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EXCEL - IDEA: XBRL DOCUMENT - iGo, Inc. | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - iGo, Inc. | c23676exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - iGo, Inc. | c23676exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - iGo, Inc. | c23676exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-30907
iGo, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization) |
86-0843914 (IRS Employer Identification No.) |
|
17800 N. Perimeter Dr., Suite 200, Scottsdale, Arizona (Address of Principal Executive Offices) |
85255 (Zip Code) |
(480) 596-0061
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year if changed since last report)
(Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the 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 a checkmark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o (Do not check if a smaller reporting company) | Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
YES o NO þ
At November 1, 2011, there were 33,686,449 shares of the Registrants Common Stock, par value $0.01
per share outstanding.
IGO, INC.
FORM 10-Q
FORM 10-Q
TABLE OF CONTENTS
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Items 2, 3, 4 and 5 are not applicable. |
||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
i
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS: |
IGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(unaudited)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 7,291 | $ | 9,942 | ||||
Short-term investments |
6,919 | 14,532 | ||||||
Accounts receivable, net |
6,702 | 8,620 | ||||||
Inventories |
12,857 | 10,307 | ||||||
Prepaid expenses and other current assets |
391 | 460 | ||||||
Total current assets |
34,160 | 43,861 | ||||||
Property and equipment, net |
538 | 654 | ||||||
Goodwill |
1,966 | 1,905 | ||||||
Intangible assets, net |
3,978 | 3,594 | ||||||
Long-term investments |
1,120 | | ||||||
Other assets |
159 | 159 | ||||||
Total assets |
$ | 41,921 | $ | 50,173 | ||||
LIABILITIES AND EQUITY |
||||||||
Liabilities: |
||||||||
Accounts payable |
$ | 2,962 | $ | 4,666 | ||||
Accrued expenses and other current liabilities |
943 | 1,371 | ||||||
Deferred revenue |
751 | 1,838 | ||||||
Total liabilities |
4,656 | 7,875 | ||||||
Equity: |
||||||||
Common stock, $.01 par value; authorized
90,000,000 shares; 33,650,923 and 32,893,892
shares issued and outstanding at September 30,
2011 and December 31, 2010, respectively |
336 | 329 | ||||||
Additional paid-in capital |
173,184 | 172,241 | ||||||
Accumulated deficit |
(136,190 | ) | (130,381 | ) | ||||
Accumulated other comprehensive (loss) income |
(65 | ) | 109 | |||||
Total equity |
37,265 | 42,298 | ||||||
Total liabilities and equity |
$ | 41,921 | $ | 50,173 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
1
Table of Contents
IGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
$ | 9,666 | $ | 12,220 | $ | 29,725 | $ | 30,137 | ||||||||
Cost of revenue |
7,542 | 8,181 | 21,942 | 20,134 | ||||||||||||
Gross profit |
2,124 | 4,039 | 7,783 | 10,003 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
1,849 | 2,059 | 6,051 | 5,464 | ||||||||||||
Research and development |
769 | 351 | 1,846 | 1,060 | ||||||||||||
General and administrative |
1,757 | 1,958 | 5,837 | 5,380 | ||||||||||||
Total operating expenses |
4,375 | 4,368 | 13,734 | 11,904 | ||||||||||||
Loss from operations |
(2,251 | ) | (329 | ) | (5,951 | ) | (1,901 | ) | ||||||||
Other income, net: |
||||||||||||||||
Interest income, net |
13 | 52 | 55 | 147 | ||||||||||||
Gain on disposal of assets and other income, net |
7 | 93 | 87 | 1,938 | ||||||||||||
Income (loss) before income tax |
(2,231 | ) | (184 | ) | (5,809 | ) | 184 | |||||||||
Income tax benefit |
| 235 | | 235 | ||||||||||||
Net income (loss) |
$ | (2,231 | ) | $ | 51 | $ | (5,809 | ) | $ | 419 | ||||||
Net income (loss) per share |
||||||||||||||||
Basic |
$ | (0.07 | ) | $ | 0.00 | $ | (0.17 | ) | $ | 0.01 | ||||||
Diluted |
$ | (0.07 | ) | $ | 0.00 | $ | (0.17 | ) | $ | 0.01 | ||||||
Weighted average common shares outstanding |
||||||||||||||||
Basic |
33,566 | 32,885 | 33,440 | 32,731 | ||||||||||||
Diluted |
33,566 | 34,777 | 33,440 | 34,623 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
Table of Contents
IGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (5,809 | ) | $ | 419 | |||
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities: |
||||||||
Provision for doubtful accounts and sales returns and credits |
576 | 201 | ||||||
Depreciation and amortization |
1,322 | 1,185 | ||||||
Amortization of deferred compensation |
1,451 | 1,007 | ||||||
Gain on sale of business |
| (1,714 | ) | |||||
Deferred taxes |
| (235 | ) | |||||
Changes in operating assets and liabilities, net of acquisitions: |
||||||||
Accounts receivable |
1,342 | (1,216 | ) | |||||
Inventories |
(2,550 | ) | (5,427 | ) | ||||
Prepaid expenses and other assets |
(667 | ) | (211 | ) | ||||
Accounts payable |
(1,704 | ) | 4,976 | |||||
Accrued expenses and other current liabilities |
(2,016 | ) | 1,265 | |||||
Net cash (used in) provided by operating activities |
(8,055 | ) | 250 | |||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(208 | ) | (236 | ) | ||||
Purchase of intangibles |
(706 | ) | | |||||
Cash paid for acquisition |
| (900 | ) | |||||
Sale (purchase) of short-term investments, net |
7,602 | (7,430 | ) | |||||
Purchase of long-term investments |
(1,226 | ) | | |||||
Net cash provided by (used in) investing activities |
5,462 | (8,566 | ) | |||||
Cash flows from financing activities: |
||||||||
Net cash provided by financing activities |
| | ||||||
Effects of exchange rate changes on cash and cash equivalents |
(58 | ) | 13 | |||||
Net decrease in cash and cash equivalents |
(2,651 | ) | (8,303 | ) | ||||
Cash and cash equivalents, beginning of period |
9,942 | 19,775 | ||||||
Cash and cash equivalents, end of period |
$ | 7,291 | $ | 11,472 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
Table of Contents
IGO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of iGo, Inc.
and its wholly-owned subsidiaries, Mobility California, Inc., Mobility Idaho, Inc., iGo EMEA
Limited, Mobility Texas, Inc., iGo Direct Corporation, Adapt Mobile Limited (Adapt) and Aerial7
Industries, Inc. (Aerial7) (collectively, iGo or the Company). 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 U.S. generally accepted accounting principles, pursuant to rules and
regulations of the Securities and Exchange Commission (the SEC). In the opinion of management,
the accompanying condensed consolidated financial statements include normal recurring adjustments
that are necessary for a fair presentation of the results for the interim periods presented.
Certain information and footnote disclosures have been condensed or omitted pursuant to such rules
and regulations. These condensed consolidated financial statements should be read in conjunction
with the Companys audited consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2010 included in the Companys Form 10-K, filed with the SEC. The results of
operations for the three and nine months ended September 30, 2011 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 U.S.
generally accepted accounting principles 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 and price protection,
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.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) issued amended guidance
on the testing of goodwill for impairment. The amended guidance is intended to reduce the cost and
complexity of the annual goodwill impairment test by providing entities an option to perform a
qualitative assessment to determine whether further impairment testing is necessary. The amended
provisions are effective for reporting periods beginning on or after December 15, 2011. However,
early adoption is permitted if an entitys financial statements for the most recent annual or
interim period have not yet been issued. This amendment impacts testing steps only, and therefore
its adoption will not have an impact on the Companys consolidated financial position, results of
operations or cash flows.
In June 2011, the FASB issued amended guidance on the presentation of comprehensive
income. The amended guidance eliminates one of the presentation options provided by current U.S.
GAAP, that is to present the components of other comprehensive income as part of the statement of
changes in stockholders equity. In addition, it gives an entity the option to present the total of
comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. This guidance will be effective for reporting periods beginning after
December 15, 2011 and will be applied retrospectively. The Company is in the process of evaluating
the disclosure impact of this guidance.
In May 2011, the FASB issued amended guidance on fair value measurement and related
disclosures. The new guidance clarified the concepts applicable for fair value measurement of
non-financial assets and requires the disclosure of quantitative information about the unobservable
inputs used in a fair value measurement. This guidance will be effective for reporting periods
beginning after December 15, 2011, and will be applied prospectively. The Company is in the process
of evaluating the financial and disclosure impact of this guidance, and does not anticipate a
material impact on its consolidated financial statements as a result of the adoption of this
amended guidance.
