10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2004

OR

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

For the transition period from                        to                       

Commission file number: 0-30907

MOBILITY ELECTRONICS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

0-30907
(Commission File Number) 86-0843914
(IRS Employer Identification No.)

17800 N. Perimeter Dr., Suite 200, Scottsdale, Arizona
(Address of Principal Executive Offices) 85255
(Zip Code)

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

Not applicable
(Former Name or Former Address, if Changed Since Last Report)

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

YES [ X ]                      NO [    ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES [ X ]                      NO [    ]

At November 1, 2004, there were 28,407,710 shares of the Registrant’s Common Stock outstanding.

MOBILITY ELECTRONICS, INC.
FORM 10-Q

TABLE OF CONTENTS

	PAGE NO.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003		3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003		4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Disclosures About Market Risk		22
Item 4. Controls and Procedures		22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings		22
Item 2. Changes in Securities and Use of Proceeds		23
Item 3. Defaults Upon Senior Securities		23
Item 4. Submission of Matters to a Vote of Security Holders		23
Item 5. Other Information		23
Item 6. Exhibits and Reports on Form 8-K		24
SIGNATURES		25
INDEX TO EXHIBITS		26
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS:

MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	September 30,			December 31,
	2004			2003
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,941		$	11,024
Accounts receivable, net		15,228			11,438
Inventories		7,752			8,240
Prepaid expenses and other current assets		289			311
Total current assets		34,210			31,013
Property and equipment, net		2,123			2,155
Goodwill		11,786			12,961
Intangible assets, net		3,083			3,858
Other assets		2,036			276
Total assets	$	53,238		$	50,263
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,659		$	6,531
Accrued expenses and other current liabilities		1,550			1,613
Current installments of long-term debt		373			521
Total current liabilities		12,582			8,665
Long-term debt, less current portion		501			526
Total liabilities		13,083			9,191
Stockholders’ equity:
Convertible preferred stock		3			3
Common stock		283			276
Additional paid-in capital		146,839			145,194
Accumulated deficit		(106,185	)		(104,062	)
Stock subscription notes and deferred compensation		(941	)		(487	)
Accumulated other comprehensive income		156			148
Total stockholders’ equity		40,155			41,072
Total liabilities and stockholders’ equity	$	53,238		$	50,263

See accompanying notes to unaudited condensed consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Revenue	$	18,959		$	12,807		$	49,654		$	37,398
Cost of revenue		13,102			8,173			34,838			24,325
Gross profit		5,857			4,634			14,816			13,073
Operating expenses:
Marketing and sales		1,777			1,623			4,901			5,083
Research and development		1,214			1,164			3,926			3,226
General and administrative		2,653			2,131			7,568			7,426
Total operating expenses		5,644			4,918			16,395			15,735
Income (loss) from operations		213			(284	)		(1,579	)		(2,662	)
Other income (expense):
Interest income (expense), net		(27	)		(31	)		(93	)		(20	)
Other income, net		(6	)		1			14			22
Income (loss) from continuing operations		180			(314	)		(1,658	)		(2,660	)
Discontinued operations:
Loss from discontinued operations of handheld software product line		(296	)		(92	)		(466	)		(253	)
Net loss		(116	)		(406	)		(2,124	)		(2,913	)
Beneficial conversion value of convertible preferred stock		—			—			—			(445	)
Preferred stock dividend		—			—			—			(20	)
Net loss attributable to common stockholders	$	(116	)	$	(406	)	$	(2,124	)	$	(3,378	)
Net income (loss) per share:
Basic
Continuing operations	$	0.01		$	(0.01	)	$	(0.06	)	$	(0.14	)
Discontinued operations	$	(0.01	)	$	(0.00	)	$	(0.02	)	$	(0.01	)
Total basic net income (loss) per share	$	(0.00	)	$	(0.02	)	$	(0.08	)	$	(0.15	)
Diluted
Continuing operations	$	0.01		$	(0.01	)	$	(0.06	)	$	(0.14	)
Discontinued operations	$	(0.01	)	$	(0.00	)	$	(0.02	)	$	(0.01	)
Total diluted net income (loss) per share	$	(0.00	)	$	(0.02	)	$	(0.08	)	$	(0.15	)
Weighted average common shares outstanding:
Basic		28,139			24,709			27,901			22,143
Diluted		29,779			24,709			27,901			22,143

See accompanying notes to unaudited condensed consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

	Nine months ended
	September 30,
	2004			2003
Cash flows from operating activities:
Net loss	$	(2,124	)	$	(2,913	)
Less loss from discontinued operation		466			253
Loss from continuing operations		(1,658	)		(2,660	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for accounts receivable		148			425
Depreciation and amortization		1,502			1,161
Amortization of deferred compensation		105			90
Non-cash compensation		—			68
Loss on disposal of fixed assets		15			29
Changes in operating assets and liabilities, net of acquisition activities:
Accounts receivable		(3,942	)		(6,118	)
Inventories		488			(4,286	)
Prepaid expenses and other assets		(1,378	)		(830	)
Accounts payable		4,142			4,538
Accrued expenses and other current liabilities		(33	)		(263	)
Net cash used in operating activities		(611	)		(7,846	)
Cash flows from investing activities, net of acquisition activities:
Purchase of property and equipment		(846	)		(586	)
Proceeds from sale of handheld software product line		388			—
Net cash used in investing activities		(458	)		(586	)
Cash flows from financing activities:
Repayment of long-term debt		(125	)		(82	)
Net proceeds from issuance of convertible preferred stock		—			1,185
Net proceeds from issuance of common stock, exercise of options and warrants, and repayment of stock subscription notes receivable		1,093			15,567
Dividends paid on convertible preferred stock		—			(20	)
Net cash provided by financing activities		968			16,650
Effects of exchange rate changes on cash and cash equivalents		8			74
Net cash provided by discontinued operations		10			55
Net increase (decrease) in cash and cash equivalents		(83	)		8,347
Cash and cash equivalents, beginning of period		11,024			3,166
Cash and cash equivalents, end of period	$	10,941		$	11,513

See accompanying notes to unaudited condensed consolidated financial statements.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Basis of Presentation

     The accompanying condensed consolidated financial statements include the accounts of Mobility Electronics, Inc. (“Mobility” or the “Company”) which was formerly known as Electronics Accessory Specialists International, Inc., and its wholly-owned subsidiaries, Magma, Inc. (“Magma”), Mobility Idaho, Inc. (“Idaho”) which was formerly known as Portsmith, Inc., Mobility 2001 Limited, Mobility Texas Inc. (“Texas”) which was formerly known as Cutting Edge Software, Inc., and iGo Direct Corporation (“iGo”). All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

     The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying condensed consolidated financial statements include normal recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2003 included in the Company’s Form 10-K, filed with the SEC. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of results to be expected for the full year or any other period.

