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IGOI > SEC Filings for IGOI > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for IGO, INC.


9-May-2013

Quarterly Report


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 consolidated 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.

iGoฎ, iGo Greenฎ, Adapt Mobile ฎ, and Aerial7ฎ 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 2013; 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; 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, 2012 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, 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 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;


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• our ability to mange 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;

• the possibility 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 and Operating Outlook

We design and develop products that make mobile electronic devices more efficient and cost effective, thus allowing professionals and other consumers to better utilize their mobile devices and access information more readily. Our current product offering primarily consists of power, batteries, audio and protection solutions for mobile electronic devices, and we continue to explore opportunities to introduce new accessories for mobile electronics.

We have historically generated the majority of our revenue from the sale of chargers for laptops. However, consumers are increasingly using smartphones and tablets as their primary mobile electronic devices. As a result of this shift, we have seen increased competition and a decline in demand for our power products from our traditional customer base as well as increased competition from retail customers who offer traditional power products under their own private-label brands. Although we have expanded our offering of products beyond our traditional power products to include a variety of accessories to support the increased utilization of smartphones and tablets, including audio, protection, and battery products, the revenue generated from the sales of these products has not yet offset the decline in revenue from historical sales of our traditional power products.

In order to grow our business and enhance stockholder value, we believe it is necessary to continue to expand both our product portfolio and our customer base within the electronics accessory space, while continuing to reduce expenses associated with other product categories. We currently plan that such initiatives will consist of internal product development, product sourcing from third-parties, joint marketing ventures, product bundling, and licensing opportunities. We also have launched initiatives to expand our distribution beyond the consumer retail market 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 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 we believe will ultimately have a positive impact on value creation for our stockholders.


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First Quarter 2013 Highlights

• Total revenue decreased by 32.3% to $5.6 million, compared to $8.2 million for the first quarter of 2012.

• Gross margin decreased to 15.8% as a percentage of total revenue, compared to 17.5% for the first quarter of 2012.

• Total operating expenses decreased by 23.8% to $3.2 million, compared to $4.2 million for the first quarter of 2012.

• Net loss per share was ($0.86), compared to ($0.99) during the first quarter of 2012.

During the first quarter of 2013, we continued to see increases in component costs from our primary Asian suppliers combined with pricing pressure from our customers, most notably from Walmart. In addition, we announced the termination of our contract with Texas Instruments to create an integrated circuit based on iGo Green technology. In response, we continued pursuing actions to reduce costs while simultaneously implementing sales and marketing initiatives intended to develop new and retain existing customer relationships. Though we cannot predict the near or long-term results of these events and initiatives with certainty, we expect that we will continue to incur net losses from operations for the foreseeable future.

(1) Critical Accounting Policies and Estimates

There were no changes in our critical accounting policies during the three months ended March 31, 2013 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, 2012.

(2) Results of Operations

The following table presents certain selected consolidated financial data for the three months ended March 31, 2013 and 2012 expressed as a percentage of total revenue:

                                               Three Months Ended
                                                    March 31,
                                               2013           2012
               Revenue                           100.0 %       100.0 %
               Cost of revenue                    84.2 %        82.5 %

               Gross profit                       15.8 %        17.5 %

               Operating expenses:
               Sales and marketing                15.4 %        19.0 %
               Research and development            8.2 %         7.9 %
               General and administrative         33.7 %        24.2 %

               Total operating expenses           57.3 %        51.1 %

               Loss from operations              (41.5 )%      (33.6 )%
               Other income, net:
               Interest income, net                0.0 %         0.1 %
               Other income (expense), net        (3.2 )%       (0.3 )%

               Net Loss                          (44.7 )%      (33.8 )%


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Comparison of Three Months Ended March 31, 2013 and 2012

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 months ended March 31, 2013 and March 31, 2012 (dollars in
thousands):



                                                                             Percentage
             Three months         Three months        Decrease from         change from
                Ended                Ended           same period in        same period in
            March 31, 2013       March 31, 2012        prior year            prior year
 Revenue   $          5,582     $          8,247     $        (2,665 )               (32.3 )%

Following is a breakdown of revenue by significant account for the three months ended March 31, 2013 and 2012 with the corresponding dollar and percent changes (dollars in thousands):

                                                     For the Three Months Ended March 31,
                                                  2013                                     2012
                                    Sales           % of Total Sales           Sales       % of Total Sales        $ Change        % Change
Walmart                           $    2,544                        46 %      $ 2,019                     24 %     $     525           26.0  %
Hudson Group                             396                         7 %          296                      4 %           100           33.8  %
Aquipa                                   281                         5 %          159                      2 %           122           76.7  %
Micro-P                                  176                         3 %           72                      1 %           104          144.4  %
RadioShack                               167                         3 %        1,334                     16 %        (1,167 )         (87.5 )%
Belkin                                    -                         -             448                      5 %          (448 )        (100.0 )%
All other customers                    2,018                        36 %        3,919                     48 %        (1,901 )         (48.5 )%

                                  $    5,582                       100 %      $ 8,247                    100 %     $  (2,665 )         (32.3 )%

The decrease in revenue for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 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 and The Hudson Group. 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 $314,000 to $464,000 for the three months ended March 31, 2013, compared to $778,000 for the three months ended March 31, 2012, and a decrease in sales of batteries of $223,000 to $435,000 for the three months ended March 31, 2013, compared to $658,000 for the three months ended March 31, 2012.

