders.

We depend upon our suppliers to deliver components that are free from
defects, competitive in functionality and cost and in compliance with our
specifications and delivery schedules. Disruption in supply, a significant
increase in the cost of one or more components, failure of a supplier to remain
competitive in functionality or price, the failure of a supplier to comply with
any of our procurement needs or the financial failure or bankruptcy of a
supplier could delay or interrupt our ability to manufacture or deliver our
products to customers on a timely basis.

-25-

Any termination of or significant disruption in our relationship with
our suppliers may prevent us from filling customer orders in a timely manner as
we generally do not maintain large inventories of components or products. In the
event that a termination or disruption were to occur, we would have to find and
qualify an alternative source. The time it would take to complete this process
would vary based upon the size of the supplier base and the complexity of the
component or product. Delays could range from as little as a few days to six
months, and, in some cases, a suitable alternative may not be available at all.

If we fail to protect our intellectual property, our business and ability to
compete could suffer.

Our success and ability to compete are dependent upon our internally
developed technology and know-how. We rely primarily on a combination of patent
protection, copyright and trademark laws, trade secrets, nondisclosure
agreements and technical measures to protect our proprietary rights. While we
have certain patents and patents pending, there can be no assurance that patents
pending or future patent applications will be issued or that, if issued, those
patents will not be challenged, invalidated or circumvented or that rights
granted thereunder will provide meaningful protection or other commercial
advantage to us. Moreover, there can be no assurance that any patent rights will
be upheld in the future or that we will be able to preserve any of our other
intellectual property rights.

We typically enter into confidentiality, noncompete or invention
assignment agreements with our key employees, distributors, customers and
potential customers, and limit access to, and distribution of, our product
design documentation and other proprietary information. There can be no
assurance that our confidentiality agreements, confidentiality procedures,
noncompetition agreements or other factors will be adequate to deter
misappropriation or independent third-party development of our technology or to
prevent an unauthorized third party from obtaining or using information that we
regard as proprietary. Litigation has been, and will in the future be, necessary
to defend our intellectual property rights, which has in the past and could in
the future result in substantial cost to, and divisions of efforts by, us.

We may be subject to intellectual property infringement claims that are costly
to defend and could limit our ability to use certain technologies in the future.

The laws of some foreign countries do not protect or enforce
proprietary rights to the same extent as do the laws of the United States. In
addition, under current law, certain patent applications filed with the United
States Patent and Trademark Office before November 29, 2000 may be maintained in
secrecy until a patent is issued. Patent applications filed with the United
States Patent and Trademark Office on or after November 29, 2000, as well as
patent applications filed in foreign countries, may be published some time after
filing but prior to issuance. The right to a patent in the United States is
attributable to the first to invent, not the first to file a patent application.
We cannot be sure that our products or technologies do not infringe patents that
may be granted in the future pursuant to pending patent applications or that our
products do not infringe any patents or proprietary rights of third parties. In
the event that any relevant claims of third-party patents are upheld as valid
and enforceable, we could be prevented from selling our products or could be

-26-

required to obtain licenses from the owners of such patents or be required to
redesign our products to avoid infringement. There can be no assurance that such
licenses would be available or, if available, would be on terms acceptable to us
or that we would be successful in any attempts to redesign our products or
processes to avoid infringement. Our failure to obtain these licenses or to
redesign our products would have a material adverse effect on our business.

There can be no assurance that our competitors will not independently
develop technology similar to existing proprietary rights of others. We expect
that our products will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. There can be
no assurance that third parties will not assert infringement claims against us
in the future or, if infringement claims are asserted, that such claims will be
resolved in our favor. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms favorable to
us, if at all. In addition, litigation may be necessary in the future to protect
our trade secrets or other intellectual property rights, or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources. For example, we recently
settled a lawsuit with Comarco, Inc. in which each party made patent
infringement claims against the other. We incurred significant costs in the
lawsuit and devoted substantial time and efforts of certain employees and
members of management to this lawsuit.

Acquisitions could have negative consequences, which could harm our business.

We have acquired, and may pursue opportunities to acquire businesses,
products or technologies that complement or expand our current capabilities.
Acquisitions could require significant capital infusions and could involve many
risks including, but not limited to, the following:

o difficulties in assimilating and integrating the operations, products
and workforce of the acquired companies;

o acquisitions may negatively impact our results of operations because
they may require large one-time charges or could result in increased
debt or contingent liabilities, adverse tax consequences, substantial
depreciation or deferred compensation charges, or the amortization or
write down of amounts related to deferred compensation, goodwill and
other intangible assets;

o acquisitions may be dilutive to our existing stockholders;

o acquisitions may disrupt our ongoing business and distract our
management; and

o key personnel of the acquired company may decide not to work for us.

We may not be able to identify or consummate any future acquisitions on
acceptable terms, or at all. If we do pursue any acquisitions, it is possible
that we may not realize the anticipated benefits from such acquisitions.

We may not be able to adequately manage our anticipated growth, which could
impair our efficiency and negatively impact operations.

-27-

Our success depends on our ability to manage growth effectively. If we
do not effectively manage this growth, we may not be able to operate efficiently
or maintain the quality of our products. Either outcome could materially and
adversely affect our operating results. As we continue to develop new products
and bring them to market, we will be required to manage multiple projects,
including the design and development of products and their transition to high
volume manufacturing. This will place a significant strain on our operational,
financial and managerial resources and personnel, our management information
systems, and our operational and financial controls. To effectively manage our
growth we must:

o increase research and development resources;

o install and implement adequate controls and management information
systems in an effective, efficient and timely manner;

o increase the managerial skills of our supervisors;

o maintain and strengthen our relationships with our contract
manufacturers and fulfillment provider; and

o more effectively manage our supply chain.