Other accounting standards and exposure drafts, such as exposure drafts related to revenue
recognition, leases, financial instruments, and fair value measurements, that have been issued or
proposed by the FASB or other standards setting
bodies that do not require adoption until a future date are being evaluated by the Company to
determine whether adoption will have a material impact on the Companys consolidated financial
statements.
4
Table of Contents
(2) Fair Value Measurement
As of September 30, 2011, the Companys financial assets and financial liabilities that are
measured at fair value on a recurring basis are comprised of overnight money market funds and
investments in marketable securities.
The Company invests excess cash from its operating cash accounts in overnight money market
funds and reflects these amounts within cash and cash equivalents on the condensed consolidated
balance sheet at a net value of 1:1 for each dollar invested.
At September 30, 2011 and December 31, 2010, investments in marketable securities totaling
$6,919,000 and $14,532,000, respectively, are classified as short-term investments on the condensed
consolidated balance sheets. These investments are considered available-for-sale securities and are
reported at fair value based on third-party broker statements, which qualifies as level 2 in the
fair value hierarchy. At September 30, 2011, investments in marketable securities totaling
$1,120,000 are classified as long-term investments on the condensed consolidated balance sheet.
These investments are considered available-for-sale securities and are reported at fair value based
on a quoted market price, which qualifies as level 1 in the fair value hierarchy. The unrealized
gains and losses on available-for-sale securities are recorded in accumulated other comprehensive
(loss) income. Realized gains and losses are included in interest income, net.
(3) Investments
Short-term
The Company has determined that all of its investments in short-term marketable securities
should be classified as available-for-sale and reported at fair value.
The Company assesses its investments in marketable securities for other-than-temporary
declines in value by considering various factors that include, among other things, any events that
may affect the creditworthiness of a securitys issuer, the length of time the security has been in
a loss position, and the Companys ability and intent to hold the security until a forecasted
recovery of fair value.
The Company generated net proceeds of $7,602,000 from the sale of short-term
available-for-sale marketable securities during the nine months ended September 30, 2011, and used
$7,430,000 to purchase available-for-sale marketable securities during the nine months ended
September 30, 2010.
As of September 30, 2011 and December 31, 2010, the amortized cost basis, unrealized holding
gains, unrealized holding losses, and aggregate fair value by short-term major security-type
investments were as follows (dollars in thousands):
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Net | Net | |||||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||||||
Holding | Holding | |||||||||||||||||||||||
Amortized | Gains | Aggregate | Amortized | Gains | Aggregate | |||||||||||||||||||
Cost | (Losses) | Fair Value | Cost | (Losses) | Fair Value | |||||||||||||||||||
U.S. corporate securities: |
||||||||||||||||||||||||
Commercial paper |
$ | 1,599 | $ | | $ | 1,599 | $ | 1,100 | $ | | $ | 1,100 | ||||||||||||
Corporate notes and bonds |
3,222 | (6 | ) | 3,216 | 4,519 | 4 | 4,523 | |||||||||||||||||
4,821 | (6 | ) | 4,815 | 5,619 | 4 | 5,623 | ||||||||||||||||||
U.S. municipal funds |
2,096 | 8 | 2,104 | 2,071 | 3 | 2,074 | ||||||||||||||||||
U.S. government securities |
| | | 6,833 | 2 | 6,835 | ||||||||||||||||||
$ | 6,917 | $ | 2 | $ | 6,919 | $ | 14,523 | $ | 9 | $ | 14,532 | |||||||||||||
5
Table of Contents
Long-term
In June 2011, the Company made an investment in Pure Energy Visions Corporation, which is a
shareholder in Pure Energy Solutions, the Companys supplier of rechargeable batteries, in which
the Company received 2,142,858 shares of Pure
Energy Visions common stock at a price per share equal to $0.286, and an interest-free
convertible secured debenture having a one-year repayment term that converts into an additional
2,142,858 shares of Pure Energy Visions common stock in lieu of repayment either upon the
achievement of certain business goals or earlier at iGos discretion. The Company did not obtain
control of Pure Energy Visions as a result of this investment.
As of September 30, 2011 and December 31, 2010, the amortized cost basis, unrealized holding
gains, unrealized holding losses, and aggregate fair value by long-term major security-type
investments were as follows (dollars in thousands):
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Net | Net | |||||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||||||
Amortized | Holding | Aggregate | Amortized | Holding | Aggregate | |||||||||||||||||||
Cost | Losses | Fair Value | Cost | Gains | Fair Value | |||||||||||||||||||
Canadian corporate securities: |
||||||||||||||||||||||||
Common stock |
$ | 613 | $ | (53 | ) | $ | 560 | $ | | $ | | $ | | |||||||||||
Corporate debenture |
613 | (53 | ) | 560 | | | | |||||||||||||||||
$ | 1,226 | $ | (106 | ) | $ | 1,120 | $ | | $ | | $ | | ||||||||||||
(4) Goodwill
Goodwill is as follows (dollars in thousands):
Reported balance at December 31, 2010 |
$ | 1,905 | ||
Adjustment to Adapt |
78 | |||
Adjustment to Aerial7 |
(17 | ) | ||
Reported balance at September 30, 2011 |
$ | 1,966 | ||
During the nine months ended September 30, 2011, the Company recorded revised estimates of
fair value for certain acquired assets and liabilities assumed related to the acquisitions of Adapt
and Aerial7 resulting in a net increase to goodwill of $61,000. The Company finalized its
post-close adjustments related to the Adapt acquisition during the third quarter of 2011, and
anticipates the finalization of asset valuations and other post-close adjustments will be completed
during the fourth quarter of 2011 for Aerial7.
(5) Intangible Assets
Intangible assets consist of the following at September 30, 2011 and December 31, 2010
(dollars in thousands):
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||
Average | Gross | Net | Gross | Net | ||||||||||||||||||||||
Life | Intangible | Accumulated | Intangible | Intangible | Accumulated | Intangible | ||||||||||||||||||||
(Years) | Assets | Amortization | Assets | Assets | Amortization | Assets | ||||||||||||||||||||
Amortized intangible
assets: |
||||||||||||||||||||||||||
Patents and trademarks |
3 | $ | 5,251 | $ | (4,331 | ) | $ | 920 | $ | 4,576 | $ | (3,885 | ) | $ | 691 | |||||||||||
Non-compete agreements |
3 | 170 | (62 | ) | 108 | 170 | (19 | ) | 151 | |||||||||||||||||
Trade names |
8 | 652 | (463 | ) | 189 | 652 | (375 | ) | 277 | |||||||||||||||||
Customer intangibles |
5 | 1,551 | (334 | ) | 1,217 | 1,550 | (102 | ) | 1,448 | |||||||||||||||||
Distribution rights |
5 | 375 | (50 | ) | 325 | | | | ||||||||||||||||||
Proprietary process |
5 | 850 | (171 | ) | 679 | 850 | (43 | ) | 807 | |||||||||||||||||
Technology license |
10 | 331 | (11 | ) | 320 | | | | ||||||||||||||||||
Total amortizable |
9,180 | (5,422 | ) | 3,758 | 7,798 | (4,424 | ) | 3,374 | ||||||||||||||||||
Non-amortized
intangible assets: |
||||||||||||||||||||||||||
In process research and
development |
220 | | 220 | 220 | | 220 | ||||||||||||||||||||
Total intangible assets |
$ | 9,400 | $ | (5,422 | ) | $ | 3,978 | $ | 8,018 | $ | (4,424 | ) | $ | 3,594 | ||||||||||||
Aggregate amortization expense for identifiable intangible assets totaled $309,000 and
$998,000 for the three and nine months ended September 30, 2011. Aggregate amortization expense
for identifiable intangible assets totaled $320,000 and $789,000 for the three and nine months
ended September 30, 2010.
6
Table of Contents
In February 2011, the Company entered into marketing, distribution and licensing agreements
with Pure Energy Solutions, a manufacturer of rechargeable alkaline batteries. The Company also
simultaneously entered into an agreement with Premier Tech Home & Garden to take over its current
distribution rights for Pure Energy batteries in Canada. The corresponding value of these
distribution rights are reflected in the table above under the caption Distribution rights.
In June 2011, the Company made an investment in Pure Energy Visions Corporation, which is a
shareholder in Pure Energy Solutions, in which the Company received a license to utilize
rechargeable alkaline battery technology. The corresponding value of this license is reflected in
the table above under the caption Technology license.