     The preparation of the condensed consolidated financial statements in conformity with 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 debts, sales returns, 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.

     Certain amounts included in the 2003 condensed consolidated financial statements have been reclassified to conform to the 2004 financial statement presentation.

     The Company believes its critical accounting policies, consisting of revenue recognition, inventory valuation and goodwill valuation affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. These policies are discussed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2) Stock-based Compensation

     The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options and to adopt the “disclosure only” alternative treatment under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement 123). Statement 123 requires the use of fair value option valuation models to estimate fair value of the option at grant date. Under Statement 123, deferred compensation is recorded for the excess of the fair value of the stock on the date of the option grant. The deferred compensation is amortized over the vesting period of the option.

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     Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement 123, the Company’s net loss and net loss per share would have been increased to the pro forma amount indicated below (amounts in thousands, except per share):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Net loss attributable to common stockholders:
As reported	$	(116	)	$	(406	)	$	(2,124	)	$	(3,378	)
Total stock-based employee compensation expense determined under fair-value-based method for all rewards, net of tax of $0 for all periods		(346	)		(149	)		(966	)		(405	)
Pro forma	$	(462	)	$	(555	)	$	(3,090	)	$	(3,783	)
Net loss per share — basic and diluted:
As reported	$	(0.00	)	$	(0.02	)	$	(0.08	)	$	(0.15	)
Pro forma	$	(0.02	)	$	(0.02	)	$	(0.11	)	$	(0.17	)

     The value of stock-based employee compensation expense for the three and nine months ended September 30, 2004 and 2003 was determined using the Black-Scholes method with the following assumptions:

	September 30,
	2004			2003
Expected life (years)		3.0			2.5
Risk-free interest rate		3.0	%		3.0	%
Dividend yield		0.0	%		0.0	%
Volatility		100.0	%		100.0	%

(3) Inventories

     Inventories consist of the following (amounts in thousands):

	September 30,		December 31,
	2004		2003
Raw materials	$	2,696	$	2,198
Finished goods		5,056		6,042
	$	7,752	$	8,240

(4) Goodwill

     The changes in the carrying amount of goodwill are as follows (amounts in thousands):

Reported balance at December 31, 2003	$	12,961
Miscellaneous direct acquisition costs		875
Adjustment to iGo opening balance sheet to reflect changes in the fair market value of current assets recorded on the date of acquisition		(92	)
Sale of Mobility Texas assets		(1,958	)
Reported balance at September 30, 2004	$	11,786

(5) Intangible Assets

     Intangible assets consist of the following at September 30, 2004 and December 31, 2003 (amounts in thousands):

			September 30, 2004							December 31, 2003
	Average		Gross					Net		Gross					Net
	Life		Intangible		Accumulated			Intangible		Intangible		Accumulated			Intangible
	(Years)		Assets		Amortization			Assets		Assets		Amortization			Assets
Amortized intangible assets:
License fees		4	$	2,258	$	(778	)	$	1,480	$	2,208	$	(522	)	$	1,686
Patents and trademarks		3		1,750		(928	)		822		1,220		(699	)		521
Non-compete agreements		2		75		(75	)		—		159		(115	)		44
Software		5		—		—			—		803		(202	)		601
Trade names		10		378		(79	)		299		378		(50	)		328
Customer list		10		662		(180	)		482		705		(27	)		678
Total			$	5,123	$	(2,040	)	$	3,083	$	5,473	$	(1,615	)	$	3,858

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Aggregate amortization expense for identifiable intangible assets totaled $278,000 and $904,000 for the three and nine months ended September 30, 2004, respectively. Aggregate amortization expense for identifiable intangible assets totaled $177,000 and $490,000 for the three and nine months ended September 30, 2003, respectively.

     During the quarter ended September 30, 2004 the Company sold the following intangible assets related to the handheld software product line (amounts in thousands):

	September 30, 2004
	Gross					Net
	Intangible		Accumulated			Intangible
	Assets		Amortization			Assets
Software	$	1,100	$	(409	)	$	691
Non-compete agreements		84		(61	)		23
Patents and trademarks		64		—			64
Customer list		43		(9	)		34
Total	$	1,291	$	(479	)	$	812

(6) Line of Credit

     In October 2002, the Company entered into a $10,000,000 line of credit with a bank. The line bears interest at prime (4.75% at September 30, 2004), interest only payments are due monthly, with final payment of interest and principal due on July 31, 2006. The line of credit is secured by all assets of the Company. The Company had no outstanding balance against the line of credit at September 30, 2004 and 2003. The Company had a $1.5 million letter of credit, secured by the line of credit, outstanding at September 30, 2004. The line of credit is subject to financial covenants. The Company is currently in compliance with the covenants. At September 30, 2004, the Company had borrowing base capacity of $7,312,000.

(7) Long-Term Debt and Other Non-current Liabilities

     Long-term debt and other non-current liabilities consist of the following (amounts in thousands):

	September 30,		December 31,
	2004		2003
Estimate of Invision earn-out	$	799	$	847
Liability for license fee		75		200
		874		1,047
Less current portion		373		521
Long-term debt, less current portion	$	501	$	526

     In connection with its acquisition of certain assets of Invision Software and Invision Wireless, the Company recorded a liability of $847,000, which represents the excess of the fair value of assets acquired over the initial consideration paid for those assets. This liability will be reduced by earn-out payments when the contingent consideration is earned. Accordingly, the Company has recorded a current portion of this liability of $396,000 based on its estimate of contingent consideration to be earned during 2004. The Company made actual earn-out payments of $48,000 during the nine months ended September 30, 2004.

     In connection with its settlement of litigation with General Dynamics during 2003, the Company obtained a ten year trademark license from General Dynamics in exchange for $400,000, plus $1,000 in interest charges. During 2003, the Company made a $201,000 installment payment. In January 2004, the Company made a $125,000 installment payment. Future installments are payable as follows: $25,000 on January 15, 2005, which has been recorded as a current liability, $25,000 on January 15, 2006, and $25,000 on January 15, 2007.

(8) Stockholders’ Equity

(a) Convertible Preferred Stock

     Series C preferred stock is convertible into shares of common stock. The initial conversion rate was one for one, but is subject to change if certain events occur. Generally, the conversion rate will be adjusted if the Company issues any non-cash dividends on outstanding securities, splits its securities or otherwise effects a change to the number of its outstanding securities. The conversion rate will also be adjusted if the Company issues additional securities at a price that is less than the price that the Series C preferred stockholders paid for their shares. Such adjustments will be made according to certain formulas that are designed to prevent dilution of the Series C preferred stock. The Series C preferred stock can be converted at any time at the option of the holder, and will convert automatically, immediately prior to the consummation of a firm commitment public

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offering of common stock pursuant to a registration statement filed with the Securities and Exchange Commission having a per share price equal to or greater than $24.00 per share and a total gross offering amount of not less than $15,000,000. The rate of conversion was 1-to-1.0883 as of September 30, 2004. At September 30, 2004 and December 31, 2003, there were 15,000,000 shares of Series C preferred stock authorized and 270,541 and 329,866 issued and outstanding, respectively. During the period from December 31, 2003 through September 30, 2004, 59,325 shares of Series C preferred stock were converted into 64,561 shares of common stock at an average rate of 1-to-1.0883.