We have experienced returns of our products, which could in the future harm our
reputation and negatively impact our operating results.

In the past, some of our customers have returned products to us because
the product did not meet their expectations, specifications and requirements.
These returns were 4% of revenue for the six months ended June 30, 2003 and 5%
of revenue for the year ended December 31, 2002. It is likely that we will
experience some level of returns in the future and, as our business grows, this
level may be more difficult to estimate. A portion of our sales to distributors
is generally under terms that provide for certain stock balancing privileges.
Under the stock balancing programs, some distributors are permitted to return up
to 20% of their prior quarter's purchases, provided that they place a new order
for equal or greater dollar value of the amount returned.

Also, returns may adversely affect our relationship with those
customers and may harm our reputation. This could cause us to lose potential
customers and business in the future. We maintain a financial reserve for future
returns that we believe is adequate given our historical level of returns. If
returns increase, however, our reserve may not be sufficient and operating
results could be negatively affected.

We may have design quality and performance issues with our products that may
adversely affect our reputation and our operating results.

A number of our products are based on new technology and the designs
are complex. As such, they may contain undetected errors or performance
problems, particularly during new or enhanced product launches. Despite product
testing prior to introduction, our products have in the past, on occasion,
contained errors that were discovered after commercial introduction. Errors or
performance problems may also be discovered in the future. Any future defects
discovered after shipment of our products could result in loss of sales, delays
in market acceptance or product returns and warranty costs. We attempt to make
adequate allowance in our new product release schedule for testing of product
performance. Because of the complexity of our products, however, our release of
new products may be postponed should test results indicate the need for redesign
and retesting,

-28-

or should we elect to add product enhancements in response to customer feedback.
In addition, third-party products, upon which our products are dependent, may
contain defects which could reduce or undermine the performance of our products
and adversely affect our operating results.

We may incur product liability claims which could be costly and could harm our
reputation.

The sale of our products involves risk of product liability claims
against us. We currently maintain product liability insurance, but our product
liability insurance coverage is subject to various coverage exclusions and
limits and may not be obtainable in the future on terms acceptable to us, or at
all. We do not know whether claims against us with respect to our products, if
any, would be successfully defended or whether our insurance would be sufficient
to cover liabilities resulting from such claims. Any claims successfully brought
against us could harm our business.

If we are unable to hire additional qualified personnel as necessary or if we
lose key personnel, we may not be able to successfully manage our business or
achieve our objectives.

We believe our future success will depend in large part upon our
ability to identify, attract and retain highly skilled managerial, engineering,
sales and marketing, finance and operations personnel. Competition for personnel
in the technology industry is intense, and we compete for personnel against
numerous companies, including larger, more established companies with
significantly greater financial resources. There can be no assurance we will be
successful in identifying, attracting and retaining personnel.

Our success also depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, finance
and manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success depends on Charles R. Mollo,
Chief Executive Officer and President, Joan W. Brubacher, Executive Vice
President and Chief Financial Officer and Timothy S. Jeffries, Executive Vice
President and Chief Operating Officer. We do not maintain key person life
insurance on any of our executive officers. Except for Messrs. Mollo and
Jeffries and Ms. Brubacher, we do not have employment contracts covering any of
our senior management. The loss of the services of any of our key personnel, the
inability to identify, attract or retain qualified personnel in the future or
delays in hiring required personnel could make it difficult for us to manage our
business and meet key objectives, such as timely product introductions.

We may not be able to secure additional financing to meet our future capital
needs.

We expect to expend significant capital to further develop our
products, increase awareness of our brand names and to expand our operating and
management infrastructure as needed to support our anticipated growth. We may
use capital more rapidly than currently anticipated. Additionally, we may incur
higher operating expenses and generate lower revenue than currently expected,
and we may be required to depend on external financing to satisfy our operating
and capital needs, including the repayment of our debt obligations. We may be
unable to secure additional debt or equity financing on terms acceptable to us,
or at all, at the time when we need such funding. If we do raise funds by
issuing additional equity or convertible debt securities, the ownership
percentages of existing stockholders would be reduced, and the securities that
we issue may have rights,

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preferences or privileges senior to those of the holders of our common stock or
may be issued at a discount to the market price of our common stock which would
result in dilution to our existing stockholders. If we raise additional funds by
issuing debt, we may be subject to debt covenants, such as the debt covenants
under our secured credit facility, which could place limitations on our
operations including our ability to declare and pay dividends. Our inability to
raise additional funds on a timely basis would make it difficult for us to
achieve our business objectives and would have a negative impact on our
business, financial condition and results of operations.

RISKS RELATED TO OUR INDUSTRY

Intense competition in the market for mobile electronic devices could adversely
affect our revenue and operating results.

The market for mobile electronic devices in general is intensely
competitive, subject to rapid changes and sensitive to new product introductions
or enhancements and marketing efforts by industry participants. We expect to
experience significant and increasing levels of competition in the future. There
can be no assurance that we can maintain our competitive position against
current or potential competitors, especially those with greater financial,
marketing, service, support, technical or other competitive resources. Recently,
we settled a patent infringement suit with Comarco, one of our competitors in
power products, that resulted in a cross license, which does not include the
right to sub-license, relating to our respective power product technology. As a
result, Comarco may be positioned to develop and market power products that are
substantially similar to our products.

