UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission file number: 0-30907

iGo, Inc.

(Exact name of registrant as specified in its charter)

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

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

Not applicable
(Former name, former address and former fiscal year if changed since last report)

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

YES þ NO o

Indicate by a checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o		Accelerated Filer o		Non-Accelerated Filer o (Do not check if a smaller reporting company)		Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

At November 1, 2011, there were 33,686,449 shares of the Registrant’s Common Stock, par value $0.01 per share outstanding.

 

 

IGO, INC.
FORM 10-Q

TABLE OF CONTENTS

		PAGE NO.
PART I FINANCIAL INFORMATION			1
Item 1. Financial Statements:			1
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Cash Flows			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			10
Item 3. Quantitative and Qualitative Disclosures About Market Risk			21
Item 4. Controls and Procedures			21
PART II OTHER INFORMATION			22
Item 1. Legal Proceedings			22
Item 1A. Risk Factors			22
Item 6. Exhibits			22
SIGNATURES			23
EXHIBIT INDEX			24
Items 2, 3, 4 and 5 are not applicable.
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS:

IGO, INC. AND SUBSIDIARIES

		September 30,				December 31,
		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	7,291			$	9,942
Short-term investments			6,919				14,532
Accounts receivable, net			6,702				8,620
Inventories			12,857				10,307
Prepaid expenses and other current assets			391				460
Total current assets			34,160				43,861
Property and equipment, net			538				654
Goodwill			1,966				1,905
Intangible assets, net			3,978				3,594
Long-term investments			1,120				—
Other assets			159				159
Total assets		$	41,921			$	50,173
LIABILITIES AND EQUITY
Liabilities:
Accounts payable		$	2,962			$	4,666
Accrued expenses and other current liabilities			943				1,371
Deferred revenue			751				1,838
Total liabilities			4,656				7,875
Equity:
Common stock, $.01 par value; authorized 90,000,000 shares; 33,650,923 and 32,893,892 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively			336				329
Additional paid-in capital			173,184				172,241
Accumulated deficit			(136,190	)			(130,381	)
Accumulated other comprehensive (loss) income			(65	)			109
Total equity			37,265				42,298
Total liabilities and equity		$	41,921			$	50,173

See accompanying notes to unaudited condensed consolidated financial statements.

IGO, INC. AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Revenue		$	9,666			$	12,220			$	29,725			$	30,137
Cost of revenue			7,542				8,181				21,942				20,134
Gross profit			2,124				4,039				7,783				10,003
Operating expenses:
Sales and marketing			1,849				2,059				6,051				5,464
Research and development			769				351				1,846				1,060
General and administrative			1,757				1,958				5,837				5,380
Total operating expenses			4,375				4,368				13,734				11,904
Loss from operations			(2,251	)			(329	)			(5,951	)			(1,901	)
Other income, net:
Interest income, net			13				52				55				147
Gain on disposal of assets and other income, net			7				93				87				1,938
Income (loss) before income tax			(2,231	)			(184	)			(5,809	)			184
Income tax benefit			—				235				—				235
Net income (loss)		$	(2,231	)		$	51			$	(5,809	)		$	419
Net income (loss) per share
Basic		$	(0.07	)		$	0.00			$	(0.17	)		$	0.01
Diluted		$	(0.07	)		$	0.00			$	(0.17	)		$	0.01
Weighted average common shares outstanding
Basic			33,566				32,885				33,440				32,731
Diluted			33,566				34,777				33,440				34,623

See accompanying notes to unaudited condensed consolidated financial statements.

IGO, INC. AND SUBSIDIARIES

		Nine Months Ended
		September 30,
		2011				2010
Cash flows from operating activities:
Net income (loss)		$	(5,809	)		$	419
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Provision for doubtful accounts and sales returns and credits			576				201
Depreciation and amortization			1,322				1,185
Amortization of deferred compensation			1,451				1,007
Gain on sale of business			—				(1,714	)
Deferred taxes			—				(235	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			1,342				(1,216	)
Inventories			(2,550	)			(5,427	)
Prepaid expenses and other assets			(667	)			(211	)
Accounts payable			(1,704	)			4,976
Accrued expenses and other current liabilities			(2,016	)			1,265
Net cash (used in) provided by operating activities			(8,055	)			250
Cash flows from investing activities:
Purchase of property and equipment			(208	)			(236	)
Purchase of intangibles			(706	)			—
Cash paid for acquisition			—				(900	)
Sale (purchase) of short-term investments, net			7,602				(7,430	)
Purchase of long-term investments			(1,226	)			—
Net cash provided by (used in) investing activities			5,462				(8,566	)
Cash flows from financing activities:
Net cash provided by financing activities			—				—
Effects of exchange rate changes on cash and cash equivalents			(58	)			13
Net decrease in cash and cash equivalents			(2,651	)			(8,303	)
Cash and cash equivalents, beginning of period			9,942				19,775
Cash and cash equivalents, end of period		$	7,291			$	11,472

See accompanying notes to unaudited condensed consolidated financial statements.

IGO, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1) Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of iGo, Inc. and its wholly-owned subsidiaries, Mobility California, Inc., Mobility Idaho, Inc., iGo EMEA Limited, Mobility Texas, Inc., iGo Direct Corporation, Adapt Mobile Limited (“Adapt”) and Aerial7 Industries, Inc. (“Aerial7”) (collectively, “iGo” or the “Company”). All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles, pursuant to rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying condensed consolidated financial statements include normal recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2010 included in the Company’s Form 10-K, filed with the SEC. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of results to be expected for the full year or any other period.

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

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued amended guidance on the testing of goodwill for impairment. The amended guidance is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The amended provisions are effective for reporting periods beginning on or after December 15, 2011. However, early adoption is permitted if an 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 will 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 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.

(2) Fair Value Measurement

As of September 30, 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 condensed consolidated balance sheet at a net value of 1:1 for each dollar invested.

