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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

 

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

For the transition period from              to             

Commission file number: 0-30907

 

 

iGo, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   86-0843914
(State or Other Jurisdiction of
Incorporation or Organization)
  (IRS Employer
Identification No.)
17800 N. Perimeter Dr., Suite 200,
Scottsdale, Arizona
  85255
(Address of Principal Executive Offices)   (Zip Code)

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

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

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value   The NASDAQ Global Market

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

 

Title of Each Class

 

Name of Each Exchange on Which Registered

None  

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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  ¨

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

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One).

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-Accelerated Filer   ¨  (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  ¨    No   þ

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2011) was approximately $34 million.

There were 33,877,610 shares of the registrant’s common stock issued and outstanding as of March 20, 2012.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to its 2012 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission are incorporated by reference into Part III of this Form 10-K.

 

 

 


Table of Contents

iGo, Inc.

FORM 10-K

TABLE OF CONTENTS

 

           Page  

PART I

     

Item 1.

  

Business

     4   

Item 1A.

  

Risk Factors

     11   

Item 1B.

  

Unresolved Staff Comments

     23   

Item 2.

  

Properties

     23   

Item 3.

  

Legal Proceedings

     23   

Item 4.

  

Mine Safety Disclosures

     23   

PART II

     

Item 5.

  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     24   

Item 6.

  

Selected Financial Data

     25   

Item 7.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     26   

Item 7A.

  

Quantitative and Qualitative Disclosures About Market Risk

     38   

Item 8.

  

Financial Statements and Supplementary Data

     40   

Item 9.

  

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

     68   

Item 9A.

  

Controls and Procedures

     68   

Item 9B.

  

Other Information

     68   

PART III

     

Item 10.

  

Directors, Executive Officers and Corporate Governance

     69   

Item 11.

  

Executive Compensation

     69   

Item 12.

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     69   

Item 13.

  

Certain Relationships and Related Transactions, and Director Independence

     69   

Item 14.

  

Principal Accounting Fees and Services

     69   

PART IV

     

Item 15.

  

Exhibits, Financial Statement Schedules

     70   

Signatures

     71   

 

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DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

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 “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements and Supplementary Data” 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 efficiencies, and related expenses for 2012; expectation regarding our strategy, including but not limited to, our intentions to introduce innovative power, battery, audio and protection products, to expand our line of cases, skins, screen protectors and similar products, to develop relationships with a broader set of retailers, to partner with original equipment manufacturers on the integration of our iGo Green technology into various products, to develop and market a broad range of highly differentiated power and complementary products that address additional markets in which we choose to compete, to protect our intellectual property position by aggressively filing for additional patents and pursue infringers of our intellectual property, to pursue opportunities to acquire businesses, products or technologies, and to expand the market availability of our iGo, iGo Green and Aerial7 branded products; expectations regarding future customer product orders; our anticipated ability to broaden our distribution base, thus decreasing our dependence on sales to Walmart and RadioShack; beliefs relating to our competitive advantages and the market need for our products; our belief that our present vendors have sufficient capacity to meet our supply requirements; the expected sources, availability and sufficiency of cash and liquidity; expected market and industry trends; beliefs relating to our distribution capabilities and brand identity; expectations regarding the success of new product introductions; the anticipated strength, and ability to protect, our intellectual property portfolio; our expectation that a small number of customers will continue to represent a substantial percentage of our sales including specifically, but not limited to, Walmart and RadioShack; expectations about inventory levels we will be required to maintain and future sales returns; our expectations about competition; trends in key operating metrics, including days outstanding in accounts receivable and inventory turns; our ability to meet the minimum listing requirements to remain on The NASDAQ Global Market and our intentions relating thereto; the sufficiency of our receivables and returns reserves; the sufficiency of our facilities; that our products will increasingly be subject to infringement claims; the future recognition of deferred revenue; the results of future tax audits and tax settlements; the realizability of our deferred tax asset and the outcome of uncertain tax positions; future payments to suppliers for letters of authorization; the possibility that we may issue additional shares of stock or attempt to access a credit facility; our intention and ability to hold marketable securities to maturity; our intentions about employing hedging strategies; that we may repurchase shares of our common stock; and our expectations regarding the outcome and anticipated impact of various legal proceedings in which we may be involved. These forward-looking statements are based largely on our management’s 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 herein under the heading “Risk Factors” and those set forth in other sections of this report and in other reports that we file with the Securities and Exchange Commission.

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.

 

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PART I

 

Item 1. Business

Our Company

Our vision is to attach our products and technology to every mobile electronic device. Historically, the majority of our business was derived from the sale of chargers for laptops, however, the mobile electronic device market changes rapidly and has recently seen increased consumer adoption and use of smartphones and tablets. As a result of this shift, we have expanded our offering of products beyond our traditional power offerings to include a variety of accessories to support the increased utilization of smartphones and tablets, including audio, protection, and battery products. 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 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.

Available Information

Our website is www.igo.com. Information on our website is not incorporated by reference into this Form 10-K and should not be considered part of this report or any other filing we make with the SEC. We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. Through a link on the Investor Relations section of the corporate page of our website, we make available the following filings as soon as reasonably practicable, after they are electronically filed with or furnished to the SEC: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings are available free of charge.

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 that 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 will help us achieve our long-term goal of establishing an industry standard for reduced power consumption when charging mobile electronic devices.

Batteries

Through our relationship with Pure Energy Solutions (“Pure Energy”), we are the exclusive marketer and distributor of Pure Energy’s 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.

 

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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.

We were formed as a limited liability company under the laws of the State of Delaware in May 1995, and were converted to a Delaware corporation by a merger effected in August 1996, in which we were the surviving entity. We changed our name from Electronics Accessory Specialists International, Inc. to Mobility Electronics, Inc. on July 23, 1998 and on May 21, 2008 we changed our name to iGo, Inc. Our principal executive office is located at 17800 N. Perimeter Drive, Suite 200, Scottsdale, Arizona 85255, and our telephone number is (480) 596-0061.

Our Industry

Over the past two decades, technological advancements in the electronics industry have greatly expanded mobile device capabilities. Mobile electronic devices, which are used extensively for both business and personal purposes, include portable computers, tablets, smartphones and other portable media devices. The popularity of these devices is benefiting from reductions in size, weight and cost and improvements in functionality, storage capacity and reliability. In addition, advances in wireless technology have enabled remote access to data networks and the Internet.

Increased functionality and the ability to access and manage information remotely are driving the proliferation of mobile electronic devices and applications. As the work force becomes more mobile and spends

 

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more time away from traditional work settings, users have sought out and become reliant on tools that provide management of critical information and access to wireless voice and data networks. Each of these mobile electronic devices needs to be powered and connected when in the home, the office, or on the road, and can be accessorized, representing an opportunity for one or more of our products.

As mobile electronic devices gain widespread acceptance, users will continue to confront limitations on their use, driven by such things as battery life, charging flexibility, damage from daily usage, access to audio and visual capabilities, compatibility issues, data input challenges and performance requirements. Furthermore, as users seek to manage multiple devices in their daily routine, the limitations of any one of these functions may be exacerbated.

Mobile electronic device users usually require the use of their devices while away from their home or office. Many of these mobile devices have limited battery life, which results in the need to frequently connect to a power source to operate the device or recharge the battery. A number of factors limit the efficient use and charging of these devices:

 

   

the majority of chargers are model-specific, requiring a mobile user to carry a dedicated charger for each device;

 

   

mobile electronic devices are generally sold with only one charger, forcing many users to purchase additional chargers for convenience and ease of use; and

 

   

mobile electronic device users tend to carry multiple devices and at times only one power source is available, limiting a user’s ability to recharge multiple devices simultaneously.

Vampire power results from devices that continue to consume power, even when they are idle or shut off. The United States Environmental Protection Agency (“EPA”) estimates that vampire power accounts for more than $10 billion in annual energy costs in the United States alone. In addition to tangible dollar costs, vampire power negatively impacts the environment by wasting vast amounts of electricity. Furthermore, according to the Global System for Mobile Communications Association, or “GSMA,” discarded chargers account for approximately 51,000 tons of waste annually. We believe this creates the need driven by consumers for power solutions that have the ability to drastically reduce vampire power and electronic waste.

The daily usage of mobile electronic devices frequently causes cosmetic damage to, and sometimes impairs the functionality of, these devices. As a result, consumers are increasingly searching for ways to protect their mobile electronic devices and often wish to do so in a manner that’s aesthetically pleasing. These needs have created a growing market opportunity for fashionable protective cases and screens for mobile electronic devices, particularly with respect to higher end products like iPhones®, iPads® and other portable media devices.

The increased functionality of smartphones and portable media devices, including features such as enhanced audio- and video-playing capabilities, has increased the need for audio accessories like headphones and speakers. Consumers are also demanding more functionality from these audio accessories, including high-quality sound output, volume controls and communication capabilities, such as an in-line microphone, that allow the consumer to not only hear, but also communicate with others. In addition to increased functionality, consumers also desire audio accessories that are fashionable and reflect their personal tastes. These consumer demands have resulted in an expanded demand for high-quality, fashionable headphones.

Our Strategy

We intend to capitalize on our current strategic position in the mobile electronic device market by continuing to introduce innovative power, battery, audio and protection products that suit the needs of a broad

 

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range of users of these devices. This includes power solutions that are green in nature. It is our goal is to attach our products and technology to every mobile electronic device and to be a market leader in providing unique and innovative solutions to mobile users. Elements of our strategy include:

Integration of Green Technology in New Power Solutions. To partner with original equipment manufacturers (“OEMs”) on the integration of our patented iGo Green technology into traditional power supplies that are bundled with various products offered by these OEMs, including portable computers and non-portable electronic products, such as gaming devices, printers and projectors. In addition, the integration of our patented iGo Green technology into new products, such as surge protectors gives us the opportunity to expand into channels that we have not traditionally addressed, such as the home improvement market. Further, the possibility extends directly into the home and commercial building markets through the integration of our iGo Green technology directly into the AC outlets found in the home and office.

Continue To Develop Innovative Products. We have a history of designing and developing highly differentiated products to serve the needs and enhance the experience of mobile electronic device users. We intend to continue to develop and market a broad range of highly differentiated power and complementary products that address additional markets in which we choose to compete. We also intend to protect our intellectual property position in these markets by aggressively filing for additional patents on an ongoing basis and, as necessary, pursuing infringers of our intellectual property.

Acquire Complementary Businesses, Products and Technologies. In addition to designing and developing products and technologies on our own, we may pursue opportunities to acquire businesses, products or technologies that complement or expand our current range of products and sales and marketing opportunities.

Broaden Distribution of Our Products. To expand the market availability of our products, we plan to develop relationships with a broader set of retailers and wireless carriers, some of whom may be served through distribution partners. We expect that these relationships will allow us to diversify our customer base, add stability and decrease our traditional reliance upon a limited number of private label resellers. We also expect that these relationships will significantly increase the availability and exposure of our products, particularly among large national and international retailers and wireless carriers.

Our Products and Solutions

Power. Historically, the majority of our business was derived from the sale of chargers for laptops, however, the mobile electronic device market changes rapidly and has recently seen increased consumer adoption and use of smartphones and tablets. We continue to offer a range of traditional power solutions for laptops and other mobile electronic devices. In addition, our patented iGo Green technology addresses broad applications relating to power supplies for office equipment, personal electronics and appliances, and covers the only power circuit technology that virtually eliminates vampire power automatically. Sales of power products represented approximately 79%, 94%, and 99% (as recast) of our total revenue for the years ended December 31, 2011, 2010 and 2009, respectively.

Batteries. Through our relationship with Pure Energy, we are the exclusive marketer and distributor of Pure Energy’s 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. Sales of battery products represented approximately 5% of our total revenue for the year ended December 31, 2011. For the years ended December 31, 2010 and 2009 we had no sales of battery products.

 

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Audio. Our audio solutions include our line of headphones and portable speakers which allow consumers to use their mobile electronic devices for both entertainment and communication. Our line of audio products offer consumers the ability to both communicate with others via an in-line microphone that can be used with a portable computer, mobile phone or other portable media device, as well the ability to listen to music or video from these devices. Similar to our protection products, our line of audio products is also fashionably designed, allowing consumers to express their unique and personal style. Sales of audio products represented 11% and 1% of our total revenue for the years ended December 31, 2011 and December 31, 2010, respectively. For the year ended December 31, 2009 we had no sales of audio products.

Protection. Our protection solutions, including cases, skins and protective screens, utilize innovative materials and unique designs to protect mobile electronic devices, while simultaneously complementing or enhancing the design of the device. Currently, our protection solutions are primarily marketed in Europe and, over time, we intend to introduce these products in other markets throughout the world. Sales of protection products represented approximately 3% and 1% of our total revenue for the years ended December 31, 2011 and December 31, 2010, respectively. For the year ended December 31, 2009 we had no sales of protection products.

Other Accessories. Our other accessories solutions primarily include stands for portable computers and other miscellaneous mobile electronic accessories. Sales of other accessory products represented approximately 2%, 4% and 1% of our total revenue for the years ended December 31, 2011, 2010 and 2009, respectively.

Sales and Marketing

We market and sell our products on a worldwide basis to retailers, resellers, distributors, wireless carriers and directly to end users through our iGo.com and Aerial7 websites. Our sales organization is primarily aligned with our core retail and distribution channels and geographies throughout North America, Europe and Asia. During 2011, approximately 86% of our sales were through retailers and distributors and approximately 7% of our sales were through private label resellers and OEMs.

Our total global revenue consisted of the following regional results: Americas sales of $28.3 million, or 74% of our consolidated revenue; European sales of $7.2 million, or 19% of our consolidated revenue; and Asia Pacific sales of $2.9 million, or 7% of our consolidated revenue.

We have implemented a variety of marketing activities to market our family of products including participation in major trade shows, key distribution catalogs, distribution promotions, reseller and information technology manager advertising, on-line advertising and banner ads, direct mail and bundle advertisements with retail and distribution channel partners and cooperative advertising with our retail partners. In addition, we pursue a public relations program to educate the market regarding our products.

Customers

We are dependent upon a relatively small number of customers for a significant portion of our revenue, including most notably Walmart and RadioShack. We intend to develop relationships with a broader set of retailers and resellers to expand the market availability of our products. Our goal is that these relationships will allow us to diversify our customer base, add stability and decrease our traditional reliance upon a limited number of retailers and resellers. These relationships could significantly increase the availability and exposure of our products, particularly among large national and international retailers and wireless carriers, however we give no assurance we could expand our customer base in a manner that would significantly reduce our current customer concentration.

We sell to resellers, such as Microcel, retailers, such as Walmart, RadioShack and Office Depot, private label resellers, such as Belkin, and directly to end users through our iGo.com and Aerial7 websites. Sales to Walmart and RadioShack accounted for 31% of revenue for the year ended December 31, 2011, compared to

 

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51% for the year ended December 31, 2010 and 43% (as recast) for the year ended December 31, 2009. No customer other than Walmart or RadioShack accounted for greater than 10% of sales for the year ended December 31, 2011. The loss of Walmart or RadioShack would likely have a material adverse effect on our business. For our distribution and retail customers, we build product and maintain inventory at various third-party warehouses that are under our control until these customers place, and we fulfill, purchase orders for this product. For private label resellers, we build product to the private label resellers’ orders, who take possession of the inventory upon delivery to a freight forwarder. For various retailers, we retain ownership of inventory until the product sells through to consumers.

