UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from __________________ to _________________

Commission file number: 0-30907

Mobility Electronics, Inc.

Delaware
(State or Other Jurisdiction of Incorporation)

(Registrant’s telephone number, including area code): (480) 596-0061

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value
Series G Junior Participating Preferred Stock, $0.01 par value

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ        No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ       No o

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2004) was approximately $216 million. Shares of voting stock held by each officer and director and by each person who owns 10% or more of the registrant’s outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The registrant does not have any outstanding shares of non-voting common equity.

There were 28,683,169 shares of the registrant’s common stock issued and outstanding as of March 1, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to its Annual Meeting of Stockholders to be held on May 24, 2005 are incorporated by reference into Part II and Part III of this Form 10-K.

MOBILITY ELECTRONICS, INC.
FORM 10-K

TABLE OF CONTENTS

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DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

     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 our anticipated revenue, gross margin, and related expenses for 2005; the availability of cash and liquidity; expectations of industry trends; beliefs relating to our distribution capabilities and brand identity; expectations regarding new product introductions; the anticipated strength of our patent portfolio; and our expectations regarding the outcome and anticipated impact of various litigation proceedings in which we are involved. 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. Factors that could cause or contribute to such differences include those discussed herein under the heading “Risk Factors” and those set forth in other reports that we file with the Securities and Exchange Commission. Additional factors that could cause actual results to differ materially from those expressed in these forward-looking statements include, among others, the following:

	•	the loss of, and failure to replace, any significant customers;
	•	the timing and success of new product introductions;
	•	product developments, introductions and the pricing of competitors;
	•	the timing of substantial customer orders;
	•	the availability of qualified personnel;
	•	the 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.

PART I

Item 1. Business

Our Company

     We are a leading provider of innovative products and solutions for the mobile electronics 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 devices and expanding peripheral computer interface (PCI) capabilities. We primarily sell our products through OEMs such as International Business Machines Corporation (IBM), Dell Inc., and Symbol Technologies, Inc; private-label resellers such as Kensington Technology Group and Targus Group International; distributors such as Ingram Micro Inc.; retailers such as RadioShack Corporation; resellers such as CDW Corporation; and directly to end users through our iGo® brand website, www.igo.com.

     Our power products, marketed either under a private-label or our iGo brand, include our range of AC, DC and combination AC/DC universal power adapters. Our combination AC/DC power adapters allow users to charge a variety of their electronic devices from AC power sources located in a home, office or hotel room as well as DC power sources located in automobiles, planes and trains. Each of these adapters utilizes our patented intelligent tip technology, which allows the use of a single power adapter with interchangeable tips to charge a variety of mobile electronic devices, including portable computers, mobile phones, smartphones, PDAs, and other handheld devices. When our power adapters are combined with our optional iGo DualPower™ accessory, the user can also simultaneously charge multiple mobile electronic devices.

     Our other key product categories are handheld connectivity, and expansion and docking products. Our handheld connectivity products consist of charging cradles for handheld devices that allow users to have a direct connection to a network environment. Our

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expansion and docking products include devices designed to increase the storage capacity and computing capability of portable, desktop or server computers.

     We believe our competitive advantages include our extensive intellectual property portfolio, the innovative designs and multi-function capabilities of our products, and our broad OEM, private-label reseller and distribution relationships. For example, our family of power products is gaining wide market acceptance and represented a significant component of our revenue growth in 2003 and 2004. We intend to continue developing and marketing innovative products and solutions for the mobile electronic device user.

     We were incorporated in Delaware in August 1996, and our headquarters are in Scottsdale, Arizona. The mailing address of our headquarters is 17800 N. Perimeter Dr., Suite 200, Scottsdale, Arizona 85255, and our telephone number at that location is (480) 596-0061. Our Website is www.mobilityelectronics.com. Through a link on the Investor Relations section of our Website, we make available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”): our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings are available free of charge.

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 portable computers, mobile phones, smartphones, PDAs, handheld devices, digital cameras, camcorders, portable DVD players, MP3 players, and portable game consoles. The popularity of these devices is benefiting from reductions in size, weight and cost and improvements in functionality, storage capacity and reliability. In addition, advances in wireless connectivity technologies, such as Bluetooth and Wi-Fi, have enabled remote access to data networks and the Internet.

     Increased functionality and the ability to access and manage information remotely are 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. Each of these mobile electronic devices needs to be powered and connected when in the home, the office, or on the road, and can be accessorized, representing an opportunity for one or more of our products.

     Market for Our Products. Our products support mobile electronic devices in several market categories.

	•	Mobile Phone Market. According to IDC, the worldwide market for mobile phones is expected to grow at a compounded annual growth rate, or CAGR, of about 5% from approximately 629 million units in 2004 to about 760 million units in 2008. The U.S. market is expected to decline slightly from about 133 million units in 2004 to about 121 million units in 2008.
	•	Smart Handheld Device Market. According to IDC, the worldwide market for smart handheld devices, which includes smartphones, PDAs, and other handheld devices, is expected to grow at a CAGR of about 48% from approximately 29 million units in 2004 to about 139 million units in 2008 and the U.S. market for smart handheld devices is expected to grow at a CAGR of about 45% from approximately 9 million units in 2004 to about 38 million units by 2008.
	•	Portable Computer Market. According to IDC, the worldwide market for portable computers is expected to grow at a CAGR of about 17% from approximately 49 million units in 2004 to about 91 million units in 2008. The U.S. market is expected to grow at a CAGR of about 22% from approximately 17 million units in 2004 to about 36 million units in 2008. We expect these trends to continue.

     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, compatibility issues, connectivity needs and performance requirements. 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 mobile electronic devices offer designs and form factors that support portability and travel comfort;

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however, these mobile devices have limited battery life, which results in the need to frequently connect to a power source to operate the device or recharge the battery. A number of factors limit the efficient use and charging of these devices:

	–	Most power adapters are compatible with either AC-only power sources located in places such as a home, office or hotel room, or DC-only power sources such as those located in automobiles, planes, and trains;
	–	The majority of power adapters are model-specific requiring a mobile user to carry a dedicated power adapter for each device;
	–	Mobile electronic devices are generally packaged with only one power adapter, forcing many users to purchase additional power adapters for convenience and ease of use; and
	–	Mobile electronic device users tend to carry multiple devices and at times only one power source is available, such as an automobile’s cigarette lighter, limiting a user’s ability to recharge multiple devices.

		Mobile electronic device users, who usually have limited available space in their briefcase or luggage, desire solutions that make their mobile experience more convenient. We believe this creates the need for universal power adapters that have the ability to simultaneously charge multiple mobile electronic devices.
	•	Handheld Connectivity. Handheld 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. We believe the need exists for solutions to address the connectivity problems associated with handheld devices.
	•	Expansion and Docking. PCI slots are commonly used to expand and extend computing capabilities. Computer manufacturers only provide a limited number of PCI slots in their products, limiting the space available to add additional PCI cards. In addition to expanding PCI slots, portable computer users also often wish to connect to external devices when using their portable computers in a fixed setting. We believe this provides an opportunity for solutions that conveniently and efficiently expand the availability of PCI slots and provide a one-step procedure to connect external devices to portable computers.