At September 30, 2011 and December 31, 2010, investments in marketable securities totaling $6,919,000 and $14,532,000, respectively, are classified as short-term investments on the condensed consolidated balance sheets. These investments are considered available-for-sale securities and are reported at fair value based on third-party broker statements, which qualifies as level 2 in the fair value hierarchy. At September 30, 2011, investments in marketable securities totaling $1,120,000 are classified as long-term investments on the condensed consolidated balance sheet. These investments are considered available-for-sale securities and are reported at fair value based on a quoted market price, which qualifies as level 1 in the fair value hierarchy. The unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive (loss) income. Realized gains and losses are included in interest income, net.

(3) Investments

Short-term

The Company has determined that all of its investments in short-term marketable securities should be classified as available-for-sale and reported at fair value.

The Company assesses its investments in marketable securities for other-than-temporary declines in value by considering various factors that include, among other things, any events that may affect the creditworthiness of a 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 generated net proceeds of $7,602,000 from the sale of short-term available-for-sale marketable securities during the nine months ended September 30, 2011, and used $7,430,000 to purchase available-for-sale marketable securities during the nine months ended September 30, 2010.

As of September 30, 2011 and December 31, 2010, the amortized cost basis, unrealized holding gains, unrealized holding losses, and aggregate fair value by short-term major security-type investments were as follows (dollars in thousands):

		September 30, 2011												December 31, 2010
						Net												Net
						Unrealized												Unrealized
						Holding												Holding
		Amortized				Gains				Aggregate				Amortized				Gains				Aggregate
		Cost				(Losses)				Fair Value				Cost				(Losses)				Fair Value
U.S. corporate securities:
Commercial paper		$	1,599			$	—			$	1,599			$	1,100			$	—			$	1,100
Corporate notes and bonds			3,222				(6	)			3,216				4,519				4				4,523
			4,821				(6	)			4,815				5,619				4				5,623
U.S. municipal funds			2,096				8				2,104				2,071				3				2,074
U.S. government securities			—				—				—				6,833				2				6,835
		$	6,917			$	2			$	6,919			$	14,523			$	9			$	14,532

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 September 30, 2011 and December 31, 2010, the amortized cost basis, unrealized holding gains, unrealized holding losses, and aggregate fair value by long-term major security-type investments were as follows (dollars in thousands):

		September 30, 2011												December 31, 2010
						Net												Net
						Unrealized												Unrealized
		Amortized				Holding				Aggregate				Amortized				Holding				Aggregate
		Cost				Losses				Fair Value				Cost				Gains				Fair Value
Canadian corporate securities:
Common stock		$	613			$	(53	)		$	560			$	—			$	—			$	—
Corporate debenture			613				(53	)			560				—				—				—
		$	1,226			$	(106	)		$	1,120			$	—			$	—			$	—

(4) Goodwill

Goodwill is as follows (dollars in thousands):

Reported balance at December 31, 2010		$	1,905
Adjustment to Adapt			78
Adjustment to Aerial7			(17	)
Reported balance at September 30, 2011		$	1,966

During the nine months ended September 30, 2011, the Company recorded revised estimates of fair value for certain acquired assets and liabilities assumed related to the acquisitions of Adapt and Aerial7 resulting in a net increase to goodwill of $61,000. The Company finalized its post-close adjustments related to the Adapt acquisition during the third quarter of 2011, and anticipates the finalization of asset valuations and other post-close adjustments will be completed during the fourth quarter of 2011 for Aerial7.

(5) Intangible Assets

Intangible assets consist of the following at September 30, 2011 and December 31, 2010 (dollars in thousands):

				September 30, 2011												December 31, 2010
		Average		Gross								Net				Gross								Net
		Life		Intangible				Accumulated				Intangible				Intangible				Accumulated				Intangible
		(Years)		Assets				Amortization				Assets				Assets				Amortization				Assets
Amortized intangible assets:
Patents and trademarks		3		$	5,251			$	(4,331	)		$	920			$	4,576			$	(3,885	)		$	691
Non-compete agreements		3			170				(62	)			108				170				(19	)			151
Trade names		8			652				(463	)			189				652				(375	)			277
Customer intangibles		5			1,551				(334	)			1,217				1,550				(102	)			1,448
Distribution rights		5			375				(50	)			325				—				—				—
Proprietary process		5			850				(171	)			679				850				(43	)			807
Technology license		10			331				(11	)			320				—				—				—
Total amortizable					9,180				(5,422	)			3,758				7,798				(4,424	)			3,374
Non-amortized intangible assets:
In process research and development					220				—				220				220				—				220
Total intangible assets				$	9,400			$	(5,422	)		$	3,978			$	8,018			$	(4,424	)		$	3,594

Aggregate amortization expense for identifiable intangible assets totaled $309,000 and $998,000 for the three and nine months ended September 30, 2011. Aggregate amortization expense for identifiable intangible assets totaled $320,000 and $789,000 for the three and nine months ended September 30, 2010.

In February 2011, the Company entered into marketing, distribution and licensing agreements with Pure Energy Solutions, a manufacturer of rechargeable alkaline batteries. The Company also simultaneously entered into an agreement with Premier Tech Home & Garden to take over its current distribution rights for Pure Energy batteries in Canada. The corresponding value of these distribution rights are reflected in the table above under the caption “Distribution rights.”

In June 2011, the Company made an investment in Pure Energy Visions Corporation, which is a shareholder in Pure Energy Solutions, in which the Company received a license to utilize rechargeable alkaline battery technology. The corresponding value of this license is reflected in the table above under the caption “Technology license.”

(6) Stock-based Compensation

In May 2011, the Company’s stockholders approved an amendment to the Omnibus Long-Term Incentive Plan (the “Omnibus Plan”) to increase the number of shares available for grant by 3,000,000, from 2,350,000 to 5,350,000. The Omnibus Plan was also amended to extend its term to March 11, 2024.

Stock-based compensation expense includes compensation expense, recognized over the applicable requisite service periods for share-based awards. As of September 30, 2011, there were no fully-vested outstanding stock options and no non-vested outstanding stock options. Accordingly, there was no unrecognized compensation expense relating to non-vested stock options at September 30, 2011.