(6) Stock-based Compensation
In May 2011, the Companys stockholders approved an amendment to the Omnibus Long-Term
Incentive Plan (the Omnibus Plan) to increase the number of shares available for grant by
3,000,000, from 2,350,000 to 5,350,000. The Omnibus Plan was also amended to extend its term to
March 11, 2024.
Stock-based compensation expense includes compensation expense, recognized over the applicable
requisite service periods for share-based awards. As of September 30, 2011, there were no
fully-vested outstanding stock options and no non-vested outstanding stock options. Accordingly,
there was no unrecognized compensation expense relating to non-vested stock options at September
30, 2011.
The following table summarizes information regarding restricted stock units for the nine
months ended September 30, 2011:
2004 Directors Plan | Omnibus Plan | Inducement Grants | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Value per | Value per | Value per | ||||||||||||||||||||||
Number | Share | Number | Share | Number | Share | |||||||||||||||||||
Outstanding, December 31, 2010 |
72,276 | $ | 1.42 | 808,229 | $ | 1.90 | 1,425,000 | $ | 1.91 | |||||||||||||||
Granted |
| | 690,250 | $ | 3.00 | | | |||||||||||||||||
Canceled |
| | (126,430 | ) | $ | 2.49 | | | ||||||||||||||||
Released to common stock |
(72,276 | ) | 1.42 | (316,576 | ) | $ | 2.12 | (371,127 | ) | 1.92 | ||||||||||||||
Released for settlement of taxes |
| | (117,650 | ) | $ | 2.20 | (78,874 | ) | 2.13 | |||||||||||||||
Outstanding, September 30, 2011 |
| $ | | 937,823 | $ | 2.52 | 974,999 | $ | 1.89 | |||||||||||||||
For the three and nine months ended September 30, 2011, the Company recorded in general and
administrative expense pre-tax charges of $465,000 and $1,451,000, respectively, associated with
the expensing of restricted stock unit (RSU) awards activity. For the three and nine months
ended September 30, 2010, the Company recorded in general and administrative expense pre-tax
charges of $389,000 and $1,007,000, respectively, associated with the expensing of restricted stock
unit awards activity
As of September 30, 2011, there was $3,188,000 of total unrecognized compensation cost related
to non-vested RSUs, which is expected to be recognized over a weighted average period of two years.
As of September 30, 2011, all outstanding restricted stock units were non-vested.
(7) Gain on Disposal of Assets and Other Income, net
On April 19, 2010, the Company entered into a transaction with Mission Technology Group
(Mission) that resulted in complete collection of the remaining unpaid principal balance of
$1,700,000 of its note receivable and the sale of its 15% common equity interest in Mission. As
the Company had previously recorded a valuation allowance of $1,714,000 against the promissory
note, the Company determined that as of March 31, 2010, based on the subsequent collection of
$1,700,000 as payment-in-full against the note receivable, collectability of the note was
reasonably assured. Accordingly, the Company reversed its valuation allowance against the note
receivable and recorded a gain on disposal of assets of $1,714,000 during the three months ended
March 31, 2010.
7
Table of Contents
(8) Net Income (Loss) per Share
The computation of basic and diluted net income (loss) per share follows (in thousands, except
per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic net income (loss) per share computation: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) |
$ | (2,231 | ) | $ | 51 | $ | (5,809 | ) | $ | 419 | ||||||
Denominator: |
||||||||||||||||
Weighted average number of common shares outstanding |
33,566 | 32,885 | 33,440 | 32,731 | ||||||||||||
Basic net income (loss) per share: |
$ | (0.07 | ) | $ | 0.00 | $ | (0.17 | ) | $ | 0.01 | ||||||
Diluted net income (loss) per share computation: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) |
$ | (2,231 | ) | $ | 51 | $ | (5,809 | ) | $ | 419 | ||||||
Denominator: |
||||||||||||||||
Weighted average number of common shares outstanding |
33,566 | 32,885 | 33,440 | 32,731 | ||||||||||||
Effect of dilutive stock options, warrants, and restricted stock units |
| 1,892 | | 1,892 | ||||||||||||
33,566 | 34,777 | 33,440 | 34,623 | |||||||||||||
Diluted net income (loss) per share: |
$ | (0.07 | ) | $ | 0.00 | $ | (0.17 | ) | $ | 0.01 | ||||||
Stock options not included in dilutive loss per share since anti-dilutive |
| | | | ||||||||||||
Warrants not included in dilutive loss per share since anti-dilutive |
5 | 5 | 5 | 5 |
(9) Comprehensive Income (Loss)
Comprehensive income (loss) for the three and nine months ended September 30, 2011 and 2010
includes the following components (dollars in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) |
$ | (2,231 | ) | $ | 51 | $ | (5,809 | ) | $ | 419 | ||||||
Other comprehensive income: |
||||||||||||||||
Unrealized gain (loss) on available for sale investments |
(196 | ) | 12 | (116 | ) | 9 | ||||||||||
Foreign currency translation adjustments |
(236 | ) | 130 | (58 | ) | 14 | ||||||||||
Total comprehensive income (loss) |
$ | (2,663 | ) | $ | 193 | $ | (5,983 | ) | $ | 442 |
(10) Product Lines, Concentration of Credit Risk and Significant Customers
The Company is engaged in the business of selling accessories for computers and mobile
electronic devices. The Company has five product lines, consisting of Power, Batteries, Audio,
Protection and Other Accessories. The Companys chief operating decision maker (CODM) continues
to evaluate revenues and gross profits based on product lines and geographies.
The following tables summarize the Companys revenues by product line, as well as its revenues
by geography (dollars in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Power |
$ | 7,511 | $ | 11,811 | $ | 24,582 | $ | 29,406 | ||||||||
Batteries |
428 | | 865 | | ||||||||||||
Audio |
1,335 | | 2,943 | | ||||||||||||
Protection |
197 | | 685 | | ||||||||||||
Other accessories |
195 | 409 | 650 | 731 | ||||||||||||
Total revenues |
$ | 9,666 | $ | 12,220 | $ | 29,725 | $ | 30,137 | ||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
North America (principally United States) |
$ | 7,472 | $ | 9,585 | $ | 22,250 | $ | 24,310 | ||||||||
Europe |
1,119 | 2,086 | 5,309 | 4,248 | ||||||||||||
Asia Pacific |
1,075 | 549 | 2,166 | 1,579 | ||||||||||||
$ | 9,666 | $ | 12,220 | $ | 29,725 | $ | 30,137 | |||||||||
The majority of the Companys assets are domiciled in the United States.
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 current FDIC insurance coverage limit of $250,000. The
Company performs ongoing credit evaluations of its customers financial condition but does not
typically require collateral to support customer receivables. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
Two customers accounted for 24% and 10% of net sales for the nine months ended September 30,
2011. Two customers accounted for 38% and 15% of net sales for the nine months ended September 30,
2010.
Two customers accounts receivable balance accounted for 19% and 11% of net accounts
receivable at September 30, 2011. Two customers accounts receivable balances accounted for 42%
and 16% of net accounts receivable at September 30, 2010.
Allowance for doubtful accounts was $107,000 and $131,000 at September 30, 2011 and December
31, 2010, respectively. Allowance for sales returns and price protection was $340,000 and $419,000
at September 30, 2011 and December 31, 2010, respectively.
(11) Contingencies
The Company procures its products primarily from supply sources based in Asia. Typically, the
Company places purchase orders for completed products and takes ownership of the finished inventory
upon completion and delivery from its supplier. Occasionally, the Company presents its suppliers
with Letters of Authorization for the suppliers to procure long-lead raw components to be used in
the manufacture of the Companys products. These Letters of Authorization indicate the Companys
commitment to utilize the long-lead raw components in production. As of September 30, 2007, based
on a change in strategic direction, the Company determined it would not procure certain products
for which it had outstanding Letters of Authorization with suppliers. The Company believes it is
probable that it will be required to pay suppliers for certain Letter of Authorization commitments
and has already partially settled some of these obligations. At September 30, 2011 and December
31, 2010, the Company had estimated, and recorded, a remaining liability for this contingency in
the amount of $158,000 and $160,000, respectively.
From time to time, the Company is involved in legal proceedings arising in the ordinary course of
its business. The Company assesses contingencies to determine the degree of probability and range
of possible loss for potential accrual in its financial statements. An estimated loss contingency
is accrued in the financial statements if it is probable that a liability has been incurred and the
amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and
unfavorable resolutions could occur, assessing contingencies is highly subjective and requires
judgments about future events. The Company
regularly reviews contingencies to determine the adequacy of the accruals and related disclosures.
