UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2005

OR

For the transition period from __________________ to _________________

Commission file number: 0-30907

MOBILITY ELECTRONICS, INC.

Delaware
(State or Other Jurisdiction of Incorporation)

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

Not applicable
(Former Name, Former Address, and Former Fiscal Year if Changed Since Last Report)

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

YES þ            NO o

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

YES þ            NO o

At May 9, 2005, there were 30,150,606 shares of the Registrant’s Common Stock outstanding.

MOBILITY ELECTRONICS, INC.
FORM 10-Q

TABLE OF CONTENTS

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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS:

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

See accompanying notes to unaudited condensed consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Basis of Presentation

     The accompanying condensed consolidated financial statements include the accounts of Mobility Electronics, Inc. (“Mobility” or the “Company”) which was formerly known as Electronics Accessory Specialists International, Inc., and its wholly-owned subsidiaries, Magma, Inc. (“Magma”), Mobility Idaho, Inc. (“Idaho”) which was formerly known as Portsmith, Inc., Mobility 2001 Limited, Mobility Texas Inc. (“Texas”) which was formerly known as Cutting Edge Software, Inc., and iGo Direct Corporation (“iGo”). All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

     The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying condensed consolidated financial statements include normal recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2004 included in the Company’s Form 10-K, filed with the SEC. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of results to be expected for the full year or any other period.

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

     Certain amounts included in the 2004 condensed consolidated financial statements have been reclassified to conform to the 2005 financial statement presentation.

     The Company believes its critical accounting policies, consisting of revenue recognition, inventory valuation and goodwill valuation affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. These policies are discussed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2) Stock-based Compensation

     At March 31, 2005, the Company accounted for stock-based compensation under the intrinsic value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). These plans provide for the grant of incentive stock options and restricted stock units to eligible employees.

a. Stock Options

     Following the guidance of APB 25, no stock-based employee compensation expense is reflected in net income for employee stock options granted under the plans to date, as all options granted had an exercise price at least equal to the fair market value of shares of common stock on the date of the grant.

     The Financial Accounting Standards Board recently published Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”). On April 14, 2005, the U.S. Securities and Exchange Commission adopted a new rule amending the compliance dates for SFAS 123R. In accordance with the new rule, the accounting provisions of SFAS 123R will be effective for the Company in 2006. The Company will adopt the provisions of SFAS 123R using a modified prospective application. Under modified prospective application, SFAS 123R, which provides certain changes to the method for valuing share-based compensation among other changes, will apply to new awards and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for outstanding awards for which the vesting period has not been completed as of the effective date will be recognized over the remaining vesting period using the compensation cost calculated for pro forma disclosure purposes under SFAS 123R. At March 31, 2005,

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unamortized compensation expense, as determined in accordance with SFAS 123R, that the Company expects to record during fiscal 2006 was approximately $98,000. The Company determined it would not issue any stock options in future periods, and accordingly, does not expect to incur additional expense. The Company is in the process of determining how the guidance regarding valuing share-based compensation as prescribed in SFAS 123R will be applied to valuing share-based awards granted after the effective date and the impact the recognition of compensation expense related to such awards will have on its financial statements.

     On March 11, 2005, in response to the issuance of SFAS 123R, the Company’s Compensation and Human Resources Committee of the Board of Directors approved accelerating the vesting of all unvested stock options held by current employees, including executive officers and directors with an exercise price of $6.00 or greater. Unvested options to purchase 540,369 shares became exercisable as a result of the vesting acceleration.

     The decision to accelerate vesting of these options was made primarily to avoid recognizing compensation expense in the statement of operations in future financial statements upon the effectiveness of SFAS 123R. The Company estimates that the maximum future compensation expense that will be avoided, based on an implementation date for SFAS 123R of January 1, 2006, will be approximately $1,609,000, of which approximately $409,000 is related to options held by executive officers and directors of the Company. The acceleration did not generate significant compensation expense as accounted for under APB 25, as the majority of options for which vesting was accelerated had exercise prices that exceeded the market price of the Company’s common stock on March 11, 2005. The pro-forma results presented in the table below include approximately $1,609,000 of compensation expense for the three months ended March 31, 2005 resulting from the vesting acceleration.