We are working to continue to broaden our distribution base and expand sales of product categories other than power during 2013 with the goal of reducing our dependence on sales of power products to Walmart.

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 March 31, 2013 and 2012 (dollars in thousands):

                                                                                                              Percentage
                               Three months              Three months             Decrease from              change from
                                  Ended                     Ended                same period in             same period in
                              March 31, 2013            March 31, 2012             prior year                 prior year
Cost of Revenue              $          4,701          $          6,802          $        (2,101 )                    (30.9 )%
Gross Profit                 $            881          $          1,445          $          (564 )                    (39.0 )%
Gross Margin                             15.8 %                    17.5 %                   (1.7 )%                      NA


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The decrease in cost of revenue for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 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 decreased by $470,000 to $930,000, or 16.7% of revenue, for the three months ended March 31, 2013, compared to $1.4 million, or 17.0% of revenue, for the three months ended March 31, 2012. Cost of revenue as a percentage of revenue increased to 84.2% for the three months ended March 31, 2013, from 82.5% for the three months ended March 31, 2012, primarily due to fixed labor and overhead costs being spread over reduced revenue for the three months ended March 31, 2013 when compared to the three months ended March 31, 2012.

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 months ended March 31, 2013 and 2012 (dollars in thousands):

                                                                                                          Percentage
                                Three months            Three months           Decrease from             change from
                                   Ended                   Ended               same period in           same period in
                               March 31, 2013          March 31, 2012            prior year               prior year
Sales and marketing           $            859        $          1,568        $           (709 )                  (45.2 )%

The decrease in sales and marketing expenses, for the three months ended March 31, 2013, compared to the three months ended March 31, 2012, primarily resulted from decreases of approximately $326,000 in personnel-related expenses mainly from reduction in labor force, $189,000 in advertising, market research, public relations and website development expenses, and $142,000 in outside commissions and professional fees.

As a percentage of revenue, sales and marketing expenses decreased to 15.4% for the three months ended March 31, 2013 from 19.0% for the three months ended March 31, 2012.

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 months ended March 31, 2013 and 2012 (dollars in thousands):

                                                                                                              Percentage
                                 Three months             Three months            Decrease from              change from
                                    Ended                    Ended                same period in            same period in
                                March 31, 2013           March 31, 2012             prior year                prior year
Research and development       $            460         $            651         $           (191 )                   (29.3 )%

The decrease in research and development expenses for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 resulted primarily from the decrease of approximately $42,000 in professional fees, $135,000 in engineering consulting expenses and $9,000 in building rent. As a percentage of revenue, research and development expenses increased to 8.2% for the three months ended March 31, 2013 from 7.9% for the three months ended March 31, 2012.

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 months ended March 31, 2013 and 2012 (dollars in thousands):

                                                                                                             Percentage
                                   Three months            Three months           Decrease from             change from
                                      Ended                   Ended               same period in           same period in
                                  March 31, 2013          March 31, 2012            prior year               prior year
General and administrative       $          1,881        $          1,996        $           (115 )                   (5.8 )%


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The decrease in general and administrative expenses for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 resulted primarily from a decrease of $165,000 in personnel-related expenses primarily due to the reduction in labor force, $409,000 in equity compensation, $179,000 in intangible asset amortization expense, and $31,000 in dues and subscriptions, partially offset by increases in bad debt expense of $250,000 and professional fees of $419,000.

General and administrative expenses as a percentage of revenue increased to 33.7% for the three months ended March 31, 2013 from 24.2% for the three months ended March 31, 2012.

Interest income, net.

Interest income, net decreased by $3,000 to $2,000 for the three months ended March 31, 2013 compared to $5,000 for the three months ended March 31, 2012. The decreases were primarily due to decreased short-term investment balances during 2013. At March 31, 2013, the average yield on our cash and short-term investments was approximately 0%.

Other income (expense), net.

Other income (expense), net was ($176,000) for the three months ended March 31, 2013 compared to ($23,000) for the three months ended March 31, 2012. The expense increase was primarily due to foreign exchange losses during the period.

Income taxes.

No provision for income taxes was required for the respective three months ended March 31, 2013 or 2012. 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 our net operating loss carryforwards. We have not, therefore, recorded a tax benefit from our net operating loss carryforwards for the three months ended March 31, 2013 or March 31, 2012, which at March 31, 2013 totaled approximately $176 million.

(3) 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 and working capital needs of our business, which we expect to continue through 2013. 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 . . .

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