Our Solutions

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

     Power. Our innovative power solutions eliminate the need for mobile electronic device users to carry multiple power adapters to operate and charge their devices. Our AC/DC combination power adapters work with any available power source, including the AC wall outlet in a home, office or hotel room, or the DC cigarette lighter plug in an automobile, airplane, or train. Our patented intelligent tip technology allows a user to carry a few lightweight interchangeable tips in combination with a single adapter to charge a variety of devices, including a substantial portion of the portable computers, mobile phones, smartphones, PDAs, and other mobile electronic devices currently in the market. Further, device users can simultaneously charge multiple devices by using a single adapter and our appropriate intelligent tips with our optional DualPower accessory.

     Handheld Connectivity. Our handheld products consist of 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. We believe that our handheld connectivity products effectively fill gaps in the offering of the leading handheld device OEMs.

     Expansion and Docking. We offer a variety of PCI slot expansion products for portable computers, desktop computers and servers. In addition, we offer docking stations for portable computers. These solutions allow the users to cost effectively expand the capability of their existing computing devices and connect to external devices thereby increasing portability, flexibility and

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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 device 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. We intend to continue to develop and market a broad range of highly differentiated products, like our family of power adapters, 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.

     Establish itip^TM Standard. Our patented intelligent tip technology allows a user to carry a few lightweight interchangeable tips in combination with a single adapter to charge a variety of mobile electronic devices. Our strategy is to establish a standard based on this technology in combination with our proprietary tip architecture under the brand name “itips.” We intend to recruit a broad base of mobile electronic device OEMs, wireless carriers, retailers, and distributors to proliferate this itip standard.

     Leverage Our Strategic Relationships. During 2004 and early in 2005, we entered into strategic relationships with RadioShack, Motorola, Kensington, Targus and Energizer to private-label and distribute our existing products and, in some instances, 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 and wireless carriers.

     Expand Our OEM Relationships. We have relationships with original equipment manufacturers, or OEMs such as IBM, Dell, and Symbol, where we provide branded 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.

     Pursue Strategic Acquisitions. We intend to continue to evaluate opportunities to acquire complementary businesses, technologies and products that address the mobile electronic device 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 computer expansion and docking. 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 offer a range of universal AC, DC and combination AC/DC power adapters that are designed for use with portable computers, as well as a variety of other mobile electronic devices, including mobile phones, smartphones, PDAs, digital cameras, camcorders, MP3 players, and portable game consoles.

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Portable Computer Power Products. Since inception, we have sold a variety of power products designed for use with portable computers. In early 2003, we introduced our first combination AC/DC universal power adapter, commonly referred to as JuiceTM, which is designed to power portable computers and works with any available power source, including the AC wall outlet in a home, office or hotel room, or the DC cigarette lighter plug in an automobile, airplane or train. In addition, we offer a range of DC-only power adapters, more commonly known as auto/air adapters, and a range of AC-only power adapters. This family of portable computer power adapters utilizes our patented intelligent and interchangeable tip technology which allows a single power adapter to plug into a substantial portion of the portable

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		computers in the market. When our portable computer power adapters are combined with our optional DualPower accessory, the user can simultaneously charge multiple mobile electronic devices, including mobile phones, smartphones, PDAs, digital cameras, camcorders, MP3 players, and portable game consoles, eliminating the need to carry multiple charging adapters. Sales of our portable computer power products represented approximately 63%, 55% and 26% of our total revenue for the years ended December 31, 2004, 2003 and 2002, respectively.
	•	Other Mobile Electronic Device Power Products. During 2004, we introduced our first power adapters designed for use with mobile electronic products with power requirements lower than portable computers, such as mobile phones, smartphones, PDAs, digital cameras, camcorders, MP3 players, and portable game consoles. These products include a range of DC cigarette lighter adapters, AC mobile adapters, and combination AC/DC adapters. This family of power adapters also utilizes our patented intelligent and interchangeable tip technology which allows a single power adapter to plug into a substantial portion of mobile electronic devices other than portable computers. When combined with our optional DualPower accessory, the user of these power adapters can simultaneously charge multiple mobile electronic devices. Sales of these power adapters represented approximately 7% of our total revenue for the year ended December 31, 2004.

     Handheld Connectivity. We produce innovative cradles for handheld devices that provide a charging station and direct network connectivity eliminating the need for first connecting to a desktop or portable computer. These cradles enable the use of handheld devices in applications such as inventory management, logistics and pharmaceutical field trials. Our handheld connectivity products also include our Pitch™ product, which allows a user to connect a handheld device to various peripheral devices such as keyboards, mice, and video displays. Pitch also allows a user to conduct presentations directly from a smartphone or PDA, allowing professionals who regularly conduct presentations to use a light-weight handheld device instead of their portable computer. Sales of handheld connectivity products represented approximately 15%, 19% and 30% of our total revenue for the years ended December 31, 2004, 2003 and 2002, respectively.

     Expansion and Docking. 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 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. Sales of expansion and docking products represented approximately 10%, 13% and 22% of our total revenue for the years ended December 31, 2004, 2003 and 2002, respectively.

     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 portable computer stands. Sales of accessories and other products represented approximately 5%, 10% and 20% of our total revenue for the years ended December 31, 2004, 2003 and 2002, respectively.

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 expansion and docking. In addition, our distribution channel sales team focuses on selling our iGo branded products throughout North America, Europe and Asia Pacific.

     Our total global revenue consisted of the following regional results: North American sales of $57.6 million, or 82.1% of our consolidated revenue; European sales of $7.9 million, or 11.2% of our consolidated revenue; and Asia Pacific sales of $4.5 million, or 6.5% of our consolidated revenue.

     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

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manager advertising, on-line advertising and banner ads, direct mail 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 and directly to end users through our iGo website. Our customers include:

     As a group, the OEMs and private-label resellers, and distributors and retailers listed in the table above accounted for 59% and 24%, respectively, of revenue for the year ended December 31, 2004, compared to 33% and 29% for the year ended December 31, 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.

     We have entered into strategic relationships with RadioShack, Motorola, Kensington, Targus and Energizer to private-label our existing products and co-develop next generation products. We expect that these relationships will increase the availability and exposure of our products, particularly among large national and international electronics and office products retailers.

     Symbol, which purchases serial and modem cradles for handheld devices, accounted for 10% of our revenue for the year ended December 31, 2004. RadioShack, a retailer of consumer electronic devices, accounted for 18% of our revenue for the year ended December 31, 2004. Targus, which is a private-label reseller of mobile electronic devices, accounted for 24% of our revenue for the year ended December 31, 2004. No other customer accounted for greater than 10% of sales for the year ended December 31, 2004.

     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 2% of revenue for the year ended December 31, 2004 and 4% for the year ended December 31, 2003.

