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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended September 30, 2012

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)

(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  x    NO  ¨

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  x    NO  ¨

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    x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

At November 2, 2012, there were 34,605,589 shares of the Registrant’s Common Stock, par value $0.01 per share outstanding.

 

 

 


Table of Contents

IGO, INC.

FORM 10-Q

TABLE OF CONTENTS

 

             PAGE NO.  

PART I

 

FINANCIAL INFORMATION

     1   
 

Item 1.

  Financial Statements (unaudited)      1   
   

Condensed Consolidated Balance Sheets

     1   
   

Condensed Consolidated Statements of Comprehensive Loss

     2   
   

Condensed Consolidated Statements of Cash Flows

     3   
 

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      11   
 

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      21   
 

Item 4.

  Controls and Procedures      22   

PART II

 

OTHER INFORMATION

     22   
 

Item 1.

  Legal Proceedings      22   
 

Item 1A.

  Risk Factors      22   
 

Item 6.

  Exhibits      22   
 

SIGNATURES

     23   
 

EXHIBIT INDEX

     24   

Part II, Items 2, 3, 4 and 5 are not applicable.

 

i


Table of Contents

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

IGO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(unaudited)

 

     September 30,
2012
    December 31,
2011
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 9,267      $ 10,290   

Short-term investments

     2,126        4,890   

Accounts receivable, net

     4,227        5,813   

Inventories

     9,539        11,177   

Prepaid expenses and other current assets

     558        540   
  

 

 

   

 

 

 

Total current assets

     25,717        32,710   

Property and equipment, net

     529        587   

Goodwill

     285        285   

Intangible assets, net

     2,406        3,116   

Long-term investments

     218        420   

Other assets

     158        160   
  

 

 

   

 

 

 

Total assets

   $ 29,313      $ 37,278   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Liabilities:

    

Accounts payable

   $ 3,493      $ 4,150   

Accrued expenses and other current liabilities

     953        956   

Deferred revenue

     511        1,305   
  

 

 

   

 

 

 

Total liabilities

     4,957        6,411   

Stockholders’ Equity:

    

Common stock, $ .01 par value; authorized 90,000,000 shares; 34,467,347 and 33,741,609 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

     345        337   

Additional paid-in capital

     174,485        173,453   

Accumulated deficit

     (150,057     (141,910

Accumulated other comprehensive loss

     (417     (1,013
  

 

 

   

 

 

 

Total stockholders’ equity

     24,356        30,867   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 29,313      $ 37,278   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1


Table of Contents

IGO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Revenue

   $ 7,931      $ 9,666      $ 23,470      $ 29,725   

Cost of revenue

     6,424        7,542        19,081        21,942   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,507        2,124        4,389        7,783   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Sales and marketing

     1,123        1,849        4,242        6,051   

Research and development

     484        769        1,760        1,846   

General and administrative

     1,684        1,757        5,485        5,837   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,291        4,375        11,487        13,734   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (1,784     (2,251     (7,098     (5,951

Other income, net:

        

Interest income, net

     3        13        10        55   

Other income (expense), net

     (49     7        (1,059     87   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss

     (1,830     (2,231     (8,147     (5,809
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per common share

   $ (0.05   $ (0.07   $ (0.24   $ (0.17
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted average common shares outstanding

     34,388        33,566        34,094        33,440   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

        

Reclassification adjustment for losses included in net loss

     33        —          1,008        —     

Unrealized gain (loss) on available for sale of investments

     (29     (196     (188     (116

Foreign currency translation adjustments

     (14     (236     (224     (58
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (1,840   $ (2,663   $ (7,551   $ (5,983
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2


Table of Contents

IGO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash flows from operating activities:

    

Net loss

   $ (8,147   $ (5,809

Adjustments to reconcile net loss to net cash used in operating activities:

    

Provision for doubtful accounts and sales returns and credits

     933        576   

Depreciation and amortization

     1,295        1,322   

Amortization of deferred compensation

     1,199        1,451   

Other-than-temporary impairment charges

     1,008        —     

Changes in operating assets and liabilities:

    

Accounts receivable

     653        1,342   

Inventories

     1,638        (2,550

Prepaid expenses and other assets

     (278     (667

Accounts payable

     (657     (1,704

Accrued expenses and other current liabilities

     (956     (2,016
  

 

 

   

 

 

 

Net cash used in operating activities

     (3,312     (8,055
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property and equipment

     (266     (208

Purchase of intangibles

     —          (706

Sale of short-term investments, net

     2,779        7,602   

Purchase of long-term investments

     —          (1,226
  

 

 

   

 

 

 

Net cash provided by investing activities

     2,513        5,462   
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Net cash provided by financing activities

     —          —     
  

 

 

   

 

 

 

Effects of exchange rate changes on cash and cash equivalents

     (224     (58
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,023     (2,651

Cash and cash equivalents, beginning of period

     10,290        9,942   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 9,267      $ 7,291   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


Table of Contents

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, 2011 included in the Company’s Annual Report on Form 10-K filed with the SEC. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of results to be expected for the full fiscal 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 debt expense, sales returns and price protection, inventories, warranty obligations, impairment of long-lived assets and investments, 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 June 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to the existing guidance on the presentation of comprehensive income. Under the amended guidance, entities have the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Entities no longer have the option of presenting the components of other comprehensive income within the statement of changes in stockholders’ equity. For public entities, the amendment is effective on a retrospective basis for fiscal years, and interim periods within those years, beginning after December 15, 2011. Adoption of this amendment resulted in a change to the Company’s presentation of comprehensive income.