We currently compete with the internal design efforts of both our OEM
and non-OEM customers. These OEMs, as well as a number of our non-OEM
competitors, have larger technical staffs, more established and larger marketing
and sales organizations and significantly greater financial resources than we
do. There can be no assurance that such competitors will be unable to respond as
quickly to new or emerging technologies and changes in customer requirements,
devote greater resources to the development, sale and promotion of their
products better than we do or develop products that are superior to our products
or that achieve greater market acceptance.

Our future success will depend, in part, upon our ability to increase
sales in our targeted markets. There can be no assurance that we will be able to
compete successfully with our competitors or that the competitive pressures we
face will not have a material adverse effect on our business. Our future success
will depend in large part upon our ability to increase our share of our target
market and to sell additional products and product enhancements to existing
customers. Future competition may result in price reductions, reduced margins or
decreased sales.

Should the market demand for mobile electronic devices decrease, we may not
achieve anticipated revenue.

The demand for the majority of our products and technology is primarily
driven by the underlying market demand for mobile electronic devices. Should the
growth in demand for mobile electronic devices be inhibited, we may not be able
to increase or sustain revenue. Industry growth depends in part on the following
factors:

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o increased demand by consumers and businesses for mobile electronic
devices; and

o the number and quality of mobile electronic devices in the market.

The market for our products and services depends on economic conditions
affecting the broader information technology market. Prolonged weakness in this
market has caused in the past and may cause in the future customers to reduce
their overall information technology budgets or reduce or cancel orders for our
products. In this environment, our customers may experience financial
difficulty, cease operations and fail to budget or reduce budgets for the
purchase of our products and services. This, in turn, may lead to longer sales
cycles, delays in purchase decisions, payment and collection, and may also
result in downward price pressures, causing us to realize lower revenue and
operating margins. In addition, general economic uncertainty and the recent
general decline in capital spending in the information technology sector make it
difficult to predict changes in the purchasing requirements of our customers and
the markets we serve. We believe that, in light of these events, some businesses
have and may continue to curtail or suspend capital spending on information
technology. These factors may cause our revenue and operating margins to
decline.

If our products fail to comply with domestic and international government
regulations, or if these regulations result in a barrier to our business, our
revenue could be negatively impacted.

Our products must comply with various domestic and international laws,
regulations and standards. For example, the shipment of our products from the
countries in which they are manufactured to other international or domestic
locations requires us to obtain export licenses and to comply with possible
import restrictions of the countries in which we sell our products. In the event
that we are unable or unwilling to comply with any such laws, regulations or
standards, we may decide not to conduct business in certain markets.
Particularly in international markets, we may experience difficulty in securing
required licenses or permits on commercially reasonable terms, or at all. In
addition, we are generally required to obtain both domestic and foreign
regulatory and safety approvals and certifications for our products. Failure to
comply with existing or evolving laws or regulations, including export and
import restrictions and barriers, or to obtain timely domestic or foreign
regulatory approvals or certificates could negatively impact our revenue.

RISKS RELATED TO OUR COMMON STOCK

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Our common stock price has been volatile, which could result in substantial
losses for stockholders.

Our common stock is currently traded on the Nasdaq National Market. We
have in the past experienced, and may in the future experience, limited daily
trading volume. The trading price of our common stock has been and may continue
to be volatile. The market for technology companies, in particular, has at
various times experienced extreme volatility that often has been unrelated to
the operating performance of particular companies. These broad market and
industry fluctuations may significantly affect the trading price of our common
stock, regardless of our actual operating performance. The trading price of our
common stock could be affected by a number of factors, including, but not
limited to, changes in expectations of our future performance, changes in
estimates by securities analysts (or failure to meet such estimates), quarterly
fluctuations in our sales and financial results and a variety of risk factors,
including the ones described elsewhere in this prospectus. Periods of volatility
in the market price of a company's securities sometimes result in securities
class action litigation. If this were to happen to us, such litigation would be
expensive and would divert management's attention. In addition, if we needed to
raise equity funds under adverse conditions, it would be difficult to sell a
significant amount of our stock without causing a significant decline in the
trading price of our stock.

Our stock price may decline if additional shares are sold in the market.

As of August 11, 2003, we had 23,551,942 shares of common stock
outstanding. All but 3,009,881 of the outstanding shares may currently be sold
by stockholders. We have agreed to register the 3,009,881 shares not currently
eligible for sale. Of the 23,551,942 shares of common stock currently
outstanding, 7,200,000 shares were issued by us directly to stockholders
pursuant to registration statements filed with the SEC; 1,367,822 shares are
eligible for sale or have been sold pursuant to a registration statement
currently effective with the SEC; and approximately 11,974,239 shares are
eligible for resale or have been sold pursuant to Rule 144.

Future sales of substantial amounts of shares of our common stock by
our existing stockholders in the public market, or the perception that these
sales could occur, may cause the market price of our common stock to decline. We
may be required to issue additional shares upon exercise of previously granted
options and warrants that are currently outstanding. As of August 11, 2003, we
had 2,484,527 shares of common stock issuable upon exercise of stock options
under the stock option plan, of which 956,925 options were exercisable as of
August 11, 2003; a total of 383,915 shares available for future issuance under
our stock option plan; 164,685 shares issuable under options granted outside our
plan; 1,828,461 shares of common stock issuable under our Employee Stock
Purchase Plan; warrants to purchase 410,123 shares of common stock; and 548,047
shares of common stock issuable upon the conversion of 491,258 shares of Series
C preferred stock convertible at a 1-to-1.1156 basis. Increased sales of

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our common stock in the market after exercise of currently outstanding options
could exert significant downward pressure on our stock price. These sales also
might make it more difficult for us to sell equity or equity-related securities
in the future at a time and price we deem appropriate.