Backlog

     Our backlog at January 13, 2005 was approximately $4.6 million, compared with backlog of approximately $2.0 million at January 11, 2004. Backlog includes orders confirmed with a purchase order for products scheduled to be shipped within 90 days to customers with approved credit status. Because of the generally short cycle between order and shipment and occasional customer changes in delivery schedules or cancellation of orders (which are made without significant penalty), we do not believe that our backlog, as of any particular date, is necessarily indicative of actual net sales for any future period.

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.

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     As of December 31, 2004, our research and development group consisted of 33 people who are responsible for hardware and software design, test and quality assurance. Electrical 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 years ended December 31, 2004, 2003 and 2002 were $4.9 million, $4.3 million, and $5.0 million, respectively.

Manufacturing and Logistics

     In order to manufacture our products cost-effectively, we have implemented a strategy to outsource 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 manufacturing providers are focused on high-volume manufacturing and logistics.

     Hipro Electronics Co., Ltd., Tandy RadioShack Ltd. and Phihong Technology Co., Ltd. currently manufacture our family of universal power adapter products. Hipro and Phihong are based in Taiwan and Tandy RadioShack is based in China. In addition to providing manufacturing services, each of these companies also provide us with design and development services. In contrast, we focus our internal manufacturing activity on our 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 hardware products, are sole sourced.

     The majority of our OEM and private-label products are shipped by our outsource manufacturers to our OEM and private-label reseller 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 low-cost manufacturers of model-specific adapters and specialized third party mobile computing accessory companies, including American Power Conversion, Belkin, Comarco, Lind, and RRC Power Solutions. In addition, we compete with the internal design efforts of our OEM and non-OEM customers. Our handheld connectivity products generally compete with products offered by specialized third party accessory companies. Our 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 March 1, 2005 we held 40 U.S. patents and 36 foreign patents and had 144 patents pending.

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     In general, our patents cover a variety of aspects of the technology utilized in our power, handheld and expansion and docking 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 December 31, 2004, we had 137 full-time employees, 136 who are located in the United States and 1 who is located in Europe, including 32 employed in operations, 33 in engineering, 43 in sales and marketing and 29 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.

Available Information

     Our website is located at http://www.mobilityelectronics.com. We make available free of charge, on or through our website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission (SEC). Information contained on our website is not part of this report or any other report filed with the SEC.

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EXECUTIVE OFFICERS OF THE COMPANY

     The following table shows the name, age and position of each of our executive officers as of March 1, 2005:

     Charles R. Mollo is one of our founders and has been Chief Executive Officer and Chairman of the Board of Directors since our formation in May 1995, and President since July 1999, having previously served as President between March 1997 and June 1998. From September 1992 to May 1995, Mr. Mollo was the director of the Wireless Telephone Products Division of Andrew Corporation, a communications equipment services and systems company. From September 1986 to July 1992, Mr. Mollo was the Vice President of Corporate Development of Alliance Telecommunications Corporation, a wireless telecommunications company. Between 1980 and 1986, Mr. Mollo was a Vice President of Meadows Resources, Inc., where he managed a venture capital and investment portfolio of approximately $150 million. In the past, he has served on the boards of a number of companies, including Alliance Telecommunications Corporation. Mr. Mollo holds a bachelor’s degree in Electrical Engineering from Manhattan College, a master’s degree in Electrical Engineering from Newark College of Engineering and an MBA from the University of New Mexico.

     Joan W. Brubacher began working for us in 1998 as our Senior Financial Analyst, was appointed Controller in 1999 and promoted to Vice President in 2000. She was appointed to the position of Vice President and Chief Financial Officer in 2001 and Executive Vice President and Chief Financial Officer in 2002. Prior to joining us, Ms. Brubacher served as Chief Financial Officer for Phase Laser Systems, Inc., an electronics development/manufacturing firm. Previously, she served as Chief Financial Officer and subsequently as Chief Operating Officer for Laserex, Inc., a laser pointer manufacturing company. Ms. Brubacher began her career with the international public accounting firm Ernst & Whinney (now Ernst & Young) and holds a bachelor’s degree in Business Administration with concentration in Accounting from Kansas State University.

     Timothy S. Jeffries joined us in 2002 as Vice President of Worldwide Sales. Mr. Jeffries was appointed Executive Vice President of Worldwide Sales & Services in August 2002, and was appointed Executive Vice President, Global Sales, Marketing & Services in February 2003. He was appointed Executive Vice President and Chief Operating Officer in May 2003. Prior to joining us, Mr. Jeffries served as Vice President, Client Solutions for Viacore, Inc., from 2000 to 2001. Previously, he served as Vice President, Vendor Sales, and later Vice President, Product Management, for Ingram Micro, Inc., a computer products distribution company, from 1997 to 1999. Mr. Jeffries has also held several sales and marketing leadership roles in the high technology industry with companies such as Intelligent Electronics, Inc. and Novell, Inc. Mr. Jeffries holds a bachelor’s degree in Political Science from Santa Clara University and an MBA from Duke University.

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RISK FACTORS

Risks Related To Our Business

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

     We have experienced significant operating losses since inception and, as of December 31, 2004, have an accumulated deficit of $105.3 million. We intend to make expenditures, specifically in research and development, on an ongoing basis, primarily from cash generated from operations and possibly, 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 power adapter products. These universal power adapters represent a relatively new product category in the mobile electronics industry. We anticipate that a material portion of our revenue in the foreseeable future will be derived from our family of universal power products and similar power products in this relatively 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:

	•	we fail to complete development of these products in a timely manner;
	•	we fail to achieve the performance criteria required of these products by our customers; or
	•	competitors introduce similar or superior products.

     In addition, the retail version of our universal power adapter products includes a feature that allows a single version of these products to be used with almost any mobile electronic device. If mobile electronic device manufacturers choose to design and manufacture their products in such a way as to limit the use of universal devices with their devices, it could reduce the applicability of a universal power adapter product and limit market acceptance of our power products 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:

	•	the timing of our new product and technology introductions and product enhancements relative to our competitors or changes in our or our competitors’ pricing policies;
	•	market acceptance of our power, handheld connectivity, and expansion and docking products;
	•	the size and timing of customer orders;
	•	delay or failure to fulfill orders for our products on a timely basis;
	•	distribution of or changes in our revenue among OEMs, private-label resellers and distribution partners;
	•	our inability to accurately forecast our contract manufacturing needs;

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	•	difficulties with new product production implementation or supply chain;
	•	our suppliers’ ability to perform under their contracts with us;
	•	product defects and other product quality problems which may result from the development of new products;
	•	the degree and rate of growth of the markets in which we compete and the accompanying demand for our products;
	•	our ability to expand our internal and external sales forces and build the required infrastructure to meet anticipated growth; and
	•	seasonality of sales.

     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:

	•	develop, in a timely manner, new products and services that keep pace with developments in technology and customer requirements;
	•	meet potentially new manufacturing requirements and cover potentially higher manufacturing costs of new products;
	•	deliver new products and services through appropriate distribution channels; and
	•	respond effectively to new product announcements by our competitors by quickly introducing competing products.