The following table summarizes information regarding restricted stock units for the nine months ended September 30, 2011:

		2004 Directors Plan								Omnibus Plan								Inducement Grants
						Weighted								Weighted								Weighted
						Average								Average								Average
						Value per								Value per								Value per
		Number				Share				Number				Share				Number				Share
Outstanding, December 31, 2010			72,276			$	1.42				808,229			$	1.90				1,425,000			$	1.91
Granted			—				—				690,250			$	3.00				—				—
Canceled			—				—				(126,430	)		$	2.49				—				—
Released to common stock			(72,276	)			1.42				(316,576	)		$	2.12				(371,127	)			1.92
Released for settlement of taxes			—				—				(117,650	)		$	2.20				(78,874	)			2.13
Outstanding, September 30, 2011			—			$	—				937,823			$	2.52				974,999			$	1.89

For the three and nine months ended September 30, 2011, the Company recorded in general and administrative expense pre-tax charges of $465,000 and $1,451,000, respectively, associated with the expensing of restricted stock unit (“RSU”) awards activity. For the three and nine months ended September 30, 2010, the Company recorded in general and administrative expense pre-tax charges of $389,000 and $1,007,000, respectively, associated with the expensing of restricted stock unit awards activity

As of September 30, 2011, there was $3,188,000 of total unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted average period of two years.

As of September 30, 2011, all outstanding restricted stock units were non-vested.

(7) Gain on Disposal of Assets and Other Income, net

On April 19, 2010, the Company entered into a transaction with Mission Technology Group (“Mission”) that resulted in complete collection of the remaining unpaid principal balance of $1,700,000 of its note receivable and the sale of its 15% common equity interest in Mission. As the Company had previously recorded a valuation allowance of $1,714,000 against the promissory note, the Company determined that as of March 31, 2010, based on the subsequent collection of $1,700,000 as payment-in-full against the note receivable, collectability of the note was reasonably assured. Accordingly, the Company reversed its valuation allowance against the note receivable and recorded a gain on disposal of assets of $1,714,000 during the three months ended March 31, 2010.

(8) Net Income (Loss) per Share

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Basic net income (loss) per share computation:
Numerator:
Net income (loss)		$	(2,231	)		$	51			$	(5,809	)		$	419
Denominator:
Weighted average number of common shares outstanding			33,566				32,885				33,440				32,731
Basic net income (loss) per share:		$	(0.07	)		$	0.00			$	(0.17	)		$	0.01
Diluted net income (loss) per share computation:
Numerator:
Net income (loss)		$	(2,231	)		$	51			$	(5,809	)		$	419
Denominator:
Weighted average number of common shares outstanding			33,566				32,885				33,440				32,731
Effect of dilutive stock options, warrants, and restricted stock units			—				1,892				—				1,892
			33,566				34,777				33,440				34,623
Diluted net income (loss) per share:		$	(0.07	)		$	0.00			$	(0.17	)		$	0.01
Stock options not included in dilutive loss per share since anti-dilutive			—				—				—				—
Warrants not included in dilutive loss per share since anti-dilutive			5				5				5				5

(9) Comprehensive Income (Loss)

Comprehensive income (loss) for the three and nine months ended September 30, 2011 and 2010 includes the following components (dollars in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net income (loss)		$	(2,231	)		$	51			$	(5,809	)		$	419
Other comprehensive income:
Unrealized gain (loss) on available for sale investments			(196	)			12				(116	)			9
Foreign currency translation adjustments			(236	)			130				(58	)			14
Total comprehensive income (loss)		$	(2,663	)		$	193			$	(5,983	)		$	442

(10) Product Lines, Concentration of Credit Risk and Significant Customers

The Company is engaged in the business of selling accessories for computers and mobile electronic devices. The Company has five product lines, consisting of Power, Batteries, Audio, Protection and Other Accessories. The Company’s chief operating decision maker (“CODM”) continues to evaluate revenues and gross profits based on product lines and geographies.

The following tables summarize the Company’s revenues by product line, as well as its revenues by geography (dollars in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Power		$	7,511			$	11,811			$	24,582			$	29,406
Batteries			428				—				865				—
Audio			1,335				—				2,943				—
Protection			197				—				685				—
Other accessories			195				409				650				731
Total revenues		$	9,666			$	12,220			$	29,725			$	30,137

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
North America (principally United States)		$	7,472			$	9,585			$	22,250			$	24,310
Europe			1,119				2,086				5,309				4,248
Asia Pacific			1,075				549				2,166				1,579
		$	9,666			$	12,220			$	29,725			$	30,137

The majority of the Company’s assets are domiciled in the United States.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions and generally limits the amount of credit exposure to the amount of FDIC coverage. However, periodically during the year, the Company maintains cash in financial institutions in excess of the current FDIC insurance coverage limit of $250,000. The Company performs ongoing credit evaluations of its customers’ financial condition but does not typically require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

Two customers accounted for 24% and 10% of net sales for the nine months ended September 30, 2011. Two customers accounted for 38% and 15% of net sales for the nine months ended September 30, 2010.

Two customer’s accounts receivable balance accounted for 19% and 11% of net accounts receivable at September 30, 2011. Two customers’ accounts receivable balances accounted for 42% and 16% of net accounts receivable at September 30, 2010.

Allowance for doubtful accounts was $107,000 and $131,000 at September 30, 2011 and December 31, 2010, respectively. Allowance for sales returns and price protection was $340,000 and $419,000 at September 30, 2011 and December 31, 2010, respectively.

(11) Contingencies

The Company procures its products primarily from supply sources based in Asia. Typically, the Company places purchase orders for completed products and takes ownership of the finished inventory upon completion and delivery from its supplier. Occasionally, the Company presents its suppliers with ‘Letters of Authorization’ for the suppliers to procure long-lead raw components to be used in the manufacture of the Company’s products. These Letters of Authorization indicate the Company’s commitment to utilize the long-lead raw components in production. As of September 30, 2007, based on a change in strategic direction, the Company determined it would not procure certain products for which it had outstanding Letters of Authorization with suppliers. The Company believes it is probable that it will be required to pay suppliers for certain Letter of Authorization commitments and has already partially settled some of these obligations. At September 30, 2011 and December 31, 2010, the Company had estimated, and recorded, a remaining liability for this contingency in the amount of $158,000 and $160,000, respectively.