Our executive officers, directors and principal stockholders have substantial
influence over us.

As of June 30, 2003, our executive officers, directors and principal
stockholders together beneficially own approximately 19.8% of the outstanding
shares of common stock. As a result, these stockholders, acting together, may be
able to exercise substantial influence over all matters requiring approval by
our stockholders, including the election of directors and approval of
significant corporate transactions. The concentration of ownership may also have
the effect of delaying or preventing a change in our control that may be viewed
as beneficial by the other stockholders.

In addition, our certificate of incorporation does not provide for
cumulative voting with respect to the election of directors. Consequently, our
present directors, executive officers, principal stockholders and our respective
affiliates may be able to control the election of the members of the board of
directors. Such a concentration of ownership could have an adverse effect on the
price of the common stock, and may have the effect of delaying or preventing a
change in control, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices.

Provisions of our certificate of incorporation and bylaws could make a proposed
acquisition that is not approved by our board of directors more difficult.

Some provisions of our certificate of incorporation and bylaws could
make it more difficult for a third party to acquire us even if a change of
control would be beneficial to our stockholders. These provisions include:

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o authorizing the issuance of preferred stock, with rights senior to
those of the common stockholders, without common stockholder approval;

o prohibiting cumulative voting in the election of directors;

o a staggered board of directors, so that no more than two of our five
directors are elected each year; and

o limiting the persons who may call special meetings of stockholders.

Our stockholder rights plan may make it more difficult for others to obtain
control over us, even if it would be beneficial to our stockholders.

In June 2003, our board of directors adopted a stockholders rights
plan. Pursuant to its terms, we have distributed a dividend of one right for
each outstanding share of common stock. These rights cause substantial dilution
to the ownership of a person or group that attempts to acquire us on terms not
approved by our board of directors and may have the effect of deterring hostile
takeover attempts. These provisions could discourage a future takeover attempt
which individual stockholders might deem to be in their best interests or in
which shareholders would receive a premium for their shares over current prices.

Delaware law may delay or prevent a change in control.

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. These provisions prohibit large stockholders, in particular a
stockholder owning 15% or more of the outstanding voting stock, from
consummating a merger or combination with a corporation unless this stockholder
receives board approval for the transaction or 66 2/3% of the shares of voting
stock not owned by the stockholder approve the merger or transaction. These
provisions could discourage a future takeover attempt which individual
stockholders might deem to be in their best interests or in which shareholders
would receive a premium for their shares over current prices.

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BUSINESS

Our Company

We are a leading provider of innovative products and solutions for the
mobile electronic industry. We utilize our proprietary technology to design and
develop products that make mobile electronic devices more efficient and cost
effective, thus enabling professionals and consumers higher utilization of their
mobile devices and the ability to access information more readily.

We have created a broad base of branded and private-label products that
focus on providing power, enhancing handheld connectivity and expanding
peripheral computer interface, or PCI, capabilities. We primarily sell our
products through OEMs such as IBM, Symbol Technologies, Gateway and Apple
Computer; private-label resellers such as Kensington and Fellowes; distributors
such as Ingram Micro and Tech Data; retailers such as RadioShack; resellers such
as CDW and Insight; and directly to end users through our iGo brand website,
www.igo.com(R).

Our power products, marketed either under a private-label or our iGo
brand, include our combination AC/DC universal power adapter. Juice, an iGo
branded product, allows users to charge a variety of their electronic devices
from AC power sources located in a home or office as well as DC power sources,
located in automobiles, planes and trains. In addition, Juice can be used to
simultaneously charge a notebook computer and another peripheral device such as
a mobile phone or personal digital assistant, or PDA.

Our other key product categories are handheld connectivity and PCI
expansion. Our handheld products primarily include charging cradles for handheld
devices that allow users to have a direct connection to a network environment.
Handheld products also include our Quickoffice and other software suites that
provide word processing, spreadsheet and presentation program capabilities to
the users of Palm or Symbian operating system handheld or smartphone devices. In
addition, the software allows users to edit and sync Microsoft Office documents.
Our PCI expansion products include devices designed to increase the storage
capacity and computing capability of notebook, desktop or server computers.

We believe our competitive advantages include the innovative designs
and multi-function capabilities of our products combined with our broad OEM,
private-label reseller and distribution relationships. For example, our recently
launched Juice product is gaining wide market acceptance and represented the
most significant component of our revenue growth in the first six months of
2003. We intend to continue developing and marketing innovative products and
solutions for the mobile device user.

Our Industry

Over the past two decades, technological advancements in the
electronics industry have greatly expanded mobile device capabilities. Mobile
electronic devices, many of which can be used for both business and personal
purposes, include notebook computers, mobile telephones, PDAs, digital cameras,
smartphones and portable digital video display, or DVD players. The popularity
of these devices are benefiting from reductions in size, weight and cost and
improvements in functionality, storage capacity and reliability. In addition,
advances in wireless

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connectivity technologies, such as Bluetooth and Wi-Fi, have enabled remote
access to data networks and Internet.

The increased functionality and ability to access and manage
information remotely is driving the proliferation of mobile electronic devices
and applications. As the work force becomes more mobile and spends more time
away from traditional work settings, users have sought out and become reliant on
tools that provide management of critical information and access to wireless
voice and data networks.