     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 innovative 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, the introduction in early 2003 of our AC/DC power combination product, Juice, 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:

	•	loss of or delay in revenue and loss of market share;
	•	negative publicity and damage to our reputation and brand;
	•	decline in the average selling price of our products and decline in our overall gross margins; and
	•	adverse reactions in our sales and distribution channels.

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     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.

     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 69% of our revenue for the year ended December 31, 2004. 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, RadioShack accounted for 18% of our revenue and Targus accounted for 24% of our revenue for the year ended December 31, 2004. In the event RadioShack, Targus 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:

	•	competition faced by our OEM customers in their particular end markets;
	•	market acceptance of our technology and products by our OEM customers;
	•	technical challenges which may or may not be related to the components supplied by us;
	•	the technical, sales and marketing and management capabilities of our OEM customers; and
	•	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 strategic private-label resellers.

     We have entered into relationships with Targus and Kensington to sell our power products on a private-label basis. Our relationships with strategic private-label resellers are critical to our success and the failure of these private-label resellers to purchase, and successfully market and distribute our products will limit our success and the market acceptance of our relatively new family of universal power adapters. For example, during 2004, Kensington decided to distribute products manufactured by a competitor in addition to our family of power products, which could limit end-user access to our products. In the event private-label resellers

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discontinue the sale of our power products or are unsuccessful in marketing and distributing our products, our revenue will suffer which could have a negative impact on the price of our common stock.

     Under the terms of our agreements with Kensington and Targus, our direct access to certain U.S. markets has been limited. Also, our Targus agreement provides that we may not enter into any more than two broad-based distribution agreements. Accordingly, our success will depend in part upon Kensington and Targus’ ability and willingness to effectively and widely distribute and market our products. For example, because the Targus distribution chain includes large retailers such as Best Buy, we are precluded from distributing to retailers such as this directly. If Kensington and Targus do not purchase the volume of products that we anticipate, our results of operations will suffer.

     Success of our relationship with private-label resellers, such as Kensington and Targus, will also depend in part upon their success 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:

	•	the impact of possible recessionary environments in foreign economies;
	•	political and economic instability;
	•	unexpected changes in regulatory requirements;
	•	export restriction and availability of export licenses; and
	•	tariffs and other trade barriers.

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

     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.

     Hipro Electronics Company, Ltd., for example, is currently the exclusive manufacturer of our specific Juice product. Our agreement with Hipro does not permit us to second source this Juice product from any other manufacturer. 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 for this Juice product 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. Similarly, we may encounter these same issues with respect to other products manufactured for us by Hipro, as well as with respect to other products manufactured for us by Tandy RadioShack, Phihong and others.

     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

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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 hardware 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.

     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. We have recently begun to aggressively pursue the protection of our intellectual property rights, including filing a lawsuit in the Eastern District of Texas alleging that Formosa Electronics, Co. Ltd., a foreign manufacturer of power adapters, is infringing one or more of our patents. Litigation efforts such as these have been, and will in the future be, necessary to defend our intellectual property rights, both for our power and expansion technology, and will likely 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

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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 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, in 2003 we 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:

	•	difficulties in assimilating and integrating the operations, products and workforce of the acquired companies;
	•	acquisitions may negatively impact our results of operations because they may require large one-time charges or could result in increased debt or contingent liabilities, adverse tax consequences, substantial depreciation or deferred compensation charges, or the amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets;
	•	acquisitions may be dilutive to our existing stockholders;
	•	acquisitions may disrupt our ongoing business and distract our management; and
	•	key personnel of the acquired company may decide not to work for us.

     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.

     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:

•

increase research and development resources;

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	•	install and implement adequate controls and management information systems in an effective, efficient and timely manner;
	•	increase the managerial skills of our supervisors;
	•	maintain and strengthen our relationships with our contract manufacturers and fulfillment provider; and
	•	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 2% of revenue for the year ended December 31, 2004 and 4% of revenue for the year ended December 31, 2003. 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 15% of their prior quarter’s purchases, provided that they place a new order for equal or greater dollar value of the amount returned. We have not historically experienced significant stock balance returns.

     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 record a reserve for future returns at the time revenue is recognized. We believe the reserve 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. For example, in 2004, after the commercial introduction of a power adapter that we manufactured for Dell, we encountered a design defect that required us to complete a field rework of previously produced units, provide proper usage guidelines and make permanent changes for future production. Errors or performance problems such as this 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, 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.

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     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. 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, 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. In 2003, 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.

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     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:

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

     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. In 2004, for example, we incurred significant expenses as a result of a securities class action lawsuit that was filed against us. This lawsuit has since been dismissed, but other similar lawsuits could be filed against us in the future and, regardless of the merit of these claims, such lawsuits can be time-consuming, costly and 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 March 1, 2005, we had 28,683,169 shares of common stock outstanding. All of our outstanding shares are currently available for sale in the public market, some of which are subject to volume and other limitations under the securities laws. Future

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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 March 1, 2005, we had 1,753,991 shares of common stock issuable upon exercise of stock options under our long-term incentive plans, of which 649,848 options were exercisable as of March 1, 2005; as of March 1, 2005, we had 862,825 shares of common stock issuable upon the exercise of restricted stock units under our long term incentive plans; 34,337 shares were available for future issuance under our 1996 stock option plan, 1,444,375 shares were available for future issuance under our Mobility Electronics, Inc. Omnibus Long-Term Incentive Plan, and 314,736 shares were available for future issuance under our Mobility Electronics, Inc. Non-Employee Director Long-Term Incentive Plan; 124,839 shares were issuable under options granted outside our plan, of which 9,839 were exercisable as of March 1, 2005; 1,795,413 shares of common stock were issuable under our Employee Stock Purchase Plan; warrants to purchase 46,467 shares of common stock; and 294,430 shares of common stock issuable upon the conversion of 270,541 shares of Series C preferred stock convertible at a 1-to-1.08830 basis. Increased sales of 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 March 1, 2005, our executive officers, directors and principal stockholders owning greater than 5% of our outstanding common stock together beneficially own approximately 12% 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:

	•	authorizing the issuance of preferred stock, with rights senior to those of the common stockholders, without common stockholder approval;
	•	prohibiting cumulative voting in the election of directors;
	•	a staggered board of directors, so that no more than two of our five directors are elected each year; and
	•	limiting the persons who may call special meetings of stockholders.

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

     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.

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     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.

Item 2. Properties

     Our corporate offices are located in Scottsdale, Arizona. This facility consists of approximately 25,000 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, and Boise, Idaho. Each of these offices supports 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 at a third-party location in Memphis, Tennessee. We believe our facilities are suitable and adequate for our current business activities for the remainder of the lease terms.