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

     The value of stock-based employee compensation expense for the three months ended March 31, 2005 and 2004 was determined using the Black-Scholes method with the following assumptions:

b. Restricted Stock Units

     During the first quarter of 2005, the Company granted 788,750 restricted stock units (“RSUs”) to certain key employees pursuant to the Mobility Electronics, Inc. Omnibus Long-Term Incentive Plan. The awards are accounted for using the measurement and recognition principles of APB 25. Accordingly, unearned compensation is measured at the date of grant and recognized as compensation expense over the period in which the RSUs vest. RSUs awarded during the first quarter of 2005 will vest after five years, but may vest earlier if specific performance criteria are met. At March 31, 2005, $5,774,000 of unearned compensation is recorded as a reduction in stockholders’ equity as a result of the RSUs. For the three months ended March 31, 2005, the Company recorded $327,000 of stock-based compensation expense relating to the RSUs in selling, general and administrative expense.

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(3) Inventories

     Inventories consist of the following (amounts in thousands):

(4) Goodwill

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

(5) Intangible Assets

     Intangible assets consist of the following at March 31, 2005 and December 31, 2004 (amounts in thousands):

(6) Line of Credit

     In October 2002, the Company entered into a $10,000,000 line of credit with a bank. The line bears interest at prime (5.75% at March 31, 2005), 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 assets of the Company. The Company had no outstanding balance against the line of credit at March 31, 2005 and 2004. The line of credit is subject to financial covenants. The Company is currently in compliance with the covenants. At March 31, 2005, the Company had borrowing base capacity of $9,359,000.

(7) Non-current Liabilities

     Non-current liabilities consist of the following (amounts in thousands):

     In connection with its acquisition of certain assets of Invision Software and Invision Wireless, the Company recorded a liability of $847,000, which represents the excess of the fair value of assets acquired over the initial consideration paid for those assets. This liability will be reduced by earn-out payments when the contingent consideration is earned. Accordingly, the Company has recorded a current portion of this liability of $272,000 based on its estimate of contingent consideration to be earned during 2005. The Company made actual earn-out payments of $31,000 during the three months ended March 31, 2005.

     In connection with its settlement of litigation with General Dynamics during 2003, the Company obtained a ten year trademark license from General Dynamics in exchange for $400,000, plus $1,000 in interest charges. During 2003, the Company made a $201,000 installment payment. In January 2004, the Company made a $125,000 installment payment. In

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January 2005, the Company made a $25,000 installment payment. Future installments are payable as follows: $25,000 on January 15, 2006, which has been recorded as a current liability, and $25,000 on January 15, 2007.

(8) Stockholders’ Equity

(a) Convertible Preferred Stock

     Series C preferred stock is convertible into shares of common stock. The initial conversion rate was one for one, but is subject to change if certain events occur. Generally, the conversion rate will be adjusted if the Company issues any non-cash dividends on outstanding securities, splits its securities or otherwise effects a change to the number of its outstanding securities. The conversion rate will also be adjusted if the Company issues additional securities at a price that is less than the price that the Series C preferred stockholders paid for their shares. Such adjustments will be made according to certain formulas that are designed to prevent dilution of the Series C preferred stock. The Series C preferred stock can be converted at any time at the option of the holder, and will convert automatically, immediately prior to the consummation of a firm commitment public offering of common stock pursuant to a registration statement filed with the Securities and Exchange Commission having a per share price equal to or greater than $24.00 per share and a total gross offering amount of not less than $15,000,000. The rate of conversion was 1-to-1.0883 as of March 31, 2005. At March 31, 2005 and December 31, 2004, there were 15,000,000 shares of Series C preferred stock authorized and 266,041 and 270,541 issued and outstanding, respectively. During the period from December 31, 2004 through March 31, 2005, 4,500 shares of Series C preferred stock were converted into 4,897 shares of common stock at an average rate of 1-to-1.0883.