Mobile computing users expect the same functionality and connectivity
in their mobile devices that they possess at their home or office. For example,
today's notebook computers are substantially similar in functionality to desktop
computers in terms of processor speeds, memory and storage capacity. According
to IDC, the worldwide market for portable computers is expected to grow at a
compounded annual growth rate, or CAGR of about 12.9% from 35.3 million units in
2003 to about 57.3 million units in 2007. The U.S. market is expected to grow at
a CAGR of about 12.24% from 12.6 million units in 2003 to about 19.9 million
units in 2007. We expect this trend to continue.

Handheld devices targeting either business or consumer applications are
increasingly being adopted as greater functionality allows for the creation,
capture and management of information. These devices include PDAs and
smartphones. Each of these devices needs to be powered, connected when in the
home, the office, or on the road, and can be accessorized and represents an
opportunity for one or more of our products.

According to IDC, the worldwide market for handheld computing devices
is expected to grow at a CAGR of about 7.9% from 12.3 million units in 2003 to
about 16.7 million units in 2007 and the U.S. market for handheld electronic
devices is expected to grow at a CAGR of about 2.3% from 6.3 million units in
2003 to about 6.9 million units by 2007. According to IDC, the worldwide market
for converged handheld devices, including smart handheld computing devices, is
expected to grow at a compounded annual growth rate, or CAGR of about 57.6% from
13.1 million units in 2003 to about 80.6 million units in 2007. The US market is
expected to grow at a CAGR of about 64.8% from 3.4 million units in 2003 to
about 25.3 million units in 2007. According to IDC, the aggregate worldwide
market for portable computing devices and smart handheld computing device totals
about 154.6 million units by 2007.

INDUSTRY CHALLENGES. As mobile electronic devices gain widespread
acceptance, users will continue to confront limitations on their use, driven by
such things as battery life, charging flexibility and compatibility,
connectivity and performance. Furthermore, as users seek to manage multiple
devices in their daily routine, the limitations of any one of these functions
will tend to be exacerbated.

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Power. Mobile electronic device users, by definition, largely require
the use of their devices while away from their home or office. Many portable
devices offer designs and form factors that support portability and travel
comfort; however, mobile devices have limited battery life, which necessitates
the need to frequently connect to a power source to operate the device or
recharge the battery. A number of factors limit the efficient use and charging
of these devices:

o Most power adapters are compatible with either AC
only power sources located in places such as a home
or office, or DC only power sources such as those
located in automobiles, planes and trains;

o The majority of power adapters are model-specific
requiring a mobile user to carry a dedicated power
adapter for each device;

o Mobile electronic devices are generally packaged with
only one power adapter and many users purchase
additional power adapters for convenience and ease of
use; and

o Mobile users tend to carry multiple electronic
devices and at times only one power source is
available, such as an automobile's cigarette lighter,
limiting a user's ability to recharge multiple
devices.

Mobile electronic device users, who usually have limited available
space in their briefcase or luggage, desire solutions that make their mobile
experience more convenient. We believe this creates the need for a universal
power adapter that has the ability to simultaneously charge multiple mobile
devices.

Handheld Connectivity. Handheld devices continue to face challenges
with respect to their ability to interface directly with a network and across
various software operating systems.

Traditional handheld connectivity devices, known as cradles, offer
limited options to communicate with networks, computer peripherals and display
devices without the presence of a portable or desktop computer. Additionally,
commonly used software applications, such as Microsoft Office, are not available
on handheld devices using the Palm or Symbian operating systems.

We believe the need exists for solutions to address both the
connectivity problems and software compatibility issues associated with handheld
devices.

PCI Expansion. PCI slots are commonly used to expand and extend
computing capabilities. Computer manufacturers only provide a limited number of
PCI slots in their products, limiting the space available to add additional PCI
cards. We believe this provides an opportunity for solutions to conveniently and
efficiently expand the availability of PCI slots.

The heightened awareness of efficient power, space and information
management creates an opportunity for solutions to address these needs. We
believe our products offer innovative solutions that provide power, enhance
handheld connectivity and expand PCI capabilities.

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OUR SOLUTIONS

We focus on providing a broad range of solutions that satisfy the
overall needs of the mobile electronic user. Our power, handheld connectivity
and PCI expansion solutions each address particular challenges as follows:

POWER. Our power adapter product family focuses on providing innovative
solutions that allow mobile device users to operate and charge their devices in
a vehicle, an airplane, a home or an office. For example, our combination AC/DC
universal power adapter, called Juice, allows the simultaneous charging of a
portable computer and a secondary electronic device such as a mobile phone or
PDA. Our power solutions provide users a new and more convenient way to use
power adapters.

HANDHELD CONNECTIVITY. Our leading connectivity products are cradles
for handheld devices that provide connectivity to a network without the need for
a computer and are particularly beneficial where handheld devices are the user's
primary computing device. Uses include inventory management, logistics and
pharmaceutical field trials. Our Quickoffice software suite provides users of
handheld devices running Palm or Symbian operating systems with word processing,
spreadsheet, and presentation software capability. In addition, the software
allows users to edit and sync Microsoft Word, PowerPoint and Excel documents. We
believe that our connectivity products effectively fill gaps in the offering of
the leading handheld device OEMs and software vendors.

PCI EXPANSION. We offer a variety of PCI slot expansion products for
portable computers, desktop computers and servers. These solutions allow the
users to cost effectively expand the capability of their existing computing
devices thereby increasing portability, flexibility and performance needed for
high-end computing applications without requiring duplicative or redundant
hardware. We provide these products to a range of industries, including
audio/video editing, test and measurement, industrial automation, broadcast and
telephony.