As is generally the practice in our industry, a portion of our sales to distributors and retailers is generally under terms that provide for stock balancing return privileges and price protection. Accordingly, we make a provision for estimated sales returns and other allowances related to those sales. Returns, which are netted against our reported revenue, were approximately 5% for the year ended December 31, 2011, 3% for the year ended December 31, 2010, and less than 1% of revenue for the year ended December 31, 2009. Also, as is generally the practice in our industry, our OEM and private-label reseller customers only have return rights in the event that our product is defective. Accordingly, we make a provision for estimated defective product warranty claims for these customers. Defective product warranty claims were approximately 1% of revenue or less for the years ended December 31, 2011, 2010 and 2009.

Backlog

Our backlog at February 21, 2012 was approximately $2.3 million, compared with backlog of approximately $2.5 million at February 15, 2011. Backlog includes orders confirmed with a purchase order for products scheduled to be shipped within 90 days to customers with approved credit status. Because of the generally short cycle between order and shipment and because of occasional customer changes in delivery schedules and order cancellations (which are made without significant penalty), we do not believe that our backlog, as of any particular date, is necessarily indicative of actual net sales for any future period.

Research and Development

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

As of December 31, 2011, our research and development group consisted of nine people who are responsible for hardware and software design and product testing. Electrical design services are provided to us by several of our outsource partners under the supervision of our in-house research and development group. Amounts spent on research and development for the years ended December 31, 2011, 2010, and 2009 were $2.4 million, $1.5 million, and $2.0 million (as recast), respectively.

Manufacturing and Logistics

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

Most of our products are currently manufactured in China. In addition to providing manufacturing services, a number of these companies also provide us with some level of design and development services.

We purchase the principal components of our products from outside vendors. The terms of supply contracts are negotiated by us or our manufacturing partners with each vendor. We believe that our present vendors have

 

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sufficient capacity to meet our supply requirements and that alternative production sources for most components are generally available without interruption, however, several vendors are sole sourced. In order to ensure timely delivery of products to customers, from time to time, we issue letters of authorization to our suppliers that authorize them to secure long lead components in advance of purchase orders for products. Further information about commitments and contingencies relating to letters of authorization is contained in Note 16 to the Consolidated Financial Statements contained in this Annual Report on Form 10-K.

We employ the services of an outsourced logistics company to efficiently manage the packaging and shipment of our iGo, iGo Green, and Aerial7 branded products to our various retail and distribution channels. The majority of our private-label products are shipped by our outsource manufacturers to our private-label reseller customers or to their fulfillment hubs.

Competition

The market for our products is intensely competitive, subject to rapid change and sensitive to new product introductions or enhancements and marketing efforts by industry participants. The principal competitive factors affecting the markets for our product offerings include corporate and product reputation, innovation with frequent product enhancement, breadth of integrated product line, product design, functionality and features, product quality, performance, ease-of-use, support and price. Although we believe that our products compete favorably with respect to such factors, there can be no assurance that we can maintain our competitive position against current or potential competitors, especially those with greater financial, marketing, service, support, technical or other competitive resources. However, we believe that our innovative products, coupled with our strategic relationships with private-label resellers, retailers, resellers, distributors, and wireless carriers provide us with a competitive advantage in the marketplace. In particular, with respect to our power products, we primarily compete with products offered by low-cost manufacturers, specialized third-party mobile computing accessory companies such as Zagg, Skullcandy, Targus and Kensington, and retailer and OEM private label product offerings, including those offered by RadioShack, HP and Best Buy.

Proprietary Rights

We seek to establish and maintain our proprietary rights in our technology and products through the use of patents, copyrights, trademarks, and trade secret laws. We have a program to file applications for and obtain patents, copyrights, and trademarks in the United States and in selected foreign countries where we believe filing for such protection is appropriate. We also seek to maintain our trade secrets and confidential information by nondisclosure policies and through the use of appropriate confidentiality agreements. As of March 1, 2012, we held a variety of patents and patents pending throughout the world relating to our power technology, including seven newly issued patents relating to our iGo Green technology. There can be no assurance, however, that the rights we have obtained can be successfully enforced against infringing products in every jurisdiction. Although we believe the protection afforded by our patents, copyrights, trademarks, and trade secrets has value, the rapidly changing technology in our industry and uncertainties in the legal process make our future success dependent primarily on the innovative skills, technological expertise, and management abilities of our employees rather than on the protection afforded by patent, copyright, trademark, and trade secret laws.

Some of our products are also designed to include software or other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe, based upon past experience and standard industry practice that such licenses generally could be obtained on commercially reasonable terms. Nonetheless, there can be no assurance that the necessary licenses would be available on acceptable terms, if at all. Our inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could have a material adverse effect on our business, operating results, and financial condition. Moreover, inclusion in our products of software or other intellectual property licensed from third parties on a nonexclusive basis may limit our ability to protect our proprietary rights in our products.

 

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There can be no assurance that our patents and other proprietary rights will not be challenged, invalidated, or circumvented; that others will not assert intellectual property rights to technologies that are relevant to us; or that our rights will give us a competitive advantage. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as the laws of the United States.

Employees

As of December 31, 2011 we had 64 full-time employees, 41 located in the United States, 14 located in Asia, 6 located in Europe and 3 located in Australia, including 18 employed in operations, 9 in research and development, 26 in sales and marketing and 11 in administration. We engage temporary employees from time to time to augment our full time employees, generally in operations. None of our employees are covered by a collective bargaining agreement. We believe we have good relationships with our employees.

 

Item 1A. Risk Factors

This section highlights specific risks that could affect us and our business. You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting us. However, the risks and uncertainties that we face are not limited to those described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

If any of the following risks and uncertainties develops into actual events or the circumstances described in the risks and uncertainties occur, these events or circumstances could have a material adverse effect on our business, financial condition or results of operations. These events could also have a negative effect on the trading price of our securities.

Risks Related To Our Business

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

We have experienced significant operating losses since inception and, as of December 31, 2011, have an accumulated deficit of $142 million. We intend to make expenditures on an ongoing basis to support our operations, primarily from cash generated from operations and, if available, from lines of credit, as we develop and introduce new products and expand into new markets. If we do not achieve revenue growth sufficient to absorb our planned expenses, we will experience additional losses in future periods. In addition, there can be no assurance that we will achieve or sustain profitability.

Our future success is dependent on market acceptance of our products. If the market acceptance for our products does not grow, we will not be able to increase or sustain our revenue, and our business will be severely harmed. If we do not achieve widespread market acceptance of our power products and technology, including our iGo Green technology, we may not be able to maintain our existing revenue or achieve anticipated revenue. For example, we currently derive a material portion of our revenue from the sale of our power products and we anticipate that a material portion of our revenue in the foreseeable future will continue to be derived from our family of power products. We can give no assurance that the power product category, or the protection and audio product categories, will develop sufficiently to cover our expenses and costs. Moreover, our products may not achieve widespread market acceptance if:

 

   

we lose, or fail to replace, any significant retail or distribution partners;

 

   

we fail to expand or protect our proprietary rights and intellectual property;

 

   

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

 

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

 

   

competitors introduce similar or superior products.

In addition, our universal chargers include a feature that allows a single version of these products to be used with almost any mobile electronic device. In recent years, many mobile electronic device manufacturers have designed their products in such a way as to limit the use of universal devices with their devices, which has reduced the applicability of universal charger products and limited the market acceptance of our power products.

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

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

 

   

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

 

   

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

 

   

deliver new products and services through changing distribution channels; and

 

   

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

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

We have experienced delays in releasing new products in the past, which resulted in lower quarterly revenue than expected. Further, our efforts to develop new and similar products could be delayed due to unanticipated manufacturing requirements and costs. Delays in product development and introduction could result in:

 

   

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

 

   

negative publicity and damage to our reputation and brand;

 

   

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

 

   

adverse reactions in our sales and distribution channels.

We depend on large purchases from significant customers, notably Walmart and RadioShack, and any loss, cancellation or delay in purchases by these customers could cause a shortfall in revenue, excess inventory and inventory holding or obsolescence charges.

We have historically derived a substantial portion of our revenue from a relatively small number of customers. For example, Walmart and RadioShack together comprised 31% of our revenue for the year ended

 

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December 31, 2011. For the year ended December 31, 2011, Walmart alone represented 21% of our revenue. Neither Walmart nor RadioShack has minimum purchase requirements and can stop purchasing our products at any time and with very short notice. In addition, including Walmart and RadioShack, most of our customer agreements are short term and non-exclusive and provide for purchases on a purchase order basis. If Walmart or RadioShack reduces, delays or cancels orders with us, and we are not able to sell our products to new customers at comparable levels, our revenue could decline significantly and could result in excess inventory and inventory holding or obsolescence charges. In addition, any difficulty in collecting amounts due from Walmart or RadioShack would negatively impact our result of operations and working capital.

Our success is largely dependent upon our ability to expand and diversify our customer base, while simultaneously continuing to retain and build our relationships with Walmart and RadioShack.

We derive a substantial portion of our revenue from Walmart and RadioShack and any adverse change in our relationships with Walmart or RadioShack would have a material adverse effect on our business. If Walmart or RadioShack discontinued purchasing our products, our revenues and net income would decline significantly. For example, sales to RadioShack for the year ended December 31, 2011 declined 74% as compared to the year ended December 31, 2010 and our results will be significantly harmed if similar declines occur in the future with respect to any significant customer. Our success will depend upon our continued ability to retain and build upon our relationships with Walmart and RadioShack, while simultaneously generating relationships with new customers, particularly retail customers willing to sell our products to consumers under our iGo brand.

Although we are attempting to expand our customer base, we cannot assure you that we will be able to retain our largest customers, Walmart and RadioShack, or that we will be able to attract additional customers, or that our customers will continue to buy our products in the same amounts as in prior years. The loss of Walmart or RadioShack, any reduction or interruption in sales to Walmart or RadioShack, our inability to successfully develop relationships with additional customers or future price concessions that we may have to make, could significantly harm our business.

Increased focus by consumer electronics retailers on their own private label brands could cause us to lose shelf space with our existing retail customers and make it more difficult to have our products assorted at new retail customers.

We believe there is an increasing focus by consumer electronics retailers, such as RadioShack and Best Buy, to concentrate an increasing portion of their product assortments within their own private label products. One of our largest customers, RadioShack, sells its own private label brand of power products that compete directly with our power products. These private label lines compete directly with our product lines and may receive prominent positioning on the retail floor by these retailers. Competition has been intense in recent years and is expected to continue. Failure to appropriately respond to these trends or to offer effective sales incentives and marketing programs to our customers could reduce our ability to secure adequate shelf space at our retail customers or generate new sales opportunities with new customers and could adversely affect our financial performance or limit our potential for achieving revenue growth.

Increased reliance upon Walmart and RadioShack, as well as other distributors and resellers, for the sale of our products will subject us to additional risks, and the failure to adequately manage these risks could have a material adverse impact on our operating results.

The inability to accurately forecast the timing and volume of orders for sales of products to resellers and distributors during any given quarter could adversely affect operating results for such quarter and, potentially, for future periods. For example, if we underestimate sales, we will not be able to fill orders on a timely basis, which could cause customer dissatisfaction and loss of future business. Conversely, if we overestimate sales, we will experience increased costs from inventory storage, waste, and obsolescence.

 

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The loss of Walmart, RadioShack, or any other large reseller or distributor customers, would materially harm our business. While we currently have a limited number of reseller and distributor agreements, none of these customers are obligated to purchase products from us. Consequently, any reseller or distributor could cease doing business with us at any time. Our dependence upon Walmart and RadioShack along with a few other resellers and distributors results in a significant concentration of credit risk, thus a substantial portion of our trade receivables outstanding from time to time are often concentrated among a limited number of customers. In addition, many of these customers also have or distribute competing products. If Walmart, RadioShack or our other reseller and distributor customers elect to increase the marketing of competing products or reduce the marketing of our products, our ability to grow our business will be negatively impacted and will adversely impact revenues.

Additional risks associated with our reseller and distributor business include the following:

 

   

the termination of reseller and distributor agreements or reduced or delayed orders;

 

   

difficulty in predicting sales to reseller and distributors who do not have long-term commitments to purchase from us, which requires us to maintain sufficient inventory levels to satisfy anticipated demand;

 

   

lack of visibility of end user customers and revenue recognition and channel inventory issues related to sales by resellers and distributors;

 

   

resellers and distributors electing to resell, or increase their marketing of, competing products or technologies or reduced marketing of our products; and

 

   

changes in corporate ownership, financial condition, business direction, or sales compensation related to our products, or product mix by the resellers and distributors.

Any of these risks could have a material adverse effect on our business, financial condition, and results of operations.

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

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

 

   

market acceptance of our products, notably including our iGo Green power products and technology;

 

   

the size and timing of customer orders;

 

   

increases in product costs from our suppliers;

 

   

our suppliers’ ability to perform under their contracts with us;

 

   

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

 

   

our ability to effectively manage inventory levels;

 

   

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

 

   

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 of the markets in which we compete and the accompanying demand for our products;

 

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

 

   

seasonality of sales.

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

Our inventory management is complex and failure to properly manage inventory growth may result in excess or obsolete inventory, the write-down of which may negatively affect our operating results.

Our inventory management is complex as we are required to balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory overstock and obsolescence because of rapidly changing technology and customer requirements. In addition, the need to carefully manage our inventory could increase if we acquire additional customers who require us to maintain certain minimum levels of inventory on their behalf, as well as provide them with inventory return privileges. Our customers may also increase orders during periods of product shortages, cancel orders if their inventory is too high, or delay orders in anticipation of new products. They may adjust their orders in response to the supply of our products and the products of our competitors that are available to them and in response to seasonal fluctuations in end-user demand. If we ultimately determine that we have excess or obsolete inventory, we may have to reduce our prices and write-down inventory, which in turn could result in reduced operating results.

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

Our products typically experience a reduction in the average selling prices over their respective sales cycles. Further, as we introduce new or next generation products, sales prices of previous generation products may decline substantially. In order to sell products that have a falling average selling price and maintain margins at the same time, we need to continually reduce product and manufacturing costs. Furthermore, we typically invoice international customers in their local currency and our revenue and gross margins could be negatively impacted by fluctuations in the currencies where our international customers are located. To manage manufacturing costs, we must collaborate with our third-party manufacturers to engineer the most cost-effective design for our products. There can be no assurances we will be successful in our efforts to reduce these costs and, in some situations, we may even incur price increases from our suppliers. In order to keep our manufacturing costs down, we must carefully manage the price paid for components used in our products as well as manage our freight and inventory costs. If we are unable to reduce the product and manufacturing cost of older products as newer products are introduced or effectively manage cost increases for our products, our average gross margins may decline.

