Item 1. Business
Our Company
Our vision is to be a globally leading mobile accessories company by providing premium power solutions for laptop computers and electronic mobile devices that elevate the mobile consumer experience across all pursuits and passions. The mobile electronic device market changes rapidly as consumers increasingly integrate smartphones and tablets into their daily business and personal routines. In response to these market dynamics, we have expanded our product offerings beyond traditional laptop battery chargers to include an array of accessories to support the increased utilization of smartphones and tablets, including audio, device protection, and battery products. Increased functionality and the ability to access and manage information remotely are driving the proliferation of mobile electronic devices and applications. The popularity of these devices is increasing due to reductions in size, weight, cost and because of 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 can be accessorized, representing opportunities for one or more of our products.
We design and develop products that make mobile electronic devices more efficient and cost effective, thus enabling professionals and consumers higher utilization of their mobile devices and the ability to access information more readily. Our current product offering primarily consists of power, batteries, audio and protection solutions for mobile electronic devices, and we intend to continue to introduce new accessories for mobile electronic devices.
Power
Power management, which remains our core product line, includes portable power, device power, and laptop power solutions. These products utilize our proprietary iGo Green® technology, which reduces energy consumption and almost completely eliminates standby power. We continually strive to bring to market high quality, uniquely differentiated power solutions that meet our customers’ needs and exceed their expectations.
Batteries
Through our relationship with Pure Energy Solutions (“Pure Energy”), we are the exclusive marketer and distributor of Pure Energy’s patented rechargeable alkaline (RAMcell) batteries to retailers worldwide (excluding China) with non-exclusive distribution rights in Africa. RAMcell batteries are pre-charged and hold a charge for up to seven years. Approximately three billion single-use alkaline batteries are sold annually in the United States. RAMcell batteries provide users an environmentally friendly, cost-effective alternative to disposable alkaline batteries. We believe that RAMcell batteries and related battery chargers are complementary to our power-saving technology and contribute to lower levels of electronic waste.
Audio
As a result of our acquisition of Aerial7 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 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 differentiate our product attributes from our competitors, 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.
Company History
Igo, Inc. (together with its subsidiaries, “iGo”, “we” or the “Company”) was formed as a limited liability company under the laws of the State of Delaware in May 1995, and was converted to a Delaware corporation by a merger effected in August 1996, in which we were the surviving entity. We changed our name from Electronics Accessory Specialists International, Inc. to Mobility Electronics, Inc. on July 23, 1998 and on May 21, 2008 we changed our name to iGo, Inc. Our principal executive office is located at 17800 N. Perimeter Drive, Suite 200, Scottsdale, Arizona 85255, and our telephone number is (480) 596-0061.
Available Information
Our website is www.igo.com. Information on our website is not incorporated by reference into this Form 10-K and should not be considered part of this report or any other filing we make with the SEC. We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. Through a link on the Investor Relations section of the corporate page of our website, we make available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. All such filings are available free of charge.
Our Industry
Over the past two decades, technological advancements in the electronics industry have greatly expanded mobile device capabilities. Mobile electronic devices, which are used extensively for both business and personal purposes, include portable computers, tablets, smartphones and other portable media devices. The popularity of these devices is benefiting from reductions in size, weight and cost and improvements in functionality, storage capacity and reliability. In addition, advances in wireless technology have enabled remote access to data networks and the Internet.
Increased functionality and the ability to access and manage information remotely are driving the proliferation of mobile electronic devices and applications. As the work force becomes more mobile and spends more time away from traditional work settings, users have sought out and become reliant on tools that provide management of critical information and access to wireless voice and data networks. Each of these mobile electronic devices needs to be powered and connected when the user is in his home, in the office, or while travelling, and can be accessorized, representing an opportunity for one or more of our products.
As mobile electronic devices gain widespread acceptance, users will continue to confront limitations on their use, driven by such things as battery life, charging flexibility, damage from daily usage, access to audio and visual capabilities, compatibility issues, data input challenges and performance requirements. Furthermore, as users seek to manage multiple devices in their daily routine, the limitations of any one of these functions may be exacerbated.
Mobile electronic device users usually require the use of their devices while away from their home or office. Many of these mobile devices have limited battery life, which results in the need to frequently connect to a power source to operate the device or recharge the battery. A number of factors limit the efficient use and charging of these devices:
• the majority of chargers are model-specific, requiring a mobile user to carry a dedicated charger for each device;
• mobile electronic devices are generally sold with only one charger, forcing many users to purchase additional chargers for convenience and ease of use; and
• mobile electronic device users tend to carry multiple devices and at times only one power source is available, limiting a user’s ability to recharge multiple devices simultaneously.
The daily usage of mobile electronic devices frequently causes cosmetic damage to, and sometimes impairs the functionality of, these devices. As a result, consumers are increasingly searching for ways to protect their mobile electronic devices and often wish to do so in a manner that’s aesthetically pleasing. These needs have created a growing market opportunity for fashionable protective cases and screens for mobile electronic devices, particularly with respect to higher end products like iPhones®, iPads® and other portable media devices.
The increased functionality of smartphones and portable media devices, including features such as enhanced audio- and video-playing capabilities, has increased the need for audio accessories like headphones and speakers. Consumers are also demanding more functionality from these audio accessories, including high-quality sound output, volume controls and communication capabilities, such as an in-line microphone, that allow the consumer to not only hear, but also communicate with others. In addition to increased functionality, consumers also desire audio accessories that are fashionable and reflect their personal tastes. These consumer demands provide a market opportunity for high-quality, fashionable headphones.
Our Strategy
We intend to capitalize on our current strategic position in the mobile electronic device market by continuing to introduce innovative power, battery, audio and protection products that suit the needs of a broad range of users of these devices. It is our goal is to attach our products and technology to every mobile electronic device and to be a market leader in providing unique and innovative solutions for mobile users. Elements of our strategy include the following:
Continue To Develop Innovative Products. We have a history of designing and developing differentiated products to serve the needs and enhance the experience of mobile electronic device users. We intend to continue to develop and market a broad range of differentiated power and complementary products that address additional markets in which we choose to compete.
Broaden Distribution of Our Products. To expand the market availability of our products, we plan to develop relationships with a broader set of retailers and wireless carriers, some of whom may be served through distribution partners. We expect that these relationships will allow us to diversify our customer base, create a predictable revenue stream and decrease our traditional reliance upon a limited number of private label resellers. We also expect that these relationships will significantly increase the availability and exposure of our products, particularly among large national and international retailers and wireless carriers.
Our Products and Solutions
Power. Historically, the majority of our business was derived from the sale of chargers for laptops which are frequently referred to as “high-power” products. However, the mobile electronic device market changes rapidly and has recently seen increased consumer adoption and use of smartphones and tablets that require comparatively lower power, but long-lasting charges from “device-power” chargers and other products. We continue to offer a range of traditional high-power solutions for laptops and in response to market dynamics have added, and continue to add, device-power solutions for other mobile electronic devices. Overall sales of power products represented approximately 81%, 79% and 94% of our total revenue for the years ended December 31, 2012, 2011 and 2010, respectively.
Batteries. Through our relationship with Pure Energy, we are the exclusive marketer and distributor of Pure Energy’s RAMcell batteries to retailers worldwide (excluding China) with non-exclusive distribution rights in Africa. RAMcell batteries are pre-charged and hold a charge for up to seven years. Approximately three billion single-use alkaline batteries are sold annually in the United States. RAMcell batteries provide users an environmentally friendly, cost-effective alternative to disposable alkaline batteries. We believe that RAMcell batteries and related battery chargers are complementary to our power-saving technology and contribute to lower levels of electronic waste. Sales of battery products represented approximately 7% and 5% of our total revenue for the years ended December 31, 2012 and December 31, 2011, respectively. For the year ended December 31, 2010, we had no sales of battery products.
Audio. Our audio solutions include our line of headphones and portable speakers which allow consumers to use their mobile electronic devices for both entertainment and communication. Our line of audio products offer consumers the ability to both communicate with others via an in-line microphone that can be used with a portable computer, mobile phone or other portable media device, as well the ability to listen to music or video from these devices. Similar to our protection products, our line of audio products is also fashionably designed, allowing consumers to express their unique and personal style. Sales of audio products represented approximately 8%, 11% and 1% of our total revenue for the years ended December 31, 2012, 2011 and 2010, respectively.
Protection. Our protection solutions, including cases, skins and protective screens, utilize innovative materials and unique designs to protect mobile electronic devices, while simultaneously complementing or enhancing the design of the device. Currently, our protection solutions are primarily marketed in Europe. Sales of protection products represented approximately 2%, 3% and 1% of our total revenue for the years ended December 31, 2012, 2011 and 2010, respectively.
Other Accessories. Our other accessories solutions primarily include portable computer stands and other miscellaneous mobile electronic accessories. Sales of other accessory products represented approximately 2%, 2% and 4% of our total revenue for the years ended December 31, 2012, 2011 and 2010, respectively.
Sales and Marketing
We market and sell our products on a worldwide basis to retailers, resellers, distributors, wireless carriers and directly to end users through our iGo.com and Aerial7 websites. Our sales organization is primarily aligned with our core retail and distribution channels and geographies throughout North America, Europe and Asia. During 2012, approximately 89% of our sales were through retailers and distributors and approximately 5% of our sales were through private label resellers and OEMs.
Our total global revenue consisted of the following regional results for the year ended December 31, 2012: Americas sales of $24.4 million, or 82% of our global consolidated revenue; European sales of $4.5 million, or 15% of our global consolidated revenue; and Asia Pacific sales of $1.0 million, or 3% of our global consolidated revenue.
We have implemented a variety of marketing activities to market our family of products including participation in major trade shows, key distribution catalogs, distribution promotions, reseller and information technology manager advertising, on-line advertising and banner ads, direct mail and bundle advertisements with retail and distribution channel partners and cooperative advertising with our retail partners.
Customers
We are dependent upon a relatively small number of customers for a significant portion of our revenue, including most notably Wal-Mart and RadioShack. We intend to develop relationships with a broader set of retailers and resellers to expand the market availability of our products. Our goal is that these relationships will allow us to diversify our customer base, add stability and decrease our traditional reliance upon a limited number of retailers and resellers. These relationships could significantly increase the availability and exposure of our products, particularly among large national and international retailers and wireless carriers, however we give no assurance we could expand our customer base in a manner that would significantly reduce our current customer concentration.
We sell to resellers, such as Microcel, retailers, such as Wal-Mart, RadioShack and Office Depot, private label resellers, such as Belkin, and directly to end users through our iGo.com and Aerial7 websites. Sales to Wal-Mart and RadioShack accounted for 41% of revenue for the year ended December 31, 2012, compared to 31% for the year ended December 31, 2011 and 51% for the year ended December 31, 2010. No customer other than Wal-Mart or RadioShack accounted for greater than 10% of sales for the year ended December 31, 2012. The loss of Wal-Mart or RadioShack would likely have a material adverse effect on our business. For our distribution and retail customers, we build product and maintain inventory at various third-party warehouses that are under our control until these customers place, and we fulfill, purchase orders for this product. For private label resellers, we build product to the private label resellers’ orders, who take possession of the inventory upon delivery to a freight forwarder. For various retailers, we retain ownership of inventory until the product sells through to consumers.
As is generally the practice in our industry, a portion of our sales to distributors and retailers is generally under terms that provide for stock balancing return privileges and price protection. Accordingly, we make a provision for estimated sales returns and other allowances related to those sales. Returns, which are netted against our reported revenue, were approximately 8% of revenue for the year ended December 31, 2012, 5% of revenue for the year ended December 31, 2011, and 3% of revenue for the year ended December 31, 2010. Also, as is generally the practice in our industry, our OEM and private-label reseller customers have return rights only in the event that our product is defective. Accordingly, we make a provision for estimated defective product warranty claims for these customers. Defective product warranty claims were approximately 1% of revenue or less for the years ended December 31, 2012, 2011 and 2010.
Backlog
Our backlog at February 15, 2013 was approximately $1.7 million, compared with a backlog of approximately $2.3 million at February 21, 2012. Backlog includes orders confirmed with a purchase order for products scheduled to be shipped within 90 days to customers with approved credit status. Because of the generally short cycle between order and shipment and because of occasional customer changes in delivery schedules and order cancellations (which are made without significant penalty), we do not believe that our backlog, as of any particular date, is necessarily indicative of actual net sales for any future period.
Research and Development
Our research and development efforts focus primarily on enhancing our current products and developing innovative new products to address a variety of mobile electronic device needs and requirements. We work with customers, prospective customers and outsource partners to identify and implement new solutions intended to meet the current and future needs of the markets we serve.
As of December 31, 2012, our research and development group consisted of seven people who are responsible for hardware and software design and product testing. Electrical design services are outsourced under the supervision of our in-house research and development group. Amounts spent on research and development for the years ended December 31, 2012, 2011, and 2010 were $2.2 million, $2.4 million, and $1.5 million, respectively.
On March 27, 2013, Texas Instruments terminated its agreement with iGO, Inc. to create an integrated circuit based on iGO Green technology, after multiple technical issues were encountered during the development process.
Manufacturing and Logistics
In order to manufacture our products cost-effectively, we have implemented a strategy to outsource substantially all of the manufacturing services for our products. Our internal activities are focused on design, low-volume manufacturing and quality testing and our outsourced manufacturing providers are focused on high-volume manufacturing and logistics.
Most of our products are currently manufactured in China. In addition to providing manufacturing services, a number of our suppliers also provide us with design and development services.
We purchase the principal components of our products from outside vendors. The terms of supply contracts are negotiated by us or our manufacturing partners with each vendor. We believe that our present vendors have sufficient capacity to meet our supply requirements and that alternative production sources for most components are generally available without interruption. However, several vendors are sole sourced. In order to ensure timely delivery of products to customers, from time to time, we issue letters of authorization to our suppliers that authorize them to secure long lead components in advance of purchase orders for products. Further information about commitments and contingencies relating to letters of authorization is contained in Note 16 to the Consolidated Financial Statements contained in this Annual Report on Form 10-K.
We employ the services of an outsourced logistics company to efficiently manage the packaging and shipment of our iGo, iGo Green, and Aerial7 branded products to our various retail and distribution channels. The majority of our private-label products are shipped by our outsource manufacturers to our private-label reseller customers or to their fulfillment hubs.
Competition
The market for our products is intensely competitive, subject to rapid change and sensitive to new product introductions or enhancements and marketing efforts by industry participants. The principal competitive factors affecting the markets for our product offerings include corporate and product reputation, innovation with frequent product enhancement, breadth of integrated product line, product design, functionality and features, product quality, performance, ease-of-use, support and price. Although we believe that our products compete favorably with respect to such factors, there can be no assurance that we can maintain our competitive position against current or potential competitors, especially those with greater financial, marketing, service, support, technical or other competitive resources. However, we believe that our innovative products, coupled with our strategic relationships with private-label resellers, retailers, resellers, distributors, and wireless carriers provide us with a competitive advantage in the marketplace. In particular, our power products, we compete with products offered by low-cost manufacturers, specialized third-party mobile computing accessory companies such as Zagg, Skullcandy, Targus and Kensington, and retailer and OEM private label product offerings, including those offered by RadioShack, HP and Best Buy.
Proprietary Rights
We seek to establish and maintain proprietary rights in our technology and products through the use of patents, copyrights, trademarks, and trade secret laws. We have a program to file applications for and obtain patents, copyrights, and trademarks in the United States and in selected foreign countries where we believe filing for such protection is appropriate. We also seek to maintain our trade secrets and confidential information by nondisclosure policies and through the use of appropriate confidentiality agreements. There can be no assurance, however, that the rights we have obtained can be successfully enforced against infringing products in every jurisdiction. Although we believe the protection afforded by our patents, copyrights, trademarks, and trade secrets has value, the rapidly changing technology in our industry and uncertainties in the legal process make our future success dependent primarily on the innovative skills, technological expertise, and management abilities of our employees rather than on the protection afforded by patent, copyright, trademark, and trade secret laws.