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU No. 2012-02”), which allows entities to use a qualitative approach to test indefinite-lived intangible assets for impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed quantitative impairment test. Otherwise, the quantitative impairment test is not required. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of the provisions of ASU No. 2012-02 will not have a material impact on the company’s financial position or results of operations.

(2) Fair Value Measurement

As of September 30, 2012, 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.

 

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Table of Contents

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, 2012 and December 31, 2011, investments in marketable securities totaling $2,126,000 and $4,890,000, 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 set forth by the FASB in Accounting Standards Codification 820—Fair Value Measurements and Disclosures. At September 30, 2012 and December 31, 2011, investments in marketable securities totaling $218,000 and $420,000, respectively, 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 FASB’s fair value hierarchy. The unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income (loss). The other-than-temporary impairment charges are included in other income (expense), net on the condensed consolidated statements of comprehensive loss.

(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 $2,779,000 and $7,602,000 from the sale of short-term available-for-sale marketable securities during the nine months ended September 30, 2012 and September 30, 2011, respectively.

As of September 30, 2012 and December 31, 2011, the amortized cost basis, unrealized holding gains, unrealized holding losses, and aggregate fair value by short-term major security-type investments were as follows (in thousands):

 

     September 30, 2012      December 31, 2011  
     Amortized
Cost
     Net
Unrealized
Holding
Gains
(Losses)
     Aggregate
Fair Value
     Amortized
Cost
     Net
Unrealized
Holding
Gains
(Losses)
    Aggregate
Fair Value
 

U.S. corporate securities:

                

Corporate notes and bonds

   $ —         $ —         $ —         $ 2,785       $ (2   $ 2,783   

U.S. municipal funds

     2,110         16         2,126         2,105         2        2,107   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 2,110       $ 16       $ 2,126       $ 4,890       $ —        $ 4,890   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Long-term

In June 2011, the Company made an investment in Pure Energy Visions Corporation (“Pure Energy Visions”), which is a stockholder in Pure Energy Solutions, Inc. (“Pure Energy”), the Company’s supplier of rechargeable batteries, in which the Company received 2,142,858 shares of common stock of Pure Energy Visions 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 debenture was not collected within the one-year repayment term and the Company is pursuing its rights and remedies under the debenture. The Company did not obtain control of Pure Energy Visions as a result of this investment.

The Company assesses its long-term investments for other-than-temporary declines in value by considering various factors that include, among other things, 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

 

5


Table of Contents

value. At September 30, 2012, the Company’s investment in Pure Energy Visions had a fair value significantly below its amortized cost. Due to the duration the security has been in a loss position and the probability that its value will not recover, the Company considers the value of the long-term investments to be other-than-temporarily impaired. During the three and nine-month periods ended September 30, 2012, the Company recognized total other-than-temporary impairment charges of $33,000 and $1,008,000, respectively, related to these securities.

As of September 30, 2012 and December 31, 2011, the amortized cost basis, unrealized holding gains, unrealized holding losses, and aggregate fair value by long-term major security-type investments were as follows (in thousands):

 

     September 30, 2012      December 31, 2011  
     Amortized
Cost
    Net
Unrealized
Holding
Losses
     Aggregate
Fair Value
     Amortized
Cost
     Net
Unrealized
Holding
Losses
    Aggregate
Fair Value
 

Canadian corporate securites:

               

Common Stock

   $ 109   $ —         $ 109       $ 613       $ (403   $ 210   

Corporate debenture

     109     —           109         613         (403   $ 210   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 218      $ —         $ 218       $ 1,226       $ (806   $ 420   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

* Reflects amortized cost adjusted to fair value at September 30, 2012 as the Company concluded the unrealized holdings losses on these securities represented other-than-temporary declines in fair value. The corporate debenture is valued at the common stock value into which it is convertible.

(4) Intangible Assets

Intangible assets consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):

 

            September 30, 2012      December 31, 2011  
     Average
Life
(Years)
     Gross
Intangible
Assets
     Accumulated
Amortization
    Net
Intangible
Assets
     Gross
Intangible
Assets
     Accumulated
Amortization
    Net
Intangible
Assets
 

Patents and trademarks

     3       $ 4,040       $ (3,443   $ 597       $ 3,780       $ (2,944   $ 836   

Non-compete agreements

     3         90         (63     27         90         (39     51   

Trade names

     8         612         (554     58         612         (473     139   

Customer Intangibles

     5         830         (330     500         830         (207     623   

Proprietary process

     5         1,070         (383     687         1,070         (221     849   

Distribution rights

     5         375         (126     249         375         (69     306   

Technology license

     10         331         (43     288         331         (19     312   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total Intangible assets

      $ 7,348       $ (4,942   $ 2,406       $ 7,088       $ (3,972   $ 3,116   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Aggregate amortization expense for identifiable intangible assets totaled $309,000 and $970,000 for the three and nine months ended September 30, 2012, respectively, and $309,000 and $998,000 for the three and nine months ended September 30, 2011, respectively.