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

We have acquired, and intend to continue to pursue opportunities to acquire businesses, products or technologies that complement or expand our current capabilities. For example, in 2010 we acquired Adapt and Aerial7 and we recorded impairment charges of $2.3 million related to these acquisitions in 2011. Additional acquisitions could require significant capital infusions and could involve many risks including, but not limited to, the following:

 

   

difficulty integrating the acquired company’s personnel, products, product roadmaps, technologies, systems, processes, and operations, including product delivery, order management, and information systems;

 

   

difficulty in conforming the acquired company’s financial policies and practices to our policies and practices and in implementing and maintaining adequate internal systems and controls over the financial reporting and information systems of the acquired company;

 

   

diversion of management’s attention and disruption of ongoing business;

 

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difficulty in combining product and technology offerings and entering into new markets or geographical areas in which we have no or limited direct experience and where our competitors may have stronger market positions;

 

   

loss of management, sales, technical, or other key personnel;

 

   

revenue from the acquired companies not meeting our expectations, and the potential loss of the acquired companies’ customers, distributors, resellers, suppliers, or other partners;

 

   

delays or difficulties and the attendant expense in evaluating, coordinating, and combining administrative, manufacturing, sales, research and development and other operations, facilities, and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures, including financial controls and controls over information systems;

 

   

difficulty in completing projects associated with acquired in-process research and development;

 

   

incurring amortization expense related to intangible assets and recording goodwill and non-amortizable assets that will be subject to impairment testing and possible impairment charges;

 

   

dilution of existing stockholders as a result of issuing equity securities, including the assumption of any stock options or other equity awards issued by the acquired company;

 

   

overpayment for any acquisition or investment or unanticipated costs or liabilities;

 

   

responsibility for the liabilities of the acquired company, including any potential intellectual property infringement claims or other litigation; and

 

   

incurring substantial write-offs, restructuring charges, and transactional expenses.

Our failure to manage these risks and challenges could materially harm our business, financial condition, and results of operations. Further, if we do not successfully address these challenges in a timely manner, we may not fully realize all of the anticipated benefits or synergies on which the value of a transaction was based. Future transactions could cause our financial results to differ from expectations of market analysts or investors for any given quarter, which could, in turn, cause a decline in our stock price.

We outsource the manufacturing and fulfillment of our products, which limits our control of the manufacturing process and could result in unanticipated cost increases or cause a delay in our ability to fill orders.

Most of our products are produced under contract manufacturing arrangements with manufacturers in China. Our reliance on third-party manufacturers exposes us to risks that are not in our control, such as unanticipated cost increases or negative fluctuations in currency, which could negatively impact our results of operations and working capital. Any termination of or significant disruption in our relationship with our manufacturers may prevent us from filling customer orders in a timely manner, as we generally do not maintain large inventories of our products, and will negatively impact our revenue.

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

 

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various countries, including the United States, have undertaken reviews of product safety, and various proposals for additional, more stringent laws and regulations are under consideration. Current or future laws or regulations may become effective in various jurisdictions in which we currently operate and may increase our costs and disrupt our business operations.

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

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

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

The principal components of our products are purchased from outside vendors. Several of these vendors are our sole source of supply. We do not have long-term supply agreements with the manufacturers of these components.

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

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

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

In the past, some of our customers have returned products to us because the product did not meet their expectations, specifications or requirements. These returns were approximately 5% of revenue for the year ended December 31, 2011, 3% for the year ended December 31, 2010, and less than 1% for the year ended December 31, 2009. It is likely that we will experience some level of returns in the future and these levels may be difficult to estimate. A portion of our sales to distributors is generally under terms that provide for certain stock balancing privileges. Under the stock balancing programs, some distributors are permitted to return up to 15% of their prior quarter’s purchases, provided that they place a new order for equal or greater dollar value of the amount returned.

 

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

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

A number of our products are based on new technology and the designs are complex. As such, they may contain undetected errors or performance problems, particularly during new or enhanced product launches. Despite product testing prior to introduction, our products have in the past, on occasion, contained errors that were discovered after commercial introduction. Any future defects discovered after shipment of our products could result in loss of sales, delays in market acceptance or product returns and warranty costs. We attempt to make adequate allowance in our new product release schedule for testing of product performance. Because of the complexity of our products, however, our release of new products may be postponed should test results indicate the need for redesign and retesting, or should we elect to add product enhancements in response to customer feedback. In addition, third-party products, upon which our products are dependent, may contain defects which could reduce or undermine the performance of our products and adversely affect our operating results.

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

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

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

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

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

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

The laws of some foreign countries do not protect or enforce proprietary rights to the same extent as do the laws of the United States. The right to a patent in the United States is attributable to the first to invent, not the first to file a patent application. We cannot be sure that our products or technologies do not infringe patents that

 

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may be granted in the future pursuant to pending patent applications or that our products do not infringe any patents or proprietary rights of third parties. In the event that any relevant claims of third-party patents are upheld as valid and enforceable, we could be prevented from selling our products or could be required to obtain licenses from the owners of such patents or be required to redesign our products to avoid infringement. There can be no assurance that such licenses would be available or, if available, would be on terms acceptable to us or that we would be successful in any attempts to redesign our products or processes to avoid infringement. Our failure to obtain these licenses or to redesign our products would have a material adverse effect on our business.

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

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

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

Our success also depends to a significant degree upon the continued contributions of our key executives, management, engineering, sales and marketing, finance and manufacturing personnel, many of whom would be difficult to replace. We do not maintain key person life insurance on any of our executive officers. The loss of the services of any of our key personnel, the inability to identify, attract or retain qualified personnel in the future or delays in hiring required personnel could make it difficult for us to manage our business and meet key objectives, such as timely product introductions.

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

We currently rely on cash flow from operations and cash on hand to fund our operating and capital needs. We may, in the future, expend significant capital to further develop our products, increase awareness of our brand names, expand our sales, operating and management infrastructure, and pursue opportunities to acquire businesses, products or technologies that complement or expand our current capabilities. We may also use capital more rapidly than currently anticipated. Additionally, we may incur higher operating expenses and generate lower revenue than currently expected, and we may be required to access external financing to satisfy our operating and capital needs. We may be unable to secure financing on terms acceptable to us, or at all, at the time when we need such funding. If we raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.

 

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Risks Related To Our Industry

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

The market for mobile electronic devices in general is intensely competitive, subject to rapid changes and sensitive to new product introductions or enhancements and marketing efforts by industry participants. We expect to experience significant and increasing levels of competition in the future, including competition from private label brands offered by consumer electronics retailers. There can be no assurance that we can maintain our competitive position against current or potential competitors, including our own retail customers, especially those with greater financial, marketing, service, support, technical or other competitive resources.

We currently compete with the internal design efforts of various OEMs. These OEMs have larger technical staffs, more established and larger marketing and sales organizations and significantly greater financial resources than we do. Such competitors may respond more quickly than we do to new or emerging technologies and changes in customer requirements, may devote greater resources to the development, sale and promotion of their products better than we do or may develop products that are superior to our products or that achieve greater market acceptance.

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

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

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

 

   

general micro and macro economic conditions and decreases in demand for mobile electronic devices resulting from recessionary conditions;

 

   

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

 

   

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

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

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

Our products must comply with various domestic and international laws, regulations and standards. For example, the shipment of our products from the countries in which they are manufactured to other international or domestic locations requires us to obtain export licenses and to comply with possible import restrictions of the

 

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

Economic conditions, political events, war, terrorism, public health issues, natural disasters and other circumstances could have a material adverse affect on our operations and performance.

Our operations and performance, including collection of our accounts receivable, depend significantly on worldwide economic conditions and their impact on levels of consumer spending. Some of the factors that could influence the levels of consumer spending include volatility in fuel and other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs, increased unemployment (particularly with office workers), access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors have had, and could continue to have, a material adverse effect on demand for our products and services and on our financial condition and operating results.

In addition, war, terrorism, geopolitical uncertainties, public health issues, and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us and our suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters, fire, power shortages, terrorist attacks, and other hostile acts, labor disputes, public health issues, and other events beyond our control. Such events could decrease demand for our products, make it difficult or impossible for us to make and deliver products to our customers or to receive components from our suppliers, and create delays and inefficiencies in our supply chain. Should major public health issues, including pandemics, arise, we could be negatively affected by more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of our manufacturing vendors and component suppliers.

Risks Related To Our Common Stock

Our common stock could be delisted from The NASDAQ Global Market if the closing bid price for our common stock continues to trade below $1.00 per share.

NASDAQ imposes certain standards that a company must satisfy in order to maintain the listing of its securities on The NASDAQ Global Market. Among other things, these standards require that a company’s shares have a minimum closing bid price at or above $1.00. On February 23, 2012, we received a letter from NASDAQ indicating that the bid price of our common stock for the preceding 30 consecutive business days had closed below the minimum $1.00 per share required for continued listing under NASDAQ Marketplace Rule 5450(a)(1). The notification letter states that we have 180 calendar days to regain compliance with the minimum bid price requirement. In order to regain compliance, the closing bid price for our shares must be at least $1.00 per share for a minimum of 10 consecutive business days. The compliance period expires on August 21, 2012. At the close of the grace period, if we have not regained compliance, we may be eligible for an additional grace period of 180 days, if we meet the initial listing standards, with the exception of bid price, for The NASDAQ Capital Market and we provide NASDAQ with a notice of our intention to timely cure the bid price deficiency. If we are not eligible for an additional grace period, we will receive notification that our shares are subject to delisting, and we may then appeal the delisting determination to a NASDAQ Hearings Panel. We intend to monitor the bid price for our shares between now and August 21, 2012 and will consider available options to resolve the deficiency and regain compliance with the minimum bid price requirement. There can be no assurance that we will be able to regain compliance with the NASDAQ rules and thereby to maintain the listing of our common stock on The NASDAQ Global Market.

 

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Any such delisting could adversely affect the market liquidity of our common stock and the market price of our common stock could decrease and could also adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and employees.

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

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

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

As of March 20, 2012, our executive officers, directors and principal stockholders owning greater than 5% of our outstanding common stock together beneficially owned approximately 25% of the outstanding shares of common stock. As a result, these stockholders, acting together, may be able to exercise substantial influence over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. The concentration of ownership may also have the effect of delaying or preventing a change in our control that may be viewed as beneficial by the other stockholders.

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

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

 

   

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

 

   

prohibiting cumulative voting in the election of directors;

 

   

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

 

   

limiting the persons who may call special meetings of stockholders.

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

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

 

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Delaware law may delay or prevent a change in control.

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

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

As of March 20, 2012, we had 33,877,610 shares of common stock outstanding. All of our outstanding shares are currently available for sale in the public market, some of which are subject to volume and other limitations under the securities laws. Future sales of substantial amounts of shares of our common stock by our existing stockholders in the public market, or the perception that these sales could occur, may cause the market price of our common stock to decline. We may be required to issue additional shares upon exercise of previously granted options and warrants that are currently outstanding.

As of March 20, 2012, we had (i) 1,563,152 shares of common stock issuable upon the vesting of restricted stock units under our long-term incentive plan and other outstanding awards; and (ii) 3,078,207 shares were available for future issuance under our current long-term incentive plan. We also had warrants outstanding to purchase 5,000 shares of common stock. The vesting of outstanding restricted stock units could result in increased sales of our common stock in the market, which could exert significant downward pressure on our stock price. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate.

 

Item 1B. Unresolved Staff Comments

None.

 

Item 2. Properties

Our corporate offices are located in Scottsdale, Arizona. This facility consists of approximately 21,000 square feet of leased space pursuant to a lease for which the current term expires on February 28, 2014. We also lease offices in Los Angeles, California, the United Kingdom and Shenzhen and Dong Guan, China. Each of these offices supports our selling, research and development, and general administrative activities. The majority of our warehouse and product fulfillment operations are conducted at various third-party locations throughout the world. We believe our facilities are suitable and adequate for our current business activities for the remainder of the lease terms.

 

Item 3. Legal Proceedings

We are, from time to time, party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Although litigation is inherently uncertain, based on past experience and the information currently available, our management does not believe that any currently pending and threatened litigation or claims will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting period.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on The NASDAQ Global Market under the symbol “IGOI.”. The following sets forth, for the period indicated, the high and low sales prices for our common stock as reported by The NASDAQ Global Market.

 

     High      Low  

Year Ended December 31, 2010

     

Quarter Ended March 31, 2010

   $ 2.09       $ 1.03   

Quarter Ended June 30, 2010

   $ 2.15       $ 1.34   

Quarter Ended September 30, 2010

   $ 2.00       $ 1.37   

Quarter Ended December 31, 2010

   $ 4.09       $ 1.77   

Year Ended December 31, 2011

     

Quarter Ended March 31, 2011

   $ 5.19       $ 2.56   

Quarter Ended June 30, 2011

   $ 3.19       $ 1.54   

Quarter Ended September 30, 2011

   $ 2.21       $ 1.10   

Quarter Ended December 31, 2011

   $ 1.48       $ 0.60   

As of March 20, 2012, there were 33,877,610 shares of our common stock outstanding held by approximately 250 holders of record and the last reported sale price of our common stock on The NASDAQ Global Market on March 20, 2012 was $0.67 per share.

Dividend Policy

We have never paid cash dividends on our common stock, and it is the current intention of management to retain earnings to finance the growth of our business. Future payment of cash dividends will depend upon financial condition, results of operations, cash requirements, tax treatment, and certain corporate law requirements, as well as other factors deemed relevant by our Board of Directors.

Issuer Purchases of Equity Securities

During the fourth quarter of 2011, there were no repurchases made by us or on our behalf, or by any “affiliated purchasers,” of shares of our common stock.

 

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Item 6. Selected Financial Data

The following selected consolidated financial data should be read together with our consolidated financial statements and notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other information contained in this Form 10-K. The selected financial data presented below under the captions “Consolidated Statements of Operations Data” and “Consolidated Balance Sheet Data” as of and for each of the years in the five-year period ended December 31, 2011 are derived from our consolidated financial statements, which consolidated financial statements have been audited by KPMG LLP, an independent registered public accounting firm. The consolidated balance sheet data as of December 31, 2011, 2010 and 2009 and consolidated statement of operations data for each of the years in the three-year period ended December 31, 2011, are derived from our consolidated financial statements, included in this Form 10-K.