Item 3. Legal Proceedings

     Holmes Lundt, et al., plaintiffs, and Jason Carnahan, et. al., intervenors, v. Mobility Electronics, Inc., Portsmith, Inc., Charles R. Mollo, Joan W. Brubacher, and Jeffrey R. Harris, pending in the District Court of the Fourth Judicial District of Idaho, Ada County, Case No. CV-0C-0302562D. This lawsuit initially was commenced on April 2, 2003, by Holmes Lundt, former President and CEO of Mobility Idaho, Inc. (formerly Portsmith, Inc.), the Company’s wholly-owned subsidiary, and his wife, but additional plaintiffs were added, and several of the Company’s officers and directors were added as defendants. The claims asserted arise substantially out of the transactions surrounding the Company’s acquisition of Portsmith in February 2002. Among other things, plaintiffs and intervenors disputed that the Company appropriately calculated and paid the earn-out consideration called for by the Portsmith merger agreement. The court issued an order on April 15, 2004 granting the Company’s motion for partial summary judgment on this pricing issue, meaning the court agreed that the Company had properly calculated the pricing of the shares issued by the Company in the Portsmith merger. The plaintiffs then filed a motion requesting that the court reconsider its order granting the Company’s motion for partial summary judgment on the pricing issue. The court held a hearing on this motion on October 27, 2004, and issued a ruling on November 18, 2004 denying the plaintiffs motion, again affirming that the Company appropriately calculated the pricing of the shares issued by the Company in the Portsmith merger. Subsequently, the Carnahan plaintiffs filed a second amended complaint with the court on December 13, 2004, the Lundt plaintiffs filed a third amended complaint with the court on February 14, 2005, and a new set of plaintiffs, also former shareholders of Portsmith, filed an initial complaint with the court on February 18, 2005 titled Jess Asla, et. al., plaintiffs v. Mobility Electronics, Inc., Charles Mollo and Joan Brubacher, pending in the District Court of the Fourth Judicial District of Idaho, Ada County, Case No. CV-OC-0501139. All three of these complaints assert claims for breach of contract, breach of an alleged covenant of good faith and fair dealing, unjust enrichment, declaratory judgment, breach of fiduciary duty, constructive trust, conversion, and interference with prospective economic advantage. The Lundt plaintiffs also assert claims for breach of Mr. Lundt’s employment agreement, and wrongful termination of Mr. Lundt. All three complaints seek monetary damages. This case is currently set for trial in January 2006. The Company intends to vigorously defend against the claims as well as pursue its own claims against the plaintiffs.

     On May 7, 2004, the Company filed separate complaints with the International Trade Commission (the “ITC”) in Washington, DC and the United States District Court for the Eastern District of Texas, Case No. 5:04-CV-103, against Formosa Electronic Industries, Inc., Micro Innovations Corp. and SPS, Inc. On July 13, 2004, the Company filed an amended complaint with the United States District Court for the Eastern District of Texas to add Sakar International Inc. and Worldwide Marketing Ltd. as parties to the federal district court action. With the exception of Formosa, the Company subsequently reached favorable settlements with each of the other defendants and dismissed them from both the ITC and federal district court actions. In addition, the Company subsequently and voluntarily terminated its ITC action against Formosa and is instead aggressively pursuing all of its claims against Formosa through the federal district court action in the United States District Court for the Eastern District of Texas. The Company’s current second amended complaint filed with the court in January 2005, titled Mobility Electronics, Inc. v. Formosa Electronic Industries Inc., Case No. 504-CV-103, pending in the United States District Court for the Eastern District of Texas, alleges infringement of one or more of U.S. Patent Nos. 5,347,211, 6,064,177, 6,650,560, 6,700,808, and 6,775,163 owned by the Company, as well as misappropriation of trade secrets, conversion, violation of the Texas Theft Liability Act, conspiracy, and fraudulent concealment. The Company has also filed an application for preliminary injunction against Formosa. The Company, in its complaint, seeks a permanent

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injunction against further use of its trade secrets and further infringement of these patents, as well as compensatory and treble damages. Formosa, in January 2005, filed a motion to dismiss. A hearing on Mobility’s application for preliminary injunction is expected to occur in May 2005 and a trial has tentatively been scheduled for November 2005. The Company intends to vigorously pursue its claims in this action.

     On August 26, 2004, the Company and iGo Direct Corporation, the Company’s wholly owned subsidiary, filed a complaint against Twin City Fire Insurance Co. in the United States District Court for the District of Nevada, Case No. CV-N-04-0460-HDM-RAM. The complaint alleges several causes of action in connection with Twin City’s refusal to cover, under director and liability insurance policies issued to iGo by Twin City, fees and expenses incurred in connection with the defense of certain former officers of iGo relating to a Securities and Exchange Commission matter that arose prior to the Company’s acquisition of iGo Corporation in September 2002. Twin City filed an answer to this complaint on September 20, 2004. On January 10, 2005, the Company filed a motion for summary judgment seeking an order from the court that, as a matter of law, Twin City breached, and continues to breach, its obligations under the director and liability insurance policies. Twin City, on February 17, 2005, filed a motion for continuance of, and opposition to, the Company’s motion for summary judgment. The Company and iGo Direct Corporation intend to vigorously pursue their claims in this action.

     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 4. Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of stockholders during the fourth quarter of 2004.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

     Our common stock has been traded on the Nasdaq National Market under the symbol “MOBE” since our initial public offering on June 30, 2000. Prior to that time, there was no public market for our common stock. The following sets forth, for the period indicated, the high and low bid prices for our common stock as reported by the Nasdaq National Market.

     As of March 1, 2005, we had 288 holders of record of our common stock.

     We have never paid cash dividends on our common stock, and it is the current intention of management to retain earnings to finance the growth of our business. We are currently restricted from paying dividends in accordance with the terms of our bank line of credit. Future payment of cash dividends will depend upon financial condition, results of operations, cash requirements, tax treatment, and certain corporate law requirements, loan covenant requirements, as well as other factors deemed relevant by our Board of Directors.

     We incorporate by reference the Equity Compensation Plan Information contained under the heading “Executive Compensation — Securities Authorized for Issuance Under Equity Compensation Plans,” from our definitive Proxy Statement to be delivered to our stockholders in connection with the 2004 Annual Meeting of Stockholders scheduled for May 24, 2005.

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Item 6. Selected Consolidated Financial Data

     The following selected consolidated financial data should be read together with our consolidated financial statements and notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other information contained in this Form 10-K. The selected financial data presented below under the captions “Consolidated Statements of Operations Data” and “Consolidated Balance Sheet Data” as of and for each of the years in the five-year period ended December 31, 2004 are derived from our consolidated financial statements, which consolidated financial statements have been audited by KPMG LLP, an independent registered public accounting firm. The consolidated financial statements as of December 31, 2004 and 2003 and for each of the years in the three-year period ended December 31, 2004, are derived from our consolidated financial statements, included elsewhere in this Form 10-K.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis of our financial condition and results of operations should be read together with our selected consolidated financial data and the consolidated financial statements and notes thereto contained in this report. The following discussion contains forward-looking statements. Our actual results may differ significantly from the results discussed in these forward-looking statements. Please see the “Disclosure Concerning Forward-Looking Statements” and “Risk Factors” above for a discussion of factors that may affect our future results.