Some of our products may include software or other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe, based upon past experience and standard industry practice, that such licenses generally could be obtained on commercially reasonable terms. Nonetheless, there can be no assurance that the necessary licenses would be available on acceptable terms, if at all. Our inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could have a material adverse effect on our business, operating results, and financial condition. Moreover, inclusion in our products of software or other intellectual property licensed from third parties on a nonexclusive basis may limit our ability to protect our proprietary rights in our products.
There can be no assurance that our patents and other proprietary rights will not be challenged, invalidated, or circumvented; that others will not assert intellectual property rights to technologies that are relevant to us; or that our rights will give us a competitive advantage. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as the laws of the United States.
Employees
As of December 31, 2012 we had 38 full-time employees, 20 located in the United States, 9 located in Asia, 5 located in Europe and 4 located in Australia, including 12 employed in operations, 7 in research and development, 13 in sales and marketing and 5 in administration. We engage temporary employees from time to time to augment our full time employees, generally in operations. None of our employees are covered by a collective bargaining agreement. We believe we have good relationships with our employees.
Item 1A.
Item 1A. Risk Factors
This section highlights specific risks that could affect us and our business. You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting us. However, the risks and uncertainties that we face are not limited to those described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.
If any of the following risks and uncertainties develops into actual events or the circumstances described in the risks and uncertainties occur, these events or circumstances could have a material adverse effect on our business, financial condition or results of operations. These events could also have a negative effect on the trading price of our securities.
Risks Related To Our Business
If our revenue is not sufficient to absorb our expenses, we will not be profitable in the future.
We have experienced significant operating losses since inception and, as of December 31, 2012, have an accumulated deficit of $154 million. We intend to make expenditures on an ongoing basis to support our operations, primarily from cash generated from operations and, if available, from lines of credit, as we develop and introduce new products and expand into new markets. If we do not achieve revenue growth sufficient to absorb our planned expenses, we will experience additional losses in future periods. In addition, there can be no assurance that we will achieve or sustain profitability.
Our future success is dependent on market acceptance of our products. If the market acceptance for our products does not grow, we will not be able to increase or sustain our revenue, and our business will be severely harmed. If we do not achieve widespread market acceptance of our power products and technology, we may not be able to maintain our existing revenue or achieve anticipated revenue. For example, we currently derive a material portion of our revenue from the sale of our power products and we anticipate that a material portion of our revenue in the foreseeable future will continue to be derived from our family of power products. We can give no assurance that the power product category, or the protection and audio product categories, will develop sufficiently to cover our expenses and costs. Moreover, our products may not achieve widespread market acceptance if:
• we lose, or fail to replace, any significant retail or distribution partners;
• we fail to expand or protect our proprietary rights and intellectual property;
• we fail to complete development of these products in a timely manner;
• we fail to achieve the performance criteria required of these products by our customers; or
• competitors introduce similar or superior products.
In addition, our universal chargers include a feature that allows a single version of these products to be used with almost any mobile electronic device. In recent years, many mobile electronic device manufacturers have designed their products in such a way as to limit the use of universal devices with their devices, which has reduced the applicability of universal charger products and limited the market acceptance of our power products. If we are unable to successfully adapt to this trend, it may adversely affect our sales and overall financial performance.
If we fail to continue to introduce new products and product enhancements that achieve broad market acceptance on a timely basis, we will not be able to compete effectively, and we will be unable to increase or maintain our revenue.
The market for our products is highly competitive and in general is characterized by rapid technological advances, changing customer needs and evolving industry standards. If we fail to continue to introduce new products and product enhancements that achieve broad market acceptance on a timely basis, we will not be able to compete effectively, and we will be unable to increase or maintain our revenue. Our future success will depend in large part upon our ability to:
• develop, in a timely manner, new products and services that keep pace with developments in technology and customer expectations;
• cover potentially higher manufacturing costs of new products and meet potentially new manufacturing requirements;
• deliver new products and services through changing distribution channels; and
• respond effectively to new product announcements by our competitors by quickly introducing competing products.
We may not be successful in developing and marketing, on a timely and cost-effective basis, either enhancements and expectations to existing products or new products that respond to technological advances and satisfy increasingly sophisticated customer needs. If we fail to introduce or sell innovative new products, our operating results may suffer. In addition, if new industry standards emerge that we do not anticipate or adapt to, our products could be rendered obsolete and our business could be materially harmed. Alternatively, any delay in the development of technology upon which our products are based could result in our inability to introduce new products as planned. For example, on March 27, 2013, Texas Instruments terminated its agreement with iGO, Inc. to create an integrated circuit based on iGO Green technology, after multiple technical issues were encountered during the development process. The success and marketability of technology and products developed by others is beyond our control.
We have experienced delays in releasing new products in the past, which resulted in lower quarterly revenue than expected. Further, our efforts to develop new and similar products could be delayed due to unanticipated manufacturing requirements and costs. Delays in product development and introduction could result in:
• loss of or delay in revenue and loss of market share;
• negative publicity and damage to our reputation and brand;
• decline in the average selling price of our products and decline in our overall gross margins; and
• adverse reactions in our sales and distribution channels.
We depend on large purchases from significant customers, notably Wal-Mart and RadioShack, and any loss, cancellation or delay in purchases by these customers could cause a shortfall in revenue, excess inventory and inventory holding or obsolescence charges.
We have historically derived a substantial portion of our revenue from a relatively small number of customers. For example, Wal-Mart and RadioShack together comprised 41% of our revenue for the year ended December 31, 2012. For the year ended December 31, 2012, Wal-Mart alone represented 28% of our revenue. Neither Wal-Mart nor RadioShack has a minimum purchase requirement and can stop purchasing our products at any time and with very short notice. In addition, including Wal-Mart and RadioShack, most of our customer agreements are short term and non-exclusive and provide for purchases on a purchase order basis. RadioShack has reduced its orders from us, by potentially greater than 75%, for 2013, and if Wal-Mart reduces, delays or cancels orders with us, and we are not able to sell our products to new customers at comparable levels, our revenue could decline significantly and could result in excess inventory and inventory holding or obsolescence charges. In addition, any difficulty in collecting amounts due from Wal-Mart and RadioShack would negatively impact our result of operations and working capital.
Our success is largely dependent upon our ability to expand and diversify our customer base, while simultaneously continuing to retain and build our relationships with Wal-Mart and RadioShack.
We derive a substantial portion of our revenue from Wal-Mart and RadioShack, and any adverse change in our relationships with Wal-Mart or RadioShack would have a material adverse effect on our business. If Wal-Mart or RadioShack discontinued purchasing our products, our revenues and net income would decline significantly. For example, sales to RadioShack are expected to decline significantly during the 2013 fiscal year. Our results will be materially harmed if similar declines occur in the future with respect to any significant customer and we are unsuccessful in our efforts to replace declining sales to existing customers with increasing sales to new customers. Thus, our success depends upon our continued ability to retain and build upon our relationship with Wal-Mart, while simultaneously generating relationships with new customers, particularly retail customers willing to sell our products to consumers under our iGo brand.
Although we are attempting to expand our customer base, we cannot assure you that we will be able to retain our largest customers, Wal-Mart and RadioShack, or that we will be able to attract additional customers, or that our customers will continue to buy our products in the same amounts as in prior years. The loss of Wal-Mart or RadioShack, any reduction or interruption in sales to Wal-Mart in addition to the recent reductions in sales to RadioShack, our inability to successfully develop relationships with additional customers or future price concessions that we may have to make could significantly harm our business.
Increased focus by consumer electronics retailers on their own private label brands could cause us to lose shelf space with our existing retail customers and make it more difficult to have our products assorted at new retail customers.
We believe there is an increasing focus by consumer electronics retailers, such as RadioShack and Best Buy, to concentrate an increasing portion of their product assortments within their own private label products. One of our largest customers, RadioShack, sells its own private label brand of power products that compete directly with our power products. These private label lines compete directly with our product lines and may receive prominent positioning on the retail floor by these retailers. Competition has been intense in recent years and is expected to continue. Failure to appropriately respond to these trends or to offer effective sales incentives and marketing programs to our customers could reduce our ability to secure adequate shelf space at our retail customers or generate new sales opportunities with new customers and could adversely affect our financial performance or limit our potential for achieving revenue growth.
Increased reliance upon Wal-Mart and RadioShack, as well as other distributors and resellers, for the sale of our products will subject us to additional risks, and the failure to adequately manage these risks could have a material adverse impact on our operating results.
The inability to accurately forecast the timing and volume of orders for sales of products to resellers and distributors during any given quarter could adversely affect operating results for such quarter and, potentially, for future periods. For example, if we underestimate sales, we will not be able to fill orders on a timely basis, which could cause customer dissatisfaction and loss of future business. Conversely, if we overestimate sales, we will experience increased costs from inventory storage, waste, and obsolescence.
The loss of Wal-Mart, RadioShack or any other large reseller or distributor customers, would materially harm our business. While we currently have a limited number of reseller and distributor agreements, none of these customers are obligated to purchase products from us. Consequently, any reseller or distributor could cease doing business with us at any time. Our dependence upon Wal-Mart and RadioShack, along with a few other resellers and distributors results in a significant concentration of credit risk, thus a substantial portion of our trade receivables outstanding from time to time are often concentrated among a limited number of customers. In addition, many of these customers also have or distribute competing products. If Wal-Mart, RadioShack, or our other reseller and distributor customers elect to increase the marketing of competing products or reduce the marketing of our products, our ability to grow our business will be negatively impacted and will adversely impact revenues.
Additional risks associated with our reseller and distributor business include the following:
• the termination of reseller and distributor agreements or reduced or delayed orders;
• difficulty in predicting sales to reseller and distributors who do not have long-term commitments to purchase from us, which requires us to maintain sufficient inventory levels to satisfy anticipated demand;
•
lack of visibility of end user customers and revenue recognition and channel inventory issues related to sales by resellers and distributors;
•
resellers and distributors electing to resell, or increase their marketing of, competing products or technologies or reduced marketing of our products; and
•
changes in corporate ownership, financial condition, business direction, or sales compensation related to our products, or product mix by the resellers and distributors.
Any of these risks could have a material adverse effect on our business, financial condition, and results of operations.
Our operating results are subject to significant fluctuations, and if our results are worse than expected, our stock price could fall.
Our operating results have fluctuated in the past, and may continue to fluctuate in the future. The market price for our common stock has declined significantly in recent quarters, and may continue to decline if our actual operating results in future quarters are below the expectations of securities analysts and investors. The factors that may cause our operating results to fall short of expectations include:
•
market acceptance of our products;
•
the size and timing of customer orders;
•
increases in product costs from our suppliers;
•
our suppliers’ ability to perform under their contracts with us;
•
the timing of our new product and technology introductions and product enhancements relative to our competitors or changes in our or our competitors’ pricing policies;
•
our ability to effectively manage inventory levels;
•
delay or failure to fulfill orders for our products on a timely basis;
•
our inability to accurately forecast our contract manufacturing needs;
•
difficulties with new product production implementation or supply chain;
•
product defects and other product quality problems;
•
the degree and rate of growth of the markets in which we compete and the accompanying demand for our products;
•
our ability to expand our internal and external sales forces and build the required infrastructure to meet anticipated growth; and
•
seasonality of sales.
Many of these factors are beyond our control. For these reasons, you should not rely on period-to-period comparisons and short-term fluctuations of our financial results to forecast our future long-term performance.
Our inventory management is complex and failure to properly manage inventory growth may result in excess or obsolete inventory, the write-down of which may negatively affect our operating results.
Our inventory management is complex as we are required to balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory overstock and obsolescence because of rapidly changing technology and customer requirements. In addition, the need to carefully manage our inventory could increase if we acquire additional customers who require us to maintain certain minimum levels of inventory on their behalf, as well as provide them with inventory return privileges. Our customers may also increase orders during periods of product shortages, cancel orders if their inventory is too high, or delay orders in anticipation of new products. They may adjust their orders in response to the supply of our products and the products of our competitors that are available to them and in response to seasonal fluctuations in end-user demand. If we ultimately determine that we have excess or obsolete inventory, we may have to reduce our prices and write-down inventory, which in turn could result in reduced operating results.
The average selling prices of our products may decrease over their sales cycles, especially upon the introduction of new products, which may negatively affect our gross margins.
Our products typically experience a reduction in the average selling prices over their respective sales cycles. Further, as we introduce new or next generation products, sales prices of previous generation products may decline substantially. In order to sell products that have a falling average selling price and maintain margins at the same time, we need to continually reduce product and manufacturing costs. Furthermore, we typically invoice international customers in their local currency and our revenue and gross margins could be negatively impacted by fluctuations in the currencies where our international customers are located. To manage manufacturing costs, we must collaborate with our third-party manufacturers to engineer the most cost-effective design for our products. There can be no assurances we will be successful in our efforts to reduce these costs and, in some situations, we may even incur price increases from our suppliers. In order to keep our manufacturing costs down, we must carefully manage the price paid for components used in our products as well as manage our freight and inventory costs. If we are unable to reduce the product and manufacturing cost of older products as newer products are introduced or effectively manage cost increases for our products, our average gross margins may decline.
Acquisitions could have negative consequences, which could harm our business.
We have acquired businesses, products or technologies that complement or expand our current capabilities. For example, in 2010 we acquired Adapt and Aerial7 and we recorded impairment charges of $1.4 million and $2.3 million related to these acquisitions in 2012 and 2011, respectively. Additional acquisitions could require significant capital infusions and could involve many risks including, but not limited to, the following:
•
difficulty integrating, products, product roadmaps, technologies, systems, processes, and operations, including product delivery, order management, and information systems;
•
difficulty in conforming the acquired company’s financial policies and practices to our policies and practices and in implementing and maintaining adequate internal systems and controls over the financial reporting and information systems of the acquired company;
•
diversion of management’s attention and disruption of ongoing business;
•
difficulty in combining product and technology offerings and entering into new markets or geographical areas in which we have no or limited direct experience and where our competitors may have stronger market positions;
•
loss of management, sales, technical, or other key personnel;
•
revenue from the acquired companies not meeting our expectations, and the potential loss of the acquired companies’ customers, distributors, resellers, suppliers, or other partners;
•
delays or difficulties and the attendant expense in evaluating, coordinating, and combining administrative, manufacturing, sales, research and development and other operations, facilities, and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures, including financial controls and controls over information systems;
•
difficulty in completing projects associated with acquired in-process research and development;
•
incurring amortization expense related to intangible assets and recording goodwill and non-amortizable assets that will be subject to impairment testing and possible impairment charges;
•
dilution of existing stockholders as a result of issuing equity securities, including the assumption of any stock options or other equity awards issued by the acquired company;
•
overpayment for any acquisition or investment or unanticipated costs or liabilities;
•
responsibility for the liabilities of the acquired company, including any potential intellectual property infringement claims or other litigation; and
•
incurring substantial write-offs, restructuring charges, and transactional expenses.
Our failure to manage these risks and challenges could materially harm our business, financial condition, and results of operations. Further, if we do not successfully address these challenges in a timely manner, we may not fully realize all of the anticipated benefits or synergies on which the value of a transaction was based. Future transactions could cause our financial results to differ from expectations of market analysts or investors for any given quarter, which could, in turn, cause a decline in our stock price.