     The Company may not pay any cash dividends on its common stock while any Series C preferred stock remains outstanding without the consent of the Series C preferred stockholders. Holders of Series C preferred stock are entitled to vote on all matters submitted for a vote of the holders of common stock. Holders will be entitled to one vote for each share of common stock into which one share of Series C preferred stock could then be converted. In the event of liquidation or dissolution, the holders of Series C preferred stock will be entitled to receive the amount they paid for their stock, plus accrued and unpaid dividends out of the Company’s assets legally available for such payments prior to the holders of securities junior to the Series C preferred stock receiving payments.

     In January 2003, the Company issued and sold 865,051 shares of newly designated Series E preferred stock, par value $0.01 per share (“Series E Stock”), at a purchase price of $0.7225 per share, and 729,407 shares of newly designated Series F preferred stock, par value $0.01 per share (“Series F Stock”), at a purchase price of $0.85 per share. In connection with this sale, the Company also issued warrants to purchase an aggregate of 559,084 shares of common stock, par value $0.01 per share, of the Company. The warrants issued to holders of Series E Stock permit them to purchase an aggregate of 216,263 shares of common stock, at an exercise price of $0.867 per share (the “Series E Warrants”), and the warrants issued to holders of Series F Stock permit them to purchase an aggregate of 342,821 shares of common stock, at an exercise price of $1.02 per share (the “Series F Warrants”). The Series E Stock was purchased by a single non-affiliated investor, while the Series F Stock was purchased by certain officers and directors of the Company and their affiliates.

     All of the Series E Warrants have been exercised and converted into 216,263 shares of common stock during 2003, and no Series E Warrants were outstanding at December 31, 2003. As of September 30, 2004, there were 46,999 Series F Warrants outstanding and exercisable for 46,999 shares of common stock.

     At the date of issuance of the Series E and Series F shares, a non-cash beneficial conversion adjustment of $445,000, which represents a 15% discount to the fair value of the common stock at the date of issuance of the Series E shares and an estimate of the fair value of the Series E and Series F Warrants using the Black-Scholes model, was recorded in the 2003 consolidated financial statements as an increase and decrease to additional paid-in capital. The beneficial conversion adjustment resulted in an increase to net loss attributable to common stockholders of $445,000, or $0.02 per common share. The beneficial conversion adjustment was recorded upon the issuance of the Series E and Series F convertible preferred stock, as the Series E and Series F shares were immediately convertible upon issuance.

     The following assumptions were used to determine the Black-Scholes value of the Series E and Series F Warrants: (1) expected life of 3 years, (2) risk-free interest rate of 3.0%, (3) dividend yield of 0%, and (4) volatility of 100%.

     As the closing price of the Company’s common stock was greater than or equal to $2.00 per share for ten consecutive trading days on September 6, 2003, all issued and outstanding shares of Series E and Series F preferred stock automatically converted into 1,594,458 shares of common stock at a conversion rate of 1-to-1. Dividends on Series E and F preferred stock of $20,000 were accrued at September 6, 2003. No shares of Series E and Series F preferred stock were outstanding at December 31, 2003.

(b) Common Stock

     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 September 30, 2004 and December 31, 2003, there were 90,000,000 shares of common stock authorized and 28,251,570 and 27,610,996 issued and outstanding, respectively.

(9) Discontinued Operations

     During the quarter ended September 30, 2004, the Company sold substantially all assets of its Texas subsidiary, which developed and marketed a handheld software product line, for $3,477,500 million plus assumed liabilities of $467,000. The Company received $387,500 in cash, $200,000 held in a short-term escrow fund, $415,000 in a short-term receivable and

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$2,475,000 million in notes receivable in exchange for assets with a book value of $3,235,000 million. In connection with this sale of assets, the Company has recorded a deferred gain of $600,000 as a reduction of the notes receivable. Recognition of the gain will occur when collectibility of notes receivable is reasonably assured.

     The results of operations from the handheld software product line have been presented in the condensed consolidated statements of operations as discontinued operations. Following is a summary of the discontinued operations related to the Company’s Texas subsidiary that were sold in 2004 (amounts in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Revenue	$	186		$	288		$	1,063		$	786
Cost of revenue		14			89			319			207
Gross profit		172			199			744			579
Selling, general and administrative expenses		468			291			1,210			832
Total discontinued operations	$	(296	)	$	(92	)	$	(466	)	$	(253	)

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(10) Net Income (Loss) per Share

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Basic net income (loss) per share computation:
Numerator:
Income (loss) from continuing operations	$	180		$	(314	)	$	(1,658	)	$	(2,660	)
Discontinued operations		(296	)		(92	)		(466	)		(253	)
Net loss		(116	)		(406	)		(2,124	)		(2,913	)
Beneficial conversion value of convertible preferred stock		—			—			—			(445	)
Preferred stock dividend		—			—			—			(20	)
Net loss attributable to common stockholders	$	(116	)	$	(406	)	$	(2,124	)	$	(3,378	)
Denominator:
Weighted average number of common shares outstanding		28,139			24,709			27,901			22,143
Basic net income (loss) per share:
Continuing operations	$	0.01		$	(0.01	)	$	(0.06	)	$	(0.14	)
Discontinued operations	$	(0.01	)	$	(0.00	)	$	(0.02	)	$	(0.01	)
Total basic net income (loss) per share	$	(0.00	)	$	(0.02	)	$	(0.08	)	$	(0.15	)
Diluted net income (loss) per share computation:
Numerator:
Income (loss) from continuing operations	$	180		$	(314	)	$	(1,658	)	$	(2,660	)
Discontinued operations		(296	)		(92	)		(466	)		(253	)
Net loss		(116	)		(406	)		(2,124	)		(2,913	)
Beneficial conversion value of convertible preferred stock		—			—			—			(445	)
Preferred stock dividend		—			—			—			(20	)
Net loss attributable to common stockholders	$	(116	)	$	(406	)	$	(2,124	)	$	(3,378	)
Denominator:
Weighted average number of common shares outstanding		28,139			24,709			27,901			22,143
Effect of dilutive stock options, warrants, and restricted stock units		1,346			—			—			—
Effect of common shares issuable upon conversion of preferred shares		294			—			—			—
		29,779			24,709			27,901			22,143
Stock options, warrants and restricted stock units not included in dilutive net income (loss) per share since antidilutive		—			2,625			2,299			2,625
Convertible preferred stock not included in dilutive net income (loss) per share since antidilutive		—			449			271			449
Diluted net income (loss) per share:
Continuing operations	$	0.01		$	(0.01	)	$	(0.06	)	$	(0.14	)
Discontinued operations	$	(0.01	)	$	(0.00	)	$	(0.02	)	$	(0.01	)
Total diluted net income (loss) per share	$	(0.00	)	$	(0.02	)	$	(0.08	)	$	(0.15	)

(11) Concentration of Credit Risk, Significant Customers and Business Segments

     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 FDIC insurance coverage limit of $100,000. The Company performs ongoing credit evaluations of its customers’ financial condition but does not typically require collateral to support customer receivables.