From time to time, the Company is involved in legal proceedings arising in the ordinary course of its business. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews contingencies to determine the adequacy of the accruals and related disclosures. The amount of ultimate loss may differ from these estimates. Although it is possible that the results of operations, liquidity, or financial position of the Company could be materially affected in any particular future reporting period by the unfavorable resolution of one or more of these contingencies, the Company currently believes that the ultimate outcome of these matters will not have a material adverse effect on the results of operations, liquidity or financial position of the Company.

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

This report contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “expect,” “anticipate,” “estimate” and other similar statements of expectations identify forward-looking statements. Forward-looking statements in this report can be found in the “Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections as well as other sections of this report and include, without limitation, statements concerning our expectations regarding our anticipated revenue, cash flows, gross profit, gross margins, operating and related expenses and trends for 2011 in key operating metrics, including days outstanding in accounts receivable and inventory turns; our expectation that we expect our overall 2011 revenue to be less than our 2010 revenue; our plans to broaden our distribution base to reduce dependence on sales to Walmart and RadioShack, the benefits of our RAMcell batteries; our anticipated increase in operating and research and development expenses in 2011 compared to 2010; our ability to utilize our net operating loss carryforwards; the timing of our finalization of asset valuations relating to the Aerial7 acquisition; the impact of recent accounting pronouncements; expectations regarding our strategy, including but not limited to, our intentions to continue to develop and introduce new products, accessories and technologies, the expectation that we will expand our line of cases, skins, screen protectors, batteries, audio products and other similar products and introduce them in other markets throughout the world; expectations regarding our ability to successfully increase our customer base and overall product offering and broaden our distribution base; expectations regarding increased component costs from our primary Asian suppliers; the expectation that we will further expand our intellectual property position by filing for additional patents in various countries around the world; expectations regarding our product development initiatives and strategies, including product bundling, licensing, acquisitions of complementary and synergistic product families and our intentions to expand our distribution beyond consumer retail channels, and develop new customers in the enterprise, government and education channels; our belief that we can improve our ability to drive higher levels of revenue and earnings, which will ultimately have a positive impact on value creation for our shareholders; our expectation that our cash will primarily be used to fund purchases of short-term investments, fund acquisitions, and fund the accounts receivable, inventory needs and working capital of our business through 2011; our belief that we have the ability to hold all of our marketable debt securities to maturity; the belief that our existing cash, cash equivalents, short-term investments and our cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months; our intention to continue to make capital expenditures and pursue opportunities to acquire businesses, products and technologies; the possibility that we may incur debt financing, sell assets not considered integral to our business or issue additional shares of stock; the timing of amortization of stock-based compensation expense; that our power-saving technology will help us establish an industry standard for reduced power consumption; our intention that cash balances in the United Kingdom will remain there for future growth and investments and to meet liquidity requirements; the possibility we may attempt to access a credit facility; our ability to utilize net operating loss carryforwards; our hedging strategies and the market risks relating to our financial instruments; and our expectations regarding the outcome and anticipated impact of various legal proceedings, commitments and contingencies in which we may be involved, including our potential obligations relating to prior letter of authorization commitments.

These forward-looking statements are based largely on our 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 in our Annual Report on Form 10-K for the year ended December 31, 2010 under the heading “Risk Factors” and those set forth in other sections of this report and in other reports that we file with the SEC. Additional factors that could cause actual results to differ materially from those expressed in these forward-looking statements include, among others, the following:

•

our dependence on large purchases from significant customers, namely Walmart;

•

further declines in sales to RadioShack;

•

our ability to expand and diversify our customer base;

•

our reliance upon Walmart, as well as other distributors and resellers;

•

our ability to expand our revenue base and development new products and product enhancements;

	•		the sufficiency of our revenue to absorb expenses;
	•		fluctuations in our operating results because of: increases in product costs from our suppliers, our suppliers’ ability to perform, the timing of new product and technology introductions and product enhancements relative to our competitors, market acceptance of our products, the size and timing of customer orders, our ability to effectively manage inventory levels, delay or failure to fulfill orders for our products on a timely basis, distribution of or changes in our revenue among distribution partners and retailers, our inability to accurately forecast our contract manufacturing needs, difficulties with new product production implementation or supply chain, product defects and other product quality problems, the degree and rate of growth in our markets and the accompanying demand for our products, our ability to expand our internal and external sales forces and build the required infrastructure to meet anticipated growth, and seasonality of sales;

•

increased focus by consumer electronics retailers on their own private label brands;

•

decreasing sales prices on our products over their sales cycles;

•

our ability to expand our revenue base and develop new products and product enhancements;

•

our failure to integrate acquired businesses, products and technologies;

•

our reliance on and the risk relating to outsourced manufacturing fulfillment of our products, including potential increases in manufacturing costs;

•

our ability to manage our anticipated growth;

•

our ability to manage our inventory levels;

•

the negative impacts of product returns;

•

design and performance issues with our products;

•

liability claims;

•

our failure to expand or protect our proprietary rights and intellectual property;

•

intellectual property infringement claims against us;

•

our ability to hire and retain qualified personnel;

•

our ability to secure additional financing to meet our future capital needs;

•

increased competition and/or reduced demand in our industry;

•

our failure to comply with domestic and international laws and regulations;

•

economic conditions, political events, war, terrorism, public health issues, natural disasters and similar circumstances;

•

volatility in our stock price;

•

concentration of stock ownership among our executive officers and principal stockholders;

•

provisions in our certificate of incorporation, bylaws and Delaware law, as well as our stockholder rights plan, that could make a proposed acquisition of the Company more difficult; and

•

dilution resulting from potential future stock issuances.

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

iGo^®, iGo Green^®, Adapt Mobile^®, and Aerial7^® are registered trademarks of iGo, Inc. or its subsidiaries in the United States and other countries. Other names and brands may be claimed as the property of others.