Overview

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

     We use our proprietary technology to design and develop products that make mobile electronic devices more efficient and cost effective, thus enabling professionals and consumers higher use of these mobile electronic devices and the ability to access information more readily. Our products include power, handheld and expansion and docking products.

     We sell our products to OEMs, private-label resellers, distributors, resellers, retailers and end-users. We sell to large computer OEMs, including Dell and IBM. We also have strategic reseller agreements with Targus and Kensington to market and distribute our power products on a private-label basis. We sell to retailers such as RadioShack and through distributors such as Ingram Micro. We also sell directly to end users through our company websites and provide customized solutions to corporate customers. Direct sales to OEMs and private-label resellers accounted for approximately 61% for the year ended December 31, 2004 and 45% of revenue for the year ended December 31, 2003. Sales through retailers and distributors accounted for approximately 27% of revenue for the year ended December 31, 2004 and 45% of revenue for the year ended December 31, 2003. The balance of our revenue during these periods was derived from direct sales to end users. In the future, we expect that we will be dependent upon a relatively small number of customers for a significant portion of our revenue, including most notably RadioShack, Targus, Kensington, IBM, Dell, Symbol, and Ingram Micro.

     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^® technology. We invested heavily in our leading edge Split Bridge technology. While we have had some success with Split Bridge in the corporate portable computer market with sales of universal docking stations, it became clear in early 2002 that this would not be the substantial opportunity we originally envisioned. 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 portable computers, 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. Our long-term goal is to establish an industry standard for all electronic device power adapters based on our patented tip technology.

     Our 2004 development efforts focused significantly on the development of our power adapter products. In particular, we collaborated with RadioShack and Motorola to develop and market a line of power adapters, including cigarette lighter adapters, mobile AC adapters, and low power universal AC/DC adapters, specifically designed for the low power mobile electronics device market. Each of these devices incorporates our patented tip technology and the combination AC/DC adapter also allows users to simultaneously charge a second device with our optional DualPower accessory.

     Our ability to execute successfully on our near and long-term objectives depends largely upon the general market acceptance of our tip technology which allows users to charge multiple devices with a single adapter and our ability to protect this technology through our intellectual property. Additionally, we must execute on the customer relationships that we have developed and continue to design, develop, manufacture and market new and innovative technology and products that are embraced by these customers and the overall market in general.

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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 up to 15% of their prior quarter’s purchases, provided that they place a new order for equal or greater dollar value of the amount returned. 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 by recording an allowance for sales returns in the amount of the difference between the sales price and the cost of goods sold as a reduction of accounts receivable. Gross sales to the distribution channel accounted for approximately 27% for the year ended December 31, 2004 and 45% of revenue for the year ended December 31, 2003.

     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. Actual product returns as a percentage of net revenue amounted to 2% for the year ended December 31, 2004 and 4% for the year ended December 31, 2003.

     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. We recorded downward adjustments to inventory of $1.6 million during the year ended December 31, 2004 and $335,000 during the year ended December 31, 2003. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

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     Goodwill Valuation. 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 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 $13.9 million as of December 31, 2004. As a result of our sale of the assets of Cutting Edge Software during 2004, we reduced goodwill by approximately $2.0 million. 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, 2003 and December 31, 2004.

     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.

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:

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Comparison of Years Ended December 31, 2004, 2003, and 2002

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

     The 2004 increase in revenue is primarily due to continued sales growth of our family of combination AC/DC, AC only and DC only universal power adapters as a result of what we believe to be increased consumer awareness and further market penetration of our products and technology. As a result, sales of power products increased by $21.2 million, or 76.3%, to $48.9 million during the year ended December 31, 2004 as compared to $27.8 million for the year ended December 31, 2003. This increase is offset by a combined decrease of $1.7 million in sales of handheld hardware products, docking and expansion products, accessories and technology transfer fees during the year ended December 31, 2004 compared to the year ended December 31, 2003.

     The 2003 increase in revenue is primarily due to the introduction of our new combination AC/DC universal power adapter in January 2003. As a result, sales of power products increased by $19.6 million, or 241.7%, to $27.8 million during the year ended December 31, 2003 as compared to $8.1 million for the year ended December 31, 2002.

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

     Cost of revenue:

     Gross profit and gross margin:

     The 2004 increase in cost of revenue was due primarily to the 38.4% volume increase in revenue, as well as to shifts in customer mix, product mix and inventory write-downs for the year ended December 31, 2004 as compared to the year ended December 31, 2003. Cost of revenue as a percentage of revenue increased to 70.2% for the year ended December 31, 2004 from 66.2% for the year ended December 31, 2003, resulting in decreased gross margin. The decrease in gross margin is primarily attributable to three factors. The first factor is a shift in customer mix. OEM and private label reseller customers accounted for 61% and 45% of revenue for the years ended December 31, 2004 and 2003, respectively. Sales through retailers and distributors accounted for 27% and 46% of revenue for the years ended December 31, 2004 and 2003, respectively. Sales to OEMs and private label resellers typically occur at lower price points than sales of comparable product to retailers and distributors. The second factor is a shift in product mix. For the

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first time, during the year ended December 31, 2004, we commenced sales of low-wattage power products designed specifically for mobile electronic devices. Sales of a portion of these products typically occur at lower price points than sales of higher-wattage power products. The third factor impacting increased cost of revenue and corresponding lower gross profit and gross margin is the impact of write-downs to the value of older inventory, primarily in our handheld products and laptop computer batteries. During the year ended December 31, 2004, we recorded an adjustment to cost of revenue in the amount of $1.6 million, compared to a $335,000 adjustment during the year ended December 31, 2003, as a result of reduced marketability of certain of our inventory.

     The 2003 increase in cost of revenue was due primarily to the 64.3% volume increase in revenue, as well as to shifts in customer mix, product mix and inventory write-downs for the year ended December 31, 2003 as compared to the year ended December 31, 2002. Cost of revenue as a percentage of revenue decreased to 66.2% for the year ended December 31, 2003 from 77.5% for the year ended December 31, 2002, resulting in increased gross margin. The increase in gross margin is primarily attributable to four factors. The first factor is a shift in customer mix. Sales through retailers and distributors accounted for 46% and 12% of revenue for the years ended December 31, 2003 and 2002, respectively. OEM and private label reseller customers accounted for 45% and 62% of revenue for the years ended December 31, 2003 and 2002, respectively. Sales to retailers and distributors typically occur at higher price points than sales of comparable product to OEMs and private label resellers. The second factor is a shift in product mix. For the first time, during the year ended December 31, 2003, we commenced sales of new higher-margin combination AC/DC power adapter products low-wattage power products. The third factor impacting increased gross profit and gross margin is the impact of write-downs to the value of excess and obsolete inventory. During the year ended December 31, 2003, we recorded an adjustment to cost of revenue in the amount of $335,000 compared to a $1.2 million adjustment during the year ended December 31, 2002, as a result of reduced marketability of certain of our inventory. The fourth factor is the result of the spreading of fixed overhead expenses over increases in sales volumes, resulting in reduced cost of revenue as a percentage of revenue.