The amount of ultimate loss may differ from these estimates. Although it is possible that the
results of operations, liquidity, or financial position of the Company could be materially affected
in any particular future reporting period by the unfavorable resolution of one or more of these
contingencies, the Company currently believes that the ultimate outcome of these matters will not
have a material adverse effect on the results of operations, liquidity or financial position of the
Company.
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This report contains statements that constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words believe,
expect, anticipate, estimate and other similar statements of expectations identify
forward-looking statements. Forward-looking statements in this report can be found in the
Financial Statements and Managements Discussion and Analysis of Financial Condition and Results
of Operations sections as well as other sections of this report and include, without limitation,
statements concerning our expectations regarding our anticipated revenue, cash flows, gross profit,
gross margins, operating and related expenses and trends for 2011 in key operating metrics,
including days outstanding in accounts receivable and inventory turns; our expectation that we
expect our overall 2011 revenue to be less than our 2010 revenue; our plans to broaden our
distribution base to reduce dependence on sales to Walmart and RadioShack, the benefits of our
RAMcell batteries; our anticipated increase in operating and research and development expenses in
2011 compared to 2010; our ability to utilize our net operating loss carryforwards; the timing of
our finalization of asset valuations relating to the Aerial7 acquisition; the impact of recent
accounting pronouncements; expectations regarding our strategy, including but not limited to, our
intentions to continue to develop and introduce new products, accessories and technologies, the
expectation that we will expand our line of cases, skins, screen protectors, batteries, audio
products and other similar products and introduce them in other markets throughout the world;
expectations regarding our ability to successfully increase our customer base and overall product
offering and broaden our distribution base; expectations regarding increased component costs from
our primary Asian suppliers; the expectation that we will further expand our intellectual property
position by filing for additional patents in various countries around the world; expectations
regarding our product development initiatives and strategies, including product bundling,
licensing, acquisitions of complementary and synergistic product families and our intentions to
expand our distribution beyond consumer retail channels, and develop new customers in the
enterprise, government and education channels; our belief that we can improve our ability to drive
higher levels of revenue and earnings, which will ultimately have a positive impact on value
creation for our shareholders; our expectation that our cash will primarily be used to fund
purchases of short-term investments, fund acquisitions, and fund the accounts receivable, inventory
needs and working capital of our business through 2011; our belief that we have the ability to hold
all of our marketable debt securities to maturity; the belief that our existing cash, cash
equivalents, short-term investments and our cash flow from operations will be sufficient to meet
our working capital and capital expenditure requirements for at least the next 12 months; our
intention to continue to make capital expenditures and pursue opportunities to acquire businesses,
products and technologies; the possibility that we may incur debt financing, sell assets not
considered integral to our business or issue additional shares of stock; the timing of amortization
of stock-based compensation expense; that our power-saving technology will help us establish an
industry standard for reduced power consumption; our intention that cash balances in the United
Kingdom will remain there for future growth and investments and to meet liquidity requirements; the
possibility we may attempt to access a credit facility; our ability to utilize net operating loss
carryforwards; our hedging strategies and the market risks relating to our financial instruments;
and our expectations regarding the outcome and anticipated impact of various legal proceedings,
commitments and contingencies in which we may be involved, including our potential obligations
relating to prior letter of authorization commitments.
These forward-looking statements are based largely on our managements expectations and
involve known and unknown risks, uncertainties and other factors, which may cause our actual
results, performance, 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 discussed in our Annual
Report on Form 10-K for the year ended December 31, 2010 under the heading Risk Factors and those
set forth in other sections of this report and in other reports that we file with the SEC.
Additional factors that could cause actual results to differ materially from those expressed in
these forward-looking statements include, among others, the following:
| our dependence on large purchases from significant customers, namely Walmart; |
| further declines in sales to RadioShack; |
| our ability to expand and diversify our customer base; |
| our reliance upon Walmart, as well as other distributors and resellers; |
| our ability to expand our revenue base and development new products and product enhancements; |
| the sufficiency of our revenue to absorb expenses; | ||
| fluctuations in our operating results because of: increases in product costs from our suppliers, our suppliers ability to perform, the timing of new product and technology introductions and product enhancements relative to our competitors, market acceptance of our products, the size and timing of customer orders, our ability to effectively manage inventory levels, delay or failure to fulfill orders for our products on a timely basis, distribution of or changes in our revenue among distribution partners and retailers, our inability to accurately forecast our contract manufacturing needs, difficulties with new product production implementation or supply chain, product defects and other product quality problems, the degree and rate of growth in our markets 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; |
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| increased focus by consumer electronics retailers on their own private label brands; |
| decreasing sales prices on our products over their sales cycles; |
| our ability to expand our revenue base and develop new products and product enhancements; |
| our failure to integrate acquired businesses, products and technologies; |
| our reliance on and the risk relating to outsourced manufacturing fulfillment of our products, including potential increases in manufacturing costs; |
| our ability to manage our anticipated growth; |
| our ability to manage our inventory levels; |
| the negative impacts of product returns; |
| design and performance issues with our products; |
| liability claims; |
| our failure to expand or protect our proprietary rights and intellectual property; |
| intellectual property infringement claims against us; |
| our ability to hire and retain qualified personnel; |
| our ability to secure additional financing to meet our future capital needs; |
| increased competition and/or reduced demand in our industry; |
| our failure to comply with domestic and international laws and regulations; |
| economic conditions, political events, war, terrorism, public health issues, natural disasters and similar circumstances; |
| volatility in our stock price; |
| concentration of stock ownership among our executive officers and principal stockholders; |
| provisions in our certificate of incorporation, bylaws and Delaware law, as well as our stockholder rights plan, that could make a proposed acquisition of the Company more difficult; and |
| dilution resulting from potential future stock issuances. |
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.
iGo®, iGo Green®, Adapt Mobile®, and Aerial7® are registered trademarks of iGo, Inc. or its
subsidiaries in the United States and other countries. Other names and brands may be claimed as
the property of others.
Overview
We are a leading provider of innovative accessories and power management solutions for the
electronics industry. Our vision is to attach our products and technology to every mobile
electronic device. 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 increasing due to 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 opportunities for one or more of our products.
We design and develop products that make computers and 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. Our current product offering
primarily consists of power, batteries, audio and protection solutions for mobile electronic
devices, and we intend to continue to introduce new accessories for mobile electronic devices.
11
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Power
The centerpiece of our power management solutions is our new proprietary iGo Green®
technology. Our first iGo Green products are laptop chargers and surge protectors which
incorporate our new patented technology. Our iGo Green technology reduces energy consumption and
almost completely eliminates standby power, or Vampire Power. We believe that this power-saving
technology, when combined with our existing universal power products, will help us achieve our
long-term goal of establishing an industry standard for reduced power consumption when charging
mobile electronic devices. In addition, our universal power products allow users to charge a
variety of their mobile electronic devices from a single power source through the use of
interchangeable tips, which increases end-user convenience and minimizes electronic waste.
Batteries
Through our relationship with Pure Energy Solutions (Pure Energy), we are the exclusive
marketer and distributor of Pure Energys patented rechargeable alkaline (RAMcell) batteries to
retailers worldwide (excluding China) with non-exclusive distribution rights in Africa. RAMcell
batteries are pre-charged and hold a charge for up to seven years. Approximately three billion
single-use alkaline batteries are sold annually in the United States. RAMcell batteries provide
users an environmentally friendly, cost-effective alternative to disposable alkaline batteries. We
believe that RAMcell batteries and related battery chargers are complementary to our power-saving
technology and contribute to lower levels of electronic waste.
Audio
As a result of our acquisition of Aerial7 Industries, Inc. (Aerial7), we now offer a line of
earbuds and headphones. As mobile phones have recently evolved into smartphones and the
introduction of new portable media devices, all of which are capable of playing music and video,
many consumers utilize a variety of mobile electronic devices for both communication and
entertainment purposes. Our audio products are uniquely designed to provide enhanced sound quality
compared to competitive products at similar price points. Our line of audio products also offer
consumers the ability to both communicate with others via an integrated microphone that can be used
with a portable computer, mobile phone, computer or other portable media device as well the ability
to listen to music or video from these devices. Similar to our protection products and in addition
to the quality sound output delivered by our audio products, our line of audio products is also
fashionably designed, allowing consumers to express their unique and personal style. Currently,
these products are offered primarily through lifestyle and music retailers around the world,
however we intend to expand our audio product offering and introduce these and similar products in
consumer electronics retailers around the world as well.