OUR STRATEGY

We intend to capitalize on our current strategic position in the mobile
electronic market by continuing to introduce innovative high-technology
products that suit the needs of a broad range of users in each of our major
product areas. It is our goal to be a market leader in each of the product
solution categories in which we will compete, and to offer mobile users unique,
innovative solutions. Elements of our strategy include:

CONTINUE TO DEVELOP INNOVATIVE PRODUCTS. We have a history of designing
and developing highly differentiated products to serve the needs and enhance the
experience of mobile electronic device users. For example, we recently
introduced Juice, our combination AC/DC universal power adapter. Juice is the
first in a series of products designed to address this growing multiple device,
universal power adapter market segment. We intend to continue to develop and
market a broad range of highly differentiated products that address additional
markets in which we choose to compete. We also intend to protect our
intellectual property position in these markets by aggressively filing for
additional patents on an ongoing basis.

EXPAND OUR OEM RELATIONSHIPS. We have relationships with original
equipment manufacturers, or OEMs such as IBM, Symbol, Gateway and Apple where we
provide branded

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and private-label products for a broad range of end-market applications. We
intend to continue to expand and strengthen our relationships by designing and
manufacturing high quality products to meet the exacting specifications required
by our OEM customers.

LEVERAGE OUR STRATEGIC RELATIONSHIPS. During 2003, we entered into
strategic relationships with Kensington and Fellowes to private-label our
existing products and co-develop next generation products. We expect that these
relationships will significantly increase the availability and exposure of our
products, particularly among large national and international retailers such as
BestBuy, CompUSA, Circuit City, Wal-Mart, Office Depot and Staples. For example,
Fellowes has a vast worldwide distribution network, encompassing nearly 30,000
retail stores.

CAPITALIZE ON OUR STRONG DISTRIBUTION CHANNELS. We currently sell our
products worldwide through leading distributors including Ingram Micro and Tech
Data, and direct to RadioShack and CDW. We intend to leverage these powerful
distribution relationships to provide an extensive retail presence, and enable
an efficient distribution channel to provide broad availability of our products.

PURSUE STRATEGIC ACQUISITIONS. We intend to continue to evaluate
opportunities to acquire complementary businesses, technologies and products
that address the mobile computing market. We also plan to pursue acquisitions
that will enable us to more rapidly develop and bring to market advanced
technology, to expand distribution capabilities and/or to penetrate other
targeted markets or geographic locations.

Our Products

We provide a broad range of products designed to satisfy the power and
connectivity needs experienced by the mobile electronic device user while
traveling, at home or in the office. Our products provide customers with
solutions specifically in three aspects of mobile computing: versatile power
sourcing and charging, increased handheld device functionality and PCI
expansion. The following is a description of our primary products by category,
which are sold both under our own brand and the private-label brands of our
OEMs, and to private-label reseller, distribution and retail customers.

POWER. We recently introduced a combination AC/DC universal power
adapter, called Juice, which allows for the simultaneous charging of a portable
computer and a secondary device, such as a mobile phone or PDA, in a vehicle, an
airplane, a home or an office. This power adapter is compatible with a wide
range of portable electronic devices and eliminates the need to carry multiple
charging units. In addition, we offer a range of DC to DC power adapters, more
commonly known as auto/air adapters that allow mobile computer users to power
their computing device in a vehicle, a boat, or an airplane; a range of AC to DC
power adapters; and a range of batteries for portable computers.

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o Universal compatibility. Patented tip technology
allows a single Juice product to plug into a
substantial portion of notebooks currently in the
market, including those produced by major
manufacturers, such as IBM, Dell, HP iPAQ, Gateway
and Apple.

o Ample power. The current version of Juice
delivers 70 watts of electricity to safely charge
most notebook computers without the need for the user
to determine the proper voltage settings.

o Multiple device charging capability. Ability to
simultaneously charge a secondary device using our
optional Peripheral Powering System, or PPS,
accessory.

Peripheral Powering o Power adapter companion. The Peripheral Powering
System extends the System versatile power charging options
of our power adapter products to devices beyond
mobile computers, such as handhelds and mobile
phones.

o Broad compatibility. The PPS is available for a
wide range of devices including handhelds
manufactured by Palm, Handspring, Sony and Compaq and
mobile phones produced by Nokia, Motorola, Kyocera
and Ericsson.

o Streamlined. The PPS unit enables the power
adapter to simultaneously charge a mobile computer
and a secondary device, eliminating the need to carry
multiple charging adapters.

o Ample power. Provides 7.5 watts of power to a
mobile phone or PDA while simultaneously charging a
notebook. An enhanced 12 watt upgrade will also be
available shortly.

It is our intent to continue to introduce highly differentiated power
products that address the needs of mobile electronic device users, broaden our
power product family and leverage our existing OEM, private-label reseller and
distribution channel relationships. Below are details on some of our new power
products that we intend to introduce over the next few quarters.

ice(90) o Ample power. Our first AC notebook adapter
specially designed and engineered to meet the
requirements of higher power notebooks that are
typically used as desktop replacements. The current
version delivers 90 watts of power, with full power
factor correction, to safely charge most notebook
computers without the need for the user to determine
the proper voltage settings.

o Universal compatibility. Our tip technology
allows a single Ice product to plug into a
substantial portion of notebooks currently in the
market, including those produced by major
manufacturers, such as IBM, Dell, Hewlett Packard,
Compaq, Gateway and Apple.

o Multiple device charging capability. Ability to
simultaneously charge a secondary device using our
optional PPS accessory.

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AC and DC Power Adapters & Other. We offer a lower cost AC-only power
adapter and DC-only power adapter for a broad range of notebook computers and
other personal electronic devices such as DVD players. These products include
our patented remote programmability providing compatibility with a broad range
of electronic devices. In addition, we provide a broad line of notebook
batteries.