 

     Years Ended December 31,  
     2011     2010     2009     2008     2007  
                 As recast     As recast     As recast  
     (In thousands, except per share data)  

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

          

Revenue

   $ 38,372      $ 43,357      $ 48,944      $ 69,906      $ 71,892   

Cost of revenue

     29,903        28,947        33,776        50,877        55,418   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     8,469        14,410        15,168        19,029        16,474   

Total operating expenses

     20,066        16,924        16,606        21,327        32,694   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (11,597     (2,514     (1,438     (2,298     (16,220

Interest income, net

     62        171        235        933        1,305   

Gain on disposal of assets and other income, net

     6        2,176        506        1,099        2,283   

Litigation settlement income (expense)

     —          —          —          672        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

     (11,529     (167     (697     406        (12,632

Income tax benefit

     —          (1,002     (234     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (11,529   $ 835      $ (463   $ 406      $ (12,632
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share—basic and diluted:

          

Basic income (loss) per share

   $ (0.35   $ 0.03      $ (0.01   $ 0.01      $ (0.40

Diluted income (loss) per share

   $ (0.35   $ 0.02      $ (0.01   $ 0.01      $ (0.40

Weighted average common shares outstanding:

          

Basic

     33,407        32,770        32,310        31,786        31,534   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     33,407        35,081        32,310        34,394        31,534   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CONSOLIDATED BALANCE SHEET DATA:

          

Cash, cash equivalents and short-term investments

   $ 15,180      $ 24,474      $ 32,552      $ 30,583      $ 24,242   

Working capital

     26,299        35,986        38,131        36,352        31,735   

Total assets

     37,278        50,173        46,177        49,940        53,273   

Long-term debt and other non-current liabilities

     —          —          —          —          —     

Total stockholders’ equity

     30,867        42,298        40,282        39,584        37,388   

Mission Technology Group, Inc. (“Mission”), an entity that was formed by one of our former officers, purchased the assets of our expansion and docking product line in April 2007. From 2007 through 2009 the Company consolidated the results of Mission as a variable interest entity. Effective January 1, 2010, we determined that we were no longer the primary beneficiary of Mission and, as such, we no longer consolidate the results of Mission and have removed the results of Mission from the presentation of historical financial data in this filing. Accordingly, the consolidated statements of operations data and consolidated balance sheet data as of and for the years ended December 31, 2009, 2008 and 2007 have been recast to give effect to the removal of Mission.

 

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

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

Overview

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.

Power

The centerpiece of our power management solutions is our proprietary iGo Green® technology. Our first iGo Green products are laptop chargers and surge protectors that 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 will help us achieve our long-term goal of establishing an industry standard for reduced power consumption when charging mobile electronic devices.

Batteries

Through our relationship with Pure Energy Solutions (“Pure Energy”), we are the exclusive marketer and distributor of Pure Energy’s 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

 

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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

On February 23, 2012, we received a letter from The Nasdaq Stock Market (“Nasdaq”) indicating that the bid price of our common stock for the last 30 consecutive business days had closed below the minimum $1.00 per share required for continued listing under Nasdaq Marketplace Rule 5450(a)(1). This notification has no effect on the listing of the our common stock at this time.

The notification letter states that we have 180 calendar days to regain compliance with the minimum bid price requirement. In order to regain compliance, the closing bid price for our ordinary shares must be at least $1.00 per share for a minimum of 10 consecutive business days. The compliance period expires on August 21, 2012. At the close of the grace period, if we have not regained compliance, we may be eligible for an additional grace period of 180 days, if we meet the initial listing standards, with the exception of bid price, for The Nasdaq Capital Market and we provide Nasdaq with a notice of our intention to timely cure the bid price deficiency. If we are not eligible for an additional grace period, we will receive notification that our securities are subject to delisting, and we may then appeal the delisting determination to a Nasdaq Hearings Panel.

We intend to monitor the bid price for our ordinary shares between now and August 21, 2012 and will consider available options to resolve the deficiency and regain compliance with the minimum bid price requirement. There can be no assurance that we will be able to regain compliance with the Nasdaq rules and thereby to maintain the listing of our common stock on the Nasdaq Stock Market.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally

 

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accepted in the United States of America. The preparation of these financial statements requires management to make a number of estimates and judgments which impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including those related to bad debt expense, warranty obligations, inventories, sales returns and price protection, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates under different assumptions or conditions.

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

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

Our recognition of revenue from product sales to distributors, resellers and retailers, or the “retail and distribution channel,” is affected by agreements we have with certain customers giving them rights to return up to 15% of their prior quarter’s purchases, provided that the customer places a new order for an equal or greater dollar value of the amount returned. We also have agreements with certain customers that allow them to receive credit for subsequent price reductions, or “price protection.” At the time we recognize revenue related to these agreements, we reduce revenue for the gross sales value of estimated future returns, as well as our estimate of future price protection. We also reduce cost of revenue for the gross product cost of estimated future returns. We record an allowance for sales returns in the amount of the difference between the gross sales value and the cost of revenue as a reduction of accounts receivable. We also have agreements with certain customers that provide them with a 100% right of return prior to the ultimate sale to an end user of the product. Accordingly, we have recorded deferred revenue of $1,305,000 as of December 31, 2011 and $1,838,000 as of December 31, 2010, which we expect to recognize as revenue when the product is sold to the end user. Gross sales to the retail and distribution channel accounted for approximately 86% of revenue for the year ended December 31, 2011 and 88% of revenue for the year ended December 31, 2010.

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

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

Inventory Valuation. Inventories consist of finished goods and component parts purchased both partially and fully assembled. We experience all the typical risks and rewards of inventory held by contract manufacturers.

 

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Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories include material, labor and overhead costs. Labor and overhead costs are allocated to inventory based on a percentage of material costs. We monitor usage reports to determine if the carrying value of any items should be adjusted due to lack of demand. We make a downward adjustment to the value of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Deferred Tax Valuation Allowance. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which we operate. Historically, we have recorded a deferred tax valuation allowance in an amount equal to our net deferred tax assets. If we determine that we will ultimately be able to utilize all or a portion of deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released to income as a credit to income tax expense. During 2009, we released $234,000 of the valuation allowance relating to an application for a refund of federal alternative minimum taxes paid in 2005 and 2006 in connection with the Worker, Homeownership, and Business Assistance Act of 2009. During 2010, we released $1,002,000 of the valuation allowance as a result of deferred tax liabilities incurred in connection with the acquisitions of Adapt and Aerial7.

Goodwill and Long-Lived Asset Valuation. We test goodwill for impairment on an annual basis as of October 1. The goodwill impairment evaluation process is based on both a discounted future cash flows approach and a market comparable approach. The discounted cash flows approach uses our estimates of future market growth rates, market share, revenue and costs, as well as appropriate discount rates. We evaluated goodwill for impairment as of October 1, 2011 and determined that recorded goodwill was impaired at that time. We test our recorded long-lived assets whenever events indicate the recorded intangible assets may be impaired. Our long-lived asset impairment approach is based on an undiscounted cash flows approach. As a result of the assessment of goodwill impairment at October 1, 2011, we tested long-lived assets for impairment at that time and determined some of these assets were impaired. We have recorded long-lived asset impairment charges in the past, and if we fail to achieve our assumed growth rates or assumed gross margin, we may incur additional charges for impairment in the future. For these reasons, we believe that the accounting estimates related to goodwill and long-lived assets are critical accounting estimates.

 

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Results of Operations

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

 

     Year Ended December 31,  
     2011     2010     2009  
                 As recast  

Revenue

     100.0     100.0     100.0

Cost of revenue

     77.9     66.8     69.0
  

 

 

   

 

 

   

 

 

 

Gross profit

     22.1     33.2     31.0
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Sales and marketing

     20.1     18.0     13.8

Research and development

     6.1     3.5     4.0

General and administrative

     20.2     17.5     16.1

Asset impairment

     5.9     —          —     
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     52.3     39.0     33.9
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (30.2 %)      (5.8 %)      (2.9 %) 

Other income (expense):

      

Interest income, net

     0.2     0.4     0.5

Gain on disposal of assets and other income, net

     0.0     5.0     1.0
  

 

 

   

 

 

   

 

 

 

Loss before income tax

     (30.0 )%      (0.4 )%      (1.4 )% 

Income tax benefit

     —          2.3     0.5
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (30.0 )%      1.9     (0.9 )% 
  

 

 

   

 

 

   

 

 

 

Comparison of Years Ended December 31, 2011, 2010, and 2009

Revenue. Revenue generally consists of sales of products, net of returns and allowances. To date, our revenues have come predominantly from our laptop chargers. The following table summarizes the year-over-year comparison of our consolidated revenue for the periods indicated (dollars in thousands):

 

Year

   Annual Amount      Decrease
from Prior  Year
    Percentage Change
from Prior Year
 

2011

   $ 38,372       $ (4,985     (11.5 %) 

2010

     43,357         (5,587     (11.4 %) 

2009

     48,944         —          —     

Following is a breakdown of revenue by significant account for the years ended December 31, 2011, 2010 and 2009 with corresponding dollar and percent changes (dollars in millions):

 

                          Change from 2010 to 2011     Change from 2009 to 2010  
     $
2011
     $
2010
     $
2009
     $
Change
    %
Change
    $
Change
    %
Change
 

Walmart

     8.0            7.5         0.2         0.5        6.7     7.3        3,650.0

RadioShack

     3.8       14.7         21.2         (10.9     -74.1     (6.5     -30.7

Belkin

     2.5       3.0         2.6         (0.5     -16.7     0.4        15.4

Targus

     —         —           11.6         —          —          (11.6     -100.0

All other customers

     24.1       18.2         13.3         5.9        32.4     4.9        36.8
  

 

 

    

 

  

 

 

    

 

 

    

 

 

     

 

 

   
     38.4       43.4         48.9         (5.0     -11.5     (5.5     -11.2
  

 

 

    

 

  

 

 

    

 

 

    

 

 

     

 

 

   

 

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The 2011 decrease in revenue was primarily due to the decreases in sales to RadioShack and Belkin, as indicated in the table above, as a result of a shift in RadioShack’s retail strategy to place greater emphasis on its own private label brands, “PointMobl” and “Enercell” during 2011. 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 establishment of our Pure Energy relationship in the first quarter of 2011, combined with increases in sales to Walmart as indicated in the table above. The battery, audio and protection product lines contributed $7.3 million to revenue for the year ended December 31, 2011, compared to $892,000 for the year ended December 31, 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 during 2012 with the goal of reducing our dependence on sales to Walmart and RadioShack in the future.

The 2010 decrease in revenue was primarily due to decreases in sales to Targus and RadioShack. As noted in the table above, sales to Targus decreased to $0 for the year ended December 31, 2010 as a result of the termination of our sales agreement with Targus in 2009. Sales to RadioShack also decreased to $14.7 million for the year ended December 31, 2010. This decrease in sales was concurrent with RadioShack’s debut of its own private label chargers. These decreases have been offset somewhat by sales to new retail customers such as Walmart as well as increases in sales to other retailers and distributors as a result of our increased focus on sales to retailers and distributors. Sales to Walmart increased to $7.5 million for the year ended December 31, 2010.

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

Cost of revenue:

 

Year

   Cost of Revenue      Increase/(Decrease)
from Prior Year
    Percentage Change
from Prior Year
 

2011

   $ 29,903       $ 956        3.3

2010

     28,947         (4,829     (14.3 %) 

2009

     33,776         —          —     

Gross profit and gross margin:

 

Year

   Gross Profit      Gross Margin     Decrease in  gross
profit

from Prior Year
    Percentage Change
from Prior Year
(Total Dollars)
 

2011

   $ 8,469         22.1   $ (5,941     (41.2 %) 

2010

     14,410         33.2     (758     (5.0 %) 

2009

     15,168         31.0     —          —     

The 2011 increase in cost of revenue and corresponding decrease in gross margin was due primarily to a decrease in average direct margin, which excludes labor and overhead costs, to 39.4% for the year ended December 31, 2011 compared to 47.1% for the year ended December 31, 2010, as a result of increased product costs, reduced sales prices and shifts in product mix. Also contributing to the increase in cost of revenue and the corresponding decrease in gross margin was an increase in labor and overhead costs, which are mostly fixed, of $626,000, or 10.4% to $6.6 million for the year ended December 31, 2011, compared to $6.0 million for the year ended December 31, 2010. The increase in labor and overhead costs during 2011 was primarily due to increases of $375,000 in third-party logistics costs, $270,000 in allowances for excess and obsolete inventory, and $136,000 in cycle count adjustments. As a result of these factors, cost of revenue, as a percentage of revenue,

 

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increased to 77.9% for the year ended December 31, 2011, from 66.8% for the year ended December 31, 2010. We continue to see 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 in 2012 compared to 2011.

The 2010 decrease in cost of revenue was primarily due to the decrease in revenue discussed above. The increase in gross margin was due primarily to an increase in average direct margin, which excludes labor and overhead costs to 47.1% for the year ended December 31, 2010 compared to 35.8% (as recast) for the year ended December 31, 2009, primarily as a result in the decline of sales of products to private label resellers which typically result in lower margins, combined with an increase in sales to retailers relative to total revenue. Partially offsetting the increase in direct margin was an increase in labor and overhead costs. Labor and overhead costs, which are mostly fixed, increased by $3.7 million, or 160.9%, to $6.0 million for the year ended December 31, 2010, compared to $2.3 million (as recast) for the year ended December 31, 2009. As a result of these factors, cost of revenue, as a percentage of revenue, decreased to 66.8% for the year ended December 31, 2010 from 69.0% (as recast) for the year ended December 31, 2009.

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):

 

Year

   Annual Amount      Increase/(Decrease)
from Prior Year
    Percentage Change
from Prior Year
 

2011

   $ 7,695       $ (110     (1.4 %) 

2010

     7,805         1,052        15.6

2009

     6,753         —          —     

The 2011 decrease in sales and marketing expenses primarily resulted from decreases in advertising and market research expenses. Specifically, marketing and advertising expenses decreased $465,000 or 36.2%, to $820,000 for the year ended December 31, 2011, compared to $1.3 million for the year ended December 31, 2010. Partially offsetting these decreases was an increase in personnel-related and consulting expenses of $332,000, or 8.0%, to $4.5 million for the year ended December 31, 2011, compared to $4.1 million for the year ended December 31, 2010. As a percentage of revenue, sales and marketing expenses increased to 20.1% for the year ended December 31, 2011 from 18.0% for the year ended December 31, 2010.

The 2010 increase in sales and marketing expenses primarily resulted from increased personnel, consulting and sales commissions, and product samples and advertising. Specifically, personnel, sales commissions and consulting fees increased $849,000, or 24.3%, to $4.3 million for the year ended December 31, 2010, compared to $3.5 million (as recast) for the year ended December 31, 2009. Advertising and sample costs increased by $403,000, or 64.8% to $1.0 million for the year ended December 31, 2010 compared to $623,000 (as recast) for the year ended December 31, 2009. Partially offsetting these increases was a reduction in trade show expense of $141,000, or 38.9%, to $222,000 for the year ended December 31, 2010, compared to $363,000 (as recast) for the year ended December 31, 2009. As a percentage of revenue, sales and marketing expenses increased to 18.0% for the year ended December 31, 2010 from 13.8% (as recast) for the year ended December 31, 2009.