Protection
As a result of our acquisition of Adapt Mobile Limited (Adapt), we now offer a line of
skins, cases and screen protectors for mobile electronic devices. Consumers value the protection
of their mobile electronic devices as they rely on them heavily in their daily lives to both
connect with others and store important information. In addition, consumers often view these
products as a way to express their personal fashion and style, similar to clothing and other
accessories. Our line of protection products is designed to meet both of these consumer needs by
providing the consumer with a high degree of protection, while simultaneously offering them a
unique fashionable design that fits their personal style. Currently, we offer these products
primarily in Europe, however we expect to expand our line of cases, skins, screen protectors and
other similar products and introduce them in other markets throughout the world.
Our ability to execute successfully on our near and long-term objectives depends largely upon
the general market acceptance of our power, protection and audio products, our ability to protect
our unique proprietary rights, including notable our iGo Green technology, our ability to generate
additional major customers, and general economic conditions. 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.
Recent Developments
In February 2011, we entered into a marketing, distribution and licensing agreements with Pure
Energy, a manufacturer of rechargeable alkaline batteries. This agreement was subsequently amended
and restated in June 2011 to expand our distribution and licensing rights with respect to these
products. Pursuant to the agreement, iGo will be the exclusive marketer and distributor of Pure
Energys patented rechargeable alkaline batteries to retailers worldwide (excluding China) with
non-exclusive distribution rights in Africa. In February 2011, we also simultaneously entered into
an agreement with Premier Tech Home & Garden to take over its current distribution rights for Pure
Energy batteries in Canada. As part of the
agreement with Premier Tech Home & Garden, we purchased inventory to support sales to these
accounts. As part of our agreement with Pure Energy, we will pay certain ongoing royalties to Pure
Energy on future sales for the use of the Pure Energy brand, the use of Pure Energy charger
technology, and our sales to specific customers. The initial term of the agreement is five years,
provided, however, that we must achieve annual minimum sales targets in order to retain our
exclusive distribution rights beyond December 31, 2013. If we achieve our annual minimum sales
targets, we will have the option to extend the agreement for a total of 15 years.
In June 2011, we entered into an investment agreement with Pure Energy Visions Corporation
(Pure Energy Visions) and expanded our distribution and licensing agreements with its parent
company, Pure Energy. Our investment is intended to fund further developments in rechargeable
alkaline battery technology and improve the economics of the product line. In return for a total
investment of $1.6 million in Pure Energy Visions, we received 2,142,858 shares of Pure Energy
Visions common stock (which is traded on the Canadian TSX Venture Exchange under the ticker symbol
PEV.V), an interest-free convertible secured debenture having a one-year repayment term that
converts into an additional 2,142,858 shares of Pure Energy Visions common stock in lieu of
repayment either upon the achievement of certain business goals or earlier at our discretion, and a
technology license.
12
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Critical Accounting Policies and Estimates
There were no changes in our critical accounting policies during the nine months ended
September 30, 2011 from those set forth in our Annual Report on Form 10-K for the year ended
December 31, 2010.
Results of Operations
The following table presents certain selected consolidated financial data for the periods
indicated expressed as a percentage of total revenue:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenue |
78.0 | % | 66.9 | % | 73.8 | % | 66.8 | % | ||||||||
Gross profit |
22.0 | % | 33.1 | % | 26.2 | % | 33.2 | % | ||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
19.1 | % | 16.8 | % | 20.4 | % | 18.1 | % | ||||||||
Research and development |
8.0 | % | 2.9 | % | 6.2 | % | 3.5 | % | ||||||||
General and administrative |
18.2 | % | 16.0 | % | 19.6 | % | 17.9 | % | ||||||||
Total operating expenses |
45.3 | % | 35.7 | % | 46.2 | % | 39.5 | % | ||||||||
Loss from operations |
(23.3 | )% | (2.7 | )% | (20.0 | )% | (6.3 | )% | ||||||||
Other income (expense): |
||||||||||||||||
Interest, net |
0.1 | % | 0.4 | % | 0.2 | % | 0.5 | % | ||||||||
Gain on disposal of assets and other income, net |
0.1 | % | 0.8 | % | 0.3 | % | 6.4 | % | ||||||||
Income (loss) before income tax |
(23.1 | )% | (1.5 | %) | (19.5 | )% | 0.6 | % | ||||||||
Income tax benefit |
| 1.9 | % | | 0.8 | % | ||||||||||
Net income (loss) |
(23.1 | )% | 0.4 | % | (19.5 | )% | 1.4 | % | ||||||||
Comparison of Three Months Ended September 30, 2011 and 2010
Revenue. Revenue generally consists of sales of products, net of returns and allowances. To
date, our revenues have come predominantly from power adapters and accessories. The following table
summarizes the year-over-year comparison of our consolidated revenue for the periods indicated
(dollars in thousands):
Three Months | Three Months | |||||||||||||||
Ended | Ended | Decrease | Percentage change | |||||||||||||
September 30, | September 30, | From same period | from the same period | |||||||||||||
2011 | 2010 | in the prior year | in the prior year | |||||||||||||
Revenue |
9,666 | $ | 12,220 | $ | (2,554 | ) | (20.9 | )% |
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Table of Contents
Following is a breakdown of revenue by significant account for the three months ended
September 30, 2011 and 2010 with the corresponding dollar and percent changes (dollars in
thousands):
For the three months ended September 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Sales | % of Total Sales | Sales | % of Total Sales | $ Change | % Change | |||||||||||||||||||
Walmart |
$ | 2,645 | 27 | % | $ | 2,167 | 18 | % | 478 | 22.1 | % | |||||||||||||
RadioShack |
1,520 | 16 | % | 4,309 | 35 | % | (2,789 | ) | (64.7 | )% | ||||||||||||||
Office Depot |
325 | 3 | % | 690 | 6 | % | (365 | ) | (52.9 | )% | ||||||||||||||
Belkin |
249 | 3 | % | 1,260 | 10 | % | (1,011 | ) | (80.2 | )% | ||||||||||||||
All other customers |
4,927 | 51 | % | 3,794 | 31 | % | 1,133 | 29.9 | % | |||||||||||||||
$ | 9,666 | 100 | % | $ | 12,220 | 100 | % | (2,554 | ) | (20.9 | )% | |||||||||||||
The decrease in revenue for the three months ended September 30, 2011 as compared to the
three months ended September 30, 2010 was primarily due to the decrease in sales to RadioShack and
Belkin as indicated in the table above. This decrease in revenue was partially offset by the
addition of battery, audio and protection product lines as a result of Adapt and Aerial7
acquisitions in the second half of 2010 and the Pure Energy relationship in the first quarter of
2011, combined with the increases in sales to Walmart as indicated in the table above. The battery,
audio and protection product lines contributed $2.0 million to revenue for the three months ended
September 30, 2011, compared to $0 for the three months ended September 30, 2010, and the
corresponding revenue is included in the table above under the caption All other customers. We
are working to continue to broaden our distribution base with the goal of reducing our dependence
on sales to Walmart and RadioShack in the future.
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 table summarizes the
year-over-year comparison of our cost of revenue, gross profit and gross margin for the periods
indicated (dollars in thousands):
Three Months | Three Months | |||||||||||||||
Ended | Ended | Decrease from same | Percentage change from | |||||||||||||
September 30, | September 30, | period in the prior | the same period in the | |||||||||||||
2011 | 2010 | year | prior year | |||||||||||||
Cost of revenue |
$ | 7,542 | $ | 8,181 | $ | (639 | ) | (7.8 | )% | |||||||
Gross profit |
$ | 2,124 | $ | 4,039 | $ | (1,915 | ) | (47.4 | )% | |||||||
Gross margin |
22.0 | % | 33.1 | % | (11.1 | )% | NA |
The decrease in cost of revenue was due primarily to the decrease in revenue discussed
above. The decrease in gross margin was primarily due to a decrease in average direct margin,
which excludes labor and overhead costs, to 36.3% for the three months ended September 30, 2011
compared to 49.6% for the three months ended September 30, 2010, primarily as a result of increased
product costs and decreased sales prices on sales of power products. Labor and overhead expenses,
which are mostly fixed, decreased by $636,000 to $1.4 million, or 14.3% of revenue, for the three
months ended September 30, 2011, compared to $2.0 million, or 16.5% of revenue, for the three
months ended September 30, 2010. As a result, cost of revenue as a percentage of revenue increased
to 78.0% for the three months ended September 30, 2011 from 66.9% for the three months ended
September 30, 2010. We continue to experience increases in component costs from our primary Asian
suppliers combined with increased competition and lower sales prices for our power products, and as
a result, we expect gross margins to remain the same or decline slightly for the balance of 2011
compared to 2010.