We outsource the manufacturing and fulfillment of our products, which limits our control of the manufacturing process and could result in unanticipated cost increases or cause a delay in our ability to fill orders.
Most of our products are produced under contract manufacturing arrangements with manufacturers in China. Our reliance on third-party manufacturers exposes us to risks that are not in our control, such as unanticipated cost increases or negative fluctuations in currency, which could negatively impact our results of operations and working capital. Any termination of or significant disruption in our relationship with our manufacturers may prevent us from filling customer orders in a timely manner, as we generally do not maintain large inventories of our products, and will negatively impact our revenue.
We source our products from independent manufacturers who purchase components and other raw materials. Our use of contract manufacturers reduces control over costs, product quality and manufacturing yields. We depend upon our contract manufacturers to deliver products that are competitive in cost, free from defects and in compliance with our specifications and delivery schedules. Moreover, although arrangements with such manufacturers may contain provisions for warranty obligations on the part of contract manufacturers, we remain primarily responsible to our customers for warranty obligations. Disruption in supply, a significant increase in the cost of the assembly of our products, failure of a contract manufacturer to remain competitive in price, the failure of a contract manufacturer to comply with our procurement needs or the financial failure or bankruptcy of a contract manufacturer could delay or interrupt our ability to manufacture or deliver our products to customers at a competitive price or on a timely basis. In addition, regulatory agencies and legislatures in various countries, including the United States, have undertaken reviews of product safety, and various proposals for additional, more stringent laws and regulations are under consideration. Current or future laws or regulations may become effective in various jurisdictions in which we currently operate and may increase our costs and disrupt our business operations.
We generally provide our third-party contract manufacturers with a rolling forecast of demand which they use to determine our material and component requirements. Lead times for ordering materials and components vary significantly and depend on various factors, such as the specific supplier, contract terms and supply and demand for a component at a given time. Some of our components have long lead times. For example, certain electronic components used in our chargers have lead times that range from six to ten weeks. If our forecasts are less than our actual requirements, our contract manufacturers may be unable to manufacture products in a timely manner. If our forecasts are too high, our contract manufacturers will be unable to use the components they have purchased on our behalf, which may require us to purchase the components from them before they are used in the manufacture of our products.
We rely on contract fulfillment providers to warehouse our finished goods inventory and to ship our products to our customers. We do not have long-term contracts with our fulfillment providers. Any termination of or significant disruption in our relationship with our fulfillment providers may prevent customer orders from being fulfilled in a timely manner, as it would require that we relocate our finished goods inventory to another warehouse facility and arrange for shipment of products to our customers.
Our reliance on sole sources for key components may inhibit our ability to meet customer demand.
The principal components of our products are purchased from outside vendors. Several of these vendors are our sole source of supply. We do not have long-term supply agreements with the manufacturers of these components.
We depend upon our suppliers to deliver components that are free from defects, competitive in functionality and cost and in compliance with our specifications and delivery schedules. Disruption in supply, a significant increase in the cost of one or more components, failure of a supplier to remain competitive in functionality or price, the failure of a supplier to comply with any of our procurement needs or the financial failure or bankruptcy of a supplier could delay or interrupt our ability to manufacture or deliver our products to customers on a timely basis.
Any termination of or significant disruption in our relationship with our suppliers may prevent us from filling customer orders in a timely manner as we generally do not maintain large inventories of components or products. In the event that a termination or disruption were to occur, we would have to find and qualify an alternative source. The time it would take to complete this process would vary based upon the size of the supplier base and the complexity of the component or product and could divert our management resources and be costly. Delays could range from as little as a few days to several months, and, in some cases, a suitable alternative may not be available at all.
We have experienced returns of our products, which could in the future harm our reputation and negatively impact our operating results.
In the past, some of our customers have returned products to us because the product did not meet their expectations, specifications or requirements. These returns were approximately 8% of revenue for the year ended December 31, 2012, 5% for the year ended December 31, 2011, and 3% for the year ended December 31, 2010. It is likely that we will experience some level of returns in the future and these levels may be difficult to estimate. A portion of our sales to distributors is generally under terms that provide for certain stock balancing privileges. Under the stock balancing programs, some distributors are permitted to return up to 15% of their prior quarter’s purchases, provided that they place a new order for equal or greater dollar value of the amount returned.
Also, returns may adversely affect our relationship with those customers and may harm our reputation. This could cause us to lose potential customers and business in the future. We record a reserve for future returns at the time revenue is recognized. We believe the reserve is adequate given our historical level of returns. If returns increase, however, our reserve may not be sufficient and operating results could be negatively affected.
We may have design quality and performance issues with our products that may adversely affect our reputation and our operating results.
A number of our products are based on new technology and the designs are complex. As such, they may contain undetected errors or performance problems, particularly during new or enhanced product launches. Despite product testing prior to introduction, our products have in the past, on occasion, contained errors that were discovered after commercial introduction. Any future defects discovered after shipment of our products could result in loss of sales, delays in market acceptance or product returns and warranty costs. We attempt to make adequate allowance in our new product release schedule for testing of product performance. Because of the complexity of our products, however, our release of new products may be postponed should test results indicate the need for redesign and retesting, or should we elect to add product enhancements in response to customer feedback. In addition, third-party products, upon which our products are dependent, may contain defects which could reduce or undermine the performance of our products and adversely affect our operating results.
We may incur product liability claims which could be costly and could harm our reputation.
The sale of our products involves risk of product liability claims against us. We currently maintain product liability insurance, but our product liability insurance coverage is subject to various coverage exclusions and limits and may not be obtainable in the future on terms acceptable to us, or at all. We do not know whether claims against us with respect to our products, if any, would be successfully defended or whether our insurance would be sufficient to cover liabilities resulting from such claims. Any claims successfully brought against us could harm our business.
If we fail to protect our intellectual property our business and ability to compete could suffer.
Our success and ability to compete are dependent upon our internally developed technology and know-how. We rely primarily on a combination of patent protection, copyright and trademark laws, trade secrets, nondisclosure agreements and technical and data security measures to protect our proprietary rights. While we have certain patents and patents pending, there can be no assurance that patents pending or future patent applications will be issued or that, if issued, those patents will not be challenged, invalidated or circumvented or that rights granted thereunder will provide meaningful protection or other commercial advantage to us. Moreover, there can be no assurance that any patent rights will be upheld in the future or that we will be able to preserve any of our other intellectual property rights.
We typically enter into confidentiality, non-compete or invention assignment agreements with our key employees, distributors, customers and potential customers, and limit access to, and distribution of, our product design documentation and other proprietary information. There can be no assurance that our confidentiality agreements, confidentiality procedures, noncompetition agreements or other factors will be adequate to deter misappropriation or independent third-party development of our technology or to prevent an unauthorized third-party from obtaining or using information that we regard as proprietary. Litigation efforts may be necessary in the future to defend our intellectual property rights and would likely result in substantial cost to us and a diversion from management’s focus on core business issues.
We may be subject to intellectual property infringement claims that are costly to defend and could limit our ability to use certain technologies in the future.
The laws of some foreign countries do not protect or enforce proprietary rights to the same extent as do the laws of the United States, and the right to a patent in the United States recently changed from a first to invent to a first to file basis. We cannot be sure that our products or technologies do not infringe patents that may be granted in the future pursuant to pending patent applications or that our products do not infringe any patents or proprietary rights of third parties. In the event that any relevant claims of third-party patents are upheld as valid and enforceable, we could be prevented from selling our products or could be required to obtain licenses from the owners of such patents or be required to redesign our products to avoid infringement. There can be no assurance that such licenses would be available or, if available, would be on terms acceptable to us or that we would be successful in any attempts to redesign our products or processes to avoid infringement. Our failure to obtain these licenses or to redesign our products would have a material adverse effect on our business.
There can be no assurance that our competitors will not independently develop technology similar to our existing proprietary rights. We expect that our products will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. There can be no assurance that third parties will not assert infringement claims against us in the future or, if infringement claims are asserted, that such claims will be resolved in our favor. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms favorable to us, if at all. In addition, litigation may be necessary in the future to protect our trade secrets or other intellectual property rights, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources.
If we continue to lose key personnel, and if we are unable to hire and retain additional qualified personnel as necessary, or, we may not be able to successfully manage our business or achieve our objectives.
We experienced significant reductions in work force during 2012, which may limit our ability to ability to increase sales and grow our business in the future. We believe our future success will depend in large part upon our ability to identify, attract, hire and retain highly skilled executive, managerial, engineering, sales and marketing, finance and operations personnel. Competition for personnel in the technology industry is intense, and we compete for personnel against numerous companies, including larger, more established companies with significantly greater financial resources. There can be no assurance we will have the financial resources to, nor be successful in our efforts to identify, attract, hire and retain personnel.
Our success also depends to a significant degree upon the continued contributions of our key executives, management, engineering, sales and marketing, finance and manufacturing personnel, many of whom would be difficult to replace. We have experienced the departure of various key executive officers in 2012 and 2013, including the departure of our former Chief Financial Officer, and can give no assurances as to when, or if, we will locate suitable candidates to fill the vacant positions. These departures, and our ability to fill the vacancies, may adversely affect our business operations and financial performance.
We do not maintain key person life insurance on any of our executive officers. The loss of the services of any other of our key executives or other personnel, and the inability to identify, attract, hire or retain qualified personnel in the future could make it difficult for us to manage our business and meet key objectives, such as timely product introductions, and could negatively impact our financial performance
We may not be able to secure additional financing to meet our future capital needs.
We currently rely on cash flow from operations and cash on hand to fund our operating and capital needs. We may, in the future, expend significant capital to further develop our products, increase awareness of our brand names, expand our sales, operating and management infrastructure, and pursue opportunities to acquire businesses, products or technologies that complement or expand our current capabilities. We may also use capital more rapidly than currently anticipated. Additionally, we may incur higher operating expenses and generate lower revenue than currently expected, and we may be required to access external financing to satisfy our operating and capital needs. We may be unable to secure financing on terms acceptable to us, or at all, at the time when we need such funding. If we raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.
Risks Related To Our Industry
Intense competition in the market for mobile electronic devices could adversely affect our revenue and operating results.
The market for mobile electronic devices in general is intensely competitive, subject to rapid changes and sensitive to new product introductions or enhancements and marketing efforts by industry participants. We expect to experience significant and increasing levels of competition in the future, including competition from private label brands offered by consumer electronics retailers. There can be no assurance that we can maintain our competitive position against current or potential competitors, including our own retail customers, especially those with greater financial, marketing, service, support, technical or other competitive resources.
We currently compete with the internal design efforts of various OEMs. These OEMs have larger technical staffs, more established and larger marketing and sales organizations and significantly greater financial resources than we do. Such competitors may respond more quickly than we do to new or emerging technologies and changes in customer requirements, may devote greater resources to the development, sale and promotion of their products better than we do or may develop products that are superior to our products or that achieve greater market acceptance.
Our future success will depend, in part, upon our ability to increase sales in our targeted markets. There can be no assurance that we will be able to compete successfully with our competitors or that the competitive pressures we face will not have a material adverse effect on our business. Our future success will depend in large part upon our ability to increase our share of our target market and to sell additional products and product enhancements to existing customers. Future competition may result in price reductions, reduced margins or decreased sales.
Should the market demand for mobile electronic devices decrease, we may not achieve anticipated revenue.
The demand for the majority of our products and technology is primarily driven by the underlying market demand for mobile electronic devices. Should the growth in demand for mobile electronic devices be inhibited, we may not be able to increase or sustain revenue. Industry growth depends in part on the following factors:
•
general micro and macro-economic conditions and decreases in demand for mobile electronic devices resulting from recessionary conditions;
•
increased demand by consumers and businesses for mobile electronic devices; and
•
the number and quality of mobile electronic devices in the market.
The market for our products and services depends on economic conditions affecting the broader information technology market. Prolonged weakness in this market could cause customers to reduce their overall information technology budgets or reduce or cancel orders for our products. In this environment, our customers or end users may experience financial difficulty, cease operations and fail to budget or reduce budgets for the purchase of our products and services. This, in turn, may lead to longer sales cycles, delays in purchase decisions, payment and collection, and may also result in downward price pressures, causing us to realize lower revenue and operating margins. In addition, general economic uncertainty can make it difficult to predict changes in the purchasing requirements of our customers and the markets we serve. Some businesses have and may curtail or suspend capital spending on information technology. These factors may cause our revenue and operating margins to decline.
If our products fail to comply with domestic and international government regulations, or if these regulations result in a barrier to our business, our revenue could be negatively impacted.
Our products must comply with various domestic and international laws, regulations and standards. For example, the shipment of our products from the countries in which they are manufactured to other international or domestic locations requires us to obtain export licenses and to comply with possible import restrictions of the countries in which we sell our products. In the event that we are unable or unwilling to comply with any such laws, regulations or standards, we may decide not to conduct business in certain markets. Particularly in international markets, we may experience difficulty in securing required licenses or permits on commercially reasonable terms, or at all. In addition, we are generally required to obtain both domestic and foreign regulatory and safety approvals and certifications for our products. Failure to comply with existing or evolving laws or regulations, including export and import restrictions and barriers, or to obtain timely domestic or foreign regulatory approvals or certificates could negatively impact our revenue.
Economic conditions, political events, war, terrorism, public health issues, natural disasters and other circumstances could have a material adverse effect on our operations and performance.
Our operations and performance, including collection of our accounts receivable, depend significantly on worldwide economic conditions and their impact on levels of consumer spending. Some of the factors that could influence the levels of consumer spending include volatility in fuel and other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs, increased unemployment (particularly with office workers), access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors have had, and could continue to have, a material adverse effect on demand for our products and services and on our financial condition and operating results.
In addition, war, terrorism, geopolitical uncertainties, public health issues, and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us and our suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters, fire, power shortages, terrorist attacks, and other hostile acts, labor disputes, public health issues, and other events beyond our control. Such events could decrease demand for our products, make it difficult or impossible for us to make and deliver products to our customers or to receive components from our suppliers, and create delays and inefficiencies in our supply chain. Should major public health issues, including pandemics, arise, we could be negatively affected by more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of our manufacturing vendors and component suppliers.
Risks Related To Our Common Stock
Our failure to comply with the NASDAQ Capital Market continued listing standards may adversely affect the price and liquidity of our shares of common stock as well as our ability to raise capital in the future.
NASDAQ imposes certain standards that a company must satisfy in order to maintain the listing of its securities on the NASDAQ Capital Market. Among other things, these standards require that a company’s shares have a minimum closing bid price at or above $1.00. On February 23, 2012, we received a letter from NASDAQ indicating that the bid price of our common stock for the preceding 30 consecutive business days had closed below the minimum $1.00 per share required to maintain its NASDAQ listing. The letter also stated that we had been provided an initial compliance period of 180 calendar days, or until August 21, 2012, to regain compliance with the minimum bid price requirement. On August 22, 2012, we received a letter from NASDAQ granting us an additional 180-day period, or until February 19, 2013, to regain compliance with the minimum bid price requirement in order to retain the listing of our common stock on the NASDAQ Capital Market.
Effective January 28, 2013, we amended our Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio of 1-for-12. The primary purposes of the reverse stock split was to increase the per-share market price of our common stock in order to maintain its listing on NASDAQ, encourage investor interest in the Company, and promote greater liquidity for our existing stockholders. On February 20, 2013, we received a letter from NASDAQ confirming that we had regained compliance with the minimum bid price requirement for continued listing on the NASDAQ Capital Market.