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

     The 2004 increase in sales and marketing expenses primarily resulted from costs associated with recruiting and relocation of sales and marketing personnel. As a percentage of revenue, sales and marketing expenses decreased to 9.8% for the year ended December 31, 2004 from 13.2% for the year ended December 31, 2003.

     The 2003 decrease in sales and marketing expenses primarily resulted from increased sales through distribution channels that did not require a corresponding increase in sales and marketing expenses. As a result, sales and marketing expenses as a percentage of revenue decreased to 13.2% for the year ended December 31, 2003 from 22.1% for the year ended December 31, 2002.

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

     The 2004 increase in research and development expenses primarily resulted from the continued development of our family of power adapter products. Specifically, during the year ended December 31, 2004, we invested in research and development on a line of power adapters, including cigarette lighter adapters, mobile AC adapters, and low-power universal AC/DC adapters, specifically designed for the low-power mobile electronics device market. We also invested in research and development of new higher-power

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adapters specifically designed for portable computers. As a percentage of revenue, research and development expenses decreased to 7.0% for the year ended December 31, 2004 from 8.5% for the year ended December 31, 2003.

     The 2003 decrease in research and development expenses primarily resulted from a 2002 write-down of certain tooling equipment that was never used in production in the amount of $400,000. Excluding these charges, research and development expense for 2002 was $4.6 million. As a percentage of revenue, research and development expenses decreased to 8.5% for the year ended December 31, 2003 from 16.2% for the year ended December 31, 2002.

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

     The 2004 increase in general and administrative expenses primarily resulted from increased expense for amortization of intangibles, primarily patents and trademarks, directors’ fees, and professional fees related to compliance with Sarbanes-Oxley legislation. These increases are offset by decreases in a combination of other general and administrative expenses. General and administrative expenses as a percentage of revenue decreased to 14.1% for the year ended December 31, 2004 from 18.4% for the year ended December 31, 2003.

     The 2003 increase in general and administrative expenses is due primarily to costs incurred in connection with litigation of a patent infringement matter that was settled in July 2003 of approximately $750,000, and an increase of approximately $200,000 in bad debt expense resulting from the increase in sales and accounts receivable during 2003. The balance of the increase was primarily due to information system consolidation and integration efforts relating to our acquisitions of Portsmith, Cutting Edge, and iGo in 2002. General and administrative expenses as a percentage of revenue decreased to 18.4% for the year ended December 31, 2003 from 26.3% for the year ended December 31, 2002.

     Interest, net. Interest, net consists primarily of interest earned on our cash balances and short-term investments, net of interest expense. Interest expense relates to our line of credit entered into in October 2002. The following table summarizes the year-over-year comparison of interest, net for the periods indicated:

     The 2004 decrease was primarily due to the amortization of deferred loan fees during 2004, which were fully amortized upon the expiration of our line of credit in July 2004, which was subsequently renewed. For the year ended December 31, 2004, interest expense was $219,000 and interest income was $147,000.

     The 2003 decrease was primarily due to a reduction in interest income due to decreases in average cash balances in 2003 and an increase in interest expense due to interest paid on borrowings under our line of credit in 2003. For the year ended December 31, 2003, interest expense was $171,000 and interest income was $144,000. Interest expense was less than $5,000 for the year ended December 31, 2002.

     Income taxes. We have incurred losses from inception to date; therefore, no provision for income taxes was required for the years ended December 31, 2004, 2003, and 2002. Based on historical operating losses and projections for future taxable income, it is

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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 years ended December 31, 2004, 2003 and 2002.

Operating Outlook

     From a long-term perspective, we believe there are a number of major catalysts that we expect will drive further growth and profitability:

	•	Continued growth in sales of portable computer power adapters through the OEM channel, which now includes programs for Dell, IBM, Apple, Toshiba, Sharp and Gateway.
	•	The expected rollout of our low-power consumer electronic adapter products through Energizer’s distribution channels in the later part of 2005, and the anticipated introduction of jointly developed products with Energizer in late 2005 or early 2006.
	•	The expected rollout of our low-power consumer electronic adapter products through Motorola’s distribution channels, which will provide the first penetration of wireless carriers and distributors, to occur throughout 2005.
	•	Anticipated continued growth of low-power consumer electronic adapter product sales through RadioShack, which will benefit from the development of alternative distribution channels, such as RadioShack’s kiosk programs with Sprint and Sam’s Club.
	•	The expected rollout of low-power consumer electronic adapter products at RadioShack Canada and through the Targus channel, which will occur throughout 2005.
	•	The anticipated launch of the low-power consumer electronic adapter products with The Carphone Warehouse, Europe’s largest independent retailer of mobile communications. Mobility expects the low-power consumer electronic adapter products will be available in approximately 300 Carphone Warehouse stores by the end of the first quarter of 2005 and in approximately 1,300 stores by the end of 2005.

     We expect gross margin to increase for 2005 from our 29.8% gross margin for 2004. We expect our gross margin to increase as we anticipate spreading higher sales volume over relatively fixed operating overhead expenses. Also, the continuation of sales of low-power consumer electronic adapters to RadioShack on a net basis will result in a gross margin of 100%, which we expect will contribute to increased overall gross margin.

     We believe that operating expenses will increase by approximately 25-30% during 2005. We expect sales and marketing expenses to remain relatively consistent, or to increase slightly, as our anticipated revenue growth continues to come from distribution channels that do not require additional investment in sales and marketing expenses. Research and development expenses are expected to increase significantly during 2005 as we continue to aggressively develop new and innovative products. We also expect general and administrative expenses to increase in 2005 primarily as a result of non-cash expenses associated with equity compensation issued to directors and employees and expenses associated with litigation in which we are currently involved.

     We do not expect to record any income tax expense in 2005, but we expect to record income tax benefit related to an anticipated reversal of deferred tax asset valuation allowances recorded on net operating loss carryforwards, either in late 2005 or in 2006. We anticipate reversing the previously recorded valuation allowance after we have achieved several quarters of profitable results, coupled with a forecast of continued profitability.

     We are currently a party to various legal proceedings. We do not believe that the ultimate outcome of these legal proceedings will have a material adverse effect on our financial position or overall trends in results of operations. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages or the issuance of additional securities which would further dilute our existing stockholders. If an unfavorable ruling were to occur in any specific period, such a ruling could have a material adverse impact on the results of operations of that period, or future periods.

     As a result of our planned research and development efforts, we expect to further expand our intellectual property position by aggressively filing for additional patents on an ongoing basis. A portion of these costs are recorded as research and development expense as incurred and a portion are amortized as general and administrative expense. We may also incur additional legal and related

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expenses associated with the defense and enforcement of our intellectual property portfolio, which could increase our general and administrative expenses beyond those currently planned.

Liquidity and Capital Resources

     The following table sets forth for the period presented certain consolidated cash flow information (in thousands):

     Cash and Cash Flow. Our cash balances are held in the United States and the United Kingdom. Our intent is that the cash balances will remain in these countries for future growth and investments and we will meet any liquidity requirements in the United States through ongoing cash flows, external financing, or both. Our primary use of cash has been to fund our operating losses, working capital requirements, acquisitions and capital expenditures necessitated by our growth. The growth of our business has required, and will continue to require, investments in accounts receivable and inventories. Our primary sources of liquidity have been funds provided by issuances of equity securities and borrowings under our line of credit.