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 (dollars in
thousands):
Three Months | Three Months | |||||||||||||||
Ended | Ended | Decrease from | Percentage change | |||||||||||||
September 30, | September 30, | same period in the | from the same period | |||||||||||||
2011 | 2010 | prior year | in the prior year | |||||||||||||
Sales and marketing |
$ | 1,849 | $ | 2,059 | $ | (210 | ) | (10.2 | )% |
The decrease in sales and marketing expenses primarily resulted from the decreases of
approximately $95,000 in personnel-related expenses and $107,000 in marketing and advertising
expenses for the three months ended September 30, 2011, compared to the three months ended
September 30, 2010. As a percentage of revenue, sales and marketing expenses increased to 19.1%
for the three months ended September 30, 2011 from 16.8% for the three months ended September 30,
2010.
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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 (dollars in thousands):
Three Months | Three Months | |||||||||||||||
Ended | Ended | Increase from same | Percentage change from | |||||||||||||
September 30, | September 30, | period in the prior | the same period in the | |||||||||||||
2011 | 2010 | year | prior year | |||||||||||||
Research and development |
$ | 769 | $ | 351 | $ | 418 | 119.1 | % |
The increase in research and development expenses primarily resulted from the increases
of approximately $314,000 in personnel-related expenses, for the three months ended September 30,
2011, compared to the three months ended September 30, 2010. Our research and development
personnel increased to nine at September 30, 2011, compared to seven at September 30, 2010. We
also terminated four research and development personnel during the three months ended September 30,
2011 and recorded severance expense of $153,000 in connection with those terminations.
Non-recurring engineering expenses also increased by $100,000 for the three months ended September
30, 2011, primarily due to the development of our power-saving microchip with Texas Instruments,
compared to the three months ended September 30, 2010. As a percentage of revenue, research and
development expenses increased to 8.0% for the three months ended September 30, 2011 from 2.9% for
the three months ended September 30, 2010.
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, legal and other
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 (dollars in thousands):
Three Months | Three Months | |||||||||||||||
Ended | Ended | Decrease from | Percentage change | |||||||||||||
September 30, | September 30, | same period in the | from the same period | |||||||||||||
2011 | 2010 | prior year | in the prior year | |||||||||||||
General and administrative |
$ | 1,757 | $ | 1,958 | $ | (201 | ) | (10.3 | )% |
The decrease in general and administrative expenses primarily resulted from a decrease of
$65,000 in personnel-related expenses and $136,000 in legal expenses during the three months ended
September 30, 2011 compared to the three months ended September 30, 2010. General and
administrative expenses as a percentage of revenue increased to 18.2% for the three months ended
September 30, 2011 from 16.0% for the three months ended September 30, 2010.
Interest income, net. Interest income, net decreased by $39,000 to $13,000 for the three
months ended September 30, 2011 compared to $52,000 for the three months ended September 30, 2010.
The decrease was primarily due to decreased short-term investment balances during 2011. At
September 30, 2011, the average yield on our cash and short-term investments was approximately 0%.
Gain on disposal of assets and other income, net. Gain on disposal of assets and other
income, net was $7,000 for the three months ended September 30, 2011 compared to $93,000 for the
three months ended September 30, 2010.
Income taxes. No provision for income taxes was required for the three months ended September
30, 2011. 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. We have not, therefore, recorded a tax benefit from our net operating loss
carryforwards for the three months ended September 30, 2011, which at September 30, 2011 totaled
approximately $157 million. As a result of the acquisition of Adapt Mobile, we recorded a $235,000
tax benefit for the three months ended September 30, 2010. The tax benefit relates to a deferred
tax liability resulting from acquired intangible assets that are not expected to be deductible for
income tax purposes. As our deferred tax assets, net of deferred tax liabilities, are fully valued
at zero, the impact of recording this deferred tax liability resulted in a release of a portion of
our deferred tax asset valuation allowance, and was recorded as income tax benefit for the three
months ended September 30, 2010.
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Comparison of Nine Months Ended September 30, 2011 and 2010
Revenue. Revenue generally consists of sales of products, net of returns and allowances. To
date, our revenue has come predominantly from power adapters, handheld products, expansion and
docking products, and accessories. The following table summarizes the year-over-year comparison of
our consolidated revenue for the periods indicated (dollars in thousands):
Nine Months | Nine Months | |||||||||||||||
Ended | Ended | Decrease from | Percentage change | |||||||||||||
September 30, | September | same period in the | from the same period | |||||||||||||
2011 | 30, 2010 | prior year | in the prior year | |||||||||||||
Revenue |
$ | 29,725 | $ | 30,137 | $ | (412 | ) | (1.4 | )% |
Following is a breakdown of revenue by significant account for the nine months ended
September 30, 2011 and 2010 with the corresponding dollar and percent changes (dollars in
thousands):
For the Nine Months ended September 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Sales | % of Total Sales | Sales | % of Total Sales | $ Change | % Change | |||||||||||||||||||
Walmart |
$ | 7,240 | 24 | % | $ | 4,409 | 15 | % | 2,831 | 64.2 | % | |||||||||||||
RadioShack |
3,060 | 10 | % | 11,277 | 37 | % | (8,217 | ) | (72.9 | )% | ||||||||||||||
Belkin |
2,155 | 7 | % | 2,332 | 8 | % | (177 | ) | (7.6 | )% | ||||||||||||||
Office Depot |
1,679 | 6 | % | 1,057 | 3 | % | 622 | 58.9 | % | |||||||||||||||
All other customers |
15,591 | 53 | % | 11,062 | 37 | % | 4,529 | 40.9 | % | |||||||||||||||
$ | 29,725 | 100 | % | $ | 30,137 | 100 | % | (412 | ) | (1.4 | )% | |||||||||||||
The decrease in revenue for the nine months ended September 30, 2011 as compared to the
nine months ended September 30, 2010 was primarily due to the decrease in sales to RadioShack, as
indicated in the table above. The decrease in sales to RadioShack was partially offset by increased
sales to Walmart and Office Depot combined with sales related to the addition of battery, audio and
protection product lines as a result of Adapt and Aerial7 acquisitions in the second half of 2010
and the Pure Energy relationship in the first quarter of 2011. The battery, audio and protection
product lines contributed $4.5 million to revenue for the nine months ended September 30, 2011,
compared to $0 for the nine months ended September 30, 2010, and the corresponding revenue is
included in the table above under the caption All other customers. We are working to continue
to broaden our distribution base with the goal of reducing our dependence on sales to Walmart and
RadioShack in the future.
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 table summarizes the
year-over-year comparison of our cost of revenue, gross profit and gross margin for the periods
indicated (dollars in thousands):
Nine Months | Nine Months | |||||||||||||||
Ended | Ended | Increase/(decrease) | Percentage change from | |||||||||||||
September 30, | September 30, | from same period in | the same period in the | |||||||||||||
2011 | 2010 | the prior year | prior year | |||||||||||||
Cost of revenue |
$ | 21,942 | $ | 20,134 | $ | 1,808 | 9.0 | % | ||||||||
Gross profit |
$ | 7,783 | $ | 10,003 | $ | (2,220 | ) | (22.2 | )% | |||||||
Gross margin |
26.2 | % | 33.2 | % | (7.0 | )% | NA |
The increase in cost of revenue and corresponding decrease in gross margin was primarily
due to a decrease in average direct margin, which excludes labor and overhead costs, to 41.2% for
the nine months ended September 30, 2011 compared to 48.1% for the nine months ended September 30,
2010, primarily as a result of increased product costs and decreased sales prices on sales of power
products. Labor and overhead expenses, which are mostly fixed, were $4.5 million, or 15.0% of
revenue, for the nine months ended September 30, 2011, which was consistent with $4.5 million, or
14.9% of revenue for the nine months ended September 30, 2010. As a result, cost of revenue as a
percentage of revenue increased to 73.8% for the nine months ended September 30, 2011 from 66.8%
for the nine months ended September 30, 2010. We continue to
experience increases in component costs from
our primary Asian suppliers combined with increased competition and lower sales prices for our
power products, and as a result, we expect gross margins to remain the same or decline slightly for
the balance of 2011 compared to 2010.
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Sales and marketing. Sales and marketing expenses generally consist of salaries, commissions
and other personnel-related costs of our sales, marketing and support personnel, advertising,
public relations, promotions, printed media and travel. The following table summarizes the
year-over-year comparison of our sales and marketing expenses for the periods indicated (dollars in
thousands):
Nine Months | Nine Months | |||||||||||||||
Ended | Ended | Increase from | Percentage change | |||||||||||||
September 30, | September 30, | same period in the | from the same period | |||||||||||||
2011 | 2010 | prior year | in the prior year | |||||||||||||
Sales and marketing |
$ | 6,051 | $ | 5,464 | $ | 587 | 10.7 | % |
The increase in sales and marketing expenses primarily resulted from increases of
approximately $391,000 in personnel related expenses, primarily due to the addition of personnel
from the Adapt and Aerial7 acquisitions, and $202,000 in sales samples and trade show expenses for
the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. As a
percentage of revenue, sales and marketing expenses increased to 20.4% for the nine months ended
September 30, 2011 from 18.1% for the nine months ended September 30, 2010.