(5) Stock-based Compensation

Stock-based compensation expense includes compensation expense, recognized over the applicable requisite service periods, from awards of stock options and restricted stock units (“RSUs”) made under the Omnibus Long-Term Incentive Plan as adopted by the Company’s stockholders in 2004 and amended in 2011 (“Omnibus Plan”). As of September 30, 2012, total unrecognized compensation cost related to stock options and RSUs, net of forfeitures, was $1,892,000, which is expected to be recognized as compensation expense over a weighted-average service period of approximately two years.

 

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Table of Contents

For the three and nine months ended September 30, 2012, the Company recorded pre-tax charges to general and administrative expense of $343,000 and $1,199,000, respectively, associated with RSU and stock option awards activity. For the three and nine months ended September 30, 2011, the Company recorded pre-tax charges to general and administrative expense of $465,000 and $1,451,000, respectively, associated with RSU awards activity. There was no stock option awards activity for the three and nine months ended September 30, 2011.

Stock Options

Stock options awarded under the Omnibus Plan are granted with an exercise price equal to the fair market value of the Company’s stock on the date of grant and vest over a period determined by the Compensation and Human Relations Committee of the Company’s Board of Directors when the options are granted. Vesting periods generally range from one to three years. The options have a maximum term of ten years.

As of September 30, 2012, there were 1,190,000 non-vested stock options and no fully vested stock options outstanding.

 

     Number of
Options
     Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
     Aggregate
Intrinsic
Value (In
Thousands)
 

Outstanding, December 31, 2011

     —           —           —           —     

Granted

     1,790,000       $ 0.75         9.52         —     

Canceled

     600,000       $ 0.75         9.52         —     

Exercised

     —           —           —           —     

Outstanding, September 30, 2012

     1,190,000       $ 0.75         9.52         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at September 30, 2012

     —         $ —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2012, there was $557,000 of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized as compensation expense over a weighted average period of two years.

The aggregate intrinsic value of stock options exercised during the nine-month periods ended September 30, 2012 and 2011, respectively, was zero.

The weighted average fair value of options granted in the nine-month period ended September 30, 2012 was $0.51. The Company did not grant any stock options during the nine-month period ended September 30, 2011. The fair value of the stock options was determined using the Black-Scholes option valuation model, which relied on the following key assumptions with respect to the options granted during the respective periods:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012     2011      2012     2011  

Weighted average risk-free interest rate

     1.24     —           1.24     —     

Expected life of the options (in years)

     6.50        —           6.50        —     

Expected stock price volatility

     75.64     —           75.64     —     

Expected dividend yield

     —          —           —          —     

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The risk-free interest rate is based on the U.S. Treasury security rate in effect as of the date of grant. The expected term of the options and stock price volatility are based on historical data of the Company.

 

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Restricted Stock Units

The Company grants RSUs to certain employees. RSUs are valued at the closing market value of the Company’s common stock on the date of grant.

The following table summarizes information regarding RSUs as of December 31, 2011 and for the nine months ended September 30, 2012:

 

     Omnibus Plan      Inducement Grants  
     Number     Weighted
Average
Value per
Share
     Number     Weighted
Average
Value per
Share
 

Outstanding, December 31, 2011

     940,156      $  2.51         824,999      $  1.88   

Granted

     96,552      $ 0.51         —        $ —     

Canceled

     (105,902   $ 2.90         —        $ —     

Released to common stock

     (441,683   $ 1.95         (284,055   $ 1.61   

Released for settlement of taxes

     (95,553   $ 2.30         (40,946   $ 1.29   
  

 

 

      

 

 

   

Outstanding, September 30, 2012

     393,570      $ 2.59         499,998      $ 2.08   
  

 

 

   

 

 

    

 

 

   

 

 

 

As of September 30, 2012, there was $1,335,000 of total unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized as compensation expense over a weighted average period of two years.

As of September 30, 2012, all outstanding RSUs were non-vested.

(6) Net Loss per Share

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Basic net income (loss) per share computation:

        

Numerator:

        

Net Income (loss)

   $ (1,830   $ (2,231   $ (8,147   $ (5,809

Denominator:

        

Weighted average number of common shares outstanding

     34,388        33,566        34,094        33,440   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net loss per share:

   $ (0.05   $ (0.07   $ (0.24   $ (0.17
  

 

 

   

 

 

   

 

 

   

 

 

 

Warrants not included in dilutive loss per share anti-dilutive

     5        5        5        5   

For the three and nine months ended September 30, 2012, all outstanding stock options, RSUs, and warrants were excluded from the computation of diluted net loss per common share as the inclusion of such items would be anti-dilutive based on the net loss reported.

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

The Company is a provider of innovative accessories and power management solutions for computers and mobile electronic devices. The Company has five product lines: Power, Batteries, Audio, Protection and Other Accessories. The Company’s chief operating decision maker (“CODM”) continues to evaluate revenues based on product lines and geographies. However, the CODM manages the Company’s operations as a single business segment, which consists of the development, marketing and sales of electronics accessories across all product lines.