Although the reverse stock split allowed us to regain compliance with the minimum bid price requirement and prevent NASDAQ from delisting our common stock, it is possible that, even if an increased per-share price can be maintained, we may not be able to continue to satisfy the additional criteria for continued listing of our common stock set forth by NASDAQ. As of the date of issuance of this report, we were in compliance with all applicable continued listing requirements. However, we cannot assure you that we will be successful in continuing to meet all such requirements in the future.
Our common stock price has been volatile, which could result in substantial losses for stockholders.
Our common stock is currently traded on The NASDAQ Capital Market. We have in the past experienced, and may in the future experience, limited daily trading volume. The trading price of our common stock has been and may continue to be volatile. The market for technology companies, in particular, has at various times experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may significantly affect the trading price of our common stock, regardless of our actual operating performance. The trading price of our common stock could be affected by a number of factors, including, but not limited to, changes in expectations of our future performance, changes in estimates by securities analysts (or failure to meet such estimates), quarterly fluctuations in our sales and financial results and a variety of risk factors, including the ones described elsewhere in this report. Periods of volatility in the market price of a company’s securities sometimes result in securities class action litigation, which regardless of the merit of the claims, can be time-consuming, costly and divert management’s attention. In addition, if we needed to raise equity funds under adverse conditions, it would be difficult to sell a significant amount of our stock without causing a significant decline in the trading price of our stock.
Our executive officers, directors and principal stockholders have substantial influence over us.
As of March 25, 2013, our executive officers, directors and principal stockholders owning greater than 5% of our outstanding common stock together beneficially owned approximately 25.7% of the outstanding shares of common stock. As a result, these stockholders, acting together, may be able to exercise substantial influence over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. The concentration of ownership may also have the effect of delaying or preventing a change in our control that may be viewed as beneficial by the other stockholders.
Provisions of our certificate of incorporation and bylaws could make a proposed acquisition that is not approved by our board of directors more difficult.
Some provisions of our certificate of incorporation and bylaws could make it more difficult for a third-party to acquire us even if a change of control would be beneficial to our stockholders. These provisions include:
•
authorizing the issuance of preferred stock, with rights senior to those of the common stockholders, without common stockholder approval;
•
prohibiting cumulative voting in the election of directors;
•
a staggered board of directors, so that no more than two of our four directors are elected each year; and
•
limiting the persons who may call special meetings of stockholders.
Our stockholder rights plan may make it more difficult for others to obtain control over us, even if it would be beneficial to our stockholders.
In June 2003, our board of directors adopted a stockholders rights plan. Pursuant to its terms, we have distributed a dividend of one right for each outstanding share of common stock. These rights cause substantial dilution to the ownership of a person or group that attempts to acquire us on terms not approved by our board of directors and may have the effect of deterring hostile takeover attempts. These provisions could discourage a future takeover attempt which individual stockholders might deem to be in their best interests or in which stockholders would receive a premium for their shares over current prices.
Delaware law may delay or prevent a change in control.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law. These provisions prohibit large stockholders, in particular a stockholder owning 15% or more of the outstanding voting stock, from consummating a merger or combination with a corporation, unless this stockholder receives board approval for the transaction, or 66 2/3% of the shares of voting stock not owned by the stockholder approve the merger or transaction. These provisions could discourage a future takeover attempt which individual stockholders might deem to be in their best interests or in which stockholders would receive a premium for their shares over current prices.
Our stock price may decline if additional shares are sold in the market.
As of March 25, 2013, we had 2,897,809 shares of common stock outstanding, as adjusted for the 1-for-12 reverse stock split. All of our outstanding shares are currently available for sale in the public market, some of which are subject to volume and other limitations under the securities laws. Future sales of substantial amounts of shares of our common stock by our existing stockholders in the public market, or the perception that these sales could occur, may cause the market price of our common stock to decline. We may be required to issue additional shares upon exercise of previously granted options and warrants that are currently outstanding.
As of March 25, 2013, we had (i) 49.444 shares of common stock issuable upon the vesting of restricted stock units under our long-term incentive plan and other outstanding awards; and (ii) 207,396 shares were available for future issuance under our current long-term incentive plan, as adjusted for the 1-for-12 reverse stock split. We also had warrants outstanding to purchase 417 shares of common stock, as adjusted for the 1-for-12 reverse stock split. The vesting of outstanding restricted stock units could result in increased sales of our common stock in the market, which could exert significant downward pressure on our stock price. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
Our corporate offices are located in Scottsdale, Arizona. This facility consists of approximately 21,000 square feet of leased space pursuant to a lease for which the current term expires on February 28, 2014. We also lease offices in Los Angeles, California, the United Kingdom and Shenzhen and Dong Guan, China. Each of these offices supports our selling, research and development, and general administrative activities. The majority of our warehouse and product fulfillment operations are conducted at various third-party locations throughout the world. We believe our facilities are suitable and adequate for our current business activities for the remainder of the lease terms.
Item 3.
Item 3. Legal Proceedings
We are, from time to time, party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Although litigation is inherently uncertain, based on past experience and the information currently available, our management does not believe that any currently pending and threatened litigation or claims will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting period.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on The NASDAQ Capital Market under the symbol “IGOI.” Effective January 28, 2013, we amended our Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio of 1-for-12. The primary purpose of the reverse stock split was to increase the per-share market price of our common stock in order to maintain our listing on NASDAQ. The following sets forth, for the period indicated, the high and low sales prices for our common stock as reported by The NASDAQ Capital Market, as adjusted retroactively for the 1-for-12 reverse stock split.
As of March 25, 2013, there were 2,897,809 shares of our common stock outstanding held by approximately 199 holders of record. This figure does not include an estimate of the number of “street name” holders or beneficial holders of our common stock whose shares are held of record by banks, brokers and other financial institutions. The last reported sale price of our common stock on The NASDAQ Capital Market on March 25, 2013 was $3.22 per share.
Dividend Policy
We have never paid cash dividends on our common stock, and it is the current intention of management to retain earnings to finance the growth of our business. Future payment of cash dividends will depend upon financial condition, results of operations, cash requirements, tax treatment, and certain corporate law requirements, as well as other factors deemed relevant by our Board of Directors.
Issuer Purchases of Equity Securities
During the fourth quarter of 2012, there were no repurchases made by us or on our behalf, or by any “affiliated purchasers,” of shares of our common stock.
Item 6.
Item 6. Selected Financial Data
The Company is a smaller reporting company under Rule 12b-2 of the Exchange Act and therefore is not required to provide the information set forth by Item 301 of Regulation S-K.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our selected consolidated financial data and the consolidated financial statements and notes thereto contained in this report. The following discussion contains forward-looking statements. Our actual results may differ significantly from the results discussed in these forward-looking statements. Please see the “Disclosure Concerning Forward-Looking Statements” and “Risk Factors” above for a discussion of factors that may affect our future results.
Overview
Our vision is to be a globally leading mobile accessories company by providing premium power solutions for laptop computers and electronic mobile devices that elevate the mobile consumer experience across all pursuits and passions. The mobile electronic device market changes rapidly as consumers increasingly integrate smartphones and tablets into their daily business and personal routines. 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 can be accessorized, representing opportunities for one or more of our products.
We design and develop products that make mobile electronic devices more efficient and cost effective, thus enabling professionals and consumers higher utilization of their mobile devices and the ability to access information more readily. Our current product offering primarily consists of power, batteries, audio and protection solutions for mobile electronic devices, and we intend to continue to introduce new accessories for mobile electronic devices.
Power
Power management, which remains our core product line, includes portable power, device power, and laptop power solutions. These products utilize our proprietary iGO Green® technology, which reduces energy consumption and almost completely eliminates standby power. We continually strive to bring to market high quality, uniquely differentiated power solutions that meet our customers’ needs and exceed their expectations.
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. Approximately three billion single-use alkaline batteries are sold annually in the United States. RAMcell batteries provide users an environmentally friendly, cost-effective alternative to disposable alkaline batteries. We believe that RAMcell batteries and related battery chargers are complementary to our power-saving technology and contribute to lower levels of electronic waste
Audio
As a result of our acquisition of Aerial7 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 notably our iGo Green technology, our ability to generate additional major customers, and general economic conditions. Additionally, we must execute on the customer relationships that we have developed and continue to design, develop, manufacture and market new and innovative technology and products that are embraced by these customers and the overall market.
Recent Developments
As of January 28, 2013, we effected a 1-for-12 reverse stock split, primarily to increase the per-share market price of our common stock in order to maintain its listing on the NASDAQ Capital Market. As a result of the reverse stock split, each twelve shares of the Company’s common stock issued and outstanding immediately prior to the reverse stock split were automatically combined into one share of common stock. In addition, the number of shares of common stock underlying all outstanding equity awards, the number of shares available for issuance, and the exercise price, grant price or purchase price, as applicable, relating to any award under our stock plans, were proportionately adjusted based on the 1-for-12 split ratio in accordance with their terms. No fractional shares of common stock were issued in connection with the reverse stock split. Stockholders of record who otherwise would be entitled to receive fractional shares became entitled to a cash payment in lieu of any fractional shares. Unless otherwise noted, all share and per share amounts in this annual report have been retrospectively adjusted to reflect the reverse stock split.
On February 4, 2013, the Company announced that it had implemented a number of cost-savings initiatives that resulted in a reduction in its workforce and that are expected to reduce annual operating expenses.
On March 27, 2013, Texas Instruments terminated its agreement with iGO, Inc. to create an integrated circuit based on iGO Green technology, after multiple technical issues were encountered during the development process.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make a number of estimates and judgments which impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to bad debt expense, warranty obligations, inventories, sales returns and price protection, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Revenue Recognition. Revenue from product sales is generally recognized upon shipment and transfer of ownership from us or our contract manufacturers to our customers. Allowances for sales returns and credits are provided for in the same period the related sales are recorded. Should the actual return or sales credit rates differ from our estimates, revisions to our estimated allowance for sales returns and credits may be required.
Our recognition of revenue from product sales to distributors, resellers and retailers, or the “retail and distribution channel,” is affected by agreements we have with certain customers giving them rights to return up to 15% of their prior quarter’s purchases, provided that the customer places a new order for an equal or greater dollar value of the amount returned. We also have agreements with certain customers that allow them to receive credit for subsequent price reductions, or “price protection.” At the time we recognize revenue related to these agreements, we reduce revenue for the gross sales value of estimated future returns, as well as our estimate of future price protection. We also reduce cost of revenue for the gross product cost of estimated future returns. We record an allowance for sales returns in the amount of the difference between the gross sales value and the cost of revenue as a reduction of accounts receivable. We also have agreements with certain customers that provide them with a 100% right of return prior to the ultimate sale to an end user of the product. Accordingly, we have recorded deferred revenue of $307,000 as of December 31, 2012 and $1,305,000 as of December 31, 2011, which we expect to recognize as revenue when the product is sold to the end user. Gross sales to the retail and distribution channel accounted for approximately 89% of revenue for the year ended December 31, 2012 and 86% of revenue for the year ended December 31, 2011.
Historically, a correlation has existed between the amount of retail and distribution channel inventory and the amount of returns that actually occur. The greater the inventory held by our distributors, the more product returns we expect. As part of our effort to reach an appropriate accounting estimate for returns, for each of our products, we monitor levels of product sales and inventory at our distributors’ warehouses and at retailers. In estimating returns, we analyze historical returns, current inventory in the retail and distribution channel, current economic trends, changes in consumer demand, the introduction of new competing products and market acceptance of our products.
In recent years, as a result of a combination of the factors described above, we have reduced our gross sales to reflect our estimated amounts of returns and price protection. It is possible that returns could increase rapidly and significantly in the future. Accordingly, estimating product returns requires significant judgment on the part of management. Slight differences in the assumptions management uses to estimate sales returns could have a material impact on our reported sales and thus could have a material impact on the presentation of the results of our operations.
Inventory Valuation. Inventories consist of finished goods and component parts purchased both partially and fully assembled. We experience all the typical risks and rewards of inventory held by contract manufacturers. Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories include material, labor and overhead costs. Labor and overhead costs are allocated to inventory based on a percentage of material costs. We monitor usage reports to determine if the carrying value of any items should be adjusted due to lack of demand. We make a downward adjustment to the value of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Deferred Tax Valuation Allowance. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which we operate. Historically, we have recorded a deferred tax valuation allowance in an amount equal to our net deferred tax assets. If we determine that we will ultimately be able to utilize all or a portion of deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released to income as a credit to income tax expense. During 2010, we released $1,002,000 of the valuation allowance as a result of deferred tax liabilities incurred in connection with the acquisitions of Adapt and Aerial7.
Goodwill and Long-Lived Asset Valuation. We test goodwill for impairment on an annual basis as of October 1. The goodwill impairment evaluation process is based on both a discounted future cash flows approach and a market comparable approach. The discounted cash flows approach uses our estimates of future market growth rates, market share, revenue and costs, as well as appropriate discount rates. We evaluated goodwill for impairment as of October 1, 2011 and determined that recorded goodwill was impaired at that time. We test our recorded long-lived assets whenever events indicate the recorded intangible assets may be impaired. Our long-lived asset impairment approach is based on an undiscounted cash flows approach. As a result of the assessment of goodwill impairment at October 1, 2011, we tested long-lived assets for impairment at that time and determined some of these assets were impaired. As a result of the assessment of additional goodwill impairment at October 1, 2012, we tested long-lived assets for impairment at that time and determined all of these assets in connection with the acquisition of Aerial7 were impaired. We have recorded long-lived asset impairment charges in the past, and if we fail to achieve our assumed growth rates or assumed gross margin, we may incur additional charges for impairment in the future.
Investments. 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 value.
Results of Operations
The following table sets forth certain consolidated financial data for the periods indicated expressed as a percentage of total revenue for the periods indicated:
Comparison of Years Ended December 31, 2012, 2011, and 2010
Revenue. Revenue generally consists of sales of products, net of returns and allowances. To date, our revenues have come predominantly from our laptop chargers. The following table summarizes the year-over-year comparison of our consolidated revenue for the periods indicated (dollars in thousands):
Following is a breakdown of revenue by significant account for the years ended December 31, 2012, 2011 and 2010 with corresponding dollar and percent changes (dollars in millions):
The 2012 decrease in revenue was primarily due to declines in sales volume of power products to Belkin and all other customers combined with a decline in average selling price for power products to Wal-Mart, partially offset by an increase in sales volume to Wal-Mart. 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 audio and protection product lines which contributed $2.5 million to revenue for the year ended December 31, 2012, compared to $5.4 million for the year ended December 31, 2011. The decrease in power product revenue was also partially offset by an increase in sales of batteries of $467,000 to $2.2 million for the year ended December 31, 2012, compared to $1.8 million for the year ended December 31, 2011 primarily due to increased distribution in Europe and North America.
The 2011 decrease in revenue was primarily due to the decreases in sales to RadioShack and Belkin, as indicated in the table above, as a result of a shift in RadioShack’s retail strategy to place greater emphasis on its own private label brands during 2011. This decrease in revenue was partially offset by the addition of battery, audio and protection product lines as a result of Adapt and Aerial7 acquisitions in the second half of 2010 and the establishment of our Pure Energy relationship in the first quarter of 2011, combined with increases in sales to Wal-Mart as indicated in the table above. The battery, audio and protection product lines contributed $7.2 million to revenue for the year ended December 31, 2011, compared to $892,000 for the year ended December 31, 2010, and the corresponding revenue is included in the table above under the caption “All other customers”.