Research and development. Research and development expenses primarily consist 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 (dollars in thousands):
Nine Months | Nine Months | |||||||||||||||
Ended | Ended | Increase from same | Percentage change from | |||||||||||||
September 30, | September 30, | period in the prior | the same period in the | |||||||||||||
2011 | 2010 | year | prior year | |||||||||||||
Research and development |
$ | 1,846 | $ | 1,060 | $ | 786 | 74.2 | % |
The increase in research and development expenses primarily resulted from the increases
of approximately $520,000 in personnel-related expenses, primarily due to the addition of personnel
from the Adapt and Aerial7 acquisitions and severance payments associated with a reduction in
personnel, for the nine months ended September 30, 2011, compared to the nine months ended
September 30, 2010. Non-recurring engineering expenses also increased by $233,000 for the nine
months ended September 30, 2011, primarily due to the development of our power-saving microchip
with Texas Instruments, compared to the nine months ended September 30, 2010. As a percentage of
revenue, research and development expenses increased to 6.2% for the nine months ended September
30, 2011 from 3.5% for the nine months ended September 30, 2010.
General and administrative. General and administrative expenses primarily consist of salaries
and other personnel-related expenses of our finance, human resources, information systems,
corporate development and other administrative personnel, as well as facilities, legal and other
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 (dollars in thousands):
Nine Months | Nine Months | |||||||||||||||
Ended | Ended | Increase from same | Percentage change | |||||||||||||
September 30, | September 30, | period in the prior | from the same period | |||||||||||||
2011 | 2010 | year | in the prior year | |||||||||||||
General and administrative |
$ | 5,837 | $ | 5,380 | $ | 457 | 8.5 | % |
The increase in general and administrative expenses primarily resulted from an increase
of $444,000 in equity compensation expense for the nine months ended September 30, 2011 compared to
the nine months ended September 30, 2010. General and administrative expenses as a percentage of
revenue increased to 19.6% for the nine months ended September 30, 2011 from 17.9% for the nine
months ended September 30, 2010.
Interest income, net. Interest income, net decreased by $92,000 to $55,000 for the nine
months ended September 30, 2011 compared to $147,000 for the nine months ended September 30, 2010.
The decrease was primarily due to collection in full of notes receivable during 2010 and decreased
short-term investment balances during 2011. At September 30, 2011, the average yield on our cash
and short-term investments was approximately 0%.
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Other income, net. Other income, net was $87,000 for the nine months ended September 30, 2011
compared to $1.9 million for the nine months ended September 30, 2010. The reversal of the reserve
against the Mission note receivable, resulted in the recognition of a gain of $1.7 million in the
2010 period.
Income taxes. No provision for income taxes was required for the nine months ended September
30, 2011. 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. We have not, therefore, recorded a tax benefit from our net operating loss
carryforwards for the nine months ended September 30, 2011, which at September 30, 2011 was $157
million. As a result of the acquisition of Adapt Mobile, we recorded a $235,000 tax benefit for the
nine months ended September 30, 2010. The tax benefit relates to a deferred tax liability
resulting from acquired intangible assets that are not expected to be deductible for income tax
purposes. As our deferred tax assets, net of deferred tax liabilities, are fully valued at zero,
the impact of recording this deferred tax liability resulted in a release of a portion of our
deferred tax asset valuation allowance, and was recorded as income tax benefit for the nine months
ended September 30, 2010.
Operating Outlook
Due to increased competition, both from third parties and private-label brands offered by some
of our retail customers, we have experienced a decline in demand for our power products with our
traditional customer base. We were successful throughout 2010, however, in increasing our customer
base, primarily with the addition of Walmart, and increasing our overall product offerings
primarily through the acquisitions of Adapt and Aerial7 and in 2011, through our new distribution
agreement with Pure Energy. As a result, because we continue to face increased competition from
private-label brands offered by some of our retail customers, including most notably RadioShack, we
expect our total 2011 revenue to be less than our 2010 revenue.
We continue to see increases in component costs from our primary Asian suppliers. As a
result, we expect gross margins to decline in 2011 compared to 2010. Although we expect operating
expenses to increase in 2011 compared to 2010, primarily as a result of increased operating
expenses associated with the acquisitions of Adapt and Aerial7, we have made reductions in our cost
structure in an attempt to minimize anticipated losses over the remainder of 2011.
We anticipate increased research and development expenses in 2011 compared to 2010, primarily
as a result of the continued development of our iGo Green technology, including expenses relating
to the collaborative development of an integrated circuit with Texas Instruments based on our iGo
Green technology. As a result of our planned research and development efforts, we expect to
further expand our intellectual property position by filing for additional patents in various
countries around the world. 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.
In addition to our line of power products, we have recently introduced a variety of new mobile
electronics accessories both as a result of our internal design efforts and as a result of our
acquisition of Adapt and Aerial7 and our distribution agreement with Pure Energy. We expect to
continue to introduce additional mobile electronics accessory products in the future as we execute
on our vision to attach our products and technology to every mobile electronic device. In order to
continue to grow our business and enhance shareholder value, we believe it is necessary to continue
to expand our product portfolio. Moving forward, we intend to continue to explore a number of
initiatives designed to broaden our product portfolio within the
mobile electronics accessories space. We currently plan that the initiatives will consist of
internal product development, sourcing products from third-parties, joint marketing ventures,
product bundling, licensing opportunities, and acquisitions of complementary and synergistic
product families and companies. We also have initiatives to expand our distribution beyond
consumer retail with the intent to sell products into the enterprise, government and education
channels. All of these initiatives are designed to leverage the inherent strengths of our
business, most notably, our strong balance sheet, our compelling portfolio of intellectual
property, and our established brand and relationships with major retailers. As we continue to
execute on this vision, we believe we can improve our ability to drive higher levels of revenue and
earnings, which will ultimately have a positive impact on value creation for our shareholders.
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Liquidity and Capital Resources
Cash and Cash Flow. Our available cash and cash equivalents are held in bank deposits and
money market funds in the United States and in the United Kingdom.
Our cash balances held in the United Kingdom are denominated in
British pound sterling and Euro. Our intent is that the cash
balances in the United Kingdom will remain there for future growth and investments, and we will
meet any liquidity requirements in the United States through ongoing cash flows, external
financing, or both. We actively monitor the third-party depository institutions that hold our cash
and cash equivalents. Our emphasis is primarily on safety of principal while secondarily maximizing
yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize
exposure to any one of these entities. To date, we have experienced no material loss or lack of
access to our invested cash or cash equivalents; however, we can provide no assurances that access
to our invested cash and cash equivalents will not be impacted by adverse conditions in the
financial markets.
At any point in time we have funds in our operating accounts that are with third-party
financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance
Corporation (FDIC) insurance limits. While we monitor the cash balances in our operating accounts
and adjust the cash balances as appropriate, these cash balances could be impacted if the
underlying financial institutions fail or could be subject to other adverse conditions in the
financial markets.
Our primary use of cash has been to fund operating losses, fund acquisitions, and fund working
capital needs of our business, which we expect to continue through 2011. Some of our new suppliers
of protection and audio have been unwilling to extend trade credit to us on the same terms and
conditions as our power product suppliers have historically done. As a result, we are required to
pay for purchases of inventory in advance of the related sale of these products, which has
increased our use of cash to support the working capital required to effectively operate our
business. Historically, our primary sources of liquidity have been funds provided by the sale of
intellectual property assets. We cannot assure you that this source will be available to us in the
future.
We currently do not maintain a credit facility with a bank, however, we may attempt to access
this source of financing at some point in the future. Capital markets in the United States and
throughout the world remain tight, which could impact our ability to obtain additional or
alternative financing, including a credit facility with a bank.