     The Company may not pay any cash dividends on its common stock while any Series C preferred stock remains outstanding without the consent of the Series C preferred stockholders. Holders of Series C preferred stock are entitled to vote on all matters submitted for a vote of the holders of common stock. Holders will be entitled to one vote for each share of common stock into which one share of Series C preferred stock could then be converted. In the event of liquidation or dissolution, the holders of Series C preferred stock will be entitled to receive the amount they paid for their stock, plus accrued and unpaid dividends out of the Company’s assets legally available for such payments prior to the holders of securities junior to the Series C preferred stock receiving payments.

(b) Common Stock

     Holders of shares of common stock are entitled to one vote per share on all matters submitted to a vote of the Company’s stockholders. There is no right to cumulative voting for the election of directors. Holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors out of funds legally available therefore, after payment of dividends required to be paid on any outstanding shares of preferred stock. Upon liquidation, holders of shares of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the liquidation preferences of any outstanding shares of preferred stock. Holders of shares of common stock have no conversion, redemption or preemptive rights. At March 31, 2005 and December 31, 2004, there were 90,000,000 shares of common stock authorized and 28,739,910 and 28,490,373 issued and outstanding, respectively.

(9) Discontinued Operations

     During 2004, the Company sold substantially all assets of its Texas subsidiary, which developed and marketed a handheld software product line, for $3,477,500 plus assumed liabilities of $467,000. The Company received $387,500 in cash, $200,000 held in a short-term escrow fund, which was released to the Company in March 2005, $415,000 in a short-term receivable and $2,475,000 million in notes receivable in exchange for assets with a book value of $3,235,000. During the quarter ended March 31, 2005, the Company received an additional $350,000 as contingent consideration. In connection with this sale of assets, the Company has recorded a deferred gain of $881,000 as a reduction of the notes receivable. Recognition of the gain will occur when collectibility of notes receivable is reasonably assured.

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     The results of operations from the handheld software product line have been presented in the condensed consolidated statements of operations as discontinued operations. Following is a summary of the discontinued operations related to the Company’s Texas subsidiary that were sold in 2004 (amounts in thousands):

(10) Net Income (Loss) per Share

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

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

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

     Four customers accounted for 25%, 13%, 12%, and 12% of net sales for the three months ended March 31, 2005. Three customers accounted for 31%, 11%, and 10% of net sales for the three months ended March 31, 2004.

     Three customers’ accounts receivable balances accounted for 33%, 17% and 12% of net accounts receivable at March 31, 2005. Three customers’ accounts receivable balances accounted for 29%, 17% and 10% of net accounts receivable at December 31, 2004.

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     Allowance for doubtful accounts was $250,000 and $311,000 at March 31, 2005 and December 31, 2004, respectively. Allowance for sales returns was $196,000 and $183,000 at March 31, 2005 and December 31, 2004, respectively.

     Export sales were approximately 15% and 23% of the Company’s net sales for the three months ended March 31, 2005 and 2004, respectively. The principal international markets served by the Company were Europe and Asia Pacific.

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

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

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

(12) Contingencies

     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

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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 stockholders 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. On March 17, 2005, the Company filed separate motions to dismiss the complaints brought by the Lundt and Carnahan plaintiffs. The plaintiffs have not yet responded to the Company’s motion to dismiss. 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.