Cost of revenue, gross profit and gross margin. Cost of revenue generally consists of costs associated with components, outsourced manufacturing and in-house labor associated with assembly, testing, packaging, shipping and quality assurance, depreciation of equipment and indirect manufacturing costs. Gross profit is the difference between revenue and cost of revenue. Gross margin is gross profit stated as a percentage of revenue. The following tables summarize the year-over-year comparison of our cost of revenue, gross profit and gross margin for the periods indicated (dollars in thousands):
Cost of revenue:
Gross profit and gross margin:
The 2012 decrease in cost of revenue and corresponding decrease in gross margin for the year ended December 31, 2012 compared to the year ended December 31, 2011 were primarily due to the decline in overall sales, shift in product mix, and decline in average selling prices to Wal-Mart and other customers. Labor and overhead expenses decreased by $1.5 million to $5.1 million, or 17.1% of revenue, for the year ended December 31, 2012, compared to $6.6 million, or 17.2% of revenue, for the year ended December 31, 2011. The decrease in labor and overhead costs during 2012 was primarily due to decreases of $599,000 in third-party logistics costs, $384,000 in allowances for excess and obsolete inventory, $703,000 in offsite labor and supplies, and $181,000 in cycle count adjustments. Despite the decrease in labor and overhead costs, total cost of revenue as a percentage of revenue increased to 82.3% for the year ended December 31, 2012, from 77.9% for the year ended December 31, 2011, primarily due to the decline in overall sales and the fixed nature of certain of our costs. The decline in gross margin is primarily due to the decline in selling price relating to power products, audio and other accessories.
The 2011 increase in cost of revenue and corresponding decrease in gross margin were due primarily to a decrease in average direct margin, which excludes labor and overhead costs, to 39.4% for the year ended December 31, 2011 compared to 47.1% for the year ended December 31, 2010, as a result of increased product costs, reduced sales prices and shifts in product mix. Also contributing to the increase in cost of revenue and the corresponding decrease in gross margin was an increase in labor and overhead costs, which are mostly fixed, of $626,000, or 10.4% to $6.6 million for the year ended December 31, 2011, compared to $6.0 million for the year ended December 31, 2010. The increase in labor and overhead costs during 2011 was primarily due to increases of $375,000 in third-party logistics costs, $270,000 in allowances for excess and obsolete inventory, and $136,000 in cycle count adjustments. As a result of these factors, cost of revenue, as a percentage of revenue, increased to 77.9% for the year ended December 31, 2011, from 66.8% for the year ended December 31, 2010.
Sales and marketing. Sales and marketing expenses generally consist of salaries, commissions and other personnel-related costs of our sales, marketing and support personnel, advertising, public relations, promotions, printed media and travel. The following table summarizes the year-over-year comparison of our sales and marketing expenses for the periods indicated (dollars in thousands):
The 2012 decrease in sales and marketing expenses primarily resulted from decreases in advertising, market research, and personnel-related expenses. Specifically, marketing, advertising and promotional expenses decreased $1.1 million or 52.4%, to $1.0 million for the year ended December 31, 2012, compared to $2.1 million for the year ended December 31, 2011. In addition, there was a decrease in personnel-related and consulting expenses of $860,000, or 19.3%, to $3.6 million for the year ended December 31, 2012, compared to $4.5 million for the year ended December 31, 2011. As a percentage of revenue, sales and marketing expenses decreased to 17.5% for the year ended December 31, 2012 from 20.1% for the year ended December 31, 2011.
The 2011 decrease in sales and marketing expenses primarily resulted from decreases in advertising and market research expenses. Specifically, marketing and advertising expenses decreased $465,000 or 36.2%, to $820,000 for the year ended December 31, 2011, compared to $1.3 million for the year ended December 31, 2010. Partially offsetting these decreases was an increase in personnel-related and consulting expenses of $332,000, or 8.0%, to $4.5 million for the year ended December 31, 2011, compared to $4.1 million for the year ended December 31, 2010. As a percentage of revenue, sales and marketing expenses increased to 20.1% for the year ended December 31, 2011 from 18.0% for the year ended December 31, 2010.
Research and development. Research and development expenses consist primarily of salaries and personnel-related costs, outside consulting, lab costs and travel-related costs of our product development group. The following table summarizes the year-over-year comparison of our research and development expenses for the periods indicated (dollars in thousands):
The decrease in research and development expenses in 2012 resulted primarily from the decreases of approximately $68,000 in personnel-related expenses, or 4.2% to $1.5 million for the year ended December 31, 2012, compared to $1.6 million for the year ended December 31, 2011. Non-recurring engineering expenses decreased by $83,000, or 32.4% to $174,000 for the year ended December 31, 2012, compared to $257,000 for the year ended December 31,2011, primarily due to continued delay in the development of our power-saving microchip with Texas Instruments, a project that was terminated by Texas Instruments on March 27, 2013. Professional consulting expenses decreased by $46,000, or 29.3% to $111,000 for the year ended December 31, 2012, compared to $157,000 for the year ended December 31, 2011. As a percentage of revenue, research and development expenses increased to 7.4% for the year ended December 31, 2012 from 6.1% for the year ended December 31, 2011.
The increase in research and development expenses in 2011 resulted primarily from the increases of approximately $556,000 in personnel-related expenses, or 51.8% to $1.6 million for the year ended December 31, 2011, compared to $1.1 million for the year ended December 30, 2010, primarily due to the addition of personnel from the Adapt and Aerial7 acquisitions and severance payments associated with a reduction in personnel. Non-recurring engineering expenses increased by $221,000, or 604.1% to $257,000 for the year ended December 31, 2011, compared to $36,000 for the year ended December 31,2010, primarily due to the development of our power-saving microchip with Texas Instruments, a project that was terminated by Texas Instruments on March 27, 2013. Professional consulting expenses increased by $62,000, or 65.8% to $157,000 for the year ended December 31, 2011, compared to $95,000 for the year ended December 31, 2010. As a percentage of revenue, research and development expenses increased to 6.1% for the year ended December 31, 2011 from 3.5% for the year ended December 31, 2010.
General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related expenses of our finance, human resources, information systems, corporate development and other administrative personnel, as well as facilities, legal and other professional fees, depreciation and amortization and related expenses. The following table summarizes the year-over-year comparison of our general and administrative expenses for the periods indicated (dollars in thousands):
The 2012 decrease in general and administrative expenses resulted from decreases in equity compensation and amortization expenses of approximately $403,000, or 12.6%, to $2.8 million for the year ended December 31, 2012, compared to $3.2 million for the year ended December 31, 2011, primarily due to a reduction in staffing during 2012. In addition, there was a decrease in personnel-related expenses of approximately $258,000, or 16.1%, to $1.4 million for the year ended December 31, 2012, compared to $1.6 million for the year ended December 31, 2011, which was partially offset by an increase in consulting and legal professional fees of approximately $314,000, or 70.2%, to $762,000 for the year ended December 31, 2012, compared to $448,000 for the year ended December 31, 2011. General and administrative expenses, as a percentage of revenue increased to 23.6% for the year ended December 31, 2012, from 20.2% for the year ended December 31, 2011.
The 2011 increase in general and administrative expenses resulted from increases in equity compensation and amortization expenses of approximately $650,000, or 28.0%, to $3.2 million for the year ended December 31, 2011, compared to $2.5 million for the year ended December 31, 2010, primarily due to the Adapt and Aerial7 acquisitions. Partially offsetting this increase was a decrease in personnel-related expenses of approximately $316,000, or 16.3%, to $1.6 million for the year ended December 31, 2011, compared to $1.9 million for the year ended December 31, 2010. General and administrative expenses, as a percentage of revenue increased to 20.2% for the year ended December 31, 2011, from 17.5% for the year ended December 31, 2010.
Asset impairment. Asset impairment expense consists of expenses associated with impairment write-downs of goodwill and amortizable intangible assets. As of October 1, 2012, our annual impairment testing date, as a result of a significant decline the fair value of the Aerial7 reporting unit, we determined goodwill in the amount of $285,000 related to our 2010 acquisition of Aerial7 was impaired. In conjunction with the goodwill impairment, we determined a triggering event had occurred that caused us to evaluate amortizable assets related to Aerial7 for impairment. Based on lower-than-anticipated sales of audio products, we determined amortizable intangible assets with a remaining net book value of $1,158,000 related to Adapt were impaired. As of October 1, 2011, our annual impairment testing date, as a result of a significant decline in our overall market capitalization, we determined goodwill in the amount of $269,000 related to our 2010 acquisition of Adapt Mobile and $1.4 million related to our 2010 acquisition of Aerial7 was impaired. In conjunction with the goodwill impairment, we determined a triggering event had occurred that caused us to evaluate amortizable assets related to Adapt and Aerial7 for impairment. Based on lower-than-anticipated sales of protection products, we determined amortizable intangible assets with a remaining net book value of $579,000 related to Adapt were impaired. We determined the amortizable intangible assets recorded in connection with the Aerial7 acquisition were not impaired. A total asset impairment charge of $2.3 million related to the impairment of goodwill and amortizable intangible assets was recorded for the year ended December 31, 2011. We also evaluated goodwill for impairment as of October 1, 2010, and determined goodwill was not impaired as of that date. Accordingly, no asset impairment charge was recorded for the year ended December 31, 2010.
Interest income, net. Interest income, net consists primarily of interest earned on our cash balances and short-term investments. The following table summarizes the year-over-year comparison of interest income, net for the periods indicated (dollars in thousands):
The 2012 decrease in interest income was primarily due to decreased short-term investment balances during 2012 due to usage of those investments to fund operating losses and working capital requirements. The 2011 decrease in interest income was primarily due to collection in full of notes receivable during 2010 and decreased short-term investment balances during 2011 due to usage of those investments to fund operating losses and working capital requirements. The average yield on our cash and short-term investments at December 31, 2012 was less than 1%, consistent with the average yield in 2011. The 2010 decrease in interest income was primarily due to the use of cash to fund acquisitions.
Gain (loss) on disposal of assets and other income (expense), net. Gain (loss) on disposal of assets and other income, net consists of the net proceeds received from the disposal of assets, less the remaining net book value of the disposed assets and other income in connection with the collection of notes receivable that had been previously deferred in connection with the sale of the assets of our handheld software and hardware product lines. The following table summarizes the year-over-year comparison of gain on disposal of assets for the periods indicated (dollars in thousands):
The 2010 gain was due primarily to the reversal of valuation allowances against notes receivable from Mission and Cradlepoint. The note receivable from Mission was originally issued in connection with its purchase of the assets of our expansion and docking product line in April 2007 and subsequently repaid in full in April 2010, which resulted in the reversal of a valuation allowance and corresponding recognition of a gain of $1,700,000. The note receivable from Cradlepoint was originally issued in connection with its purchase of the assets of our handheld connectivity product line in February 2007. Subsequent to December 31, 2010, the note, which had an uncollected balance of $118,000 was paid in full. Since the note was deemed collectible, the related valuation allowance was reversed and the Company recognized the remaining $118,000 of gain related to the transaction.
Other-than-temporary impairment of long-term investments. The 2012 loss of ($1,161,000) was due to the recognition of other-than-temporary impairment charges related to long term investment securities discussed in Note 6 to the consolidated financial statements.
Income taxes. Based on historical operating losses and projections for future taxable income, it is more likely than not that we will not fully realize the benefits of the net operating loss carryforwards. We have not, therefore, recorded a tax benefit from our net operating loss carryforwards for the year ended December 31, 2012, which at December 31, 2012 were $173.7 million for federal purposes.
As the result of the acquisitions of Adapt and Aerial7, we recorded a $1,002,000 tax benefit for the year ended December 31, 2010. The tax benefit relates to a deferred tax liability resulting from acquired intangible assets that are not expected to be deductible for income tax purposes. As our deferred tax assets, net of deferred tax liabilities, are fully valued at zero, the impact of recording this deferred tax liability resulted in a release of a portion of our deferred tax asset valuation allowance, and is recorded as income tax benefit for the year ended December 31, 2010.
Operating Outlook
We have historically generated the majority of our revenue from the sale of chargers for laptops. However, consumers are increasingly using smartphones and tablets as their primary mobile electronic devices. As a result of this shift, we have seen increased competition and a decline in demand for our power products from our traditional customer base. For example, during 2012, we faced increased competition from retail customers who began offering traditional power products under their own private-label brands, including RadioShack. Although we have expanded our offering of products beyond our traditional power products to include a variety of accessories to support the increased utilization of smartphones and tablets, including audio, protection, and battery products, the revenue generated from the sales of these products has not yet offset the decline in revenue from historical sales of our traditional power products.
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 the initiatives will consist of internal product development, sourcing products from third-parties, joint marketing ventures, product bundling, and licensing opportunities. We also have initiatives to expand our distribution beyond consumer retail with the intent to sell products into the enterprise, government and education channels. All of these initiatives are designed to leverage the inherent strengths of our business, most notably, our strong balance sheet, our compelling portfolio of intellectual property, and our established brand and relationships with major retailers. As we continue to execute on this vision, we believe we can improve our ability to drive higher levels of revenue and earnings, which will ultimately have a positive impact on value creation for our stockholders.
We continue to see increases in component costs from our primary Asian suppliers combined with pricing pressure from our customers, most notably from Wal-Mart. However, we expect the cost and price pressures will be partially offset by expected increased operating efficiency and increases in revenue. As a result, we expect gross margins to remain substantially the same in 2013 compared to 2012.
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, $91,000 at December 31, 2012, will remain there for future growth and investments, and we will meet any liquidity requirements in the United States through ongoing cash flows, cash on hand, external financing, or both. We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal while secondarily maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities. To date, we have experienced no material loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets 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 the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.
A primary use of cash has been to fund operating losses and working capital needs of our business, which we expect to continue in 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 inventory of these products in advance of the related sale of these products, which has increased our use of cash to support the working capital required to effectively operate our business. Historically, our primary sources of liquidity have been funds provided by the sale of intellectual property assets. We cannot assure you that this source will be available to us in the future.
We currently do not maintain a credit facility with a bank. However, we may attempt to access this source of financing, to the extent available, at some point in the future.
The following table sets forth for the period presented certain consolidated cash flow information (in thousands):
•
Net cash provided by (used in) operating activities. Cash was used in operating activities for the year ended December 31, 2012 to fund the working capital needs of our business, including inventory purchases. We expect to continue to use cash in operating activities in 2013 to fund our working capital needs. Our consolidated cash flow operating metrics are as follows:
•
The decrease in DSOs at December 31, 2012 compared to December 31, 2011 was primarily due to decrease in sales to RadioShack, which generally requires longer payment terms. We expect DSOs in 2013 will remain consistent with 2012. The inventory turnover at December 31, 2012 was unchanged compared to December 31, 2011as the overall decline in revenue was offset by a reduction in average inventory. We expect to manage inventory growth during 2013 and we anticipate inventory turns for 2013 to remain consistent with 2012 inventory turns.
•
The decrease in DSOs at December 31, 2011 compared to December 31, 2010 was primarily due to the decrease in sales to RadioShack, which generally requires longer payment terms. The decrease in inventory turns also was primarily due to the decline in revenue from sales to RadioShack, for whom we hold no inventory.
•
Net cash provided by (used in) investing activities. For the year ended December 31, 2012, net cash was generated by investing activities primarily as a result of the sale of short-term investments (net of purchases), partially offset by our purchase of property and equipment. For the year ended December 31, 2011, net cash was generated by investing activities primarily as a result of the sale of short-term investments (net of purchases), partially offset by our investments in Pure Energy Visions Corporation (“Pure Energy Visions”), which is a stockholder of Pure Energy.
•
Net cash from financing activities. We had no financing activities in 2012, 2011 or 2010. We expect cash and investments on hand to be sufficient to support ongoing operations and, therefore, do not expect to need additional financing. In the future, we may use cash to repurchase outstanding shares of our common stock.