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):

 

Year

   Annual Amount      Increase/(Decrease)
from Prior Year
    Percentage Change
from Prior Year
 

2011

   $ 2,358       $ 833        54.6

2010

     1,525         (425     (21.8 %) 

2009

     1,950         —          —     

 

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The increase in research and development expenses in 2011 resulted primarily from the increases of approximately $556,000 in personnel-related expenses, or 51.8% to $1.6 million for the year ended December 31, 2011, compared to $1.1 million for the year ended December 30, 2010, primarily due to the addition of personnel from the Adapt and Aerial7 acquisitions and severance payments associated with a reduction in personnel. Non-recurring engineering expenses increased by $221,000, or 604.1% to $257,000 for the year ended December 31, 2011, compared to $36,000 for the year ended December 31,2010, primarily due to the development of our power-saving microchip with Texas Instruments. Professional consulting expenses increased by $62,000, or 65.8% to $157,000 for the year ended December 31, 2011, compared to $95,000 for the year ended December 31, 2010. As a percentage of revenue, research and development expenses increased to 6.1% for the year ended December 31, 2011 from 3.5% for the year ended December 31, 2010.

The decrease in research and development expenses in 2010 resulted primarily from a decline of product certification, research and prototyping related expenses, and personnel and consulting related expenses. Specifically, product certification, research and prototyping related expenses decreased by $206,000, or 78.9% to $55,000 for the year ended December 31, 2010, compared to $261,000 (as recast) for the year ended December 31, 2009. Personnel and consulting-related expenses decreased by $157,000, or 12.6% to $1.1 million for the year ended December 31, 2010, compared to $1.3 million (as recast) for the year ended December 31, 2009. As a percentage of revenue, research and development expenses decreased to 3.5% for the year ended December 31, 2010 from 4.0% (as recast) for the year ended December 31, 2009.

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):

 

Year

   Annual Amount      Increase/(Decrease)
from Prior Year
    Percentage Change
from Prior Year
 

2011

   $ 7,753       $ 159        2.1

2010

     7,594         (309     (3.9 %) 

2009

     7,903         —          —     

The 2011 increase in general and administrative expenses resulted from increases in equity compensation and amortization expenses of approximately $650,000, or 28.0%, to $3.2 million for the year ended December 31, 2011, compared to $2.5 million for the year ended December 31, 2010, primarily due to the Adapt and Aerial7 acquisitions. Partially offsetting this increase was a decrease in personnel-related expenses of approximately $316,000, or 16.3%, to $1.6 million for the year ended December 31, 2011, compared to $1.9 million for the year ended December 31, 2010. General and administrative expenses, as a percentage of revenue increased to 20.2% for the year ended December 31, 2011, from 17.5% for the year ended December 31, 2010.

The 2010 decrease in general and administrative expenses primarily result from decreases to personnel and consulting-related expenses. Specifically, personnel and consulting-related expenses decreased by $634,000, or 19.0% to $2.7 million for the year ended December 31, 2010, compared to $3.3 million (as recast) for the year ended December 31, 2009. Partially offsetting this decrease was an increase in non-cash equity compensation and shareholder services expense. Non-cash equity compensation and shareholder services expense increased by $217,000, or 16.2% to $1.6 million for the year ended December 31, 2010, compared to $1.4 million (as recast) for the year ended December 31, 2009 primarily as a result of an increase in non-cash equity awards granted during 2010. General and administrative expenses, as a percentage of revenue increased to 17.5% for the year ended December 31, 2010, from 16.1% (as recast) for the year ended December 31, 2009.

Asset impairment. Asset impairment expense consists of expenses associated with impairment write-downs of goodwill and amortizable intangible assets. As of October 1, 2011, our annual impairment testing date, as a

 

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result of a significant decline in our overall market capitalization, we determined goodwill in the amount of $269,000 related to our 2010 acquisition of Adapt Mobile and $1.4 million related to our 2010 acquisition of Aerial7 was impaired. In conjunction with the goodwill impairment, we determined a triggering event had occurred that caused us to evaluate amortizable assets related to Adapt and Aerial7 for impairment. Based on lower-than-anticipated sales of protection products, we determined amortizable intangible assets with a remaining net book value of $579,000 related to Adapt were impaired. We determined the amortizable intangible assets recorded in connection with the Aerial7 acquisition were not impaired. A total asset impairment charge of $2.3 million related to the impairment of goodwill and amortizable intangible assets was recorded for the year ended December 31, 2011. We also evaluated goodwill for impairment as of October 1, 2010, and determined goodwill was not impaired as of that date. Accordingly, no asset impairment charge was recorded for the year ended December 31, 2010. We had no goodwill in 2009.

Interest income, net. Interest income, net consists primarily of interest earned on our cash balances and short-term investments. The following table summarizes the year-over-year comparison of interest income, net for the periods indicated (dollars in thousands):

 

Year

   Annual Amount      Decrease
from Prior  Year
    Percentage Change
from Prior Year
 

2011

   $ 62       $ (109     (63.7 %) 

2010

     171         (64     (27.2 %) 

2009

     235         —          —     

The 2011 decrease in interest income was primarily due to collection in full of notes receivable during 2010 and decreased short-term investment balances during 2011 due to usage of those investments to fund operating losses and working capital requirements. The average yield on our cash and short-term investments at December 31, 2011 was less than 1%, consistent with the average yield in 2010. The 2010 decrease in interest income was primarily due to the use of cash to fund acquisitions. At December 31, 2010, the average yield on our cash and short term investments was less than 1%, consistent with the average yield in 2009.

Gain (loss) on disposal of assets and other income, net. Gain (loss) on disposal of assets and other income, net consists of the net proceeds received from the disposal of assets, less the remaining net book value of the disposed assets and other income in connection with the collection of notes receivable that had been previously deferred in connection with the sale of the assets of our handheld software and hardware product lines. The following table summarizes the year-over-year comparison of gain on disposal of assets for the periods indicated (dollars in thousands):

 

Year

   Annual Amount      Increase/(Decrease)
from Prior Year
     Percentage Change
from Prior Year
 

2011

   $ 6       $ 2,170         (99.7 %) 

2010

     2,176         1,670         330.0

2009

     506         —           —     

The 2010 gain was due primarily to the reversal of valuation allowances against notes receivable from Mission and Cradlepoint. The note receivable from Mission was originally issued in connection with its purchase of the assets of our expansion and docking product line in April 2007 and subsequently repaid in full in April 2010, which resulted in the reversal of a valuation allowance and corresponding recognition of a gain of $1,700,000. The note receivable from Cradlepoint was originally issued in connection with its purchase of the assets of our handheld connectivity product line in February 2007. Subsequent to December 31, 2010, the note, which had an uncollected balance of $118,000 was paid in full. Since the note was deemed collectible, the related valuation allowance was reversed and the Company recognized the remaining $118,000 of gain related to the transaction.

 

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Income taxes. 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 year ended December 31, 2011, which at December 31, 2011 was $166 million.

As the result of the acquisitions of Adapt and Aerial7, we recorded a $1,002,000 tax benefit for the year ended December 31, 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 is recorded as income tax benefit for the year ended December 31, 2010.

During the year ended December 31, 2009, we filed Form 1139, Corporation Application for Tentative Refund, to claim a refund of alternative minimum taxes paid for the year ended December 31, 2005 pursuant to the Worker, Homeownership, and Business Assistance Act of 2009, passed on November 5, 2009. As a result, we recorded an income tax benefit of $234,000 for the year ended December 31, 2009.

Operating Outlook

We have historically generated the majority of our revenue from the sale of chargers for laptops, however, consumers are increasingly using smartphones and tablets as their primary mobile electronic devices. As a result of this shift, we have seen increased competition and a decline in demand for our power products with our traditional customer base. For example, during 2011, we faced increased competition from retail customers who began offering traditional power products under their own private-label brands, including most notably RadioShack. Although we have expanded our offering of products beyond our traditional power products to include a variety of accessories to support the increased utilization of smartphones and tablets, including audio, protection, and battery products, the revenue generated from the sales of these products has not yet offset the decline in revenue from historical sales of our traditional power products. Nevertheless, as a result of the diversification of our product offering combined with the continued sales of our traditional power products, we expect our total 2012 revenue to be more than our 2011 revenue.

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.

We continue to see increases in component costs from our primary Asian suppliers combined with pricing pressure from our customers, most notably from Walmart. However, we expect the cost and price pressures will be partially offset by expected increased operating efficiency as a result of anticipated increases in revenue. As a result, we expect gross margins to remain the same or decline slightly in 2012 compared to 2011. We expect operating expenses in 2012 to be consistent with 2011 operating expenses.

We anticipate increased research and development expenses in 2012 compared to 2011, primarily as a result of the continued development of our iGo Green technology, including expenses relating to the collaborative

 

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development of an integrated circuit with Texas Instruments based on our iGo Green technology. As a result of our planned product 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.

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 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, cash on hand, 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 in 2012. Some of our new suppliers of batteries, protection and audio products 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 of these products 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.

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

 

     Year Ended December 31,  
     2011     2010     2009  
                 As recast  

Net cash provided by (used in) operating activities

   $ (6,673   $ (3,582   $ 2,392   

Net cash provided by (used in) investing activities

     7,331        (6,214     (8,225

Net cash provided by financing activities

     —          —          —     

Foreign currency exchange impact on cash flow

     (310     (37     (11
  

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

   $ 348      $ (9,833   $ (5,844
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at beginning of year

   $ 9,942      $ 19,775      $ 25,619   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 10,290      $ 9,942      $ 19,775   
  

 

 

   

 

 

   

 

 

 

 

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Net cash provided by (used in) operating activities. Cash was used in operating activities for the year ended December 31, 2011 to fund the working capital needs of our business, including inventory purchases. We expect to continue to use cash in operating activities in 2012 to support the anticipated growth in our business. Our consolidated cash flow operating metrics are as follows:

 

     Year Ended December 31,  
     2011      2010      2009  
                   As recast  

Days outstanding in ending accounts receivable (“DSOs”)

     55         73         38   

Inventory turns

     3         4         7   

The decrease in DSOs at December 31, 2011 compared to December 31, 2010 was primarily due to decrease in sales to RadioShack, which generally requires longer payment terms. We expect DSOs will increase in 2012 as our revenue base increases as a result of our planned expansion of direct sales to retailers and the associated anticipated timing of cash receipts from our customers. 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 2012 and we expect inventory turns for 2012 to remain consistent with 2011 inventory turns.

The increase in DSOs at December 31, 2010 compared to December 31, 2009 was primarily due to decreases in accounts receivable from Targus, which were collected in full in mid-2009. The decrease in inventory turns was primarily due to the decline in revenue from sales to Targus and RadioShack, for whom we hold no inventory.

 

   

Net cash provided by (used in) investing activities. For the year ended December 31, 2011, net cash was generated by investing activities primarily as a result of the sale of short-term investments (net of purchases), partially offset by our investments in Pure Energy Visions. For the year ended December 31, 2010, net cash was used in investing activities as we used $4.2 million in cash to acquire Adapt and Aerial7, in addition to net purchases of $1.7 million in short-term investments and $280,000 in purchases of property plant and equipment. We may use cash to fund additional acquisitions in addition to anticipated future investments in capital equipment.

 

   

Net cash from financing activities. We had no financing activities in 2011, 2010 or 2009. Although we expect to generate cash flows from operations sufficient to support our operations, we may issue additional shares of stock in the future to generate cash for growth opportunities. Furthermore, in the future, we may use cash to repurchase outstanding shares of our common stock.

Investments. At December 31, 2011, our investments in marketable securities included one issuance of corporate common stock, one corporate debenture, seven commercial paper instruments issued by various companies, and one municipal mutual fund with an aggregate fair value of approximately $5.3 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 income (loss).

 

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Contractual Obligations. In our day-to-day business activities, we incur certain commitments to make future payments under contracts such as operating leases and purchase orders. Maturities under these contracts are set forth in the following table as of December 31, 2011 (dollars in thousands):

 

     Payment due by period  
     2012      2013      2014      2015      2016      More than 5 years  

Operating lease obligations

   $ 452       $ 463       $ 83       $ —         $ —         $ —     

Inventory Purchase obligations

     7,824         —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 8,276       $ 463       $ 83       $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

Acquisitions and dispositions. In 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 December 31, 2011, we had approximately $166 million of federal 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 and our ability to use the net operating loss carryforwards in the future. Additionally, our ability to use the net operating loss carry-forwards is dependent upon our level of future profitability, which cannot be determined.

Liquidity Outlook. Based on our projections, we believe that our existing cash, cash equivalents, and short-term investments 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 2(s) to our consolidated financial statements for a summary of recently issued accounting pronouncements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

 

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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 and short-term investments, 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 equivalents and short-term investments resulting from a hypothetical 1.0% (100 basis point) change in interest rates, was not material at December 31, 2011.

 

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Item 8. Financial Statements and Supplementary Data

IGO, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     41   

Consolidated Balance Sheets as of December 31, 2011 and 2010

     42   

Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009

     43   

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009

     44   

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009

     45   

Notes to Consolidated Financial Statements

     46   

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

iGo, Inc.:

We have audited the accompanying consolidated balance sheets of iGo, Inc. and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of iGo, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the consolidated financial statements, as of January 1, 2010, the Company adopted the provisions of ASU 2009-17, which changed the accounting and reporting for variable interest entities.