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

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

(13) Subsequent Event

     On March 31, 2005, the Company, RadioShack and Motorola entered into several agreements to restructure their existing strategic relationship. The material agreements include a Strategic Partners Investment Agreement among the parties pursuant to which Motorola and RadioShack each purchased 689,656 shares of Mobility’s common stock at a price of $7.25 per share, for a total aggregate issuance by Mobility of 1,379,312 shares of its common stock and total aggregate gross proceeds to Mobility of $10 million; two warrants for each of RadioShack and Motorola which provide each with the right to purchase up to an additional 1,190,476 shares of Mobility’s common stock at a price of $8.40 per share upon the achievement of certain performance results by Mobility, providing for a potential aggregate issuance by Mobility of an additional 2,380,952 shares of its common stock; and separate Sales Representative Agreements by and between Mobility and each of Motorola and RadioShack, pursuant to which the parties will engage in the sale of power products for low power mobile electronic devices. The $10 million investment was funded, and the purchased shares were issued by the Company, on April 1, 2005.

     On May 6, 2005, the Company sold a portfolio of 46 patents and patents pending related to its Split Bridge and serialized PCI intellectual property for gross proceeds of $13.0 million. Per the terms of the agreement, the Company will receive a perpetual, non-exclusive license to utilize the patent portfolio in its ongoing connectivity business. The Company will further continue to retain all of its patents and patents pending related to its power and other connectivity technologies.

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

     Certain statements contained in this report constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “expect,” “anticipate” and other similar statements of expectations identify forward-looking statements. Forward-looking statements in this report include expectations regarding 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 our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include those set forth in other reports that we file with the Securities and Exchange Commission. Additional factors that could cause actual results to differ materially from those expressed in these forward-looking statements include, among others, the following:

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	•	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 market’s acceptance of our products and technology;
	•	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.

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 more effective use of these mobile electronic devices and the ability to access information more readily. Our products include power, handheld, expansion and docking and accessory products.

     We sell our products to OEMs, private-label resellers, distributors, resellers, retailers and end-users. We have entered into strategic agreements with each of RadioShack and Motorola to act as sales representatives for the sale of our power products. We have also entered into a strategic reseller agreement with Targus 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 64% of revenue for the three months ended March 31, 2005 and 70% of revenue for the three months ended March 31, 2004. Sales through retailers and distributors accounted for approximately 24% of revenue for the three months ended March 31, 2005 and 17% of revenue for the three months ended March 31, 2004. 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, 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 MP3 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 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 electronic 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 focus in 2005 is to continue to proliferate power products that incorporate our patented tip technology, for both high power and low power mobile electronic devices. In April 2005, we entered into new strategic agreements with RadioShack and Motorola under which we have formed a division specifically focused on the development and sale of low power adapter products. In connection with these strategic agreements, RadioShack and Motorola will each act as sales representatives for the sale of our power products. In addition, RadioShack and Motorola have each made strategic investments in our company to assist us in these efforts.

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     Our long-term goal is to establish an industry standard for all mobile electronic device power adapters based on our patented tip technology. We also believe there are long-term growth opportunities for our handheld products and technology related to the new smartphones that are being introduced by the major phone manufacturers.

     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.

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 24% for the three months ended March 31, 2005 and 17% of revenue for the three months ended March 31, 2004.

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

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

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

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adjustments to inventory of $1,000 during the three months ended March 31, 2005 and $118,000 during the three months ended March 31, 2004. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

     Goodwill and Intangible Assets Valuation Under Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (SFAS 142), we are required to evaluate recorded goodwill annually, or when events indicate the goodwill may be impaired. The impairment evaluation process is based on both a discounted future cash flows approach and a market comparable approach. The discounted cash flows approach uses our estimates of future market growth rates, market share, revenue and costs, as well as appropriate discount rates. We test goodwill for impairment on an annual basis as of December 31. We evaluated goodwill for impairment as of December 31, 2004 and determined that recorded goodwill was not impaired at that time. Recorded goodwill was reduced by approximately $2.0 million as a result of the sale of the assets of Mobility Texas, Inc. during 2004. During the quarter ended March 31, 2005, no triggering events occurred that would lead us to believe that goodwill was impaired as of March 31, 2005.