OEM Products. We also develop a range of custom power products for our
OEM and private label partners, including unique products that have been, or are
being, developed for OEM's such as IBM and private label partners such as
Kensington and Fellowes.

HANDHELD CONNECTIVITY. We offer a family of hardware and software
solutions that expand the connectivity, flexibility and functionality of
handheld and other electronic devices, including PDAs and smartphones.

Hardware Products. We produce innovative cradles for handheld computing
devices that provide a charging station and direct network connectivity without
the need for a computer and are beneficial where handheld devices are the user's
primary computing device. Uses include inventory management, logistics and
pharmaceutical field trials. Our Pitch(TM) product allows a user to conduct
presentations directly from their PDA or smartphone to a projector or monitor.
Professionals who regularly conduct presentations can now choose to use a
light-weight handheld device instead of their notebook computer.

Software Products. We offer a software package called Quickoffice that
provides word processing, spreadsheet and presentation program capabilities to
the users of PDAs or smartphone devices. In addition, the software allows users
to edit and sync Microsoft Word, PowerPoint and Excel documents on their
handheld devices. Quickoffice is compatible with Palm OS and Symbian, a leading
operating system for smartphones. Our software is currently offered as a bundle
option with smartphones offered by Kyocera, Handspring, and Samsung; with PDA
devices offered by AlphaSmart; and with Synchrologic's corporate e-mail
software. In addition, we are in negotiations with other major manufacturers of
smartphones.

PCI EXPANSION. We offer a variety of PCI slot expansion products for
portable computers, desktop computers and servers, including PCI to PCI
expansion, CardBus to PCI expansion, Switched Fabric Expansion, Split Bridge and
other non-enclosed links and board sets, and Serial PCI and SBus products. These
solutions allow the user to cost effectively expand the

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capability of their computing device, permitting the application of solutions
that were not previously possible or that were prohibitively expensive. For
example, our expansion products can be used to add necessary storage or PCI
capability to an existing server, eliminating the need to purchase additional
servers.

Our family of PCI expansion products also provides users of PCI-based
systems the portability, flexibility and performance needed for high-end
computing applications. We provide these products to a range of industries,
including audio/video editing, test and measurement, industrial automation,
broadcast, telephony and others that can now have scalable systems that could
not previously be used in mobile settings because of system limitations.

ACCESSORIES. In addition to our other products, we market a number of
mobile device accessories such as port replicators, monitor stands, mobile phone
accessories and notebook computer stands.

Sales and Marketing

We market and sell our products on a worldwide basis to OEMs,
private-label resellers, distributors, resellers, retailers and direct to end
users through our iGo website. Our OEM and private-label reseller sales
organization is primarily aligned along our core product lines: power, handheld
connectivity and PCI expansion. In addition, our distribution channel sales team
focuses on selling our iGo branded products throughout North America and the
United Kingdom.

We implement a variety of marketing activities to aggressively market
our family of products. Such activities include participation in major trade
shows, key OEM and distribution catalogs, distribution promotions, reseller and
information technology manager advertising, on-line advertising and banner ads,
direct mail and telemarketing and bundle advertisements with OEMs and
distribution channel partners. In addition, we pursue a strong public relations
program to educate the market regarding our products.

Customers

We sell to OEMs, private-label resellers, distributors, resellers,
retailers, direct to end users and through our iGo website. Our customers
include:

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- ----------

(1) We supply these customers products on a private-label basis.

(2) These customers purchase from us through distributors.

As a group, the OEMs and private-label resellers, and distributors and
retailers listed in the table above accounted for 46% and 8%, respectively, of
revenue for the year ended December 31, 2002. OEMs and private-label resellers
and distributors and retailers listed in the chart above accounted for 35% and
39% for the six months ended June 30, 2003. Our distributors sell a wide range
of our products to value-added resellers, system integrators, cataloguers, major
retail outlets and certain OEM fulfillment outlets worldwide.

During 2003, we entered into strategic relationships with Kensington
and Fellowes to private-label our existing products and co-develop next
generation products. We expect that these relationships will significantly
increase the availability and exposure of our products, particularly among large
national and international electronics and office products retailers.

IBM, which purchases brand labeled power products and monitor stands,
accounted for 20% of our revenue for the year ended December 31, 2002 and 14%
for the six months ended June 30, 2003. Symbol Technologies, which purchases
serial and modem cradles for handheld computing devices, accounted for 20% of
our revenue for the year ended December 31, 2002 and 14% for the six months
ended June 30, 2003. Invision Software, which is a distributor of handheld
connectivity products, distributes serial and modem cradles for handheld
computing devices and accounted for 11% of our revenue for the six months ended
June 30, 2003. No other customer accounted for greater than 10% of sales for the
year ended December 31, 2002. International sales were approximately 14% of
revenue for the year ended December 31, 2002 and for the six months ended June
30, 2003. The principal international market we serve is Europe.

As is generally the practice in our industry, 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 are netted against our reported revenue, were
approximately 5% of revenue for the year ended December 31, 2002 and 4% for the
six months ended June 30, 2003.

Research and Development

Our research and development efforts focus primarily on enhancing our
current products and developing innovative new products to address a variety of
mobile electronic device needs and requirements. We work with customers,
prospective customers and outsource partners to identify and implement new
solutions intended to meet the current and future needs of the markets we serve.