Investments. At December 31, 2012, our investments in marketable securities included one issuance of corporate common stock, one corporate debenture, and one municipal mutual fund with an aggregate fair value of approximately $2.2 million.
In June 2011, we made an investment in Pure Energy, in which we received 2,142,858 shares of Pure Energy Visions common stock at a price per share equal to $0.286, and an interest-free convertible secured debenture having a one-year repayment term that converts into an additional 2,142,858 shares of Pure Energy Visions common stock in lieu of repayment either upon the achievement of certain business goals or earlier at our discretion. We concluded, however, that unrealized losses on our long-term investments were other-than-temporary and, therefore, recorded impairment charges of $1.2 million during the year ended December 31, 2012 to reflect the amortized cost of the securities at fair value of $0.1 million at December 31, 2012.
We believe we have the ability to hold all marketable debt securities to maturity. However, we may dispose of debt securities prior to their scheduled maturity due to changes in interest rates, prepayments, tax and credit considerations, liquidity or regulatory capital requirements, or other similar factors. As a result, we classify all marketable securities as available-for-sale. These securities are reported at fair value based on third-party broker statements, which represents level 2 in the fair value hierarchy set forth by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Codification 820-Fair Value Measurements and Disclosures. Our investment in Pure Energy is reported at fair value based on a quoted market price, which represents level 1 in the FASB’s fair value hierarchy. Accordingly, unrealized gains and losses related to these investments are reported in equity as a separate component of accumulated other comprehensive income (loss).
Contractual Obligations. In our day-to-day business activities, we incur certain commitments to make future payments under contracts such as operating leases and purchase orders. Maturities under these contracts are set forth in the following table as of December 31, 2012 (dollars in thousands):
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. The magnitude, timing and nature of any future acquisitions will depend on a number of factors, including the availability of suitable acquisition candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Financing of future acquisitions would result in the utilization of cash, incurrence of additional debt, issuance of additional equity securities or a combination of all of these. Our future strategy may also include the possible disposition of assets that are not considered integral to our business which would likely result in the generation of cash.
Net Operating Loss Carryforwards. As of December 31, 2012, we had approximately $173.7 million of federal net operating loss carryforwards which expire at various dates. We anticipate that the sale of common stock in our initial public offering and in subsequent private offerings, as well as the issuance of our common stock for acquisitions, coupled with prior sales of common stock 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 and our ability to use the net operating loss carryforwards in the future. Additionally, our ability to use the net operating loss carry-forwards is dependent upon our level of future profitability, which cannot be determined.
Liquidity Outlook. Based on our projections, we believe that our existing cash, cash equivalents, and short-term investments will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. If we require additional capital resources to grow our business internally or to acquire complementary technologies and businesses at any time in the future, we may seek to obtain debt financing or sell additional equity securities. The sale of additional equity securities would result in more dilution to our stockholders. In addition, additional capital resources may not be available to us in amounts or on terms that are acceptable to us.
Recent Accounting Pronouncements
See Note 2(t) to our consolidated financial statements for a summary of recently issued accounting pronouncements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures and other regulations and restrictions.
To date we have not utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or other strategies to hedge market risk in the foreseeable future. We invest our cash in money market funds and short-term investments, which are subject to minimal credit and market risk. We believe that the market risks associated with these financial instruments are immaterial.
See “Liquidity and Capital Resources” for further discussion of our capital structure. Market risk, calculated as the potential change in fair value of our cash equivalents and short-term investments resulting from a hypothetical 1.0% (100 basis point) change in interest rates, was not material at December 31, 2012.
Item 8.
Item 8. Financial Statements and Supplementary Data
IGO, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
iGo, Inc.:
We have audited the accompanying consolidated balance sheet of iGo, Inc. and subsidiaries (the Company) as of December 31, 2012 and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of iGo, Inc. and subsidiaries as of December 31, 2012, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.
(signed) Moss Adams LLP
Phoenix, Arizona
April 1, 2013
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
iGo, Inc.:
We have audited the accompanying consolidated balance sheet of iGo, Inc. and subsidiaries (the Company) as of December 31, 2011, and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of iGo, Inc. and subsidiaries as of December 31, 2011, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, as of January 1, 2010, the Company adopted the provisions of ASU 2009-17, which changed the accounting and reporting for variable interest entities.
(signed) KPMG LLP
Phoenix, Arizona
March 27, 2012, except for the effect of the reverse stock split disclosed in Note 1, as to which the date is April 1, 2013
IGO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
See accompanying notes to consolidated financial statements.
IGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
IGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
See accompanying notes to consolidated financial statements.
IGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
See accompanying notes to consolidated financial statements.
IGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Business
iGo, Inc. and subsidiaries (collectively, “iGo” or the “Company”) was formed on May 4, 1995. iGo was originally formed as a limited liability corporation; however, in August 1996 the Company became a corporation incorporated in the State of Delaware.
iGo designs, develops, manufactures and distributes power products for mobile electronic devices, such as chargers for mobile electronic devices and surge protectors that incorporate the Company’s iGo Green technology; protection products for mobile electronic devices, such as skins, cases and screen protectors; audio products for mobile electronic devices such as earbuds, headphones and speakers; and other mobile electronic accessory products. iGo distributes products in North America, Europe and Asia Pacific.
Effective January 28, 2013, the Company amended its Certificate of Incorporation to effect a reverse stock split of common stock at a ratio of 1-for-12. Accordingly, common stock and per share information have been retroactively restated in these financial statements to reflect the reverse-stock split.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debt expense, sales returns and price protection, inventories, warranty obligations, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes its critical accounting policies, consisting of revenue recognition, inventory valuation, deferred tax asset valuation, and goodwill and long-lived asset valuation affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. These policies are discussed below.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of iGo, Inc. and its wholly-owned subsidiaries, Mobility California, Inc., Mobility Idaho, Inc., iGo EMEA Limited, Mobility Texas, Inc., iGo Direct Corporation, Adapt Mobile Limited (“Adapt”), and Aerial7 Industries, Inc. (“Aerial7”). All significant intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
(c) Revenue Recognition
The Company recognizes net revenue when the earnings process is complete, as evidenced by an agreement with the customer, transfer of title and acceptance, if applicable, as well as fixed pricing and probable collectability. Revenue from product sales is recognized upon shipment and transfer of ownership from the Company or contract manufacturer to the customer, unless the customer has full right of return, in which case revenue is deferred until either the product has sold through to the end user or a reasonable estimate of returns can be made. Allowances for sales returns and credits are provided for in the same period the related sales are recorded. Should the actual return or sales credit rates differ from the Company’s estimates, revisions to the estimated allowance for sales returns and credits may be required.
Shipping and handling costs are included in cost of revenues. We do not bill customers for freight.
(d) Advertising costs
The Company expenses advertising costs as incurred. Advertising costs for the years ended December 31, 2012 and 2011 were $123,016 and $439,933 respectively.
(e) Cash and Cash Equivalents
All short-term investments purchased with an original maturity of three months or less are considered to be cash equivalents. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions.
(f) Investments
Short-term investments that have an original maturity between three months and one year and a remaining maturity of less than one year are classified as available-for-sale. Available-for-sale securities are recorded at fair value and are classified as current assets due to the Company’s intent and practice to hold these readily marketable investments for less than one year. Any unrealized holding gains and losses related to available-for-sale securities are recorded, net of tax, as a separate component of accumulated other comprehensive income (loss). When a decline in fair value is determined to be other than temporary, unrealized losses on available-for-sale securities are charged against net earnings. Realized gains and losses are accounted for on the specific identification method.
(g) Accounts Receivable
Accounts receivable consist of trade receivables from customers. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance is assessed on a regular basis by management and is based upon management’s periodic review of the collectability of the receivables with respect to historical experience. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company also maintains an allowance for sales returns and credits in the amount of the difference between the sales price and the cost of revenue based on management’s periodic review and estimate of returns. Should the actual return or sales credit rates differ from the Company’s estimates, revisions to the estimated allowance for sales returns and credits may be required.
(h) Inventories
Inventories consist of finished goods and component parts purchased partially and fully assembled for computer accessory items. The Company has all normal risks and rewards of its inventory held by contract manufacturers and outsourced product fulfillment hubs. Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories include material, labor and overhead costs. Overhead costs are allocated to inventory based on a percentage of material costs. The Company monitors usage reports to determine if the carrying value of any items should be adjusted due to lack of demand for the items. The Company adjusts down the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
(i) Property and Equipment
Property and equipment are stated at cost. Depreciation on furniture, fixtures and equipment is provided using the straight-line method over the estimated useful lives of the assets ranging from three to five years. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life. Tooling is capitalized at cost and is depreciated over a two-year period. The Company periodically evaluates the recoverability of property and equipment and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that an impairment exists. The Company evaluates recoverability by a comparison of the carrying amount of the assets to future projections of undiscounted cash flows expected to be generated by the assets. The estimated future cash flows used are based on our business plans and forecasts, which consider historical results adjusted for future expectations. If future market conditions and the Company’s outlook deteriorate, the Company may be required to record impairment charges in the future.
(j) Intangible Assets
Intangible assets include the cost of patents, trademarks and non-compete agreements, as well as identifiable intangible assets acquired through business combinations including trade names, customer lists and software technology. Intangible assets are amortized on a straight-line basis over their estimated economic lives of three to ten years. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that an impairment exists. The Company evaluates recoverability by a comparison of the carrying amount of the assets to future projections of undiscounted cash flows expected to be generated by the assets. The estimated future cash flows used are based on our business plans and forecasts, which consider historical results adjusted for future expectations. If future market conditions and the Company’s outlook deteriorate, the Company may be required to record impairment charges in the future.
(k) Goodwill
Goodwill is the excess of the purchase price over the fair value of the net assets acquired. Goodwill is tested for impairment annually as of October 1, or more frequently if indications of impairment arise.
(l) Warranty Costs
The Company provides limited warranties on certain of its products for periods generally not exceeding three years. The Company accrues for the estimated cost of warranties at the time revenue is recognized. The accrual is based on the Company’s actual claim experience. Should actual warranty claim rates, or service delivery costs, differ from our estimates, revisions to the estimated warranty liability would be required.
(m) Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered forecasts of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of the net recorded amount, an adjustment to the valuation allowance and deferred tax benefit would increase net income in the period such determination was made.
(n) Net Income (Loss) per Common Share
Basic income (loss) per share is computed by dividing income (loss) by the weighted-average number of common shares outstanding for the period, as adjusted for the 1-for-12 reverse stock split. Diluted income (loss) per share reflects the potential dilution that could occur if securities or contracts to issue common stock were exercised or converted to common stock or resulted in the issuance of common stock that then shared in the earnings or loss of the Company. For 2012 and 2011, the assumed exercise of outstanding stock options and warrants and the impact of restricted stock units have been excluded from the calculations of diluted net loss per share as their effect is anti-dilutive.
(o) Share-based Compensation
The Company measures all share-based payments to employees at fair value and records expense in the consolidated statement of operations over the requisite service period (generally the vesting period).
(p) Fair Value of Financial Instruments
The Company’s financial instruments include cash equivalents, short-term investments, long-term investments, accounts receivable, and accounts payable. Due to the short-term nature of cash equivalents, accounts receivable, and accounts payable, the fair value of these instruments approximates their recorded value. The Company does not have material financial instruments with off-balance sheet risk.
(q) Research and Development
The cost of research and development is charged to expense as incurred.
(r) Foreign Currency Translation
The financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates of exchange in effect during the year. The resulting cumulative translation adjustments have been recorded as comprehensive income (loss), a separate component of stockholders’ equity.
(s) Segment Reporting
The Company is engaged in the business of selling accessories for computers and mobile electronic devices and operates a single business segment.
(t) Recently Issued Accounting Pronouncements
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. We will adopt this guidance for the fiscal year ending December 31, 2013 and we do not expect the adoption will have a material impact on our financial position, results of operations or cash flows.
In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance eliminates one of the presentation options provided by current U.S. GAAP, that is to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, it gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will be effective for reporting periods beginning after December 15, 2011 and will be applied retrospectively. The Company has adopted this guidance during 2012.
In February 2013, the FASB issued guidance that requires entities to present information about reclassification adjustments from accumulated other comprehensive income in their financial statements or footnotes. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2012. We will adopt this guidance for the fiscal quarter ended March 31, 2013. We do not expect the adoption to have a material impact on our consolidated financial statements.
Other accounting standards and exposure drafts, such as exposure drafts related to revenue recognition, leases, financial instruments, and fair value measurements, that have been issued or proposed by the FASB or other standards setting bodies that do not require adoption until a future date are being evaluated by the Company to determine whether adoption will have a material impact on the Company’s consolidated financial statements.
(u) Subsequent events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. We recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. Our financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued.
(3) Mission Deconsolidation
In April 2007, the Company sold the assets of its expansion and docking business to Mission Technology Group, Inc. (“Mission”), an entity that was formed by a former officer of the Company, in exchange for $3,930,000 of notes receivable and a 15% common equity interest in Mission. Effective January 1, 2010, upon the adoption of ASU 2009-17, the Company determined that, although Mission is a VIE, the Company is no longer the primary beneficiary of Mission, as the Company did not, and does not, have the power to direct the activities that most significantly impact the economic performance of Mission.
As a result, as of January 1, 2010, the Company no longer consolidates the results of Mission and has removed the results of Mission from the presentation of historical financial information in this filing, and the balances of the statement of stockholders’ equity and comprehensive income (loss) at December 31, 2009 have been recast to give effect to the removal of Mission from the accompanying consolidated financial statements.
Upon deconsolidation of Mission on January 1, 2010, the Company had recorded a valuation allowance of $1,714,000 against the then-remaining uncollected principal balance on the note receivable from Mission of $1,847,000. The Company recorded no value related to its 15% common equity interest. In February 2010, the Company received a principal payment of $147,000 from Mission, leaving a net uncollected balance against the note receivable of $1,700,000 at March 31, 2010. In April 2010, the Company entered into a transaction with Mission that resulted in complete collection of its note receivable and the sale of its 15% common equity interest. As the Company had previously recorded a valuation allowance of $1,714,000 against the promissory notes, the Company determined that as of March 31, 2010, based on the subsequent collection of $1,700,000 as payment-in-full against the note receivable, collectability was reasonably assured. Accordingly, the Company reversed its valuation allowance against the note receivable and recorded a gain of $1,714,000 in the first quarter of 2010, which gain is included in the accompanying Consolidated Statements of Operations under the caption “Gain on disposal of assets and other income, net”. The Company received cumulative proceeds of $3,930,000 million, plus interest, between April 2007 and April 2010 in connection with the sale of the docking and expansion business to Mission.
(4) Acquisitions
(a) Adapt
On August 6, 2010, the Company acquired for cash all of the outstanding stock of Adapt, a company headquartered in London, England. The purchase price for the Adapt common stock was $900,000. As part of the acquisition, the Company entered into three year employment agreements with the three founders and key employees of Adapt. Each of these three key employees received grants of 16,667 restricted stock units (“RSUs”), as adjusted for the 1-for-12 reverse stock split, that vested 33% on August 6, 2011 and 33% on August 6, 2012.The remaining 34% will vest on August 6, 2013.
Adapt markets of a broad range of accessories for mobile electronic devices, including mini-projectors (also known as pico projectors) that attach to mobile electronic devices for displaying video, as well as a variety of skins, cases, chargers and screen protectors. The acquisition expands the Company’s European sales presence and increases its product offerings for fast-growing categories within the mobile electronics accessories space.
The acquisition has been accounted for using the acquisition method of accounting. Accordingly, the total consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Fair values were determined by Company management based on information available at the date of acquisition. The results of operations of Adapt were included in the Company’s consolidated financial statements from the date of acquisition, and were not material to the Company’s reported results.