•

Net cash provided by (used in) operating activities. Cash was provided by operating activities for the year ended December 31, 2004 primarily as a result of our net loss being offset by non-cash expenses such as depreciation and amortization, provisions for doubtful accounts and sales returns and credits and amortization of deferred compensation. In 2005, we expect to generate positive cash flow from operating activities from expected operating income, offset partially by cash used to fund further working capital needs. Our consolidated cash flow operating metrics are as follows:

		The increase in DSOs during 2004 compared to 2003 and 2002, is primarily due to the timing of certain shipments to RadioShack in October 2004 for which payment was received shortly after December 31, 2004. We anticipate improvement in DSOs during 2005 as we continue to leverage our key OEM, private-label reseller and retail customer relationships. The improvement in inventory turns is primarily due to increased sales during 2004 combined with write-downs of excess and obsolete inventory during 2004. The reduction in inventory turns in 2003 compared to 2002 was primarily as a result of growth in handheld hardware product inventory during 2002 and 2003. We expect to continue to manage inventory growth during 2005 and we expect inventory turns to continue to improve as we increase sales volumes in 2005.
	•	Net cash used in investing activities. For the year ended December 31, 2004, net cash used in investing activities was primarily for the purchase of property and equipment. We anticipate future investment in capital equipment, primarily for tooling equipment to be used in the production of new products.
	•	Net cash provided by financing activities. Net cash provided by financing activities for the year ended December 31, 2004 was primarily from net proceeds from the exercises of stock options and warrants of $1.5 million and reductions of

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stock subscription receivables of $333,000. Although we expect to generate cash flows from operations sufficient to support our operations, we may issue additional shares of stock in the future to generate cash for growth opportunities.

     As of December 31, 2004, we had approximately $157 million of federal, foreign and state net operating loss carryforwards which expire at various dates. We anticipate that the sale of common stock in our initial public offering 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.

     Financing Facilities. In July 2004, we amended our $10.0 million bank line of credit. The line bears interest at prime, interest only payments are due monthly, with final payment of interest and principal due on July 31, 2006. The line of credit is secured by all of our assets and subject to financial covenants, with which we were in compliance as of December 31, 2004. We had no outstanding balance against this line of credit as of December 31, 2004. Under the terms of the line, we can borrow up to 80% of eligible accounts receivable. At December 31, 2004, our net borrowing base capacity was $8.5 million.

     Contractual Obligations. In our day-to-day business activities, we incur certain commitments to make future payments under contracts such as operating leases and purchase orders. Maturities under these contracts are set forth in the following table as of December 31, 2004, in thousands:

     Purchase obligations represent all 2005 purchase orders placed, primarily for the purchase of inventories. A portion of these purchase orders may be subject to cancellation charges, however, we do not believe any such charges would be material to our operations.

     Off-Balance Sheet Arrangements. We have no off-balance sheet financing arrangements.

     Acquisitions and Divestitures. In the past we have made acquisitions of other companies to complement our product offerings and expand our revenue base. In September 2002 we acquired iGo Corporation through a merger with one of our wholly owned subsidiaries, iGo Direct Corporation. Certain former officers of iGo Corporation are now seeking potential indemnification claims against iGo Direct Corporation relating to a Securities and Exchange Commission matter involving such individuals (but not involving us) that relates to matters that arose prior to our acquisition of iGo Corporation. We are pursuing coverage under iGo’s directors’ and officers’ liability insurance policy for this potential iGo indemnification matter. In the event this coverage is not received, iGo may be responsible for costs and expenses associated with this matter.

     During 2004, we sold the assets of our handheld software product line, for approximately $1.0 million in cash and current receivables, and approximately $2.5 million in notes receivable. Proceeds from the sale exceed book value of the assets sold by approximately $587,000. This gain has been deferred until collectibility of the notes receivable is reasonably assured.

     Our future strategy includes the possible acquisition of other businesses to continue to expand or complement our operations. The magnitude, timing and nature of any future acquisitions will depend on a number of factors, including the availability of suitable acquisition candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Financing of future acquisitions would result in the utilization of cash, incurrence of additional debt, or both. Our future strategy may also include the possible disposition of assets that are not considered integral to our business, which would likely result in the generation of cash.

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     Liquidity Outlook. Based on our projections for 2005, we believe that our existing cash and cash equivalents 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 use our line of credit or 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. In addition, additional capital resources may not be available in amounts or on terms that are not acceptable to us.

Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004) (“Statement 123(R)”), “Share-Based Payment”, which revised Statement No. 123, “Accounting for Stock-Based Compensation”. This statement supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based compensation transactions using APB 25, and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations. The revised statement is effective as of the first interim period beginning after June 15, 2005. The Company will adopt the statement on July 1, 2005 as required. The Company is allowed to select from three alternative transition methods, each having different reporting implications. The Company has not completed its evaluation of the methods of adopting Statement 123(R). Accordingly, the impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on the method of adoption selected and on levels of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net loss and net loss per share in the stock-based compensation accounting policy note included in Note 2(m) to the consolidated financial statements.

     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153 (“Statement 153”), “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29”. Statement 153 amends the guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions”, based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. Statement 153 amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of Statement 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of Statement 153 are not expected to have a material effect on the Company’s consolidated financial statements.

     In November 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151 (“Statement 151”), “Inventory Costs—an amendment of ARB No. 43, Chapter 4”. Statement 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement requires that those items be recognized as current-period charges. In addition, Statement 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of Statement 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The provisions of Statement 151 are not expected to have a material effect on the Company’s consolidated financial statements.

Item 7A. 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 cash equivalents and line of credit resulting from a hypothetical 1.0% (100 basis point) change in interest rates, was not material at December 31, 2004.

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Item 8. Financial Statements and Supplementary Data

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     The management of Mobility Electronics, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f).

     Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

     Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation to assess the effectiveness of our internal control over financial reporting as of December 31, 2004 based upon criteria set forth in the framework Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that, as of December 31, 2004, our internal control over financial reporting is effective.

     Our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by our independent registered public accounting firm, KPMG LLP. Their audit opinion on our assessment of internal control over financial reporting is on page 37.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Mobility Electronics, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Mobility Electronics, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Mobility Electronics, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Mobility Electronics, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by COSO. Also, in our opinion, Mobility Electronics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Mobility Electronics, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2004, and our report dated March 10, 2005 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Phoenix, Arizona
March 10, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Mobility Electronics, Inc.

We have audited the accompanying consolidated balance sheets of Mobility Electronics, Inc. and subsidiaries as of December 31, 2004 and December 31, 2003, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mobility Electronics, Inc. and subsidiaries as of December 31, 2004 and December 31, 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U. S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Mobility Electronics, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 10, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Phoenix, Arizona
March 10, 2005

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)