 

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Power

   $ 6,209       $ 7,511       $ 18,539       $ 24,582   

Batteries

     645         428         1,738         865   

Audio

     643         1,335         2,021         2,943   

Protection

     207         197         640         685   

Other accessories

     227         195         532         650   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 7,931       $ 9,666       $ 23,470       $ 29,725   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012      2011      2012      2011  

Americas

   $ 6,555       $ 7,472       $ 18,910       $ 22,250   

Europe

   $ 966       $ 1,119       $ 3,428       $ 5,309   

Asia Pacific

     410         1,075         1,132         2,166   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenues

   $ 7,931       $ 9,666       $ 23,470       $ 29,725   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 current Federal Deposit Insurance Corporation (“FDIC”) insurance coverage limit of $250,000. However, periodically during the year, the Company maintains cash in financial institutions in excess of the FDIC limit. 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 (Walmart and RadioShack) accounted for 31% and 14%, respectively, of net sales for the nine months ended September 30, 2012 and 24% and 10%, respectively, of net sales for the nine months ended September 30, 2011.

The same two customers also accounted for 29% and 9%, respectively, of net accounts receivable at September 30, 2012 and 19% and 11%, respectively, of net accounts receivable at September 30, 2011.

Allowance for doubtful accounts was $439,000 and $311,000 at September 30, 2012 and December 31, 2011, respectively. Allowance for sales returns and price protection was $411,000 and $318,000 at September 30, 2012 and December 31, 2011, respectively.

(8) Contingencies

The Company procures its products primarily from suppliers 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 suppliers. Occasionally, the Company presents its suppliers with ‘Letters of Authorization’ to induce 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, 2012 and December 31, 2011, the Company had estimated and recorded remaining liability for this contingency in the amounts of $100,000 and $150,000, respectively.

 

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From time to time, the Company is involved in legal proceedings arising in the ordinary course of its business. The Company is not currently a party to any litigation for which, in the Company’s determination, an adverse outcome would have a material effect on the Company’s financial condition, results of operations, or cash flows.

 

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

Certain Terms

In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, the terms “the Company,” “we,” “us” and “our” refer to the combined company, which is iGo, Inc. and its wholly owned subsidiaries Adapt, Aerial 7, Mobility California, Inc., Mobility Idaho, Inc., iGo EMEA Limited, Mobility Texas, Inc. and iGo Direct Corporation.

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.

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, costs, cash flows, gross profit, gross margins, operating efficiencies, and related expenses for 2012; our expectations regarding our strategy, including but not limited to, our intentions to expand our line of cases, skins, screen protectors, audio products and introduce new accessories for mobile devices, to protect our intellectual property position by filing for additional patents, to pursue opportunities to acquire businesses, products or technologies, and to expand the market availability of our products; 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; the expected sources, availability and sufficiency of cash and liquidity; expected market and industry trends; our expectations regarding the success of new product introductions; the anticipated strength, and ability to protect, our intellectual property portfolio; our expectations about competition; trends in key operating metrics, including days outstanding in accounts receivable and inventory turns; the results of future tax audits and tax settlements; the realizability of our deferred tax asset and the outcome of uncertain tax positions; the recognition of unrecognized equity compensation cost; our initiatives, including plans for internal product development, sourcing products from third-parties, joint marketing ventures, product bundling, acquisitions of complementary and synergistic product families and companies, expanding our distribution beyond consumer retail by selling products into the enterprise, government and education channels and the resulting positive impact on our revenue and earnings of these initiatives; our intention to retain cash balances in the United Kingdom; the possible disposition of assets; 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; 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 in our Annual Report on Form 10-K for the year ended December 31, 2011 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:

 

   

the sufficiency of our revenue to absorb expenses;

 

   

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

 

   

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

 

   

our ability to expand and diversify our customer base;

 

   

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

 

   

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

 

   

fluctuations in our operating results due to increases in product costs from our suppliers, our suppliers’ ability to perform, the timing of potential 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

 

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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 our sales;

 

   

our ability to manage our inventory levels;

 

   

decreasing sales prices on our products over their sales cycles;

 

   

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 reliance on sole sources for key components;

 

   

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 meet our future capital needs, including to secure additional financing;

 

   

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;

 

   

that our common stock could be delisted from the NASDAQ Capital Market;

 

   

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.

Overview

We are a 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, in the office, or on the road, and each 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

Our power management solutions incorporate our proprietary iGo Green® technology. Our first iGo Green products are laptop chargers and surge protectors that integrate our patented technology. Our iGo Green technology reduces energy consumption and almost completely eliminates standby power, or “Vampire Power.” We continue to leverage our core competency in power to bring to market device-power products in addition to our high-power products.

 

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Table of Contents

Batteries

Through our relationship with 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. 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 in 2010, we offer a line of earbuds and headphones. As mobile phones have evolved into smartphones and new portable media devices 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. They 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 as the ability to listen to music or video from these devices. In addition to delivering quality sound output, our line of audio products is designed to appeal to the fashion sense of consumers, allowing them to express their unique and personal style through their mobile electronic devices. Currently, our audio products are offered primarily through lifestyle and music retailers around the world. We intend, however, to expand our line of audio products and increase its distribution through global, broad-based consumer electronics retailers as well.