The allocation of total consideration to the assets acquired and liabilities assumed based on the estimated fair value of Adapt was as follows (dollars in thousands):
Customer relationships relates to Adapt’s existing customer base, valued based on projected discounted cash flows generated from customers in place. The employment agreements with the three founders of Adapt contain non-compete provisions to protect the Company. The non-compete agreements were valued based on the assumption that absent the agreements, Adapt’s business enterprise value would be decreased. Trade name relates to the Adapt trade name. The value of the trade name was estimated by capitalizing the estimated profits saved as a result of acquiring or licensing the asset. The intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The goodwill associated with the acquisition is not subject to amortization and is not expected to be deductible for income tax purposes. The deferred tax liability relates to the acquired intangible assets which are also not expected to be deductible for income tax purposes. As the deferred tax assets of the Company, net of deferred tax liabilities are fully valued at zero, the impact of recording this deferred tax liability resulted in a release of a portion of the Company’s deferred tax asset valuation allowance, and is recorded as income tax benefit for the year ended December 31, 2010.
The results of Adapt, as well as, the impact of the acquisition of Adapt are not considered material to the Company’s consolidated financial statements.
(b) Aerial7
On October 7, 2010, the Company acquired Aerial7, a designer and marketer of innovative headphones for mobile electronic devices and professional audio equipment.
Pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) dated October 7, 2010 by and among the Company, Mobility Assets, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), Aerial7 and the agent for Aerial7’s shareholders, Merger Sub was merged with and into Aerial7 and, as a result, Aerial7 continues as the surviving corporation and is a wholly owned subsidiary of the Company. The Company acquired all outstanding shares of Aerial7 stock in exchange for aggregate consideration of $3,340,000 (the “Merger Consideration”). The Merger Consideration was subject to adjustment based on the working capital position of Aerial7 on the closing date of October 7, 2010, which was resolved on October 5, 2011 through the return of $25,000 to the Company paid solely from an escrow fund consisting of $250,000 of the Merger Consideration, and the remaining $225,000 from the escrow fund paid to Aerial7’s shareholders.
As part of the Merger, the Company entered into employment agreements with a three year term with the three founders and key employees of Aerial7. Each of these three key employees received grants of 12,500 RSUs that vest in equal annual installments of 4,167 RSUs, as adjusted for the 1-for-12 reverse stock split, with the first vesting event occurring on October 7, 2011, the second vesting event occurring on October 7, 2012 and the remaining vesting event scheduled to occur on October 7, 2013. On January 15, 2013, one of the three key employees departed the Company, resulting in the acceleration of a pro-rata portion of the RSUs that were unvested at the time of his departure.
The acquisition of Aerial7 expands the Company’s line of accessories for portable computers, tablets, smartphones and other portable media devices. Aerial7 headphones combine acoustic technology with fashionable design. Aerial7 offers a wide range of styles and features that turn headphones from just a functional accessory to a fashion statement that allows consumers to express their unique and personal style. Aerial7’s headphones are sold through fashion, action sports and professional audio retailers both domestically and internationally.
The acquisition has been accounted for using the acquisition method of accounting. Accordingly, the total consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Fair values were determined by Company management based on information available at the date of acquisition.
The allocation of total consideration to the assets acquired and liabilities assumed based on the estimated fair value of Aerial7 was as follows (dollars in thousands):
Customer relationships relates to Aerial7’s existing customer base, valued based on projected discounted cash flows generated from customers in place. The employment agreements with the three founders of Aerial7 contain non-compete provisions to protect the Company. The non-compete agreements were valued based on the assumption that absent the agreements, the Aerial7’s business enterprise value would be decreased. Trade name relates to the Aerial7 trade name. The value of the trade name was estimated by capitalizing the estimated profits saved as a result of acquiring or licensing the asset. The proprietary processes and in process research and development were valued utilizing the excess earnings method of estimated future discounted cash flows. The amortizable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The Company periodically evaluates the recoverability of the non-amortizable intangible asset and takes into account events or circumstances that indicate that an impairment exists. During 2011, the Company released product to the market related to the in process research and development acquired during 2010. Accordingly, the Company reclassified in process research and development to proprietary processes and began amortizing this intangible asset over an estimated five year useful life. The goodwill associated with the acquisition is not subject to amortization and is not expected to be deductible for income tax purposes. The deferred tax liability relates to the acquired intangible assets which are also not expected to be deductible for income tax purposes. As the deferred tax assets of the Company, net of deferred tax liabilities are fully valued at zero, the impact of recording this deferred tax liability resulted in a release of a portion of the Company’s deferred tax asset valuation allowance, and is recorded as income tax benefit for the year ended December 31, 2010.
The consolidated financial statements as of December 31, 2010 include the accounts of Aerial7 and results of operations since the dates of acquisition. The following summary, prepared on a pro forma basis, as adjusted for the 1-for-12 reverse stock split, presents the results of operations as if the acquisition had occurred on January 1, 2010 (unaudited dollars in thousands, except per share data).
The pro forma results are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of 2010 or as a projection of future results.
(5) Fair Value Measurement
As of December 31, 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.
The Company invests excess cash from its operating cash accounts in overnight money market funds and reflects these amounts within cash and cash equivalents on the consolidated balance sheet at a net value of 1:1 for each dollar invested.
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
•
Level 1-Quoted prices in active markets for identical assets or liabilities;
•
Level 2-Quoted prices for similar assets or liabilities in active markets or inputs that are observable; and
•
Level 3-Inputs that are unobservable
At December 31, 2012 and 2011, investments in marketable securities totaling $2,129,000 and $4,890,000, respectively, are classified as short-term investments on the consolidated balance sheets. These investments are considered available-for-sale securities and are reported at fair value based on the net asset value as reported by the fund manager, which qualifies as level 2 in the fair value hierarchy. At December 31, 2012, investments in marketable securities totaling $60,000 are classified as long-term investments on the consolidated balance sheet. In December 2012, the securities ceased trading in an active market. These investments are considered available-for-sale securities and are reported at fair value based on the most recent available trading price adjusted for lack of liquidity, which qualifies as level 2 in the fair value hierarchy. Previously they qualified as level 1. The unrealized gains and losses on available-for-sale securities are recorded in other comprehensive income (loss). Realized gains and losses are included in interest income, net.
(6) Investments
Short-term
The Company has determined that all of its investments in short-term marketable securities should be classified as available-for-sale and reported at fair value.
The Company assesses its investments in marketable securities for other-than-temporary declines in value by considering various factors that include, among other things, any events that may affect the creditworthiness of a security’s issuer, the length of time the security has been in a loss position, and the Company’s ability and intent to hold the security until a forecasted recovery of fair value.
The Company generated net proceeds of $2,779,000 in the sale of such securities for the year ended December 31, 2012. The Company used net cash of $5,732,000 in the purchase of available-for-sale marketable securities during the year ended December 31, 2011, and it generated net proceeds of $15,367,000 in the sale of such securities for the year ended December 31, 2011.
As of December 31, 2012 and 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 (dollars in thousands):
Long-term
In June 2011, the Company made an investment in Pure Energy Visions Corporation, which is a stockholder in Pure Energy Solutions, the Company’s supplier of rechargeable batteries, in which the Company received 2,142,858 shares of Pure Energy Visions common stock at a price per share equal to $0.286, and an interest-free convertible secured debenture having a one-year repayment term that converts into an additional 2,142,858 shares of Pure Energy Visions common stock in lieu of repayment either upon the achievement of certain business goals or earlier at iGo’s discretion. The Company did not obtain control of Pure Energy Visions as a result of this investment.
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 value.
At December 31, 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 2012, the Company recognized total other-than-temporary impairment charges of $1,166,000 related to these securities.
As of December 31, 2012 and 2011, the amortized cost basis, unrealized holding losses, and aggregate fair value by long-term major security-type investments were as follows (dollars in thousands):
* Reflects amortized cost adjusted to fair value at December 31, 2012 as the Company concluded the unrealized holdings losses on these securities represented other-than-temporary declines in fair value.
(7) Goodwill
Goodwill is as follows (amounts in thousands):
As of October 1, 2012, due to lower-than-anticipated sales of audio products, the Company determined that there was an indication that its recorded goodwill associated with its acquisition of Aerial7 might be fully impaired. Accordingly, the Company performed an impairment analysis utilizing both a discounted future cash flows approach and a market comparable approach and determined that the goodwill associated with Aerial7 was fully impaired. As a result, during the quarter ended December 31, 2012, the Company recorded a goodwill impairment charge of $285,000. This impairment charge is included in the consolidated statements of operations under the caption “Asset impairment.”
As of October 1, 2011, as a result of lower-than-anticipated sales of protection and audio products, the Company determined that there was an indication that its recorded goodwill associated with its acquisitions of Adapt and Aerial7 might be impaired. Accordingly, the Company performed an impairment analysis utilizing both a discounted future cash flows approach and a market comparable approach and determined that the goodwill associated with Adapt was fully impaired and the goodwill associated with Aerial7 was partially impaired. As a result, during the quarter ended December 31, 2011, the Company recorded a goodwill impairment charge of $1,681,000. This impairment charge is included in the consolidated statements of operations under the caption “Asset impairment.”
The Company evaluated goodwill for impairment as of October 1, 2010 and determined its recorded goodwill was not impaired as of that date.
(8) Property and Equipment
Property and equipment consists of the following (dollars in thousands):
Aggregate depreciation and amortization expense for property and equipment totaled $421,000, $439,000, and $510,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
(9) Intangible Assets
Intangible assets consist of the following at December 31, 2012 and 2011 (dollars in thousands):
* Reflects intangible assets adjusted to fair value as at December 31, 2012, as the company concluded the intangible assets associated with Aerial7 were fully impaired.
In February 2011, the Company entered into marketing, distribution and licensing agreements with Pure Energy Solutions, a manufacturer of rechargeable alkaline batteries. The Company also simultaneously entered into an agreement with Premier Tech Home & Garden to take over its current distribution rights for Pure Energy batteries in Canada. The corresponding value of these distribution rights are reflected in the table above under the caption “Distribution rights.”
In June 2011, the Company made an investment in Pure Energy Visions Corporation, which is a stockholder in Pure Energy Solutions, in which the Company received a license to utilize rechargeable alkaline battery technology. The corresponding value of this license is reflected in the table above under the caption “Technology license.”
In December 2011, the Company evaluated its portfolio of patents and trademarks and made the determination to abandon 178 patents and 25 trademarks with a gross value of $1,592,000. The Company recorded a loss on disposal of these patents and trademarks of $34,000, which was net of accumulated amortization of $1,558,000.
As of October 1, 2011, as a result of lower-than-anticipated sales of protection products, the Company determined that its recorded intangible assets associated with its acquisition of Adapt might be impaired. Accordingly, the Company performed an impairment analysis utilizing an undiscounted future cash flows approach and determined that the intangible assets associated with Adapt were fully impaired. As a result, during the quarter ended December 31, 2011, the Company recorded an intangible asset impairment charge of $579,000, which was net of accumulated amortization of $261,000. This impairment charge is included in the consolidated statements of operations under the caption “Asset impairment.”
As of October 1, 2012, as a result of lower-than-anticipated sales of audio products, the Company determined that its recorded intangible assets associated with its acquisition of Aerial7 might be impaired. Accordingly, the Company performed an impairment analysis utilizing an undiscounted future cash flows approach and determined that the intangible assets associated with Aerial7 were fully impaired. As a result, during the quarter ended December 31, 2012, the Company recorded an intangible asset impairment charge of $1,158,000, which was net of accumulated amortization of $1,002,000. This impairment charge is included in the consolidated statements of operations under the caption “Asset impairment.”
Aggregate amortization expense for identifiable intangible assets totaled $1,253,000, $1,367,000 and $1,063,000 for the years ended December 31, 2012, 2011 and 2010, respectively. Estimated amortization expense for each of the five succeeding years ended December 31 is as follows (dollars in thousands):
(10) Lease Commitments
The Company has entered into various non-cancelable operating lease agreements for its office facilities and office equipment, which expire in 2014. Existing facility leases require monthly rents plus payment of property taxes, normal maintenance and insurance on facilities. Rental expense for the operating leases was $558,000, $530,000 and $445,000 during the years ended 2012, 2011, and 2010, respectively.
A summary of the minimum future lease payments for the years ending December 31 follows (dollars in thousands):
(11) Income Taxes
The provision for income taxes includes income taxes currently payable and those deferred due to temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The Company recorded no provision for income taxes for the year ended December 31, 2012. As a result of the Aerial7 and Adapt acquisitions, the Company was able to release a valuation allowance of $1,002,000, resulting in an income tax benefit for the year ended December 31, 2010.
The provision for income taxes differed from the amounts computed by applying the statutory U.S. federal income tax rate of 34% in 2012, 2011 and 2010 to income (loss) before income taxes as a result of the following (dollars in thousands):
With the exception of 2005, 2006 and 2009, the Company has generated net operating losses for income tax reporting purposes since inception. At December 31, 2012, the Company had net operating loss carry-forwards for federal and state income tax purposes of approximately $173,725,000 and $36,381,000, respectively, and approximately $5,211,000 for foreign income tax purposes which, subject to possible annual limitations, are available to offset future taxable income, if any. The federal net operating loss carry-forwards expire between 2018 and 2032.
The state NOL true-up of $1,023,000 for the year ended December 31, 2012 relates to an adjustment to the deferred tax asset for state net operating losses relating to prior years. As the amount had a full valuation allowance, the change in deferred tax valuation allowance above includes a corresponding decrease of the same amount.
The temporary differences that give rise to deferred tax assets and liabilities at December 31, 2012 and 2011 are as follows (dollars in thousands):
The valuation allowance for deferred tax assets as of December 31, 2012 and 2011 was $64,890,000, and $62,574,000, respectively. The change in the total valuation allowance for the year ended December 31, 2012 was an increase of $2,316,000. Our deferred tax assets do not include $839,000 of net operating loss benefits that, if realized, would result in an increase to additional paid-in capital of $301,000.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. In addition, due to changes in ownership resulting from the frequency of equity transactions and acquisitions by the Company, it is possible the use of the Company’s remaining net operating loss carry-forward may be limited in accordance with Section 382 of the Internal Revenue Code.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in assessing the valuation allowance. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management currently believes it is more likely than not that the Company will not realize the benefits of these deductible differences.
Uncertain Tax Positions
The Company is required to recognize in the financial statements the impact of a tax position, if that position is not more likely than not of being sustained upon examination, based on the technical merits of the position. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in general and administrative expense. As a result of its historical net operating losses, the statute of limitations remains open for each tax year since 1998, with the exception of 2005 and 2006.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (dollars in thousands):
Included in the balance of gross unrecognized tax benefits at December 31, 2012 is $248,000 of tax positions for which ultimate tax benefit is uncertain. These amounts consist of various credits. Because of the permanent nature of these items the disallowance would normally impact the effective tax rate.
With respect to the uncertain positions identified above, both timing and credit items, the Company has established a valuation allowance against all of the credit carry-forward amounts and the net deferred tax assets. Further, sufficient net operating losses exist to offset any potential increase in taxable items. Therefore, any reversal or settlement of the amounts identified above should result in little or no additional tax. Accordingly, no interest or penalty has been accrued or included related to the table amounts shown above.
There are no positions the Company reasonably anticipates will significantly increase or decrease within 12 months of the reporting date.
The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, the Company is subject to examinations in all jurisdictions as statutes have not closed due to a history of net operating losses.