     We also test our recorded intangible assets whenever events indicate the recorded intangible assets may be impaired. Our intangible asset impairment approach is based on a discounted cash flows approach using assumptions noted above.

     If we fail to achieve our assumed growth rates or assumed gross margin, we may incur charges for impairment in the future. For these reasons, we believe that the accounting estimates related to goodwill and intangible assets are critical accounting estimates.

Results of Operations

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

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Comparison of Three Months Ended March 31, 2005 and 2004

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

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     The decrease in research and development expenses primarily resulted from the timing of expenses incurred in connection with the continued development of our family of power adapter products. As a percentage of revenue, research and development expenses decreased to 7.6% for the three months ended March 31, 2005 from 10.1% for the three months ended March 31, 2004.

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

     The increase in general and administrative expenses primarily resulted from non-cash expenses of $327,000 related to the amortization of equity compensation granted during the three months ended March 31, 2005. General and administrative expense was also impacted by increased legal expenses of $228,000, principally in connection with the defense of our intellectual property, increased expense for amortization of intangibles, primarily patents and trademarks, and directors’ fees. General and administrative expenses as a percentage of revenue decreased to 15.5% for the three months ended March 31, 2005 from 16.4% for the three months ended March 31, 2004.

     Income taxes. We have incurred losses from inception to date; therefore, no provision for income taxes was required for the three months ended March 31, 2005 and 2004. Based on historical operating losses and projections for future taxable income, it is more likely than not that we will not fully realize the benefits of the net operating loss carryforwards. Thus, we have not recorded a tax benefit from our net operating loss carryforwards for either of the three months ended March 31, 2005 or March 31, 2004.

Operating Outlook

     In the second quarter of 2005, we expect total revenue to range between $20 million and $21 million, and diluted earnings per share to range between $0.00 and $(0.01). From a long-term perspective, we believe there are a number of major catalysts that will drive future growth and profitability:

	•	Improved economics in the low power adapter product line resulting from new terms in place with RadioShack and Motorola;
	•	Continued growth in sales of portable computer power adapters driven by new products and new direct and indirect accounts such as Wal-Mart, PC World, Staples and The Sharper Image;
	•	Continued growth in sales of low power adapters driven by new products, new accounts, and new distribution partners such as The Carphone Warehouse, Intertan, Apple, the palmOne and Treo online stores, and RadioShack kiosks within Sprint stores and Sam’s Club stores;
	•	The continued rollout of our low power products to wireless carriers, distributors, and retailers through Motorola’s distribution channels;
	•	The anticipated introduction of jointly-developed power products with Energizer in late 2005 or early 2006; and
	•	The introduction of new products based on the joint development program with M-Flex in 2006.

     We expect gross margin to increase throughout 2005 from our 29.8% gross margin for the three months ended March 31, 2005. We expect gross margin to increase as we anticipate spreading higher sales volume over relatively fixed operating overhead expenses, particularly as we rollout sales of low power adapters to many of the new customers indicated above. Also, the continuation of sales of low power adapters to RadioShack on a net basis, with no related cost of goods sold, 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

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distribution channels that do not require significant 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 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. 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 capitalized and amortized as general and administrative expense. We may also incur additional legal and related 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 (amounts 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 used in operating activities. Cash was used in operating activities for the three months ended March 31, 2005 primarily to fund operating losses and working capital necessary to support our growing revenue base. Specifically, cash was used to fund accounts receivable growth that resulted from our 30.7% increase in revenues for the three months ended March 31, 2005 as compared to March 31, 2004. Cash used to fund growth in inventory was offset by growth in accounts payable. In 2005, we expect to generate positive cash flow from operating activities as we expect our operating results to be at or near breakeven with non-cash items and changes in working capital to have a relatively neutral effect on cash flows. Our consolidated cash flow operating metrics are as follows:

The increase in DSOs at March 31, 2005 compared to March 31, 2004, is primarily due to the timing of certain shipments to Targus for which payment was received shortly after March 31, 2005. We expect DSOs to continue to improve 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 the three months ended March 31, 2005 without a corresponding increase in inventory. 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.