Protection

As a result of our acquisition of Adapt in 2010, we also 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 information. Consumers also view our protection products as a way to express personal fashion and style, much like they do with our audio products, clothing and other personal accessories. Our line of protection products is designed to meet both of these consumer needs by providing consumers with a high degree of protection and a unique, fashionable design that fits their personal styles. Currently, we offer our cases, skins, screen protectors and other similar products primarily in Europe. Our ability to execute successfully on our near and long-term objectives depends largely on general market acceptance of our power, protection and audio products, our ability to protect our unique proprietary rights, including 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 by the overall market.

(1) Critical Accounting Policies and Estimates

There were no changes in our critical accounting policies during the nine months ended September 30, 2012 from those set forth in Part II, Item 7, “Internal Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2011.

Goodwill, definite-lived intangible asset and Long-Lived Asset Valuation. We are in the process of re-forecasting the cash projections utilized in testing goodwill for impairment due to declines in our market capitalization and overall sales volumes. As we are anticipating lower overall growth rates than previously forecasted, we may incur additional impairment in the fourth quarter of the carrying value of goodwill and the carrying values of the definite-lived intangible assets.

 

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(2) Results of Operations

The following table presents certain selected consolidated financial data for the three and nine months ended September 30, 2012 and 2011 expressed as a percentage of total revenue:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Revenue

     100.0     100.0     100.0     100.0

Cost of revenue

     81.0     78.0     81.3     73.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     19.0     22.0     18.7     26.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Sales and marketing

     14.2     19.1     18.0     20.4

Research and development

     6.1     8.0     7.5     6.2

General and administrative

     21.2     18.2     23.4     19.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     41.5     45.3     48.9     46.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (22.5 )%      (23.3 )%      (30.2 )%      (20.0 )% 

Other income, net:

        

Interest income, net

     0.0     0.1     0.0     0.2

Other income (expense), net

     (0.6 )%      0.1     (4.5 )%      0.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss

     (23.1 )%      (23.1 )%      (34.7 )%      (19.5 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of Three and Nine Months Ended September 30, 2012 and 2011

Revenue.

Revenue generally consists of sales of products, net of returns and allowances. To date, our revenues have come predominantly from sales of laptop chargers. The following tables summarize the year-over-year comparison of our consolidated revenue for the three and nine months ended September 30, 2012 and 2011 (dollars in thousands):

 

     Three months
Ended

September 30,
2012
     Three months
Ended

September 30,
2011
     Decrease
from same
period in prior

year
    Percentage
change from
same period
in prior year
 

Revenue

   $ 7,931       $ 9,666       $ (1,735     (17.9 )% 
     Nine Months
Ended

September 30,
2012
     Nine Months
Ended

September 30,
2011
     Decrease
from same
period  in prior
year
    Percentage
change from
same period
in prior year
 

Revenue

   $  23,470       $  29,725       $ (6,255     (21.0 )% 

 

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Following is a breakdown of revenue by significant account for the three and nine months ended September 30, 2012 and 2011 with the corresponding dollar and percent changes (dollars in thousands):

 

     For the Three Months Ended September 30,              
     2012     2011              
     Sales      % of Total Sales     Sales      % of Total Sales     $ Change     % Change  

Walmart

   $ 2,891         37   $ 2,645         27   $ 246        9.3

RadioShack

     726         9     1,520         16     (794     (52.2 )% 

Belkin

     —           0     325         3     (325     (100.0 )% 

Office Depot

     197         2     249         3     (52     (20.9 )% 

All other customers

     4,117         52     4,927         51     (810     (16.4 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   
   $ 7,931         100     9,666         100   $ (1,735     (17.9 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     For the Nine Months Ended September 30,              
     2012     2011              
     Sales      % of Total Sales     Sales      % of Total Sales     $ Change     % Change  

Walmart

   $ 7,260         31   $ 7,240         24   $ 20        0.3

RadioShack

     3,229         14     3,060         10     169        5.5

Belkin

     802         3     2,155         7     (1,353     (62.8 )% 

Office Depot

     592         3     1,679         6     (1,087     (64.7 )% 

All other customers

     11,587         49     15,591         53     (4,004     (25.7 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   
   $ 23,470         100     29,725         100   $ (6,255     (21.0 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The decrease in revenue for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 was primarily due to declines in sales volume of power products to RadioShack, Belkin and Office Depot, partially offset by an increase in sales volume to Walmart. Sales to Belkin can vary considerably from period to period. The decline in sales to all other customers is primarily attributable to lower sales of power products in international markets, as well as a decrease in the sale of audio products of $692,000 to $643,000 for the three months ended September 30, 2012, compared to $1,335,000 for the three months ended September 30, 2011. The decrease in power product and audio revenue was partially offset by an increase in sales of batteries of $217,000 to $645,000 for the three months ended September 30, 2012, compared to $428,000 for the three months ended September 30, 2011, primarily due to increased distribution in Europe and North America.