(12) Stockholders’ Equity
Holders of shares of common stock are entitled to one vote per share on all matters submitted to a vote of the Company’s stockholders. There is no right to cumulative voting for the election of directors. Holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors out of funds legally available therefore, after payment of dividends required to be paid on any outstanding shares of preferred stock. Upon liquidation, holders of shares of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the liquidation preferences of any outstanding shares of preferred stock. Holders of shares of common stock have no conversion, redemption or preemptive rights.
At December 31, 2012, there were warrants outstanding and exercisable for 417 shares of common stock, as adjusted for the 1-for-12 reverse stock split.
(13) Employee Benefit Plans
(a) Retirement Plan
The Company has a defined contribution 401(k) plan for all employees. Under the 401(k) plan, employees are permitted to make contributions to the plan in accordance with IRS regulations. The Company may make discretionary contributions as approved by the Board of Directors. The Company contributed $134,000, $163,000 and $160,000 during 2012, 2011 and 2010, respectively.
(b) Restricted Stock Units
During 2004, the Company adopted the Omnibus Long-Term Incentive Plan (the “Omnibus Plan”) and the Non-Employee Directors Plan (the “Directors Plan”). During 2011, the Company’s stockholders approved an amendment to the Omnibus Plan to increase the number of shares available for grant by 250,000, as adjusted for the 1-for-12 reverse stock split. Under the Omnibus Plan, the Company may grant up to 445,833 stock options, stock appreciation rights, restricted stock awards, performance awards, and other stock awards, as adjusted for the 1-for-12 reverse stock split. Under the Directors Plan, the Company may grant up to 33,333 stock options, stock appreciation rights, restricted stock awards, performance awards, and other stock awards, as adjusted for the 1-for-12 reverse stock split.
Under the Directors Plan and the Omnibus Plan, the Company has awarded Restricted Stock Units (“RSUs”). Unearned compensation is measured at fair market value on the date of grant and recognized as compensation expense over the period in which the RSUs vest. All RSUs awarded to employees under the Omnibus Plan vest ratably over three or four years, depending on the terms of each individual award or, on a pro rata basis, upon the employee’s death, disability or termination without cause or, in full, upon a change in control of the Company. RSUs awarded to board members upon their election or re-election to the board under the Directors Plan vest 100% upon the three-year anniversary of the grant date. RSUs awarded to board members upon their election or re-election to the board under the Omnibus Plan vest ratably over three years. RSUs awarded to board members upon their appointment as board chairman or to a board committee vest 100% upon the anniversary of the grant date. All RSUs awarded to board members may vest earlier, on a pro rata basis, upon the director’s death, disability, or retirement or, in full, upon a change in control of the Company.
On June 11, 2007, pursuant to the terms of the employment agreement dated May 1, 2007 by and between the Company and Michael D. Heil, Mr. Heil was awarded 83,333, as adjusted for the 1-for-12 reverse stock split, restricted stock units outside of the Company’s 2004 Directors Plan and 2004 Omnibus Plan as an inducement award without stockholder approval pursuant to NASDAQ Marketplace Rule 5635(c)(4). Pursuant to the terms of Mr. Heil’s agreement, 41,667 of the restricted stock units vested in increments of 10,417 shares per year effective on June 11, 2008, June 11, 2009, June 11, 2010 and June 11, 2011. On March 19, 2008, the vesting terms for the remaining 41,667 restricted stock units, as adjusted for the 1-for-12 reverse stock split, granted to Mr. Heil were amended to provide time-based vesting, pursuant to which 10,417 shares vested on each of March 19, 2009, March 19, 2010 March 19, 2011, and March 19, 2012. All RSUs granted to Mr. Heil may vest earlier, in full, upon a change in control of the Company or, on a pro rata basis, upon Mr. Heil’s death, disability or termination without cause.
As part of the acquisition of Adapt, on August 6, 2010, the Company entered into three year employment agreements with the three founders and key employees of Adapt. Each of these three key employees received grants of 16,667 RSUs, as adjusted for the 1-for-12 reverse stock split, outside of the Company’s 2004 Directors Plan and 2004 Omnibus Plan as an inducement award without stockholder approval pursuant to NASDAQ Marketplace Rule 5635(c)(4) that vested 33% on August 6, 2011, and 33% on August 6, 2012. The remaining 34% will vest on August 6, 2013. All RSUs granted to the key employees of Adapt may vest earlier, in full, upon a change in control of the Company or, on a pro rata basis, upon their death, disability or termination without cause.
As part of the acquisition of Aerial7, on October 7, 2010, the Company entered into employment agreements with a three year term with the three founders and key employees of Aerial7. Each of these three key employees received grants of 12,500 RSUs, as adjusted for the 1-for-12 reverse stock split, outside of the Company’s 2004 Directors Plan and 2004 Omnibus Plan as an inducement award without stockholder approval pursuant to NASDAQ Marketplace Rule 5635(c)(4). Each of these RSU grants vest in equal annual installments of 4,167 RSUs, with the first vesting event occurring on October 7, 2011, the second vesting event occurring on October 7, 2012 and the remaining vesting event scheduled to occur on October 7, 2013. On January 15, 2013, one of the three key employees departed the Company, resulting in the acceleration of a pro-rata portion of the RSUs that were unvested at the time of his departure.
All RSUs granted to the remaining key employees of Aerial7 may vest earlier, in full, upon a change in control of the Company or, on a pro rata basis, upon their death, disability or termination without cause.
The following table summarizes information regarding restricted stock unit activity for the years ended December 31, 2010, 2011 and 2012, respectively, as adjusted for the 1-for-12 reverse stock split:
For the years ended December 31, 2012, 2011 and 2010, the Company recorded in general and administrative expense pre-tax charges of $1,534,000, $1,824,000 and $1,478,000 associated with the expensing of restricted stock unit activity.
As of December 31, 2012, there was $2,143,000 of total unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted average period of two years.
As of December 31, 2012, all outstanding restricted stock units were non-vested.
(c) Stock Options
In 1996, the Company adopted the Incentive Stock Option Plan (the “1996 Plan”). The 1996 Plan terminated on April 30, 2008. The options under the 1996 Plan and the Omnibus Plan were granted at the fair market value of the Company’s stock at the date of grant as determined by the Company’s Board of Directors. Options become exercisable over varying periods up to 3.5 years and expire at the earlier of termination of employment or up to six years after the date of grant. At December 31, 2012, there were no shares available for grant under the 1996 Plan and Director Plan and 161,999 shares available under the Omnibus Plan, as adjusted for the 1-for-12 reverse stock split.
The Company granted 153,333 stock options during the years ended December 31, 2012, as adjusted for the 1-for-12 reverse stock split. The Company did not grant any stock options during the years ended December 31, 2011 and 2010. The following table summarizes information regarding stock option activity for the years ended December 31, 2010, 2011 and 2012:
As of December 31, 2012, there was $469,000 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 years ended December 31, 2012 and December 31, 2011, respectively, was zero.
The weighted average fair value of options granted in the year ended December 31, 2012 was $0.51. The Company did not grant any stock options during the years ended December 31, 2011 and December 31, 2010. 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:
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.
(14) Net Income (Loss) per Share
The computation of basic and diluted net income (loss) per share (EPS) follows (in thousands, except per share amounts), as adjusted for the 1-for-12 reverse stock split:
(15) Product Lines, Concentration of Credit Risk and Significant Customers
The Company is engaged in the business of selling accessories for computers and mobile electronic devices. The Company has four product lines, consisting of Power, Protection, Audio, and Other Accessories. The Company’s chief operating decision maker (“CODM”) continues to evaluate revenues and gross profits based on product lines, routes to market and geographies.
The following tables summarize the Company’s revenues by product line, as well as its revenues by geography and the percentages of revenue by route to market (dollars in thousands):
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions and generally limits the amount of credit exposure to the amount of FDIC coverage. However, periodically during the year, the Company maintains cash in financial institutions in excess of the current FDIC insurance coverage limit of $250,000. The Company performs ongoing credit evaluations of its customers’ financial condition but does not typically require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
Three customers accounted for 28%, 13% and 6% of net sales for the year ended December 31, 2012. Two customers accounted for 21% and 10% of net sales for the year ended December 31, 2011. Two customers accounted for 34% and 17% of net sales for the year ended December 31, 2010.
Three customers’ accounts receivable balance accounted for 24%, 11% and 8% of net accounts receivable at December 31, 2012.
One customer’s accounts receivable balance accounted for 20% of net accounts receivable at December 31, 2011.
Allowance for doubtful accounts was $362,000 and $311,000 at December 31, 2012 and December 31, 2011, respectively. Allowance for sales returns and price protection was $508,000 and $318,000 at December 31, 2012 and December 31, 2011, respectively.
(16) Contingencies
The Company procures its products primarily from supply sources based in Asia. Typically, the Company places purchase orders for completed products and takes ownership of the finished inventory upon completion and delivery from its supplier. Occasionally, the Company presents its suppliers with ‘Letters of Authorization’ for the suppliers to procure long-lead raw components to be used in the manufacture of the Company’s products. These Letters of Authorization indicate the Company’s commitment to utilize the long- lead raw components in production. As of June 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 December 31, 2012 and 2011, the Company had estimated and accrued a liability for this contingency in the amount of $80,000 and $150,000, respectively.
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 that the Company believes, if determined adversely to it, would have a material adverse effect on its financial condition, results of operations, or cash flows.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Based on an evaluation as of December 31, 2012, our Principal Executive Officer and Principal Financial Officer has concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were effective as of the end of the period covered by this report to ensure that the information required to be disclosed by us in reports we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-K. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined by Rules13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment of those criteria, and with the participation of the Principal Executive Officer and Principal Financial Officer, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2012.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
Reverse Stock Split
Effective January 28, 2013, the Company amended its Certificate of Incorporation to effect a reverse stock split of common stock at a ratio of 1-for-12.
Rule 10b5-1 Trading Plans
We have a policy governing transactions in our securities by directors, officers, employees and others which permits these individuals to enter into trading plans complying with Rule 10b5-l under the Securities Exchange Act of 1934, as amended. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving the Company.
We have been advised that Michael D. Heil, our President and Chief Executive Officer, in accordance with Rule 10b5-l and our policy governing transactions in our securities, entered into a written trading plan on October 1, 2012 (the “Plan”). Pursuant to the Plan, Merrill Lynch is authorized to sell on behalf of Mr. Heil up to 32,166 shares (on a post reverse stock split basis) of the Company’s common stock held by Mr. Heil. Mr. Heil has no control over the timing of any sales under the Plan, and there can be no assurance that the shares covered by the Plan actually will be sold. The Plan replaced in its entirety Mr. Heil’s previous trading plan, which was originally executed on May 13, 2010 and subsequently amended on November 30, 2011.
We anticipate that, as permitted by Rule 10b5-l and our policy governing transactions in our securities, some or all of our directors, officers and employees may establish or terminate trading plans in the future. We intend to disclose the names of executive officers and directors who establish or terminate a trading plan in compliance with Rule 10b5-l and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K filed with the Securities and Exchange Commission. We undertake no obligation, however, to update or revise the information provided herein, including for revision or termination of an established trading plan, other than in such quarterly and annual reports.
PART III
Item 10.
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by this Item 10 is incorporated by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days following year end.
We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our directors, officers and employees (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), and meets the requirements of the SEC rules promulgated under Section 406 of the Sarbanes-Oxley Act of 2002. Our Code is available on our website at www.igo.com and copies are available to stockholders without charge upon written request to our Secretary at the Company’s principal address. Any substantive amendment to the Code or any waiver of a provision of the Code granted to our principal executive officer and principal financial officer, principal accounting officer or controller, or persons performing similar functions, will be posted on our website at www.igo.com within five business days (and retained on the Web site for at least one year).
Item 11.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days following year end.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days following year end.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days following year end.
Item 14.
Item 14. Principal Accounting Fees and Services
The information required by this Item 14 is incorporated by reference to our definitive proxy statement for the 2013 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days following year end.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(a) (1) (2) Financial Statements.
See the Index to Consolidated Financial Statements in Part II, Item 8. All financial statement schedules have been omitted because they are not applicable, or because the required information is either incorporated by reference or included in the consolidated financial statements or notes thereto included in this Form 10-K.
(3) Exhibits.
The Exhibit Index and required Exhibits immediately following the Signatures to this Form 10-K are filed as part of, or hereby incorporated by reference into, this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on April 1, 2013.
IGO, INC.
/s/ Michael D. Heil
Michael D. Heil
President and Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael D. Heil, his attorney-in-fact, with the full power of substitution, for such person, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might do or could do in person hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on April 1, 2013.
SIGNATURES
TITLE
/s/ Michael D. Heil
President, Chief Executive Officer and Member of
Michael D. Heil
the Board (Principal Executive Officer and Principal
Financial Officer)
/s/ Michael J. Larson
Director and Chairman of the Board
Michael J. Larson
/s/ Peter L. Ax
Director
Peter L. Ax
/s/ Frederic Welts
Director
Frederic Welts
/s/ Robert Blake
Interim Controller
Robert Blake
EXHIBIT INDEX
* Filed / Furnished herewith
** 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.+ Management or compensatory plan or agreement.
(1) Previously filed as an exhibit to Current Report on Form 8-K filed on October 8, 2010.
(2) Previously filed as an exhibit to Registration Statement No. 333-30264 dated February 11, 2000.
(3) Previously filed as an exhibit to Amendment No. 2 to Registration Statement No. 333-30264 on Form S-1 dated May 4, 2000.
(4) Previously filed as an exhibit to Current Report on Form 8-K filed on June 19, 2003.
(5) Previously filed as an exhibit to Current Report on Form 8-K filed on May 21, 2008.
(6) Previously filed as an exhibit to Annual Report on Form 10-K for the year end December 31, 2008.
(7) Previously filed as an exhibit to Amendment No. 3 to Registration Statement No. 333-30264 on Form S-1 dated May 18, 2000.
(8) Previously filed as an exhibit to Current Report on Form 8-K filed on August 4, 2006.
(9) Previously filed as an exhibit to Current Report on Form 8-K filed on October 12, 2006.
(10) Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2003.
(11) Previously filed as an exhibit to Registration Statement No. 333-69336 on Form S-8 filed on September 13, 2001.
(12) Previously filed in definitive proxy statement on Schedule 14A filed on April 15, 2004.
(13) Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2001.
(14) Previously filed as an exhibit to Form 10-K for the period ended December 31, 2003.
(15) Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2004.
(16) Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2008.
(17) Previously filed as an exhibit to Form 10-K for the period ended December 31, 2005.
(18) Previously filed as an exhibit to Current Report on Form 8-K filed on January 5, 2007.
(19) Previously filed as an exhibit to Form 10-K for the period ended December 31, 2006.
(20) Previously filed as an exhibit to Current Report on Form 8-K filed on May 3, 2007.
(21) Previously filed as an exhibit to Current Report on Form 8-K filed on June 13, 2007.
(22) Previously filed as an exhibit to Current Report on Form 8-K filed on March 21, 2008.
(23) Previously filed as an exhibit to Current Report on Form 8-K filed on May 20, 2010.
(24) Previously filed as an exhibit to Current Report on Form 8-K filed on April 26, 2011.
(25) Previously filed as an exhibit to Current Report on Form 8-K filed on May 3, 2011.
(26) Previously filed as an exhibit to Current Report on Form 8-K filed on April 13, 2012.
(27) Previously filed as an exhibit to Current Report on Form 8-K filed on April 23, 2012.
(28) Previously filed as an exhibit to Current Report on Form 8-K filed on January 16, 2013.
(29) Previously filed as an exhibit to Current Report on Form 8-K filed on September 6, 2012.
All other schedules and exhibits are omitted because they are not applicable or because the required information is contained in the Financial Statements or Notes thereto.