Overview

We are a leading provider of innovative accessories and power management solutions for the electronics industry. Our vision is to attach our products and technology to every mobile electronic device. Increased functionality and the ability to access and manage information remotely are driving the proliferation of mobile electronic devices and applications. The popularity of these devices is increasing due to reductions in size, weight and cost and improvements in functionality, storage capacity and reliability. Each of these devices needs to be powered and connected when in the home, the office, or on the road, and can be accessorized, representing opportunities for one or more of our products.

We design and develop products that make computers and mobile electronic devices more efficient and cost effective, thus enabling professionals and consumers higher utilization of their mobile devices and the ability to access information more readily. Our current product offering primarily consists of power, batteries, audio and protection solutions for mobile electronic devices, and we intend to continue to introduce new accessories for mobile electronic devices.

Power

The centerpiece of our power management solutions is our new proprietary iGo Green^® technology. Our first iGo Green products are laptop chargers and surge protectors which incorporate our new patented technology. Our iGo Green technology reduces energy consumption and almost completely eliminates standby power, or “Vampire Power.” We believe that this power-saving technology, when combined with our existing universal power products, will help us achieve our long-term goal of establishing an industry standard for reduced power consumption when charging mobile electronic devices. In addition, our universal power products allow users to charge a variety of their mobile electronic devices from a single power source through the use of interchangeable tips, which increases end-user convenience and minimizes electronic waste.

Batteries

Through our relationship with Pure Energy Solutions (“Pure Energy”), we are the exclusive marketer and distributor of Pure 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 audio products also offer consumers the ability to both communicate with others via an integrated microphone that can be used with a portable computer, mobile phone, computer or other portable media device as well the ability to listen to music or video from these devices. Similar to our protection products and in addition to the quality sound output delivered by our audio products, our line of audio products is also fashionably designed, allowing consumers to express their unique and personal style. Currently, these products are offered primarily through lifestyle and music retailers around the world, however we intend to expand our audio product offering and introduce these and similar products in consumer electronics retailers around the world as well.

Protection

As a result of our acquisition of Adapt Mobile Limited (“Adapt”), we now offer a line of skins, cases and screen protectors for mobile electronic devices. Consumers value the protection of their mobile electronic devices as they rely on them heavily in their daily lives to both connect with others and store important information. In addition, consumers often view these products as a way to express their personal fashion and style, similar to clothing and other accessories. Our line of protection products is designed to meet both of these consumer needs by providing the consumer with a high degree of protection, while simultaneously offering them a unique fashionable design that fits their personal style. Currently, we offer these products primarily in Europe, however we expect to expand our line of cases, skins, screen protectors and other similar products and introduce them in other markets throughout the world.

Our ability to execute successfully on our near and long-term objectives depends largely upon the general market acceptance of our power, protection and audio products, our ability to protect our unique proprietary rights, including notable our iGo Green technology, our ability to generate additional major customers, and general economic conditions. Additionally, we must execute on the customer relationships that we have developed and continue to design, develop, manufacture and market new and innovative technology and products that are embraced by these customers and the overall market.

Recent Developments

In February 2011, we entered into a marketing, distribution and licensing agreements with Pure Energy, a manufacturer of rechargeable alkaline batteries. This agreement was subsequently amended and restated in June 2011 to expand our distribution and licensing rights with respect to these products. Pursuant to the agreement, iGo will be the exclusive marketer and distributor of Pure Energy’s patented rechargeable alkaline batteries to retailers worldwide (excluding China) with non-exclusive distribution rights in Africa. In February 2011, we also simultaneously entered into an agreement with Premier Tech Home & Garden to take over its current distribution rights for Pure Energy batteries in Canada. As part of the agreement with Premier Tech Home & Garden, we purchased inventory to support sales to these accounts. As part of our agreement with Pure Energy, we will pay certain ongoing royalties to Pure Energy on future sales for the use of the Pure Energy brand, the use of Pure Energy charger technology, and our sales to specific customers. The initial term of the agreement is five years, provided, however, that we must achieve annual minimum sales targets in order to retain our exclusive distribution rights beyond December 31, 2013. If we achieve our annual minimum sales targets, we will have the option to extend the agreement for a total of 15 years.

In June 2011, we entered into an investment agreement with Pure Energy Visions Corporation (“Pure Energy Visions”) and expanded our distribution and licensing agreements with its parent company, Pure Energy. Our investment is intended to fund further developments in rechargeable alkaline battery technology and improve the economics of the product line. In return for a total investment of $1.6 million in Pure Energy Visions, we received 2,142,858 shares of Pure Energy Visions common stock (which is traded on the Canadian TSX Venture Exchange under the ticker symbol PEV.V), an interest-free convertible secured debenture having a one-year repayment term that converts into an additional 2,142,858 shares of Pure Energy Visions common stock in lieu of repayment either upon the achievement of certain business goals or earlier at our discretion, and a technology license.

Critical Accounting Policies and Estimates

There were no changes in our critical accounting policies during the nine months ended September 30, 2011 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2010.

Results of Operations

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Revenue			100.0	%			100.0	%			100.0	%			100.0	%
Cost of revenue			78.0	%			66.9	%			73.8	%			66.8	%
Gross profit			22.0	%			33.1	%			26.2	%			33.2	%
Operating expenses:
Sales and marketing			19.1	%			16.8	%			20.4	%			18.1	%
Research and development			8.0	%			2.9	%			6.2	%			3.5	%
General and administrative			18.2	%			16.0	%			19.6	%			17.9	%
Total operating expenses			45.3	%			35.7	%			46.2	%			39.5	%
Loss from operations			(23.3	)%			(2.7	)%			(20.0	)%			(6.3	)%
Other income (expense):
Interest, net			0.1	%			0.4	%			0.2	%			0.5	%
Gain on disposal of assets and other income, net			0.1	%			0.8	%			0.3	%			6.4	%
Income (loss) before income tax			(23.1	)%			(1.5	%)			(19.5	)%			0.6	%
Income tax benefit			—				1.9	%			—				0.8	%
Net income (loss)			(23.1	)%			0.4	%			(19.5	)%			1.4	%