(signed) KPMG LLP

Phoenix, Arizona

March 27, 2012

 

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IGO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     December 31,  
     2011     2010  
     (In thousands, except
share amounts)
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 10,290      $ 9,942   

Short-term investments

     4,890        14,532   

Accounts receivable, net

     5,813        8,620   

Inventories

     11,177        10,307   

Prepaid expenses and other current assets

     540        460   
  

 

 

   

 

 

 

Total current assets

     32,710        43,861   

Property and equipment, net

     587        654   

Goodwill

     285        1,905   

Intangible assets, net

     3,116        3,594   

Long-term investments

     420        —     

Other assets

     160        159   
  

 

 

   

 

 

 

Total assets

   $ 37,278      $ 50,173   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Liabilities:

    

Accounts payable

   $ 4,150      $ 4,666   

Accrued expenses and other current liabilities

     956        1,371   

Deferred revenue

     1,305        1,838   
  

 

 

   

 

 

 

Total liabilities

     6,411        7,875   

Equity:

    

Common stock, $.01 par value; authorized 90,000,000 Shares; 33,741,609 and 32,893,892 shares issued and outstanding at December 31, 2011 and 2010, respectively

     337        329   

Additional paid-in capital

     173,453        172,241   

Accumulated deficit

     (141,910     (130,381

Accumulated other comprehensive income (loss)

     (1,013     109   
  

 

 

   

 

 

 

Total equity

     30,867        42,298   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 37,278      $ 50,173   
  

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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IGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
     2011     2010     2009  
                 As recast  
    

(In thousands, except

per share amounts)

 

Revenue

   $ 38,372      $ 43,357      $ 48,944   

Cost of revenue

     29,903        28,947        33,776   
  

 

 

   

 

 

   

 

 

 

Gross profit

     8,469        14,410        15,168   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Sales and marketing

     7,695        7,805        6,753   

Research and development

     2,358        1,525        1,950   

General and administrative

     7,753        7,594        7,903   

Asset impairment

     2,260        —          —     
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     20,066        16,924        16,606   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (11,597     (2,514     (1,438

Other income (expense):

      

Interest income, net

     62        171        235   

Gain on disposal of assets and other income, net

     6        2,176        506   
  

 

 

   

 

 

   

 

 

 

Loss before income tax

     (11,529     (167     (697

Income tax benefit

     —          1,002        234   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (11,529   $ 835      $ (463
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to iGo, Inc. per share:

      

Basic

   $ (0.35   $ 0.03      $ (0.01
  

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.35   $ 0.02      $ (0.01
  

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

      

Basic

     33,407        32,770        32,310   
  

 

 

   

 

 

   

 

 

 

Diluted

     33,407        35,081        32,310   
  

 

 

   

 

 

   

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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IGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

 

            Additional
Paid-In
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income (Loss)
       
                  Net
Stockholders’
Equity
 
     Common Stock           
     Shares      Amount           
     (in thousands, except share amounts)  

Balances at December 31, 2008 as recast

     31,924,183       $ 319       $ 169,863      $ (130,753   $ 155      $ 39,584   

Issuance of stock awards

     487,348         5         (139     —          —          (134

Amortization of deferred compensation

     —           —           1,310        —          —          1,310   

Comprehensive income (loss):

              

Unrealized Loss on Available for Sale Investments

     —           —           —          —          (4     (4

Foreign currency translation adjustment

     —           —           —          —          (11     (11

Net loss

     —           —           —          (463     —          (463
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

                 (478

Balances at December 31, 2009 as recast

     32,411,531         324         171,034        (131,216     140        40,282   

Issuance of stock awards

     482,361         5         (271     —          —          (266

Amortization of deferred compensation

     —           —           1,478        —          —          1,478   

Comprehensive income (loss):

              

Unrealized Gain on Available for Sale Investments

     —           —           —          —          6        6   

Foreign currency translation adjustment

     —           —           —          —          (37     (37

Net income

     —           —           —          835        —          835   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

                 804   

Balances at December 31, 2010

     32,893,892         329         172,241        (130,381     109        42,298   

Issuance of stock awards

     847,717         8         (612     —          —          (604

Amortization of deferred compensation

     —           —           1,824        —          —          1,824   

Comprehensive income (loss):

              

Unrealized Loss on Available for Sale Investments

     —           —           —          —          (812     (812

Foreign currency translation adjustment

     —           —           —          —          (310     (310

Net loss

     —           —           —          (11,529     —          (11,529
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

                 (12,651

Balances at December 31, 2011

     33,741,609       $ 337       $ 173,453      $ (141,910   $ (1,013   $ 30,867   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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IGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
     2011     2010     2009  
                 As recast  
     (In thousands)  

Cash flows from operating activities:

      

Net income (loss)

   $ (11,529   $ 835      $ (463

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

      

Provisions for doubtful accounts and sales returns and credits

     1,243        360        547   

Depreciation and amortization

     1,806        1,573        1,443   

Amortization of deferred compensation

     1,824        1,478        1,310   

Loss on disposal of assets

     34        —          20   

Impairment of goodwill

     1,681        —          —     

Impairment of intangible assets

     579        —          —     

Deferred taxes

     —          (1,002     —     

Changes in operating assets and liabilities, net of acquisitions:

      

Accounts receivable

     1,564        (3,542     6,355   

Inventories

     (870     (4,022     (2,366

Prepaid expenses and other assets

     (937     (581     142   

Accounts payable

     (516     724        (3,203

Accrued expenses and other current liabilities

     (1,552     595        (1,393
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (6,673     (3,582     2,392   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Purchase of property and equipment

     (372     (280     (477

Purchase of intangibles

     (706     —          —     

Purchase of short-term investments

     (5,732     (17,078     (13,427

Sale of short-term investments

     15,367        15,329        5,611   

Purchase of long-term investments

     (1,226     —          —     

Cash paid for acquisitions, net

     —          (4,185     —     

Proceeds from sale of assets

     —          —          68   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     7,331        (6,214     (8,225
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Net cash provided by financing activities

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Effects of exchange rates on cash and cash equivalents

     (310     (37     (11
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     348        (9,833     (5,844
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, beginning of year

     9,942        19,775        25,619   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year

   $ 10,290      $ 9,942      $ 19,775   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

      

Issuance of restricted stock units for deferred compensation to employees and board members during 2011, 2010 and 2009, respectively

   $ 2,076      $ 2,817      $ 88   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Business

iGo, Inc. and subsidiaries (collectively, “iGo” or the “Company”) was formed on May 4, 1995. iGo was originally formed as a limited liability corporation; however, in August 1996 the Company became a corporation incorporated in the State of Delaware.

iGo designs, develops, manufactures and distributes power products for mobile electronic devices, such as chargers for mobile electronic devices and surge protectors that incorporate the Company’s iGo Green technology; protection products for mobile electronic devices, such as skins, cases and screen protectors; audio products for mobile electronic devices such as earbuds, headphones and speakers; and other mobile electronic accessory products. iGo distributes products in North America, Europe and Asia Pacific.

 

(2) Summary of Significant Accounting Policies

(a) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debt expense, 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.

The Company believes its critical accounting policies, consisting of revenue recognition, inventory valuation, deferred tax asset valuation, and goodwill and long-lived asset valuation affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. These policies are discussed below.

(b) Principles of Consolidation

The 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”). All significant intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

(c) Revenue Recognition

The Company recognizes net revenue when the earnings process is complete, as evidenced by an agreement with the customer, transfer of title and acceptance, if applicable, as well as fixed pricing and probable collectibility. Revenue from product sales is recognized upon shipment and transfer of ownership from the Company or contract manufacturer to the customer, unless the customer has full right of return, in which case revenue is deferred until either the product has sold through to the end user or a reasonable estimate of returns can be made. Allowances for sales returns and credits are provided for in the same period the related sales are recorded. Should the actual return or sales credit rates differ from the Company’s estimates, revisions to the estimated allowance for sales returns and credits may be required.

 

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(d) Cash and Cash Equivalents

All short-term investments purchased with an original maturity of three months or less are considered to be cash equivalents. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions.

(e) Investments

Short-term investments that have an original maturity between three months and one year and a remaining maturity of less than one year are classified as available-for-sale. Available-for-sale securities are recorded at fair value and are classified as current assets due to the Company’s intent and practice to hold these readily marketable investments for less than one year. Any unrealized holding gains and losses related to available-for-sale securities are recorded, net of tax, as a separate component of accumulated other comprehensive income (loss). When a decline in fair value is determined to be other than temporary, unrealized losses on available-for-sale securities are charged against net earnings. Realized gains and losses are accounted for on the specific identification method.

(f) Accounts Receivable

Accounts receivable consist of trade receivables from customers and short-term notes receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance is assessed on a regular basis by management and is based upon management’s periodic review of the collectibility of the receivables with respect to historical experience. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company also maintains an allowance for sales returns and credits in the amount of the difference between the sales price and the cost of revenue based on management’s periodic review and estimate of returns. Should the actual return or sales credit rates differ from the Company’s estimates, revisions to the estimated allowance for sales returns and credits may be required.

(g) Inventories

Inventories consist of finished goods and component parts purchased partially and fully assembled for computer accessory items. The Company has all normal risks and rewards of its inventory held by contract manufacturers and outsourced product fulfillment hubs. Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories include material, labor and overhead costs. Overhead costs are allocated to inventory based on a percentage of material costs. The Company monitors usage reports to determine if the carrying value of any items should be adjusted due to lack of demand for the items. The Company adjusts down the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

(h) Property and Equipment

Property and equipment are stated at cost. Depreciation on furniture, fixtures and equipment is provided using the straight-line method over the estimated useful lives of the assets ranging from three to five years. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life. Tooling is capitalized at cost and is depreciated over a two-year period. The Company periodically evaluates the recoverability of property and equipment and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that an impairment exists. The Company evaluates recoverability by a comparison of the carrying amount of the assets to future projections of undiscounted cash flows expected to be

 

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generated by the assets. The estimated future cash flows used are based on our business plans and forecasts, which consider historical results adjusted for future expectations. If future market conditions and the Company’s outlook deteriorate, the Company may be required to record impairment charges in the future.

(i) Intangible Assets

Intangible assets include the cost of patents, trademarks and non-compete agreements, as well as identifiable intangible assets acquired through business combinations including trade names, customer lists and software technology. Intangible assets are amortized on a straight-line basis over their estimated economic lives of three to ten years. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that an impairment exists. The Company evaluates recoverability by a comparison of the carrying amount of the assets to future projections of undiscounted cash flows expected to be generated by the assets. The estimated future cash flows used are based on our business plans and forecasts, which consider historical results adjusted for future expectations. If future market conditions and the Company’s outlook deteriorate, the Company may be required to record impairment charges in the future.

(j) Goodwill

Goodwill is the excess of the purchase price over the fair value of the net assets acquired. Goodwill is tested for impairment annually as of October 1, or more frequently if indications of impairment arise.

(k) Warranty Costs

The Company provides limited warranties on certain of its products for periods generally not exceeding three years. The Company accrues for the estimated cost of warranties at the time revenue is recognized. The accrual is based on the Company’s actual claim experience. Should actual warranty claim rates, or service delivery costs, differ from our estimates, revisions to the estimated warranty liability would be required.

(l) Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered forecasts of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of the net recorded amount, an adjustment to the valuation allowance and deferred tax benefit would increase net income in the period such determination was made.

(m) Net Income (Loss) per Common Share

Basic income (loss) per share is computed by dividing income (loss) by the weighted-average number of common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or contracts to issue common stock were exercised or converted to common stock or resulted in the issuance of common stock that then shared in the earnings or loss of the Company. For 2011 and 2009, the assumed exercise of outstanding stock options and warrants and the impact of restricted stock units have been excluded from the calculations of diluted net loss per share as their effect is anti-dilutive.

 

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(n) Share-based Compensation

The Company measures all share-based payments to employees at fair value and records expense in the consolidated statement of operations over the requisite service period (generally the vesting period).

(o) Fair Value of Financial Instruments

The Company’s financial instruments include cash equivalents, short-term investments, long-term investments, accounts receivable, and accounts payable. Due to the short-term nature of cash equivalents, accounts receivable, and accounts payable, the fair value of these instruments approximates their recorded value. The Company does not have material financial instruments with off-balance sheet risk.

(p) Research and Development

The cost of research and development is charged to expense as incurred.

(q) Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates of exchange in effect during the year. The resulting cumulative translation adjustments have been recorded as comprehensive income (loss), a separate component of stockholders’ equity.

(r) Segment Reporting

The Company is engaged in the business of selling accessories for computers and mobile electronic devices and operates a single business segment.

(s) Recently Issued 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 entity’s 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 should not have an impact on the Company’s 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

 

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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 Company’s consolidated financial statements.

 

(3) Mission Deconsolidation

In April 2007, the Company sold the assets of its expansion and docking business to Mission, an entity that was formed by a former officer of the Company, in exchange for $3,930,000 of notes receivable and a 15% common equity interest in Mission. Effective January 1, 2010, upon the adoption of ASU 2009-17, the Company determined that, although Mission is a VIE, the Company is no longer the primary beneficiary of Mission, as the Company did not, and does not, have the power to direct the activities that most significantly impact the economic performance of Mission.

As a result, as of January 1, 2010, the Company no longer consolidates the results of Mission and has removed the results of Mission from the presentation of historical financial information in this filing. Accordingly, the consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the year ended December 31, 2009 have been recast to give effect to the removal of Mission from the accompanying consolidated financial statements.

Upon deconsolidation of Mission on January 1, 2010, the Company had recorded a valuation allowance of $1,714,000 against the then-remaining uncollected principal balance on the note receivable from Mission of $1,847,000. The Company recorded no value related to its 15% common equity interest. In February 2010, the Company received a principal payment of $147,000 from Mission, leaving a net uncollected balance against the note receivable of $1,700,000 at March 31, 2010. In April 2010, the Company entered into a transaction with Mission that resulted in complete collection of its note receivable and the sale of its 15% common equity interest. As the Company had previously recorded a valuation allowance of $1,714,000 against the promissory notes, 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 was reasonably assured. Accordingly, the Company reversed its valuation allowance against the note receivable and recorded a gain of $1,714,000 in the first quarter of 2010, which gain is included in the accompanying Consolidated Statements of Operations under the caption “Gain on disposal of assets and other income, net”. The Company received cumulative proceeds of $3,930,000 million, plus interest, between April 2007 and April 2010 in connection with the sale of the docking and expansion business to Mission.

 

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The following table presents the condensed consolidated statement of operations for the year ended December 31, 2009, reflecting the deconsolidation of Mission, as recast (dollars in thousands).

 

     Year Ended December 31, 2009  
     As Reported     Adjustments     As Recast  

Revenue

   $ 55,420      $ (6,476   $ 48,944   

Cost of revenue

     37,061        (3,285     33,776   
  

 

 

   

 

 

   

 

 

 

Gross profit

     18,359        (3,191     15,168   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Sales and marketing

     7,646        (893     6,753   

Research and development

     3,007        (1,057     1,950   

General and administrative

     8,999        (1,096     7,903   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     19,652        (3,046     16,606   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (1,293     (145     (1,438

Other income (expense):

      

Interest income, net

     127        108        235   

Gain on disposal of assets and other income, net

     667        (161     506   

Loss before income tax

     (499     (198     (697
  

 

 

   

 

 

   

 

 

 

Income tax benefit

     234        —          234   
  

 

 

   

 

 

   

 

 

 

Net loss

     (265     (198     (463

Less: Net income attributable to non-controlling interest

     (284     284        —     
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to iGo, Inc.

   $ (549   $ 86      $ (463
  

 

 

   

 

 

   

 

 

 

 

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The following table presents the condensed consolidated statement of cash flows for the year ended December 31, 2009, reflecting the deconsolidation of Mission, as recast (dollars in thousands).

 

     Year Ended December 31, 2009  
     As Reported     Adjustments     As Recast  

Cash flows from operating activities:

      

Net loss

   $ (265   $ (198   $ (463

Adjustments to reconcile net loss to net cash provided by operating activities:

      

Provisions for doubtful accounts and sales returns and credits

     547        —          547   

Depreciation and amortization

     1,524        (81     1,443   

Amortization of deferred compensation

     1,310        —          1,310   

Loss or (Gain) on disposal of assets

     20        —          20   

Changes in operating assets and liabilities:

      

Accounts receivable

     6,315        40        6,355   

Inventories

     (2,259     (107     (2,366

Prepaid expenses and other assets

     (425     567        142   

Accounts payable

     (3,206     3        (3,203

Accrued expenses and other current liabilities

     (1,326     (67     (1,393
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     2,235        157        2,392   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Purchase of property and equipment

     (524     47        (477

Purchase of investments

     (13,427     —          (13,427

Sale of investments

     5,611        —          5,611   

Proceeds from sale of assets

     68        —          68   
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (8,272     47        (8,225
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Net cash provided by (used in) financing activities

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Effects of exchange rates on cash and cash equivalents

     (11     —          (11
  

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (6,048     204        (5,844
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, beginning of year

     26,139        (520     25,619   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year

   $ 20,091      $ (316   $ 19,775   
  

 

 

   

 

 

   

 

 

 

 

(4) Acquisitions

(a) Adapt

On August 6, 2010, the Company acquired for cash all of the outstanding stock of Adapt, a company headquartered in London, England. The purchase price for the Adapt common stock was $900,000. As part of the acquisition, the Company entered into three year employment agreements with the three founders and key employees of Adapt. Each of these three key employees received grants of 200,000 restricted stock units (“RSUs”) that vested 33% on August 6, 2011 and the remainder of which will vest 33% on August 6, 2012 and 34% on August 6, 2013.