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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 26%, 16%, and 11% of net sales for the nine months ended September 30, 2004. Four customers accounted for 15%, 13%, 12% and 11% of net sales for the nine months ended September 30, 2003.

     Three customers’ accounts receivable balances accounted for 29%, 20% and 10% of net accounts receivable at September 30, 2004. Four customers’ accounts receivable balances accounted for 22%, 14%, 12% and 11% of net accounts receivable at December 31, 2003.

     Allowance for doubtful accounts was $549,000 and $424,000 at September 30, 2004 and December 31, 2003, respectively. Allowance for sales returns was $147,000 and $124,000 at September 30, 2004 and December 31, 2003, respectively.

     Export sales were approximately 17% and 14% of the Company’s net sales for the nine months ended September 30, 2004 and 2003, respectively. The principal international market served by the Company was Europe.

     The Company is engaged in the business of the sale of computer peripheral products. While the Company’s chief operating decision maker (CODM) evaluates revenues and gross profits based on products lines, routes to market and geographies, the CODM only evaluates operating results for the Company taken as a whole. As a result, in accordance with FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information”, the Company has determined it has one operating business segment, the sale of computer peripheral products.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
Power products	$	13,100	$	8,183	$	34,124	$	19,486
Handheld hardware products		3,042		912		7,445		7,832
Expansion and docking products		1,647		1,436		5,053		5,221
Accessories and other products		1,019		1,696		2,424		3,973
Technology transfer fees		151		580		608		886
Total revenues	$	18,959	$	12,807	$	49,654	$	37,398

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
United States	$	16,071	$	11,292	$	41,078	$	32,288
Europe		1,246		1,283		6,014		4,500
All other		1,642		232		2,562		610
	$	18,959	$	12,807	$	49,654	$	37,398

(12) Contingencies

     Holmes Lundt, et al., plaintiffs, and Jason Carnahan, et. al., intervenors, v. Mobility Electronics, Inc., Portsmith, Inc., Charles R. Mollo, Joan W. Brubacher, Jeffrey R. Harris, Robert P. Dilworth, Larry M. Carr, William O. Hunt, Jerre L. Stead and Darryl Baker, pending in the District Court of the Fourth Judicial District of Idaho, Ada County, Cause No. CV-0C-0302562D. This lawsuit initially was commenced on April 2, 2003, by Holmes Lundt, former President and CEO of Mobility Idaho, Inc. (formerly Portsmith, Inc.), the Company’s wholly-owned subsidiary, and his wife, but additional plaintiffs were added, and several of the Company’s officers and directors were added as defendants. In their current pleading, the plaintiffs are alleging breach of the Portsmith merger agreement and Mr. Lundt’s employment agreement, wrongful termination of Mr. Lundt, fraudulent misrepresentation, securities fraud, breach of an alleged covenant of good faith and fair dealing, civil conspiracy, and are seeking monetary damages and/or rescission of the Portsmith merger agreement. On February 11, 2004, the court permitted the plaintiffs in the Carnahan suit to intervene in the lawsuit and these intervenors in turn dismissed a separate lawsuit they had commenced on December 30, 2003. In their current pleading, the intervenors assert claims against the Company, Portsmith, Mr. Mollo and Ms. Brubacher, for breach of contract, breach of an alleged covenant of good faith and fair dealing, unjust enrichment, declaratory judgment, fraud, misrepresentation, concealment, breach of fiduciary duty, constructive trust, conversion, and constructive fraud. Intervenors are seeking monetary damages and/or the recovery of unspecified shares of the Company’s common stock. Among other things, plaintiffs and intervenors disputed that the Company appropriately calculated and paid the earn-out consideration called for by the Portsmith merger agreement. The court issued an order on April 15, 2004 granting the Company’s motion for partial summary judgment on this pricing issue, which means that the court agreed that the Company had properly calculated the pricing of the shares issued by the Company in the Portsmith merger. The plaintiffs have filed a motion requesting that the court reconsider its order granting the Company’s motion for

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partial summary judgment on the pricing issue. The court held a hearing on this motion on October 27, 2004, but has not yet issued its ruling. The remaining claims are still pending and the Company intends to vigorously defend against the claims as well as pursue its own claims against the plaintiffs and intervenors.

     The Company and two of its executive officers have been named as defendants in lawsuits filed between February and April of 2004 and subsequently amended and consolidated in the United States District Court for the District of Arizona. The consolidated lawsuit asserts claims for securities fraud under Sections 10(b), 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934, on behalf of a purported class of persons who purchased the Company’s publicly traded securities between September 2, 2003 and January 5, 2004. The complaint generally alleges that various public statements made by defendants were false and misleading when made, and that members of the purported stockholder class suffered damages when the market price of the Company’s common stock declined following disclosure of the information that allegedly had not been previously disclosed. The complaint seeks to proceed on behalf of the alleged class described above, seeks monetary damages in an unspecified amount and seeks recovery of plaintiffs’ costs and attorneys’ fees. The Company filed a motion to dismiss this lawsuit on September 7, 2004, and is currently awaiting a response from the plaintiffs. The Company intends to vigorously defend itself against these claims.

     Certain former officers of iGo Corporation are seeking potential indemnification claims against the Company’s wholly owned subsidiary, iGo Direct Corporation, relating to a Securities and Exchange Commission matter involving such individuals (but not involving the Company) that relates to matters that arose prior to the Company’s acquisition of iGo Corporation in September 2002. The Company is pursuing coverage under iGo’s directors’ and officers’ liability insurance policy as it relates to this potential iGo indemnification matter. In the event this coverage is not received, iGo may be responsible for costs and expenses associated with this matter.

     The Company is from time to time involved in various legal proceedings incidental to the conduct of its business. The Company believes that the outcome of all such pending legal proceedings will not in the aggregate have a material adverse effect on its business, financial condition, results of operations or liquidity.