The decrease in revenue for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 was primarily due to declines in sales volume of power products to Belkin and Office Depot combined with a decline in average selling price for power products to Walmart, partially offset by an increase in sales volume to RadioShack and Walmart. Sales to Belkin can vary considerably from period to period. The decline in sales to all other customers is primarily attributable to lower sales of power products in international markets and the wireless carrier channel, as well as a decrease in the sale of audio products of $922,000 to $2,021,000 for the nine months ended September 30, 2012, compared to $2,943,000 for the nine months ended September 30, 2011. The decrease in power product revenue was also partially offset by an increase in sales of batteries of $873,000 to $1,738,000 for the nine months ended September 30, 2012, compared to $865,000 for the nine months ended September 30, 2011, primarily due to increased distribution in Europe and North America.

We are working to continue to broaden our distribution base and expand sales of product categories other than power during 2012 with the goal of reducing our dependence on sales of power products to Walmart and RadioShack.

 

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Cost of revenue, gross profit and gross margin.

Cost of revenue generally consists of costs associated with components, outsourced manufacturing, in-house labor for 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 three and nine months ended September 30, 2012 and 2011 (dollars in thousands):

 

     Three months
Ended

September 30,
2012
    Three months
Ended

September 30,
2011
    Decrease
from same
period in prior
year
    Percentage
change from
same period
in prior year
 

Cost of Revenue

   $ 6,424      $ 7,542      $ (1,118     (14.8 )% 

Gross Profit

     1,507      $ 2,124      $ (617     (29.0 )% 

Gross Margin

     19.0     22.0     (3.0 )%      NA   
     Nine months
Ended

September 30,
2012
    Nine months
Ended

September 30,
2011
    Decrease
from same
period in prior
year
    Percentage
change from
same period
in prior year
 

Cost of Revenue

   $ 19,081      $ 21,942      $ (2,861     (13.0 )% 

Gross Profit

   $ 4,389      $ 7,783      $ (3,394     (43.6 )% 

Gross Margin

     18.7     26.2     (7.5 )%      NA   

The decrease in cost of revenue and gross profit for the three and nine month periods ended September 30, 2012 compared to the same periods in 2011, respectively, was primarily due to the decline in overall sales, shift in product mix, and decline in average selling prices to Walmart and other customers. Labor and overhead expenses, which are mostly fixed, decreased by $200,000 to $1.2 million, or 15.7% of revenue, for the three months ended September 30, 2012, compared to $1.4 million, or 14.3% of revenue, for the three months ended September 30, 2011, and decreased by $475,000 to $4.0 million, or 17.0% of revenue, for the nine months ended September 30, 2012, compared to $4.5 million, or 15.0% of revenue, for the nine months ended September 30, 2011. However, cost of revenue as a percentage of revenue increased to 81.0% and 81.3%, respectively, for the three and nine month periods ended September 30, 2012, from 78.0% and 78.3%, respectively, for the three and nine month periods ended September 30, 2011, primarily due to the decline in overall sales. The decline in gross margin is primarily due to the decline in selling price relating to power products, audio and other accessories.

Sales and marketing.

Sales and marketing expenses generally consist of salaries, commissions, 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 three and nine months ended September 30, 2012 and 2011 (dollars in thousands):

 

     Three months
Ended

September 30,
2012
     Three months
Ended

September 30,
2011
     Decrease
from same
period in prior
year
    Percentage
change from
same period
in prior year
 

Sales and marketing

   $  1,123       $  1,849       $ (726     (39.3 )% 
     Nine Months
Ended

September 30,
2012
     Nine Months
Ended

September 30,
2011
     Decrease
from same
period in prior
year
    Percentage
change from
same period
in prior year
 

Sales and marketing

   $ 4,242       $ 6,051       $ (1,809     (29.9 )% 

The decrease in sales and marketing expenses, for the three months ended September 30, 2012, compared to the three months ended September 30, 2011, primarily resulted from decreases of approximately $177,000 in personnel-related expenses, $394,000 in advertising, market research, public relations and website development expenses, and $105,000 in consulting and professional fees.

 

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The decrease in sales and marketing expenses, for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, primarily resulted from decreases of approximately $673,000 in personnel-related, and $948,000 in advertising, market research, public relations and website development expenses, and $91,000 in consulting and professional fees.

As a percentage of revenue, sales and marketing expenses decreased to 14.2% and 18.0%, respectively, for the three and nine month periods ended September 30, 2012 from 19.1% and 20.4%, respectively, for the three and nine month periods ended September 30, 2011.

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 three and nine months ended September 30, 2012 and 2011 (dollars in thousands):

 

     Three months
Ended

September 30,
2012
     Three months
Ended

September 30,
2011
     Decrease
from same
period in prior
year
    Percentage
change from
same period
in prior year
 

Research and development

   $ 484       $ 769       $ (285     (37.1 )% 
     Nine Months
Ended

September 30,
2012
     Nine Months
Ended

September 30,
2011
     Decrease
from same
period in prior

year
    Percentage
change from
same period
in prior year
 

Research and development

   $ 1,760       $ 1,846       $ (86     (4.7 )% 

The decrease in research and development expenses for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 resulted primarily from the decrease of approximately $203,000 in personnel-related expenses and $75,000 in engineering consulting expenses. As a percentage of revenue, research and development expenses decreased to 6.1% for the three months ended September 30, 2012 from 8.0% for the three months ended September 30, 2011.