Adapt markets of a broad range of accessories for mobile electronic devices, including mini-projectors (also known as pico projectors) that attach to mobile electronic devices for displaying video, as well as a variety of skins, cases, chargers and screen protectors. The acquisition expands the Company’s European sales presence and increases its product offerings for fast-growing categories within the mobile electronics accessories space.

 

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The acquisition has been accounted for using the acquisition method of accounting. Accordingly, the total consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Fair values were determined by Company management based on information available at the date of acquisition. The results of operations of Adapt were included in the Company’s consolidated financial statements from the date of acquisition, and were not material to the Company’s reported results.

The allocation of total consideration to the assets acquired and liabilities assumed based on the estimated fair value of Adapt was as follows (dollars in thousands):

 

    

  

    Estimated Life  

Tangible assets acquired

   $ 191     

Intangible assets acquired

    

Customer relationships

     720        5 years   

Non-compete agreements

     80        3 years   

Trade name

     40        3 years   

Goodwill

     269        Indefinite   
  

 

 

   
     1,300     

Liabilities assumed

     (173  

Deferred tax liability, net

     (227  
  

 

 

   

Total consideration

   $ 900     
  

 

 

   

Customer relationships relates to Adapt’s existing customer base, valued based on projected discounted cash flows generated from customers in place. The employment agreements with the three founders of Adapt contain non-compete provisions to protect the Company. The non-compete agreements were valued based on the assumption that absent the agreements, Adapt’s business enterprise value would be decreased. Trade name relates to the Adapt trade name. The value of the trade name was estimated by capitalizing the estimated profits saved as a result of acquiring or licensing the asset. The intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The goodwill associated with the acquisition is not subject to amortization and is not expected to be deductible for income tax purposes. The deferred tax liability relates to the acquired intangible assets which are also not expected to be deductible for income tax purposes. As the deferred tax assets of the Company, net of its deferred tax liabilities are fully valued at zero, the impact of recording this deferred tax liability resulted in a release of a portion of the Company’s deferred tax asset valuation allowance, and is recorded as income tax benefit for the year ended December 31, 2010.

The results of Adapt, as well as, the impact of the acquisition of Adapt are not considered material to the Company’s consolidated financial statements.

(b) Aerial7

On October 7, 2010, the Company acquired Aerial7, a designer and marketer of innovative headphones for mobile electronic devices and professional audio equipment.

Pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) dated October 7, 2010 by and among the Company, Mobility Assets, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), Aerial7 and the agent for Aerial7’s shareholders, Merger Sub was merged with and into Aerial7 and, as a result, Aerial7 continues as the surviving corporation and is a wholly owned subsidiary of the Company. The Company acquired all outstanding shares of Aerial7 stock in exchange for aggregate consideration of $3,340,000 (the “Merger Consideration”). The Merger Consideration was subject to adjustment based on the working capital position of Aerial7 on the closing date of October 7, 2010, which was resolved on October 5, 2011 through the return of $25,000 to the Company paid solely from an escrow fund consisting of $250,000 of the Merger Consideration, and the remaining $225,000 from the escrow fund paid to Aerial7’s shareholders.

 

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As part of the Merger, the Company entered into employment agreements with a three year term with the three founders and key employees of Aerial7. Each of these three key employees received grants of 150,000 RSUs that vest in equal annual installments of 50,000 RSUs, with the first vesting event occurring on October 7, 2011, and the remaining vesting events scheduled to occur on October 7, 2012 and October 7, 2013.

The acquisition of Aerial7 expands the Company’s line of accessories for portable computers, tablets, smartphones and other portable media devices. Aerial7 headphones combine acoustic technology with fashionable design. Aerial7 offers a wide range of styles and features that turn headphones from just a functional accessory to a fashion statement that allows consumers to express their unique and personal style. Aerial7’s headphones are sold through fashion, action sports and professional audio retailers. Aerial7 also uses an international distribution network to sell its products in more than 50 countries, which accounts for approximately 60% of Aerial7’s historical sales.

The acquisition has been accounted for using the acquisition method of accounting. Accordingly, the total consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Fair values were determined by Company management based on information available at the date of acquisition.

The allocation of total consideration to the assets acquired and liabilities assumed based on the estimated fair value of Aerial7 was as follows (dollars in thousands):

 

           Estimated Life  

Tangible assets acquired

   $ 462     

Intangible assets acquired

    

Customer relationships

     830        5 years   

Non-compete agreements

     90        3 years   

Trade name

     170        3 years   

Proprietary processes

     850        5 years   

In process research and development

     220        Indefinite   

Goodwill

     1,697        Indefinite   
  

 

 

   
     4,319     

Liabilities assumed

     (229  

Deferred tax liability, net

     (775  
  

 

 

   

Total consideration

   $ 3,315     
  

 

 

   

Customer relationships relates to Aerial7’s existing customer base, valued based on projected discounted cash flows generated from customers in place. The employment agreements with the three founders of Aerial7 contain non-compete provisions to protect the Company. The non-compete agreements were valued based on the assumption that absent the agreements, the Aerial7’s business enterprise value would be decreased. Trade name relates to the Aerial7 trade name. The value of the trade name was estimated by capitalizing the estimated profits saved as a result of acquiring or licensing the asset. The proprietary processes and in process research and development were valued utilizing the excess earnings method of estimated future discounted cash flows. The amortizable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The Company periodically evaluates the recoverability of the non-amortizable intangible asset and takes into account events or circumstances that indicate that an impairment exists. During 2011, the Company released product to the market related to the in process research and development acquired during 2010. Accordingly, the Company reclassified in process research and development to proprietary processes and began amortizing this intangible asset over an estimated five year useful life. The goodwill associated with the acquisition is not subject to amortization and is not expected to be deductible for income tax purposes. The deferred tax liability relates to the acquired intangible assets which are also not expected to be deductible for income tax purposes. As the deferred

 

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tax assets of the Company, net of its deferred tax liabilities are fully valued at zero, the impact of recording this deferred tax liability resulted in a release of a portion of the Company’s deferred tax asset valuation allowance, and is recorded as income tax benefit for the year ended December 31, 2010.

The consolidated financial statements as of December 31, 2010 include the accounts of Aerial7 and results of operations since the dates of acquisition. The following summary, prepared on a pro forma basis, presents the results of operations as if the acquisition had occurred on January 1, 2010 (unaudited dollars in thousands, except per share data).

 

     Year ended
December 31, 2010
 

Net revenue

   $ 44,676   

Net loss

   $ (577

Net loss per share—basic and diluted

   $ (0.02

The pro forma results are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of 2010 or as a projection of future results.

 

(5) Fair Value Measurement

As of December 31, 2011, the Company’s 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 consolidated balance sheet at a net value of 1:1 for each dollar invested.

At December 31, 2011 and 2010, investments in marketable securities totaling $4,890,000 and $14,532,000, respectively, are classified as short-term investments on the 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 December 31, 2011, investments in marketable securities totaling $420,000 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 income (loss). Realized gains and losses are included in interest income, net.

 

(6) 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 security’s issuer, the length of time the security has been in a loss position, and the Company’s ability and intent to hold the security until a forecasted recovery of fair value.

The Company used net cash of $5,732,000 in the purchase of available-for-sale marketable securities during the year ended December 31, 2011, and it generated net proceeds of $15,367,000 in the sale of such securities for the year ended December 31, 2011. The Company used net cash of $17,078,000 in the purchase of available-for-sale marketable securities during the year ended December 31, 2010, and it generated net proceeds of $15,329,000 in the sale of such securities for the year ended December 31, 2010.

 

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As of December 31, 2011 and 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):

 

     December 31, 2011      December 31, 2010  
     Amortized
Cost
     Net
Unrealized
Holding
Gains
(Losses)
    Aggregate
Fair Value
     Amortized
Cost
     Net
Unrealized
Holding
Gains
(Losses)
     Aggregate
Fair Value
 

U.S. corporate securities:

                

Commercial paper

   $ —         $ —        $ —         $ 1,100       $ —         $ 1,100   

Corporate notes and bonds

     2,785         (2     2,783         4,519         4         4,523   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
     2,785         (2     2,783         5,619         4         5,623   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

U.S. municipal funds

     2,105         2        2,107         2,071         3         2,074   

U.S. government securities

     —           —          —           6,833         2         6,835   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,890       $ —        $ 4,890       $ 14,523       $ 9       $ 14,532   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Long-term

In June 2011, the Company made an investment in Pure Energy Visions Corporation, which is a shareholder in Pure Energy Solutions, the Company’s 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 iGo’s discretion. The Company did not obtain control of Pure Energy Visions as a result of this investment.

As of December 31, 2011 and 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):

 

     December 31, 2011      December 31, 2010  
     Amortized
Cost
     Net
Unrealized
Holding
Losses
    Aggregate
Fair Value
     Amortized
Cost
     Net
Unrealized
Holding
Gains
     Aggregate
Fair Value
 

Canadian corporate securities:

                

Common stock

   $ 613       $ (403   $ 210       $ —         $ —         $ —     

Corporate debenture

     613         (403     210         —           —           —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,226       $ (806   $ 420       $ —         $ —         $ —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(7) Goodwill

Goodwill is as follows (amounts in thousands):

 

     Adapt     Aerial7     Total  

Reported balance at December 31, 2010

   $ 183      $ 1,722      $ 1,905   

Adjustment

     86        (25     61   

Impairment

     (269     (1,412     (1,681
  

 

 

   

 

 

   

 

 

 

Reported balance at December 31, 2011

   $ —        $ 285      $ 285   
  

 

 

   

 

 

   

 

 

 

 

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As of October 1, 2011, as a result of lower-than-anticipated sales of protection and audio products, the Company determined that there was an indication that its recorded goodwill associated with its acquisitions of Adapt and Aerial7 might be impaired. Accordingly, the Company performed an impairment analysis utilizing both a discounted future cash flows approach and a market comparable approach and determined that the goodwill associated with Adapt was fully impaired and the goodwill associated with Aerial7 was partially impaired. As a result, during the quarter ended December 31, 2011, the Company recorded a goodwill impairment charge of $1,681,000. This impairment charge is included in the consolidated statements of operations under the caption “Asset impairment.”

The Company evaluated goodwill for impairment as of October 1, 2010 and determined its recorded goodwill was not impaired as of that date.

 

(8) Property and Equipment

Property and equipment consists of the following (dollars in thousands):

 

     December 31,  
     2011     2010  

Furniture and fixtures

   $ 469      $ 421   

Store, warehouse and related equipment

     500        500   

Computer equipment

     3,167        3,100   

Tooling

     2,681        2,514   

Leasehold improvements

     546        546   
  

 

 

   

 

 

 
     7,363        7,081   

Less accumulated depreciation and amortization

     (6,776     (6,427
  

 

 

   

 

 

 

Property and equipment, net

   $ 587      $ 654   
  

 

 

   

 

 

 

Aggregate depreciation and amortization expense for property and equipment totaled $439,000, $510,000 and $612,000 (as recast) for the years ended December 31, 2011, 2010 and 2009, respectively.

 

(9) Intangible Assets

Intangible assets consist of the following at December 31, 2011 and 2010 (dollars in thousands):

 

            December 31, 2011      December 31, 2010  
     Average
Life
(Years)
     Gross
Intangible
Assets
     Accumulated
Amortization
    Net
Intangible
Assets
     Gross
Intangible
Assets
     Accumulated
Amortization
    Net
Intangible
Assets
 

Amortized intangible assets:

                  

Patents and trademarks

     3       $ 3,780       $ (2,944   $ 836       $ 4,576       $ (3,885   $ 691   

Non-compete agreements

     3         90         (39     51         170         (19     151   

Trade names

     8         612         (473     139         652         (375     277   

Customer intangibles

     5         830         (207     623         1,550         (102     1,448   

Proprietary process

     5         1,070         (221     849         850         (43     807   

Distribution rights

     5         375         (69     306         —           —          —     

Technology license

     10         331         (19     312         —           —          —     
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total amortizable

        7,088         (3,972     3,116         7,798         (4,424     3,374   

Non-amortized intangible assets:

                  

In process research and development

        —           —          —           220         —          220   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total intangible assets

      $ 7,088       $ (3,972   $ 3,116       $ 8,018       $ (4,424   $ 3,594   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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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.”

In December 2011, the Company began marketing products associated with its non-amortizable intangible asset attributable to in-process research and development. As a result of the completion of this research and development, the Company reclassified this intangible asset from “non-amortizable” to proprietary process, which is amortizable over an estimated five year life.

In December 2011, the Company evaluated its portfolio of patents and trademarks and made the determination to abandon 178 patents and 25 trademarks with a gross value of $1,592,000. The Company recorded a loss on disposal of these patents and trademarks of $34,000, which was net of accumulated amortization of $1,558,000.

As of October 1, 2011, as a result of lower-than-anticipated sales of protection products, the Company determined that there was an indication that its recorded intangible assets associated with its acquisition of Adapt might be impaired. Accordingly, the Company performed an impairment analysis utilizing an undiscounted future cash flows approach and determined that the intangible associated with Adapt were fully impaired. As a result, during the quarter ended December 31, 2011, the Company recorded an intangible asset impairment charge of $579,000, which was net of accumulated amortization of $261,000. This impairment charge is included in the consolidated statements of operations under the caption “Asset impairment.”

Aggregate amortization expense for identifiable intangible assets totaled $1,367,000, $1,063,000 and $830,000 (as recast) for the years ended December 31, 2011, 2010 and 2009, respectively. Estimated amortization expense for each of the five succeeding years ended December 31 is as follows (dollars in thousands):

 

Year

   Amortization
Expense
 

2012

     1,003   

2013

     785   

2014

     598   

2015

     525   

2016

     59   

 

(10) Lease Commitments

The Company has entered into various non-cancelable operating lease agreements for its office facilities and office equipment, which expire in 2014. Existing facility leases require monthly rents plus payment of property taxes, normal maintenance and insurance on facilities. Rental expense for the operating leases was $530,000, $445,000 and $460,000 (as recast) during the years ended 2011, 2010, and 2009, respectively.

 

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A summary of the minimum future lease payments for the years ending December 31 follows (dollars in thousands):

 

2012

     452   

2013

     463   

2014

     83   

2015

     —     

2016

     —     

Thereafter

     —     
  

 

 

 
   $ 998   
  

 

 

 

(11)    Income Taxes

The provision for income taxes includes income taxes currently payable and those deferred due to temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The Company recorded no provision for income taxes for the year ended December 31, 2011. As a result of the Aerial7 and Adapt acquisitions, the Company was able to release valuation allowance of $1,002,000, resulting in an income tax benefit for the year ended December 31, 2010. During the year ended December 31, 2009, the Company filed Form 1139, Corporation Application for Tentative Refund, to claim a refund of alternative minimum taxes paid for the year ended December 31, 2005 pursuant to the Worker, Homeownership, and Business Assistance Act of 2009, passed on November 5, 2009. As a result, the Company recorded an income tax benefit of $234,000 for the year ended December 31, 2009.