Comparison of Three Months Ended September 30, 2011 and 2010

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

		Three Months				Three Months
		Ended				Ended				Decrease				Percentage change
		September 30,				September 30,				From same period				from the same period
		2011				2010				in the prior year				in the prior year
Revenue			9,666			$	12,220			$	(2,554	)			(20.9	)%

Following is a breakdown of revenue by significant account for the three months ended September 30, 2011 and 2010 with the corresponding dollar and percent changes (dollars in thousands):

		For the three months ended September 30,
		2011								2010
		Sales				% of Total Sales				Sales				% of Total Sales				$ Change				% Change
Walmart		$	2,645				27	%		$	2,167				18	%			478				22.1	%
RadioShack			1,520				16	%			4,309				35	%			(2,789	)			(64.7	)%
Office Depot			325				3	%			690				6	%			(365	)			(52.9	)%
Belkin			249				3	%			1,260				10	%			(1,011	)			(80.2	)%
All other customers			4,927				51	%			3,794				31	%			1,133				29.9	%
		$	9,666				100	%		$	12,220				100	%			(2,554	)			(20.9	)%

The decrease in revenue for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010 was primarily due to the decrease in sales to RadioShack and Belkin as indicated in the table above. This decrease in revenue was partially offset by the addition of battery, audio and protection product lines as a result of Adapt and Aerial7 acquisitions in the second half of 2010 and the Pure Energy relationship in the first quarter of 2011, combined with the increases in sales to Walmart as indicated in the table above. The battery, audio and protection product lines contributed $2.0 million to revenue for the three months ended September 30, 2011, compared to $0 for the three months ended September 30, 2010, and the corresponding revenue is included in the table above under the caption “All other customers”. We are working to continue to broaden our distribution base with the goal of reducing our dependence on sales to Walmart and RadioShack in the future.

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

		Three Months				Three Months
		Ended				Ended				Decrease from same				Percentage change from
		September 30,				September 30,				period in the prior				the same period in the
		2011				2010				year				prior year
Cost of revenue		$	7,542			$	8,181			$	(639	)			(7.8	)%
Gross profit		$	2,124			$	4,039			$	(1,915	)			(47.4	)%
Gross margin			22.0	%			33.1	%			(11.1	)%		NA

The decrease in cost of revenue was due primarily to the decrease in revenue discussed above. The decrease in gross margin was primarily due to a decrease in average direct margin, which excludes labor and overhead costs, to 36.3% for the three months ended September 30, 2011 compared to 49.6% for the three months ended September 30, 2010, primarily as a result of increased product costs and decreased sales prices on sales of power products. Labor and overhead expenses, which are mostly fixed, decreased by $636,000 to $1.4 million, or 14.3% of revenue, for the three months ended September 30, 2011, compared to $2.0 million, or 16.5% of revenue, for the three months ended September 30, 2010. As a result, cost of revenue as a percentage of revenue increased to 78.0% for the three months ended September 30, 2011 from 66.9% for the three months ended September 30, 2010. We continue to experience increases in component costs from our primary Asian suppliers combined with increased competition and lower sales prices for our power products, and as a result, we expect gross margins to remain the same or decline slightly for the balance of 2011 compared to 2010.

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

		Three Months				Three Months
		Ended				Ended				Decrease from				Percentage change
		September 30,				September 30,				same period in the				from the same period
		2011				2010				prior year				in the prior year
Sales and marketing		$	1,849			$	2,059			$	(210	)			(10.2	)%

The decrease in sales and marketing expenses primarily resulted from the decreases of approximately $95,000 in personnel-related expenses and $107,000 in marketing and advertising expenses for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. As a percentage of revenue, sales and marketing expenses increased to 19.1% for the three months ended September 30, 2011 from 16.8% for the three months ended September 30, 2010.

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

		Three Months				Three Months
		Ended				Ended				Increase from same				Percentage change from
		September 30,				September 30,				period in the prior				the same period in the
		2011				2010				year				prior year
Research and development		$	769			$	351			$	418				119.1	%

The increase in research and development expenses primarily resulted from the increases of approximately $314,000 in personnel-related expenses, for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. Our research and development personnel increased to nine at September 30, 2011, compared to seven at September 30, 2010. We also terminated four research and development personnel during the three months ended September 30, 2011 and recorded severance expense of $153,000 in connection with those terminations. Non-recurring engineering expenses also increased by $100,000 for the three months ended September 30, 2011, primarily due to the development of our power-saving microchip with Texas Instruments, compared to the three months ended September 30, 2010. As a percentage of revenue, research and development expenses increased to 8.0% for the three months ended September 30, 2011 from 2.9% for the three months ended September 30, 2010.

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

		Three Months				Three Months
		Ended				Ended				Decrease from				Percentage change
		September 30,				September 30,				same period in the				from the same period
		2011				2010				prior year				in the prior year
General and administrative		$	1,757			$	1,958			$	(201	)			(10.3	)%

The decrease in general and administrative expenses primarily resulted from a decrease of $65,000 in personnel-related expenses and $136,000 in legal expenses during the three months ended September 30, 2011 compared to the three months ended September 30, 2010. General and administrative expenses as a percentage of revenue increased to 18.2% for the three months ended September 30, 2011 from 16.0% for the three months ended September 30, 2010.

Interest income, net. Interest income, net decreased by $39,000 to $13,000 for the three months ended September 30, 2011 compared to $52,000 for the three months ended September 30, 2010. The decrease was primarily due to decreased short-term investment balances during 2011. At September 30, 2011, the average yield on our cash and short-term investments was approximately 0%.

Gain on disposal of assets and other income, net. Gain on disposal of assets and other income, net was $7,000 for the three months ended September 30, 2011 compared to $93,000 for the three months ended September 30, 2010.