The decrease in research and development expenses for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 resulted primarily from the decreases of approximately $99,000 in personnel-related expenses, partially offset by increases of $20,000 in market research, engineering consulting and product certifications. As a percentage of revenue, research and development expenses increased to 7.5% for the nine months ended September 30, 2012 from 6.2% for the nine months ended September 30, 2011.

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 three and nine months ended September 30, 2012 and 2011 (dollars in thousands):

 

     Three months
Ended

September 30,
2012
     Three months
Ended

September 30,
2011
     Decrease
from same
period in prior
year
    Percentage
change from
same period
in prior year
 

General and administrative

   $  1,684       $  1,757       $ (73     (4.2 )% 
     Nine Months
Ended

September 30,
2012
     Nine Months
Ended

September 30,
2011
     Decrease
from same
period in prior
year
    Percentage
change  from

same period
in prior year
 

General and administrative

   $ 5,485       $ 5,837       $ (352     (6.0 )% 

 

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The decrease in general and administrative expenses for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 resulted primarily from a decrease of $146,000 in personnel-related expenses and $103,000 in equity compensation, partially offset by increases in bad debt expense of $60,000, professional fees of $88,000, and employee recruiting of $31,000.

The decrease in general and administrative expenses for the nine months ended September 30, 2012 and 2011 compared to the nine months ended September 30, 2011 resulted primarily from decreases of $120,000 in personnel related expenses, $233,000 in equity compensation, $25,000 in shareholder services, $24,000 in bank fees, and professional fees of $19,000, partially offset by an increase in bad debt expense of $62,000.

General and administrative expenses as a percentage of revenue increased to 21.2% and 23.4%, respectively, for the three and nine month periods ended September 30, 2012 from 18.2% and 19.6%, respectively, for the three and nine month periods ended September 30, 2011.

Interest income, net.

Interest income, net decreased by $10,000 to $3,000 for the three months ended September 30, 2012 compared to $13,000 for the three months ended September 30, 2011, and by $45,000 to $10,000 for the nine months ended September 30, 2012 compared to $55,000 for the nine months ended September 30, 2011. The decreases were primarily due to decreased short-term investment balances during 2012. At September 30, 2012, the average yield on our cash and short-term investments was approximately 0%.

Other income (expense), net.

Other income (expense), net was ($49,000) and $(1,059,000), respectively, for the three and nine month periods ended September 30, 2012 compared to $7,000 and $87,000, respectively, for the three and nine month periods ended September 30, 2011. The decreases were primarily due to the recognition of other-than-temporary impairment charges related to long term investment securities, as discussed in Note 3 to the condensed consolidated financial statements in Part 1, Item 1.

Income taxes.

No provision for income taxes was required for the respective three and nine month periods ended September 30, 2012 or 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 and nine month periods ended September 30, 2012 or September 30, 2011, which at September 30, 2012 totaled approximately $172 million.

(3) Operating Outlook

Historically we have 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 among our traditional customer base. 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 offset the decline in revenue from historical sales of our traditional power products.

 

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We expect to continue to introduce additional mobile electronics accessory products in the future. In order to continue to grow our business and enhance stockholder 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, and product bundling. We expect operating expenses in the remainder of 2012 to decline slightly when compared with 2011 operating expenses, though we continue to see increases in component costs from our primary Asian suppliers. We also are experiencing pricing pressure from our customers.

We continue to work with Texas Instruments on the collaborative development of an integrated circuit based on iGO Green® technology. Based on the latest information provided by the joint development team, we now expect that the integrated circuit will be released to manufacturing no sooner than the second quarter of 2013.

(4) 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 remain there for future growth and investments, and that we will meet liquidity requirements in the United States through ongoing cash flows, cash on hand, external financing or a combination of these. We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal, with a secondary goal of maximizing yield on principal. 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 or liquidity requirements to fund our operations.

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 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, acquisitions and working capital needs of our business, which we expect to continue through 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 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, or any other source of liquidity, 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 to this source of financing at some point in the future.

 

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

 

     Nine Months Ended
September 30,
 
     2012     2011  

Net cash used in operating activities

   $ (3,312   $ (8,055

Net cash provided by investing activities

     2,513        5,462   

Net cash provided by financing activities

     —          —     

Foreign currency exchange impact on cash flow

     (224     (58
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

   $ (1,023   $ (2,651
  

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

   $ 10,290      $ 9,942   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 9,267      $ 7,291   
  

 

 

   

 

 

 

 

   

Net cash used in operating activities. Cash was used in our operating activities for the nine months ended September 30, 2012 to fund operating losses. We expect to continue to use cash in operating activities through the remainder of 2012 to support the anticipated growth of our business.

Our consolidated cash flow operating metrics are as follows:

 

     Nine Months Ended
September 30,
 
     2012      2011  

Days outstanding in ending accounts receivable (“DSOs”)

     49         62   

Inventory turns

     2         2   

The decrease in DSOs at September 30, 2012 compared to September 30, 2011 was primarily due to the decrease in Accounts Receivable, partially offset by the overall decline in revenue for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. We expect DSOs will increase in the remainder of 2012 and 2013 as our revenue base increases. The inventory turnover was unchanged as the overall decline in revenue was offset by a reduction in average inventory. We intend to continue to closely manage inventory during the remainder of 2012 and 2013 and expect inventory turns to increase.