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

     Certain statements contained in this report constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “expect,” “anticipate” and other similar statements of expectations identify forward-looking statements. Forward-looking statements in this report include expectations regarding our anticipated revenue, gross margin, and related expenses for 2004; the availability of cash and liquidity; expectations of industry trends; beliefs relating to our distribution capabilities and brand identity; expectations regarding new product introductions; the anticipated strength of our patent portfolio; and our expectations regarding the outcome and anticipated impact of various litigation proceedings in which we are involved. These forward-looking statements are based largely on management’s expectations and involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include those set forth in other reports that we file with the Securities and Exchange Commission. Additional factors that could cause actual results to differ materially from those expressed in these forward-looking statements include, among others, the following:

• the loss of, and failure to replace, any significant customers;

• the timing and success of new product introductions;

• product developments, introductions and the pricing of competitors;

• the market’s acceptance of our products and technology;

• the timing of substantial customer orders;

• the availability of qualified personnel;

• the performance of suppliers and subcontractors;

• the timely achievement of anticipated milestones;

• the scope and breadth of our patent portfolio; and

• market demand and industry and general economic or business conditions.

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

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Overview

     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 benefiting from reductions in size, weight and cost and improvements in functionality, storage capacity and reliability. Each of these devices needs to be powered and connected when in the home, the office, or on the road, and can be accessorized, representing an opportunity for one or more of our products.

     We use our proprietary technology to design and develop products that make mobile electronic devices more efficient and cost effective, thus enabling professionals and consumers more effective use of these mobile electronic devices and the ability to access information more readily. Our products include power, handheld, expansion and docking and accessory products.

     We sell our products to OEMs, private-label resellers, distributors, resellers, retailers and end-users. We have entered into strategic reseller agreements with Kensington and Targus to market and distribute our power products on a private-label basis. We sell to retailers such as RadioShack and through distributors such as Ingram Micro. We also sell directly to end users through our company websites and provide customized solutions to corporate customers. Direct sales to OEMs and private-label resellers accounted for approximately 63% of revenue for the nine months ended September 30, 2004 and 43% of revenue for the nine months ended September 30, 2003. Sales through retailers and distributors accounted for approximately 26% of revenue for the nine months ended September 30, 2004 and 46% of revenue for the nine months ended September 30, 2003. The balance of our revenue during these periods was derived from direct sales to end users. In the future, we expect that we will be dependent upon a relatively small number of customers for a significant portion of our revenue, including most notably Dell, IBM, Ingram Micro, Kensington, Motorola, RadioShack, Symbol and Targus.

     Our early focus was on the development of DC power adapters and remote peripheral component interface, or PCI, bus technology and products based on our proprietary Split Bridge^® technology. We invested heavily in our leading edge Split Bridge technology. While we have had some success with Split Bridge in the corporate portable computer market with sales of universal docking stations, it became clear in early 2002 that this would not be the substantial opportunity we originally envisioned. While we continue to produce and sell products and selectively evaluate opportunities using our Split Bridge technology, we are no longer committing substantial resources to this technology.

     In 2002, we repositioned ourselves as a provider of power and connectivity products for mobile electronic devices, including portable computers, PDAs, mobile phones, smartphones, digital cameras and MP3 players. Through a combination of acquisitions and internal development, we created a much broader base of innovative products for use with mobile electronic devices by capitalizing on our base of technology and distribution channels.

     Our long-term goal is to establish an industry standard for all mobile electronic device power adapters based on our patented tip technology. We also believe there are long-term growth opportunities for our handheld products and technology related to the new smartphones that are being introduced by the major phone manufacturers.

     Our 2004 development efforts are focused significantly on the development of our family of power adapter products. In particular, we have collaborated with RadioShack to develop and market a line of power adapters, including cigarette lighter adapters, mobile AC adapters, and low power universal AC/DC adapters, specifically designed for the low power mobile electronics device market. Each of these devices incorporates our patented tip technology and the combination AC/DC adapter also allows users to simultaneously charge an ancillary device with our optional DualPower^TM accessory. We are also collaborating with Motorola to develop and market a similar family of power products.

     Our ability to execute successfully on our near and long-term objectives depends largely upon the general market acceptance of our tip technology which allows users to charge multiple devices with a single adapter and our ability to protect this technology through our intellectual property. 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 in general.

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 that affect the reported amounts of assets, liabilities, revenue and expenses and 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 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

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of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these 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 recognized upon shipments and transfers of ownership from us or our contract manufacturers to the 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 the estimated allowance for sales returns and credits may be required.

     Our recognition of revenue from product sales to distributors, resellers and retailers, or the “distribution channel,” is affected by agreements we have giving certain customers rights to return up to 20% of their prior quarter’s purchases, provided that they place a new order for 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, upon shipment and transfer of ownership, we reduce our measurements of those sales and the related cost of sales by our estimates of future returns and price protection by recording an allowance for sales returns in the amount of the difference between the sales price and the cost of goods sold as a reduction of accounts receivable. Gross sales to the distribution channel accounted for approximately 26% for the nine months ended September 30, 2004 and 46% of revenue for the nine months ended September 30, 2003.

     For our products, a historical correlation exists between the amount of 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. For each of our products, we monitor levels of product sales and inventory at our distributors’ warehouses and at retailers as part of our effort to reach an appropriate accounting estimate for returns. In estimating returns, we analyze historical returns, current inventory in the distribution channel, current economic trends, changes in consumer demand, introduction of new competing products and 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 also possible that returns could increase rapidly and significantly in the future. Accordingly, estimating product returns requires significant management judgment. In addition, different return estimates that we reasonably could have used would have had a material impact on our reported sales and thus have had a material impact on the presentation of the results of operations. For those reasons, we believe that the accounting estimate related to product returns and price protection is a critical accounting estimate.

     Inventory Valuation. Inventories consist of finished goods and component parts purchased both partially and fully assembled. We have all normal risks and rewards of our inventory held by contract manufacturers. Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories include material and overhead costs. 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 for the items. 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.

     Goodwill Valuation. In conjunction with the implementation of Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”, (SFAS No. 142), we performed a goodwill impairment evaluation as of January 1, 2002 relating to the goodwill that was recorded at December 31, 2001. Based on the results of that impairment evaluation, we determined the recorded goodwill at December 31, 2001 of approximately $5.6 million was fully impaired. We recorded the impairment write-down as a cumulative effect of change in accounting principle in accordance with the new accounting standard. We test goodwill for impairment on an annual basis as of December 31. In accordance with SFAS No. 142, we evaluated the newly acquired goodwill for impairment and determined that the recorded goodwill was not impaired as of December 31, 2003.

     As a result of our acquisitions of Portsmith, Cutting Edge Software and iGo during 2002, we have recorded additional goodwill of approximately $13.9 million as of September 30, 2004. Goodwill was reduced by approximately $2.0 million as a result of the sale of the assets of Cutting Edge Software during 2004.