Income taxes. No provision for income taxes was required for the three months ended September 30, 2011. Based on historical operating losses and projections for future taxable income, it is more likely than not that we will not fully realize the benefits of the net operating loss carryforwards. We have not, therefore, recorded a tax benefit from our net operating loss carryforwards for the three months ended September 30, 2011, which at September 30, 2011 totaled approximately $157 million. As a result of the acquisition of Adapt Mobile, we recorded a $235,000 tax benefit for the three months ended September 30, 2010. The tax benefit relates to a deferred tax liability resulting from acquired intangible assets that are not expected to be deductible for income tax purposes. As our deferred tax assets, net of deferred tax liabilities, are fully valued at zero, the impact of recording this deferred tax liability resulted in a release of a portion of our deferred tax asset valuation allowance, and was recorded as income tax benefit for the three months ended September 30, 2010.

Comparison of Nine Months Ended September 30, 2011 and 2010

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

		Nine Months				Nine Months
		Ended				Ended				Decrease from				Percentage change
		September 30,				September				same period in the				from the same period
		2011				30, 2010				prior year				in the prior year
Revenue		$	29,725			$	30,137			$	(412	)			(1.4	)%

Following is a breakdown of revenue by significant account for the nine months ended September 30, 2011 and 2010 with the corresponding dollar and percent changes (dollars in thousands):

		For the Nine Months ended September 30,
		2011								2010
		Sales				% of Total Sales				Sales				% of Total Sales				$ Change				% Change
Walmart		$	7,240				24	%		$	4,409				15	%			2,831				64.2	%
RadioShack			3,060				10	%			11,277				37	%			(8,217	)			(72.9	)%
Belkin			2,155				7	%			2,332				8	%			(177	)			(7.6	)%
Office Depot			1,679				6	%			1,057				3	%			622				58.9	%
All other customers			15,591				53	%			11,062				37	%			4,529				40.9	%
		$	29,725				100	%		$	30,137				100	%			(412	)			(1.4	)%

The decrease in revenue for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010 was primarily due to the decrease in sales to RadioShack, as indicated in the table above. The decrease in sales to RadioShack was partially offset by increased sales to Walmart and Office Depot combined with sales related to the addition of battery, audio and protection product lines as a result of Adapt and Aerial7 acquisitions in the second half of 2010 and the Pure Energy relationship in the first quarter of 2011. The battery, audio and protection product lines contributed $4.5 million to revenue for the nine months ended September 30, 2011, compared to $0 for the nine months ended September 30, 2010, and the corresponding revenue is included in the table above under the caption “All other customers”. We are working to continue to broaden our distribution base with the goal of reducing our dependence on sales to Walmart and RadioShack in the future.

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

		Nine Months				Nine Months
		Ended				Ended				Increase/(decrease)				Percentage change from
		September 30,				September 30,				from same period in				the same period in the
		2011				2010				the prior year				prior year
Cost of revenue		$	21,942			$	20,134			$	1,808				9.0	%
Gross profit		$	7,783			$	10,003			$	(2,220	)			(22.2	)%
Gross margin			26.2	%			33.2	%			(7.0	)%		NA

The increase in cost of revenue and corresponding decrease in gross margin was primarily due to a decrease in average direct margin, which excludes labor and overhead costs, to 41.2% for the nine months ended September 30, 2011 compared to 48.1% for the nine months ended September 30, 2010, primarily as a result of increased product costs and decreased sales prices on sales of power products. Labor and overhead expenses, which are mostly fixed, were $4.5 million, or 15.0% of revenue, for the nine months ended September 30, 2011, which was consistent with $4.5 million, or 14.9% of revenue for the nine months ended September 30, 2010. As a result, cost of revenue as a percentage of revenue increased to 73.8% for the nine months ended September 30, 2011 from 66.8% for the nine months ended September 30, 2010. We continue to experience increases in component costs from our primary Asian suppliers combined with increased competition and lower sales prices for our power products, and as a result, we expect gross margins to remain the same or decline slightly for the balance of 2011 compared to 2010.

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

		Nine Months				Nine Months
		Ended				Ended				Increase from				Percentage change
		September 30,				September 30,				same period in the				from the same period
		2011				2010				prior year				in the prior year
Sales and marketing		$	6,051			$	5,464			$	587				10.7	%

The increase in sales and marketing expenses primarily resulted from increases of approximately $391,000 in personnel related expenses, primarily due to the addition of personnel from the Adapt and Aerial7 acquisitions, and $202,000 in sales samples and trade show expenses for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. As a percentage of revenue, sales and marketing expenses increased to 20.4% for the nine months ended September 30, 2011 from 18.1% for the nine months ended September 30, 2010.

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

		Nine Months				Nine Months
		Ended				Ended				Increase from same				Percentage change from
		September 30,				September 30,				period in the prior				the same period in the
		2011				2010				year				prior year
Research and development		$	1,846			$	1,060			$	786				74.2	%

The increase in research and development expenses primarily resulted from the increases of approximately $520,000 in personnel-related expenses, primarily due to the addition of personnel from the Adapt and Aerial7 acquisitions and severance payments associated with a reduction in personnel, for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. Non-recurring engineering expenses also increased by $233,000 for the nine months ended September 30, 2011, primarily due to the development of our power-saving microchip with Texas Instruments, compared to the nine months ended September 30, 2010. As a percentage of revenue, research and development expenses increased to 6.2% for the nine months ended September 30, 2011 from 3.5% for the nine months ended September 30, 2010.

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

		Nine Months				Nine Months
		Ended				Ended				Increase from same				Percentage change
		September 30,				September 30,				period in the prior				from the same period
		2011				2010				year				in the prior year
General and administrative		$	5,837			$	5,380			$	457				8.5	%

The increase in general and administrative expenses primarily resulted from an increase of $444,000 in equity compensation expense for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. General and administrative expenses as a percentage of revenue increased to 19.6% for the nine months ended September 30, 2011 from 17.9% for the nine months ended September 30, 2010.

Interest income, net. Interest income, net decreased by $92,000 to $55,000 for the nine months ended September 30, 2011 compared to $147,000 for the nine months ended September 30, 2010. The decrease was primarily due to collection in full of notes receivable during 2010 and decreased short-term investment balances during 2011. At September 30, 2011, the average yield on our cash and short-term investments was approximately 0%.