 

   

Net cash provided by investing activities. For the nine months ended September 30, 2012, net cash was generated by investing activities primarily as a result of the sale of short-term investments.

 

   

Net cash provided by financing activities. We had no cash flow from financing activities during the first nine months of 2012 or 2011.

Investments.

At September 30, 2012, our short-term investments in marketable securities included one municipal bond mutual fund with a total fair value of approximately $2.1 million. Our long-term investments consisted of 2,142,858 shares of Pure Energy Visions common stock with a fair value per share equal to $0.051, plus 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 concluded, however, that the unrealized losses on the long-term investments were other-than-temporary and, therefore, recorded impairment charges of $33,000 and $1.0 million during the three and nine months ended September 30, 2012, respectively, to reflect the amortized cost of the securities at fair value of $0.2 million at September 30, 2012.

We believe we have the ability to hold all marketable securities to maturity. However, we may dispose of 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 FASB’s fair value hierarchy, with unrealized gains and losses 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 September 30, 2012 (in thousands):

 

     2012      2013      2014      2015      2016      More than 5
years
 

Operating lease obligations

   $ 114       $ 463       $ 83       $ —         $ —         $ —     

Inventory purchase obligations

     2,006         —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 2,120       $ 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 September 30, 2012, we had approximately $172 million of federal, foreign and state net operating loss carryforwards which expire at various dates. The issuance of our common stock in the future for acquisitions, if any, coupled with prior sales of common stock could cause an annual limitation on the use of our net operating loss carryforwards pursuant to the change in ownership provisions of Section 382 of the Internal Revenue Code of 1986, as amended. This limitation is expected to have a material effect on the timing of our ability to use the net operating loss carryforwards in the future. Additionally, our ability to use the net operating loss carryforwards is dependent upon our future level of profitability, which cannot be determined.

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 through acquisitions, or to fund business operations at any time in the future, it is possible that no third party financing alternatives would be available to us.

(5) Recent Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements in Part I, Item 1 above for a summary of recently issued accounting pronouncements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

 

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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, 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” above for further discussion of our capital structure. Market risk, calculated as the potential change in fair value of our cash and cash equivalents and resulting from a hypothetical 1.0% (100 basis point) change in interest rates, was not material at September 30, 2012.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and other procedures that are designed to ensure that information required to be disclosed in our filings with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. With the participation of the principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2012, and concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

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

 

ITEM 1A. RISK FACTORS

We currently do not have an officer appointed to the position of Chief Financial Officer and can give no assurances as to when, or if, we will locate a suitable candidate to fill the vacant position.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I. “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results.

The risks described herein and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

ITEM 6. EXHIBITS

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

 

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Table of Contents

IGO, INC. AND SUBSIDIARIES

SIGNATURES

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

 

    IGO, INC.
Dated: November 8, 2012     By:  

/s/ Michael D. Heil

      Michael D. Heil
      President and Chief Executive Officer
      (Principal Executive Officer and Principal Financial Officer)

 

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Table of Contents

EXHIBIT INDEX

 

Exhibit
Number

 

Description of Document

    3.1   Certificate of Incorporation of the Company (1)
    3.2   Articles of Amendment to the Certificate of Incorporation of the Company dated as of June 17, 1997 (2)
    3.3   Articles of Amendment to the Certificate of Incorporation of the Company dated as of September 10, 1997 (1)
    3.4   Articles of Amendment to the Certificate of Incorporation of the Company dated as of July 20, 1998 (1)
    3.5   Articles of Amendment to the Certificate of Incorporation of the Company dated as of February 3, 2000 (1)
    3.6   Articles of Amendment to the Certificate of Incorporation of the Company dated as of March 31, 2000 (2)
    3.7   Certificate of Designations, Preferences, Rights and Limitations of Series G Junior Participating Preferred Stock of the Company (3)
    3.8   Certificate of Ownership and Merger Merging iGo Merger Sub Inc. with and into Mobility Electronics, Inc. (4)
    3.9   Certificate of Elimination of Series C, Series D, Series E, and Series F Preferred Stock of the Company (4)
    3.10   Fourth Amended and Restated Bylaws of the Company (5)
  31.1   Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
  32.1   Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101**   XBRL Instance Document
101**   XBRL Taxonomy Extension Schema Document
101**   XBRL Taxonomy Calculation Linkbase Document
101**   XBRL Taxonomy Definition Linkbase Document
101**   XBRL Taxonomy Label Linkbase Document
101**   XBRL Taxonomy Presentation Linkbase Document

 

** Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
* Filed/furnished herewith

 

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Table of Contents
(1) Previously filed as an exhibit to Registration Statement No. 333-30264 dated February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 2 to Registration Statement No. 333-30264 on Form S-1 dated May 4, 2000.
(3) Previously filed as an exhibit to Current Report on Form 8-K filed June 19, 2003.
(4) Previously filed as an exhibit to Current Report on Form 8-K dated May 21, 2008.
(5) Previously filed as an exhibit to Form 10-K for the period ended December 31, 2008.

 

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