     The impairment evaluation process is based on both a discounted future cash flow approach and a market comparable approach. The discounted cash flow approach uses our estimates of future market growth rates, market share, revenue and costs, as well as appropriate discount rates. If we fail to achieve our assumed revenue growth rates or assumed gross margin, we may incur charges for impairment of goodwill in the future. For these reasons, we believe that the accounting estimate related to goodwill impairment is a critical accounting estimate.

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Results of Operations

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

	Three months ended						Nine months ended
	September 30,						September 30,
	(unaudited)						(unaudited)
	2004			2003			2004			2003
Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		69.1	%		63.8	%		70.2	%		65.0	%
Gross profit		30.9	%		36.2	%		29.8	%		35.0	%
Operating expenses:
Sales and marketing		9.4	%		12.7	%		9.9	%		13.6	%
Research and development		6.4	%		9.1	%		7.9	%		8.6	%
General and administrative		14.0	%		16.6	%		15.2	%		19.9	%
Total operating expenses		29.8	%		38.4	%		33.0	%		42.1	%
Income (loss) from continuing operations		1.1	%		-2.2	%		-3.2	%		-7.1	%
Other income (expense):
Interest, net		-0.1	%		-0.3	%		-0.2	%		-0.1	%
Other, net		0.0	%		0.0	%		0.0	%		0.1	%
Income (loss) from continuing operations		1.0	%		-2.5	%		-3.4	%		-7.1	%
Loss from discontinued operations		-1.6	%		-0.7	%		-0.9	%		-0.7	%
Net loss		-0.6	%		-3.2	%		-4.3	%		-7.8	%

Comparison of Three Months Ended September 30, 2004 and 2003

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

					Increase		Percentage change
					from same period in		from the same period
	Q3 2004		Q3 2003		the prior year		in the prior year
Revenue	$	18,959	$	12,807	$	6,152		48.0	%

     The increase in revenue is primarily due to continued sales growth of our family of combination AC/DC, AC only and DC only universal power adapters during the three months ended September 30, 2004. As a result, sales of power products increased by $4.9 million, or 60.1%, to $13.1 million during the three months ended September 30, 2004 as compared to $8.2 million for the three months ended September 30, 2003. Sales of handheld hardware products increased by $2.1 million, or 233.6%, to $3.0 million during the three months ended September 30, 2004 as compared to $912,000 for the three months ended September 30, 2003. These increases are offset by decreases of $1.1 million in sales of accessories and technology transfer fees during the three months ended September 30, 2004 compared to the same period in the prior year.

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

							Increase (decrease)			Percentage change
							from same period in			from the same period
	Q3 2004			Q3 2003			the prior year			in the prior year
Cost of revenue	$	13,102		$	8,173		$	4,929			60.3	%
Gross profit	$	5,857		$	4,634		$	1,223			26.4	%
Gross margin		30.9	%		36.2	%		(5.3	)%		(14.6	)%

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     The increase in cost of revenue was due primarily to the 48.0% volume increase in revenue, as well as to shifts in customer mix, product mix and costs associated with the rework of power adapters manufactured for Dell for the three months ended September 30, 2004 as compared to the three months ended September 30, 2003. Cost of revenue as a percentage of revenue increased to 69.1% for the three months ended September 30, 2004 from 63.8% for the three months ended September 30, 2003, resulting in decreased gross margin. The decrease in gross profit and corresponding gross margin is primarily attributable to two factors. The first factor is a shift in customer mix. OEM and private label reseller customers accounted for 63% and 41% of revenue for the three months ended September 30, 2004 and 2003, respectively. Sales through retailers and distributors accounted for 27% and 51% of revenue for the three months ended September 30, 2004 and 2003, respectively. Sales to OEMs and private label resellers typically occur at lower price points than sales of comparable product to retailers and distributors. The second factor is a shift in product mix. During the three months ended September 30, 2004, we continued our roll-out of low-wattage power products designed specifically for mobile electronic devices. Sales of a portion of these products typically occur at lower price points than sales of higher-wattage power products.

     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:

					Increase		Percentage change
					from same period in		from the same period
	Q3 2004		Q3 2003		the prior year		in the prior year
Sales and marketing	$	1,777	$	1,623	$	154		9.5	%

     The increase in sales and marketing expenses primarily resulted from costs associated with recruiting and relocation of sales and marketing personnel. As a percentage of revenue, sales and marketing expenses decreased to 9.4% for the three months ended September 30, 2004 from 12.7% for the three months ended September 30, 2003.

     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:

					Increase		Percentage change
					from same period in		from the same period
	Q3 2004		Q3 2003		the prior year		in the prior year
Research and development	$	1,214	$	1,164	$	50		4.3	%

     The increase in research and development expenses primarily resulted from the continued development of our family of power adapter products. Specifically, during the three months ended September 30, 2004, we increased internal staffing of engineers to position us for continued research and development efforts, resulting in a net increase of personnel related expenses. This increase was partially offset by a reduction in non-recurring engineering expenses during the three months ended September 30, 2004 compared to the same period in the prior year, although we expect to continue to incur non-recurring engineering related expenses in future periods. As a percentage of revenue, research and development expenses decreased to 6.4% for the three months ended September 30, 2004 from 9.1% for the three months ended September 30, 2003.

     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, 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:

					Increase		Percentage change
					from same period in		from the same period
	Q3 2004		Q3 2003		the prior year		in the prior year
General and administrative	$	2,653	$	2,131	$	522		24.5	%

     The increase in general and administrative expenses primarily resulted from legal expenses, principally in connection with the defense of our intellectual property, our defense against a securities class action lawsuit, increased expense for amortization of intangibles, primarily patents and trademarks, directors’ fees, and professional fees related to compliance with Sarbanes-Oxley legislation. General and administrative expenses as a percentage of revenue decreased to 14.0% for the three months ended September 30, 2004 from 16.6% for the three months ended September 30, 2003.

     Income taxes. We have incurred losses from inception to date; therefore, no provision for income taxes was required for the three months ended September 30, 2004 and 2003. Based on historical operating losses and projections for future taxable

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income, it is more likely than not that we will not fully realize the benefits of the net operating loss carryforwards. Thus, we have not recorded a tax benefit from our net operating loss carryforwards for either of the three months ended September 30, 2004 or September 30, 2003.

Comparison of Nine Months Ended September 30, 2004 and 2003

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

	Nine months		Nine months
	ended		ended		Increase		Percentage change
	September		September 30,		from same period		from the same period
	30, 2004		2003		in the prior year		in the prior year
Revenue	$	49,654	$	37,398	$	12,256		32.8	%

     The increase in revenue is primarily due to continued sales growth of our family of combination AC/DC, AC only and DC only universal power adapters during the nine months ended September 30, 2004. As a result, sales of power products increased by $14.6 million, or 75.1%, to $34.1 million during the nine months ended September 30, 2004 as compared to $19.5 million for the nine months ended September 30, 2003. This increase is offset by a combined decrease of $2.4 million in sales of handheld hardware products, docking and expansion products, accessories and technology transfer fees during the nine months ended September 30, 2004 compared to the same period in the prior year.