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	•	Net cash used in investing activities. For the three months ended March 31, 2005, 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 three months ended March 31, 2005 was primarily from net proceeds from the exercises of stock options and warrants and payment of stock subscription receivables. 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. Subsequent to March 31, 2005 we raised an additional $10 million in connection with strategic investments in our common stock by RadioShack and Motorola.

     As of March 31, 2005, 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 currently 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 March 31, 2005. We had no outstanding balance against this line of credit as of March 31, 2005. Under the terms of the line, we can borrow up to 80% of eligible accounts receivable. At March 31, 2005, our net borrowing base capacity was approximately $9.4 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 March 31, 2005 (amounts in thousands):

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

     Acquisitions and dispositions. 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 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 $881,000. This gain has been deferred until collectibility of the notes receivable is reasonably assured.

     On May 6, 2005, we sold a portfolio of patents and patents pending relating to our Split Bridge and serialized PCI intellectual property for gross proceeds of $13.0 million.

     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, 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 to us in amounts or on terms that are acceptable to us.

Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (Revised 2004) (“SFAS 123R”), “Share-Based Payment”, which revised Statement of Financial Accounting Standards 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. On April 15, 2005, the U.S. Securities and Exchange Commission adopted a new rule amending the compliance dates for SFAS 123R. In accordance with the new rule, the accounting provisions of SFAS 123R will be effective for the Company in 2006. The Company will adopt the provisions of SFAS 123R using a modified prospective application. Under modified prospective application, SFAS 123R, which provides certain changes to the method for valuing share-based compensation among other changes, will apply to new awards and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for outstanding awards for which the vesting period has not been completed as of the effective date will be recognized over the remaining vesting period using the compensation cost calculated for pro forma disclosure purposes under SFAS 123R.

     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153 (“SFAS 153”), “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29”. SFAS 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 Opinion 29, however, included certain exceptions to that principle. SFAS 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 SFAS 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of SFAS 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 (“SFAS 151”), “Inventory Costs—an amendment of ARB No. 43, Chapter 4”. SFAS 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, SFAS 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 SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The provisions of SFAS 151 are not expected to have a material effect on the Company’s consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures and other regulations and restrictions.

     To date we have not utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or other strategies to hedge market risk in the foreseeable future. We invest our cash in money market funds, which are subject to minimal credit and market risk. We believe that the market risks associated with these financial instruments are immaterial.

     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 March 31, 2005.

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ITEM 4. CONTROLS AND PROCEDURES

     Based upon their evaluations of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were adequate and designed to ensure that information required to be disclosed by us in this report is recorded, processed, summarized and reported by the filing date of this report, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. 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 stockholders 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. On March 17, 2005, the Company filed separate motions to dismiss the complaints brought by the Lundt and Carnahan plaintiffs. The plaintiffs have not yet responded to the Company’s motion to dismiss. 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 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 late May or June 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

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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. On March 17, 2005, the Company filed a reply motion in support of its motion for summary judgment and opposition to Twin City’s motion for continuance. On April 11, 2005 and April 29, 2005, Twin City filed reply motions in support of its motion for continuance. 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 6. EXHIBITS

     The Exhibit Index and required Exhibits are immediately following the Signatures to this Form 10-Q are filed as part of, or hereby incorporated by reference into, this Form 10-Q.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MOBILITY ELECTRONICS, INC.

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EXHIBIT INDEX

+   Schedules and similar attachments have been omitted from this agreement. The registrant will furnish supplementally a copy of any omitted schedule or attachment to the Commission upon request.

(1)  Previously filed as an exhibit to Current Report on Form 8-K filed on April 5, 2005.

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