The following table sets forth, for the period presented, certain consolidated cash flow
information (dollars in thousands):
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Net cash (used in) provided by operating activities |
$ | (8,055 | ) | $ | 250 | |||
Net cash provided by (used in) investing activities |
5,462 | (8,566 | ) | |||||
Net cash provided by financing activities |
| | ||||||
Foreign currency exchange impact on cash flow |
(58 | ) | (13 | ) | ||||
Decrease in cash and cash equivalents |
$ | (2,651 | ) | $ | (8,303 | ) | ||
Cash and cash equivalents at beginning of period |
$ | 9,942 | $ | 19,775 | ||||
Cash and cash equivalents at end of period |
$ | 7,291 | $ | 11,472 | ||||
| Net cash (used in) provided by operating activities. Cash was used in our operating activities for the nine months ended September 30, 2011 to fund the working capital needs of our business, including inventory purchases. We expect to continue to use cash in operating activities through 2011. | ||
Our consolidated cash flow operating metrics are as follows: |
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Days outstanding in ending accounts receivable (DSOs) |
62 | 73 | ||||||
Inventory turns |
2 | 3 |
The decrease in DSOs at September 30, 2011 compared to September 30, 2010 was primarily due to decrease in sales to RadioShack, which generally requires longer payment terms. We expect DSOs will increase in the fourth quarter of 2011 as our revenue base increases. The decrease in inventory turns was primarily due to the decline in revenue from sales to RadioShack, for whom we hold no inventory. We expect to manage inventory growth during 2011 and we expect inventory turns for the remainder of 2011 to remain consistent with the period ended September 30, 2011. |
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| Net cash provided by (used in) investing activities. For the nine months ended September 30, 2011, net cash was generated by investing activities primarily as a result of the sale of short-term investments, partially offset by our investments in Pure Energy Visions. |
| Net cash provided by financing activities. We had no cash flows from financing activities during the first nine months of 2011 or 2010. |
Investments. At September 30, 2011, our investments in marketable securities included one
issuance of corporate common stock, one corporate debenture, eight corporate bonds, four commercial
paper instruments issued by various companies, and one municipal mutual fund with an aggregate fair
value of approximately $8.0 million.
In June 2011, we made an investment in Pure Energy, in which we received 2,142,858 shares of
Pure Energy Visions common stock at a price per share equal to $0.286, and an interest-free
convertible secured debenture having a one-year repayment term that converts into an additional
2,142,858 shares of Pure Energy Visions common stock in lieu of repayment either upon the
achievement of certain business goals or earlier at our discretion.
We believe we have the ability to hold all marketable debt securities to maturity. However, we
may dispose of debt securities prior to their scheduled maturity due to changes in interest rates,
prepayments, tax and credit considerations, liquidity or regulatory capital requirements, or other
similar factors. As a result, we classify all marketable securities as available-for-sale. These
securities are reported at fair value based on third-party broker statements, which represents
level 2 in the fair value hierarchy. Our investment in Pure Energy is reported at fair value based
on a quoted market price, which represents level 1 in the fair value hierarchy. Accordingly,
unrealized gains and losses related to these investments are reported in equity as a separate
component of accumulated other comprehensive (loss) income.
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 September 30, 2011 (dollars in
thousands):
Payment due by period | ||||||||||||||||||||||||
More | ||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | than 5 years | |||||||||||||||||||
Operating lease obligations |
$ | 111 | $ | 452 | $ | 463 | $ | 83 | $ | | $ | | ||||||||||||
Inventory Purchase obligations |
8,407 | | | | | | ||||||||||||||||||
Totals |
$ | 8,518 | $ | 452 | $ | 463 | $ | 83 | $ | | $ | | ||||||||||||
Off-Balance Sheet Arrangements. We have no off-balance sheet financing arrangements.
Acquisitions and Dispositions. In the second half of 2010 we acquired Adapt and Aerial7 to
complement our product offerings and expand our revenue base. 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, issuance of
additional equity securities or a combination of all of these. 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.
Net Operating Loss Carryforwards. As of September 30, 2011, 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 and in subsequent private
offerings, as well as the issuance of our common stock for acquisitions, 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 carryforwards in the future. Additionally, our ability to use the net
operating loss carryforwards is dependent upon our future level of profitability, which cannot be
determined.
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Liquidity Outlook. Based on our projections, we believe that our existing cash, cash
equivalents, short-term investments and our cash flow from operations will be sufficient to meet
our working capital and capital expenditure requirements for at least the next 12 months. If we
require additional capital resources to grow our business internally or to acquire complementary
technologies and businesses at any time in the future, we may seek to obtain debt financing or sell
additional equity securities. The sale of additional equity 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
See Note 1 to our condensed consolidated financial statements for a summary of recently issued
accounting pronouncements.
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 capital structure. Market
risk, calculated as the potential change in fair value of our cash and cash equivalents and
resulting from a hypothetical 1.0% (100 basis point) change in interest rates, was not material at
September 30, 2011.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and other
procedures that are designed to ensure that information required to be disclosed in our filings
with the SEC is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms, and that such information is accumulated and communicated to management,
including our principal executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure based on the definition of disclosure controls and
procedures in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. With the
participation of the principal executive officer and principal financial officer, management
conducted an evaluation of the effectiveness of our disclosure controls and procedures as of
September 30, 2011, and concluded that our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting There was no change in our internal
control over financial reporting during the quarter ended September 30, 2011 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
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PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
The Company assesses contingencies to determine the degree of probability and range of
possible loss for potential accrual in its financial statements. An estimated loss contingency is
accrued in the financial statements if it is probable that a liability has been incurred and the
amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and
unfavorable resolutions could occur, assessing contingencies is highly subjective and requires
judgments about future events. The Company regularly reviews contingencies to determine the
adequacy of the accruals and related disclosures. The amount of ultimate loss may differ from these
estimates. Although it is possible that the results of operations, liquidity, or financial
position of the Company could be materially affected in any particular future reporting period by
the unfavorable resolution of one or more of these contingencies, the Company currently believes
that the ultimate outcome of these matters will not have a material adverse effect on the results
of operations, liquidity or financial position of the Company.
ITEM 1A. | RISK FACTORS |
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2010, which could materially affect our business, financial condition or
future results. There have been no material changes in our risk factors from the disclosure
included in our Annual Report on Form 10-K. The risks described in our Annual Report on Form 10-K
are not the only risks facing our Company. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely affect our business,
financial condition and/or operating results.
ITEM 6. | EXHIBITS |
The Exhibit Index and required Exhibits 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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IGO, 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.
IGO, INC. |
||||
Dated: November 4, 2011 | By: | /s/ Michael D. Heil | ||
Michael D. Heil | ||||
President and Chief Executive Officer (Principal Executive Officer) | ||||
By: | /s/ Darryl S. Baker | |||
Darryl S. Baker | ||||
Vice President and Chief Financial Officer and Authorized Officer of Registrant (Principal Financial Officer) | ||||
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EXHIBIT INDEX
Exhibit | ||||
Number | Description of Document | |||
3.1 | Certificate of Incorporation of the Company (1) |
|||
3.2 | Articles of Amendment to the Certificate of Incorporation of the Company dated as of September 17, 1997 (2) |
|||
3.3 | Articles of Amendment to the Certificate of Incorporation of the Company dated as of September 10, 1997 (1) |
|||
3.4 | Articles of Amendment to the Certificate of Incorporation of the Company dated as of July 20, 1998 (1) |
|||
3.5 | Articles of Amendment to the Certificate of Incorporation of the Company dated as of February 3, 2000 (1) |
|||
3.6 | Articles of Amendment to the Certificate of Incorporation of the Company dated as of March 31, 2000 (2) |
|||
3.7 | Certificate of Designations, Preferences, Rights and Limitations of Series G Junior Participating Preferred
Stock of the Company (3) |
|||
3.8 | Certificate of Ownership and Merger Merging iGo Merger Sub Inc. with and into Mobility Electronics, Inc. (4) |
|||
3.9 | Certificate of Elimination of Series C, Series D, Series E, and Series F Preferred Stock of the Company (4) |
|||
3.10 | Fourth Amended and Restated Bylaws of the Company (5) |
|||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
|||
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
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32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002* |
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101** | XBRL Instance Document |
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101** | XBRL Taxonomy Extension Schema Document |
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101** | XBRL Taxonomy Calculation Linkbase Document |
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101** | XBRL Taxonomy Label Linkbase Document |
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101** | XBRL Taxonomy Presentation Linkbase Document |
** | Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability. | |
* | Filed/furnished herewith | |
(1) | Previously filed as an exhibit to Registration Statement No. 333-30264 dated February 11, 2000. | |
(2) | Previously filed as an exhibit to Amendment No. 2 to Registration Statement No. 333-30264 dated May 4, 2000. | |
(3) | Previously filed as an exhibit to Current Report on Form 8-K filed September 19, 2003. | |
(4) | Previously filed as an exhibit to Current Report on Form 8-K dated May 21, 2008. | |
(5) | Previously filed as an exhibit to Form 10-K for the period ended December 31, 2008. |
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