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

	Nine months			Nine months
	ended			ended			Increase (decrease)			Percentage change from
	September			September			from same period in			the same period in the
	30, 2004			30, 2003			the prior year			prior year
Cost of revenue	$	34,838		$	24,325		$	10,513			43.2	%
Gross profit	$	14,816		$	13,073		$	1,743			13.3	%
Gross margin		29.8	%		35.0	%		(5.2	)%		(14.9	)%

     The increase in cost of revenue was due primarily to the 32.8% volume increase in revenue, as well as to shifts in customer mix, product mix and inventory write-downs for the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003. Cost of revenue as a percentage of revenue increased to 70.2% for the nine months ended September 30, 2004 from 65.0% for the nine months ended September 30, 2003, resulting in decreased gross margin. The decrease in gross margin is primarily attributable to three factors. The first factor is a shift in customer mix. OEM and private label reseller customers accounted for 63% and 43% of revenue for the nine months ended September 30, 2004 and 2003, respectively. Sales through retailers and distributors accounted for 26% and 46% of revenue for the nine months ended September 30, 2004 and 2003, respectively. Sales to OEMs and private label resellers typically occur at lower price points than sales of comparable product to retailers and distributors. The second factor is a shift in product mix. For the first time, during the nine months ended September 30, 2004, we commenced sales of low-wattage power products designed specifically for mobile electronic devices. Sales of a portion of these products typically occur at lower price points than sales of higher-wattage power products. The third factor impacting increased cost of revenue and corresponding lower gross profit and gross margin is the impact of write-downs to the value of older inventory, primarily in our handheld products and laptop computer batteries. During the nine months ended September 30, 2004, we recorded an adjustment to cost of revenue in the amount of $929,000, compared to an $80,000 adjustment during the nine months ended September 30, 2003, as a result of reduced marketability of certain of our inventory.

- 18 -

     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:

	Nine months		Nine months
	ended		ended		Decrease		Percentage change
	September		September 30,		from same period		from the same period
	30, 2004		2003		in the prior year		in the prior year
Sales and marketing	$	4,901	$	5,083	$	182		3.6	%

     The decrease in sales and marketing expenses primarily resulted from a reduction in marketing programs due to our decision to focus our marketing efforts on what we deemed to be the most productive sales channels. As a percentage of revenue, sales and marketing expenses decreased to 9.9% for the nine months ended September 30, 2004 from 13.6% for the nine months ended September 30, 2003.

     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:

	Nine months		Nine months
	ended		ended		Increase		Percentage change
	September		September 30,		from same period		from the same period
	30, 2004		2003		in the prior year		in the prior year
Research and development	$	3,926	$	3,226	$	700		21.7	%

     The increase in research and development expenses primarily resulted from the continued development of our family of power adapter products. Specifically, during the nine months ended September 30, 2004, we invested in research and development on a line of power adapters, including cigarette lighter adapters, mobile AC adapters, and low-power universal AC/DC adapters, specifically designed for the low-power mobile electronics device market. We also invested in research and development of new higher-power adapters specifically designed for portable computers.

     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, 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:

	Nine months		Nine months
	ended		ended		Increase		Percentage change
	September		September		from same period		from the same period
	30, 2004		30, 2003		in the prior year		in the prior year
General and administrative	$	7,568	$	7,426	$	142		1.9	%

     The increase in general and administrative expenses primarily resulted from increased expense for amortization of intangibles, primarily patents and trademarks, directors’ fees, and professional fees related to compliance with Sarbanes-Oxley legislation. These increases are offset by decreases in a combination of other general and administrative expenses. General and administrative expenses as a percentage of revenue decreased to 15.2% for the nine months ended September 30, 2004 from 19.9% for the nine months ended September 30, 2003.

     Income taxes. We have incurred losses from inception to date; therefore, no provision for income taxes was required for the nine months ended September 30, 2004 and 2003. 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. Thus, we have not recorded a tax benefit from our net operating loss carryforwards for either of the nine months ended September 30, 2004 or September 30, 2003.

Operating Outlook

     In the fourth quarter of 2004, we expect total revenue to range between $21 million and $26 million, and diluted earnings per share to range between $0.04 and $0.10. Specifically, revenue from sales of our power products is expected to increase approximately 17% — 50% over the third quarter of 2004, primarily as a result of the following:

• Increased Targus and RadioShack portable computer power adapter product rollout and penetration, including their launch of new products and expansion in additional retail outlets and in international markets;

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• The expanded market coverage provided by the introduction of EverywherePower^TM 7500, our new higher power AC/DC combination power adapter for portable computers;

• Continued increases in sales of consumer electronics power adapters through RadioShack, particularly during the holiday season;

• Launch of new consumer electronics power adapters with Motorola and in new distribution channels; and

• Continued ramp-up of portable computer power adapter sales through our computer OEM channels.

     Gross margin in the fourth quarter is expected to increase to approximately 33% to 35%, driven primarily by higher sales volumes, a greater mix of high margin consumer electronics power adapters, and the absence of costs associated with the rework of Dell inventory. Operating expenses are expected to be approximately $6.0 million and trend down as a percentage of revenue.

     We are currently a party to various legal proceedings. We do not believe that the ultimate outcome of these legal proceedings will have a material adverse effect on our financial position or overall trends in results of operations. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. If an unfavorable ruling were to occur in any specific period, such a ruling could have a material adverse impact on the results of operations of that period, or future periods.

     As a result of our planned research and development efforts, we expect to further expand our intellectual property position by aggressively filing for additional patents on an ongoing basis. A portion of these costs are recorded as research and development expense as incurred and a portion are capitalized and amortized as general and administrative expense. We may also incur additional legal and related expenses associated with the defense and enforcement of our intellectual property portfolio, which could increase our general and administrative expenses beyond those currently planned.

Liquidity and Capital Resources

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

	Nine Months Ended September 30,
	2004			2003
Net cash used in operating activities	$	(611	)	$	(7,846	)
Net cash used in investing activities		(458	)		(586	)
Net cash provided by financing activities		968			16,650
Foreign currency exchange impact on cash flow		8			74
Net cash provided by discontinued operations		10			55
Increase (decrease) in cash and cash equivalents	$	(83	)	$	8,347
Cash and cash equivalents at beginning of period	$	11,024		$	3,166
Cash and cash equivalents at end of period	$	10,941		$	11,513

     Cash and Cash Flow. Our cash balances are held in the United States and the United Kingdom. Our intent is that the cash balances will remain in these countries for future growth and investments and we will meet any liquidity requirements in the United States through ongoing cash flows, external financing, or both. Our primary use of cash has been to fund our operating losses, working capital requirements, acquisitions and capital expenditures necessitated by our growth. The growth of our business has required, and will continue to require, investments in accounts receivable and inventories. Our primary sources of liquidity have been funds provided by issuances of equity securities and borrowings under our line of credit.