As of August 11, 2003, our research and development group consisted of
31 persons who are responsible for hardware and software design, test and
quality assurance. In addition, industrial design services are provided to us by
several of our outsource partners under the supervision of our in-house research
and development group. Amounts spent on research and development for the six
months ended June 30, 2003 and the years ended

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December 31, 2002, 2001 and 2000 were $2.2 million, $5.8 million, $5.6 million
and $5.9 million, respectively.

Manufacturing and Logistics

In order to develop and manufacture innovative products
cost-effectively, we have implemented a strategy to outsource portions of design
and substantially all of the manufacturing services for our products. Our
internal activities are focused on design, low-volume manufacturing and quality
testing and our outsourced providers are focused on high-volume manufacturing,
certain design services and logistics.

For example, Hipro Electronics Co., Ltd., a leading designer, developer
and manufacturer of a variety of power adapter products based in Taiwan,
currently manufactures Juice, our combination AC/DC universal power adapter. In
contrast, we focus our internal manufacturing activity on our PCI expansion
products, which are low-volume products that require custom engineering support.

We purchase the principal components of our products from outside
vendors. The terms of supply contracts are negotiated by us or our manufacturing
partners with each vendor. We believe that our present vendors have sufficient
capacity to meet our supply requirements and that alternative production sources
for most components are generally available without interruption. However,
several vendors, including those that provide components for certain of our
handheld connectivity products, are sole sourced.

The majority of our OEM products are shipped by our outsource
manufacturers to our OEM customers or their fulfillment hubs. We employ the
services of an outsource logistics company to efficiently manage the packaging
and shipment of our iGo branded products. The logistics company breaks down and
packages the iGo branded products for our various distribution channels.

Competition

The market for our products is intensely competitive, subject to rapid
change and sensitive to new product introductions or enhancements and marketing
efforts by industry participants. The principal competitive factors affecting
the markets for our product offerings include corporate and product reputation,
innovation with frequent product enhancement, breadth of integrated product
line, product design, functionality and features, product quality, performance,
ease-of-use, support and price.

Although we believe that our products compete favorably with respect to
such factors, there can be no assurance that we can maintain our competitive
position against current or potential competitors, especially those with greater
financial, marketing, service, support, technical or other competitive
resources. However, we believe that our innovative products, coupled with our
strategic relationships with key OEMs, private-label resellers, distributors,
resellers and retailers provide us a competitive advantage in the marketplace.

Our power products primarily compete with products offered by
specialized third party mobile computing accessory companies, including American
Power Conversion, Belkin,

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Comarco (who distributes via Targus), Lind, and RRC Power Solutions. In
addition, we compete with the internal design efforts of our OEM and non-OEM
customers. Our handheld products generally compete with products offered by
specialized third party accessory companies, including Margi and Data Viz. Our
PCI expansion products primarily compete with products offered by SBS
Communications.

Proprietary Rights

We primarily rely on a combination of patent protection, copyright and
trademark laws, trade secrets, nondisclosure agreements and technical measures
to protect our proprietary rights. We file domestic and foreign patent
applications to protect our technological position and new product development.
As of July 31, 2003 we held 31 U.S. patents and 5 foreign patents and had 43
patents pending.

In general, our patents cover a variety of aspects of the technology
utilized in our power, handheld and PCI expansion product lines. We currently
license different aspects of our proprietary rights to third parties pursuant to
strategic alliances, which often include cross-licensing arrangements.

We typically enter into confidentiality agreements with our employees,
distributors, customers and potential customers, and limit access to, and
distribution of, our product design documentation and other proprietary
information. Moreover, we enter into non-competition agreements with employees,
except where restricted by law, whereby the employees are prohibited from
working for our competitors for a period of one year after termination of their
employment and from sharing confidential information with them as long as the
information remains confidential.

Employees

As of August 11, 2003, we had 118 full-time employees, 117 of which are
located in the United States and 1 of which is located in Europe, including 28
employed in operations, 31 in engineering, 32 in sales and marketing and 27 in
administration. We engage temporary employees from time to time to augment our
full time employees, generally in operations. None of our employees are covered
by a collective bargaining agreement. We believe we have good relationships with
our employees.

Properties

Our corporate offices are located in Scottsdale, Arizona. This facility
consists of approximately 20,182 square feet of leased space pursuant to a lease
for which the current term expires on September 30, 2008. Additionally, we lease
offices in San Diego, California; Boise, Idaho and Plano, Texas to support our
selling, research and development and general administrative activities. Our San
Diego facility is also utilized for light assembly of computer peripheral
products. Our warehouse and product fulfillment operations are conducted by

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PFSWeb at a location in Memphis, Tennessee. We believe our facilities are
suitable and adequate for our current business activities for the remainder of
the lease terms.

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

(a) Exhibits:

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- --------

* Filed herewith

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

(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 Amendment No. 4 to Registration
Statement No. 333-30264 on Form S-1 dated May 26, 2000.

(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 21, 2003.

(8) Previously filed as an exhibit to Current Report on Form 8-K No.
000-30907 filed on June 19, 2003.

(b) Reports on Form 8-K:

On May 6, the Company filed a report on Form 8-K under Items 7,
Financial Statements and Exhibits, and 12, Results of Operations
and Financial Condition.

On June 12, 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 adoption of a
stockholder rights plan.

On June 19, 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 specific terms
of its stockholder rights plan.

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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: August 14, 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)

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MOBILITY ELECTRONICS, INC.

INDEX TO EXHIBITS

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- ----------

* Filed herewith

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

(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 Amendment No. 4 to Registration
Statement No. 333-30264 on Form S-1 dated May 26, 2000.

(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 21, 2003.

(8) Previously filed as an exhibit to Current Report on Form 8-K No.
000-30907 filed on June 19, 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.

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