Other income, net. Other income, net was $87,000 for the nine months ended September 30, 2011 compared to $1.9 million for the nine months ended September 30, 2010. The reversal of the reserve against the Mission note receivable, resulted in the recognition of a gain of $1.7 million in the 2010 period.

Income taxes. No provision for income taxes was required for the nine months ended September 30, 2011. Based on historical operating losses and projections for future taxable income, it is more likely than not that we will not fully realize the benefits of the net operating loss carryforwards. We have not, therefore, recorded a tax benefit from our net operating loss carryforwards for the nine months ended September 30, 2011, which at September 30, 2011 was $157 million. As a result of the acquisition of Adapt Mobile, we recorded a $235,000 tax benefit for the nine months ended September 30, 2010. The tax benefit relates to a deferred tax liability resulting from acquired intangible assets that are not expected to be deductible for income tax purposes. As our deferred tax assets, net of deferred tax liabilities, are fully valued at zero, the impact of recording this deferred tax liability resulted in a release of a portion of our deferred tax asset valuation allowance, and was recorded as income tax benefit for the nine months ended September 30, 2010.

Operating Outlook

Due to increased competition, both from third parties and private-label brands offered by some of our retail customers, we have experienced a decline in demand for our power products with our traditional customer base. We were successful throughout 2010, however, in increasing our customer base, primarily with the addition of Walmart, and increasing our overall product offerings primarily through the acquisitions of Adapt and Aerial7 and in 2011, through our new distribution agreement with Pure Energy. As a result, because we continue to face increased competition from private-label brands offered by some of our retail customers, including most notably RadioShack, we expect our total 2011 revenue to be less than our 2010 revenue.

We continue to see increases in component costs from our primary Asian suppliers. As a result, we expect gross margins to decline in 2011 compared to 2010. Although we expect operating expenses to increase in 2011 compared to 2010, primarily as a result of increased operating expenses associated with the acquisitions of Adapt and Aerial7, we have made reductions in our cost structure in an attempt to minimize anticipated losses over the remainder of 2011.

We anticipate increased research and development expenses in 2011 compared to 2010, primarily as a result of the continued development of our iGo Green technology, including expenses relating to the collaborative development of an integrated circuit with Texas Instruments based on our iGo Green technology. As a result of our planned research and development efforts, we expect to further expand our intellectual property position by filing for additional patents in various countries around the world. A portion of these costs are recorded as research and development expense as incurred, and a portion are capitalized and amortized as general and administrative expense. We may also incur additional legal and related expenses associated with the defense and enforcement of our intellectual property portfolio, which could increase our general and administrative expenses.

In addition to our line of power products, we have recently introduced a variety of new mobile electronics accessories both as a result of our internal design efforts and as a result of our acquisition of Adapt and Aerial7 and our distribution agreement with Pure Energy. We expect to continue to introduce additional mobile electronics accessory products in the future as we execute on our vision to attach our products and technology to every mobile electronic device. In order to continue to grow our business and enhance shareholder value, we believe it is necessary to continue to expand our product portfolio. Moving forward, we intend to continue to explore a number of initiatives designed to broaden our product portfolio within the mobile electronics accessories space. We currently plan that the initiatives will consist of internal product development, sourcing products from third-parties, joint marketing ventures, product bundling, licensing opportunities, and acquisitions of complementary and synergistic product families and companies. We also have initiatives to expand our distribution beyond consumer retail with the intent to sell products into the enterprise, government and education channels. All of these initiatives are designed to leverage the inherent strengths of our business, most notably, our strong balance sheet, our compelling portfolio of intellectual property, and our established brand and relationships with major retailers. As we continue to execute on this vision, we believe we can improve our ability to drive higher levels of revenue and earnings, which will ultimately have a positive impact on value creation for our shareholders.

Liquidity and Capital Resources

Cash and Cash Flow. Our available cash and cash equivalents are held in bank deposits and money market funds in the United States and in the United Kingdom. Our cash balances held in the United Kingdom are denominated in British pound sterling and Euro. Our intent is that the cash balances in the United Kingdom will remain there for future growth and investments, and we will meet any liquidity requirements in the United States through ongoing cash flows, external financing, or both. We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal while secondarily maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities. To date, we have experienced no material loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

At any point in time we have funds in our operating accounts that are with third-party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.

Our primary use of cash has been to fund operating losses, fund acquisitions, and fund working capital needs of our business, which we expect to continue through 2011. Some of our new suppliers of protection and audio have been unwilling to extend trade credit to us on the same terms and conditions as our power product suppliers have historically done. As a result, we are required to pay for purchases of inventory in advance of the related sale of these products, which has increased our use of cash to support the working capital required to effectively operate our business. Historically, our primary sources of liquidity have been funds provided by the sale of intellectual property assets. We cannot assure you that this source will be available to us in the future.

We currently do not maintain a credit facility with a bank, however, we may attempt to access this source of financing at some point in the future. Capital markets in the United States and throughout the world remain tight, which could impact our ability to obtain additional or alternative financing, including a credit facility with a bank.

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

		Nine Months Ended September 30,
		2011				2010
Net cash (used in) provided by operating activities		$	(8,055	)		$	250
Net cash provided by (used in) investing activities			5,462				(8,566	)
Net cash provided by financing activities			—				—
Foreign currency exchange impact on cash flow			(58	)			(13	)
Decrease in cash and cash equivalents		$	(2,651	)		$	(8,303	)
Cash and cash equivalents at beginning of period		$	9,942			$	19,775
Cash and cash equivalents at end of period		$	7,291			$	11,472

	•		Net cash (used in) provided by operating activities. Cash was used in our operating activities for the nine months ended September 30, 2011 to fund the working capital needs of our business, including inventory purchases. We expect to continue to use cash in operating activities through 2011.
			Our consolidated cash flow operating metrics are as follows:

		Nine Months Ended
		September 30,
		2011				2010
Days outstanding in ending accounts receivable (“DSOs”)			62				73
Inventory turns			2				3