The provision for income taxes differed from the amounts computed by applying the statutory U.S. federal income tax rate of 34% in 2011, 2010 and 2009 to income (loss) before income taxes as a result of the following (dollars in thousands):

 

     Years Ended December 31,  
     2011     2010     2009  
                 As recast  

Expected tax at federal statutory rate

   $ (3,920   $ (57   $ (238

Non-deductible goodwill and other intangibles

     831        —          —     

Meals, entertainment and other non-deductible expenses

     4        (8     16   

Foreign rate differential

     389        487        371   

Gain on sale of assets of Texas subsidiary

     —          —          36   

Expired stock options

     26        —          144   

Other

     (59     —          —     

Change in deferred tax valuation allowance

     2,729        (1,424     (563
  

 

 

   

 

 

   

 

 

 

Income tax (benefit)

   $ —        $ (1,002   $ (234
  

 

 

   

 

 

   

 

 

 

With the exception of 2005, 2006, 2009 and 2010, the Company has generated net operating losses for income tax reporting purposes since inception. At December 31, 2011, the Company had net operating loss carry-forwards for federal income tax purposes of approximately $165,514,000 and approximately $4,783,000 for foreign income tax purposes which, subject to possible annual limitations, are available to offset future taxable income, if any. The federal net operating loss carry-forwards expire between 2018 and 2028.

 

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The temporary differences that give rise to deferred tax assets and liabilities at December 31, 2011 and 2010 are as follows (dollars in thousands):

 

     December 31,  
     2011     2010  

Deferred tax assets:

    

Net operating loss carryforward for federal income taxes

   $ 55,990      $ 53,191   

Net operating loss carryforward for foreign income taxes

     1,234        1,398   

Net operating loss carryforward for state income taxes

     3,010        2,638   

Depreciation and amortization

     438        186   

Accrued liabilities

     512        696   

Reserves

     131        178   

Bad debts

     112        47   

Tax credits

     372        372   

Inventory obsolescence

     775        614   
  

 

 

   

 

 

 

Total gross deferred tax assets

     62,574        59,320   
  

 

 

   

 

 

 

Deferred tax liabilities

     —          —     
  

 

 

   

 

 

 

Net deferred tax assets

     62,574        59,320   

Less valuation allowance

     (62,574     (59,320
  

 

 

   

 

 

 

Net deferred tax assets

   $ —        $ —     
  

 

 

   

 

 

 

The valuation allowance for deferred tax assets as of December 31, 2011 and 2010 was $62,574,000 and $59,320,000, respectively. The change in the total valuation allowance for the year ended December 31, 2011 was an increase of $3,254,000. Our deferred tax assets do not include $839,000 of net operating loss benefits that, if realized, would result in an increase to additional paid-in capital of $301,000.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. In addition, due to changes in ownership resulting from the frequency of equity transactions and acquisitions by the Company, it is possible the use of the Company’s remaining net operating loss carry-forward may be limited in accordance with Section 382 of the Internal Revenue Code.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in assessing the valuation allowance. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management currently believes it is more likely than not that the Company will not realize the benefits of these deductible differences.

Uncertain Tax Positions

The Company is required to recognize in the financial statements the impact of a tax position, if that position is not more likely than not of being sustained upon examination, based on the technical merits of the position. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in general and administrative expense. As a result of its historical net operating losses, the statute of limitations remains open for each tax year since 1998, with the exception of 2005 and 2006.

 

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (dollars in thousands):

 

     December 31,     December 31,  
     2011     2010  

Gross unrecognized tax benefits, beginning of year

   $ 328      $ 350   

Additions based on tax positions related to the current year

     —          7   

Additions/Subtractions for tax positions of prior years

     (80     (29

Reductions for settlements and payments

     —          —     

Reductions due to statute expiration

     —          —     
  

 

 

   

 

 

 

Gross unrecognized tax benefits, end of year

   $ 248      $ 328   
  

 

 

   

 

 

 

Included in the balance of gross unrecognized tax benefits at December 31, 2011 is $248,000 of tax positions for which ultimate tax benefit is uncertain. These amounts consist of various credits. Because of the permanent nature of these items the disallowance would normally impact the effective tax rate.

With respect to the uncertain positions identified above, both timing and credit items, the Company has established a valuation allowance against all of the credit carry-forward amounts and the net deferred tax assets. Further, sufficient net operating losses exist to offset any potential increase in taxable items. Therefore, any reversal or settlement of the amounts identified above should result in little or no additional tax. Accordingly, no interest or penalty has been accrued or included related to the table amounts shown above.

There are no positions the Company reasonably anticipates will significantly increase or decrease within 12 months of the reporting date.

The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, the Company is subject to examinations in all jurisdictions as statutes have not closed due to a history of net operating losses.

(12)    Stockholders’ Equity

Holders of shares of common stock are entitled to one vote per share on all matters submitted to a vote of the Company’s stockholders. There is no right to cumulative voting for the election of directors. Holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors out of funds legally available therefore, after payment of dividends required to be paid on any outstanding shares of preferred stock. Upon liquidation, holders of shares of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the liquidation preferences of any outstanding shares of preferred stock. Holders of shares of common stock have no conversion, redemption or preemptive rights.

At December 31, 2011, there were warrants outstanding and exercisable for 5,000 shares of common stock.

(13)    Employee Benefit Plans

(a) Retirement Plan

The Company has a defined contribution 401(k) plan for all employees. Under the 401(k) plan, employees are permitted to make contributions to the plan in accordance with IRS regulations. The Company may make discretionary contributions as approved by the Board of Directors. The Company contributed $163,000, $160,000 and $169,000 (as recast) during 2011, 2010 and 2009, respectively.

 

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(b) Restricted Stock Units

During 2004, the Company adopted the Omnibus Long-Term Incentive Plan (the “Omnibus Plan”) and the Non-Employee Directors Plan (the “Directors Plan”). During 2011, the Company’s stockholders approved an amendment to the Omnibus Plan to increase the number of shares available for grant by 3,000,000. Under the Omnibus Plan, the Company may grant up to 5,350,000 stock options, stock appreciation rights, restricted stock awards, performance awards, and other stock awards. Under the Directors Plan, the Company may grant up to 400,000 stock options, stock appreciation rights, restricted stock awards, performance awards, and other stock awards.

Under the Directors Plan and the Omnibus Plan, the Company has awarded Restricted Stock Units (“RSUs”). Unearned compensation is measured at fair market value on the date of grant and recognized as compensation expense over the period in which the RSUs vest. All RSUs awarded to employees under the Omnibus Plan vest ratably over three or four years, depending on the terms of each individual award or, on a pro rata basis, upon the employee’s death, disability or termination without cause or, in full, upon a change in control of the Company. RSUs awarded to board members upon their election or re-election to the board under the Directors Plan vest 100% upon the three-year anniversary of the grant date. RSUs awarded to board members upon their election or re-election to the board under the Omnibus Plan vest ratably over three years. RSUs awarded to board members upon their appointment as board chairman or to a board committee vest 100% upon the anniversary of the grant date. All RSUs awarded to board members may vest earlier, on a pro rata basis, upon the director’s death, disability, or retirement or, in full, upon a change in control of the Company.

On June 11, 2007, pursuant to the terms of the employment agreement dated May 1, 2007 by and between the Company and Michael D. Heil, Mr. Heil was awarded 1,000,000 restricted stock units outside of the Company’s 2004 Directors Plan and 2004 Omnibus Plan as an inducement award without stockholder approval pursuant to NASDAQ Marketplace Rule 5635(c)(4). Pursuant to the terms of Mr. Heil’s agreement, 500,000 of the restricted stock units vested in increments of 125,000 shares per year effective on June 11, 2008, June 11, 2009, June 11, 2010 and June 11, 2011. On March 19, 2008, the vesting terms for the remaining 500,000 restricted stock units granted to Mr. Heil were amended to provide time-based vesting, pursuant to which 125,000 shares vested on each of March 19, 2009, March 19, 2010 and March 19, 2011, and 125,000 shares scheduled to vest on March 19, 2012. All RSUs granted to Mr. Heil may vest earlier, in full, upon a change in control of the Company or, on a pro rata basis, upon Mr. Heil’s death, disability or termination without cause.

As part of the acquisition of Adapt, on August 6, 2010, the Company entered into three year employment agreements with the three founders and key employees of Adapt. Each of these three key employees received grants of 200,000 RSUs outside of the Company’s 2004 Directors Plan and 2004 Omnibus Plan as an inducement award without stockholder approval pursuant to NASDAQ Marketplace Rule 5635(c)(4) that vested 33% on August 6, 2011 and the remainder of which will vest 33% on August 6, 2012 and 34% on August 6, 2013. All RSUs granted to the key employees of Adapt may vest earlier, in full, upon a change in control of the Company or, on a pro rata basis, upon their death, disability or termination without cause.

As part of the acquisition of Aerial7, on October 7, 2010, the Company entered into employment agreements with a three year term with the three founders and key employees of Aerial7. Each of these three key employees received grants of 150,000 RSUs outside of the Company’s 2004 Directors Plan and 2004 Omnibus Plan as an inducement award without stockholder approval pursuant to NASDAQ Marketplace Rule 5635(c)(4). Each of these RSU grants vest in equal annual installments of 50,000 RSUs, with the first vesting event occurring on October 7, 2011, and the remaining vesting events scheduled to occur on October 7, 2012 and October 7, 2013. All RSUs granted to the key employees of Aerial7 may vest earlier, in full, upon a change in control of the Company or, on a pro rata basis, upon their death, disability or termination without cause.

 

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The following table summarizes information regarding restricted stock unit activity for the years ended December 31, 2009, 2010 and 2011, respectively:

 

     Directors Plan      Omnibus Plan      Inducement Grants  
     Number     Weighted
Average

Value  per
Share
     Number     Weighted
Average

Value  per
Share
     Number     Weighted
Average

Value  per
Share
 

Outstanding, January 1, 2009

     129,832      $ 2.22         1,595,052      $ 2.70         875,000      $ 2.13   

Granted

     31,500        0.71         110,250        0.59         —          —     

Canceled

     (37,000     2.53         (496,787     2.38         —          —     

Released to common stock

     (29,833     1.24         (285,515     2.72         (172,000     2.13   

Released for settlement of taxes

     —          —           (132,806     2.75         (78,000     2.13   
  

 

 

      

 

 

      

 

 

   

Outstanding, December 31, 2009

     94,499        1.90         790,194        2.60         625,000        2.13   

Granted

     58,194        1.54         426,806        1.90         1,050,000        1.83   

Canceled

     —          —           (70,093     2.24         —          —     

Released to common stock

     (80,417     2.07         (230,756     3.27         (171,188     2.13   

Released for settlement of taxes

     —          —           (107,922     3.85         (78,812     2.13   
  

 

 

      

 

 

      

 

 

   

Outstanding, December 31, 2010

     72,276        1.42         808,229        1.90         1,425,000        1.91   

Granted

     —          —           694,250        2.99         —          —     

Canceled

     —          —           (126,430     2.49         —          —     

Released to common stock

     (72,276     1.42         (315,288     2.11         (460,153     1.92   

Released for settlement of taxes

     —          —           (120,605     2.23         (139,848     2.05   
  

 

 

      

 

 

      

 

 

   

Outstanding, December 31, 2011

     —        $ —           940,156      $ 2.51         824,999      $ 1.88   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

For the years ended December 31, 2011, 2010 and 2009, the Company recorded in general and administrative expense pre-tax charges of $1,824,000, $1,478,000 and $1,310,000 associated with the expensing of restricted stock unit activity.

As of December 31, 2011, there was $2,736,000 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 December 31, 2011, all outstanding restricted stock units were non-vested.

(c) Stock Options

In 1996, the Company adopted the Incentive Stock Option Plan (the “1996 Plan”). The 1996 Plan terminated on April 30, 2008. The options under the 1996 Plan and the Omnibus Plan were granted at the fair market value of the Company’s stock at the date of grant as determined by the Company’s Board of Directors. Options become exercisable over varying periods up to 3.5 years and expire at the earlier of termination of employment or up to six years after the date of grant. At December 31, 2011, there were no shares available for grant under the 1996 Plan and Director Plan and 3,053,144 shares available under the Omnibus Plan.

 

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The Company did not grant any stock options during the years ended December 31, 2011, 2010 or 2009. The following table summarizes information regarding stock option activity for the years ended December 31, 2009, 2010 and 2011:

 

     Number     Weighted Average
Exercise  Price
per Share
 

Outstanding, January 1, 2009

     347,297      $ 6.77   

Granted

     —          —     

Canceled

     (307,297     6.67   

Exercised

     —          —     
  

 

 

   

Outstanding, December 31, 2009

     40,000        7.59   

Granted

     —          —     

Canceled

     (40,000     7.59   

Exercised

     —          —     
  

 

 

   

Outstanding, December 31, 2010

     —          —     

Granted

     —          —     

Canceled

     —          —     

Exercised

     —          —     
  

 

 

   

Outstanding, December 31, 2011

     —        $ —     
  

 

 

   

(14)    Net Income (Loss) per Share

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

 

     Years Ended December 31,  
     2011     2010      2009  
                  As recast  

Basic net income (loss) per share computation:

       

Numerator:

       

Net income (loss)

   $ (11,529   $ 835       $ (463
  

 

 

   

 

 

    

 

 

 

Denominator:

       

Weighted average number of common shares outstanding

     33,407        32,770         32,310   
  

 

 

   

 

 

    

 

 

 

Basic net income (loss) per share

   $ (0.35   $ 0.03       $ (0.01

Diluted net income (loss) per share computation:

       

Numerator:

       

Net income (loss)

   $ (11,529   $ 835       $ (463
  

 

 

   

 

 

    

 

 

 

Denominator:

       

Weighted average number of common shares outstanding

     33,407        32,770         32,310   

Effect of dilutive stock options, warrants, and restricted stock units

     —          2,311         —     
  

 

 

   

 

 

    

 

 

 
     33,407        35,081         32,310   
  

 

 

   

 

 

    

 

 

 

Diluted net income (loss) per share

   $ (0.35   $ 0.02       $ (0.01

Stock options not included in dilutive net income (loss) per share since anti-dilutive

     —          —           —     

Warrants not included in dilutive net income (loss) per share since anti-dilutive

     5        5         600   

(15)    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 four product lines, consisting of Power, Protection, Audio, and Other Accessories. The Company’s chief operating decision maker (“CODM”) continues to evaluate revenues and gross profits based on product lines, routes to market and geographies.

 

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

 

     Revenue by Product Line  
     Years Ended December 31,  
     2011      2010      2009  
                   As recast  

Power

   $ 30,305       $ 40,933       $ 48,277   

Batteries

     1,763         —           —     

Audio

     4,403         640         —     

Protection

     988         252         —     

Other Accessories