• Net cash used in operating activities. Cash was used in operating activities for the nine months ended September 30, 2004 primarily to fund operating losses and working capital necessary to support our growing revenue base. Specifically, cash was used to fund accounts receivable growth that resulted from our 32.8% increase in revenues for the nine months ended September 30, 2004 as compared to September 30, 2003. Cash used to fund growth in accounts receivable was offset by growth in accounts payable. In 2004, we expect to generate positive cash flow from operating activities as we expect our operating results to be at or near breakeven with non-cash items and changes in working capital to have a relatively neutral effect on cash flows. Our consolidated cash flow operating metrics are as follows:

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	September 30,
	2004		2003
Days outstanding in ending accounts receivable (“DSOs”)		83		95
Inventory turns		6		4

	The improvement in DSOs at September 30, 2004 compared to September 30, 2003, is primarily due to the shift in customer mix towards OEMs and private-label resellers, as these customers tend to regularly pay within stated credit terms. We expect DSOs to continue to improve during 2004 and into 2005. Inventory turns at September 30, 2004 improved to 6 turns compared to 4 turns at September 30, 2003. The improvement in inventory turns is primarily due to increased sales during the nine months ended September 30, 2004 without a corresponding increase in inventory. We expect inventory turns to continue to improve during 2004 and into 2005.
•	Net cash used in investing activities. For the nine months ended September 30, 2004, net cash used in investing activities was primarily for the purchase of property and equipment. We anticipate future investment in capital equipment, primarily for tooling equipment to be used in the production of new products.
•	Net cash provided by financing activities. Net cash provided by financing activities for the nine months ended September 30, 2004 was primarily from net proceeds from the exercises of stock options and warrants. Although we expect to generate cash flows from operations sufficient to support our operations, we may issue additional shares of stock in the future to generate cash for growth opportunities.

     As of September 30, 2004, we had approximately $97 million of federal, foreign and state net operating loss carryforwards which expire at various dates. We anticipate that the sale of common stock in our initial public offering coupled with prior sales of common stock will cause an annual limitation on the use of our net operating loss carryforwards pursuant to the change in ownership provisions of Section 382 of the Internal Revenue Code of 1986, as amended. This limitation is expected to have a material effect on the timing of our ability to use the net operating loss carryforward in the future. Additionally, our ability to use the net operating loss carryforward is dependent upon our level of future profitability, which currently cannot be determined.

     Financing Facilities. In July 2004, we amended our $10.0 million bank line of credit. The line bears interest at prime, interest only payments are due monthly, with final payment of interest and principal due on July 31, 2006. The line of credit is secured by all of our assets and subject to financial covenants, with which we were in compliance as of September 30, 2004. We had no outstanding balance against this line of credit as of September 30, 2004. Under the terms of the line, we can borrow up to 80% of eligible accounts receivable. At September 30, 2004, our net borrowing base capacity was $7.3 million.

     Contractual Obligations. In our day-to-day business activities, we incur certain commitments to make future payments under contracts such as operating leases and purchase orders. Maturities under these contracts are set forth in the following table as of September 30, 2004, in thousands:

	Payment due by period
	2004		2005		2006		2007		2008		More than 5 years
Operating lease obligations	$	199	$	605	$	521	$	503	$	384	$	—
Inventory Purchase obligations		15,968		—		—		—		—		—
Other long-term obligations		50		606		193		25		—		—
Totals	$	16,217	$	1,211	$	714	$	528	$	384	$	—

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

     Acquisitions and dispositions. In the past we have made acquisitions of other companies to complement our product offerings and expand our revenue base. In September 2002 we acquired iGo Corporation through one of our wholly owned subsidiaries, iGo Direct Corporation. Certain former officers of iGo Corporation are now seeking potential indemnification claims against iGo Direct Corporation relating to a Securities and Exchange Commission matter involving such individuals (but not involving us) that relates to matters that arose prior to our acquisition of iGo Corporation. We are pursuing coverage under iGo’s directors’ and officers’ liability insurance policy for this potential iGo indemnification matter. In the event this coverage is not received, iGo may be responsible for costs and expenses associated with this matter.

     During the nine months ended September 30, 2004, we sold the assets of our Texas subsidiary for approximately $1.0 million in cash and current receivables, and approximately $2.5 million in notes receivable.

- 21 -

     Our future strategy includes the possible acquisition of other businesses to continue to expand or complement our operations. The magnitude, timing and nature of any future acquisitions will depend on a number of factors, including the availability of suitable acquisition candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Financing of future acquisitions would result in the utilization of cash, incurrence of additional debt, or both. 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.

     Liquidity Outlook. Based on our projections, we believe that our existing cash and cash equivalents 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 use our line of credit or seek to sell additional equity or debt securities. The sale of additional equity or convertible debt 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

     To date we have not utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or other strategies to hedge market risk in the foreseeable future. We invest our cash in money market funds, which are subject to minimal credit and market risk. We believe that the market risks associated with these financial instruments are immaterial.

     See “Liquidity and Capital Resources” for further discussion of our financing facilities and capital structure. Market risk, calculated as the potential change in fair value of our cash and cash equivalents and line of credit resulting from a hypothetical 1.0% (100 basis point) change in interest rates, was not material at September 30, 2004.

ITEM 4. CONTROLS AND PROCEDURES

     Based upon their evaluations of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were adequate and designed to ensure that information required to be disclosed by us in this report is recorded, processed, summarized and reported by the filing date of this report, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS:

     Holmes Lundt, et al., plaintiffs, and Jason Carnahan, et. al., intervenors, v. Mobility Electronics, Inc., Portsmith, Inc., Charles R. Mollo, Joan W. Brubacher, Jeffrey R. Harris, Robert P. Dilworth, Larry M. Carr, William O. Hunt, Jerre L. Stead and Darryl Baker, pending in the District Court of the Fourth Judicial District of Idaho, Ada County, Cause No. CV-0C-0302562D. This lawsuit initially was commenced on April 2, 2003, by Holmes Lundt, former President and CEO of Mobility Idaho, Inc. (formerly Portsmith, Inc.), the Company’s wholly-owned subsidiary, and his wife, but additional plaintiffs were added, and several of the Company’s officers and directors were added as defendants. In their current pleading, the plaintiffs are alleging breach of the Portsmith merger agreement and Mr. Lundt’s employment agreement, wrongful termination of Mr. Lundt, fraudulent misrepresentation, securities fraud, breach of an alleged covenant of good faith and fair dealing, civil conspiracy, and are seeking monetary damages and/or rescission of the Portsmith merger agreement. On February 11, 2004, the court permitted the plaintiffs in the Carnahan suit to intervene in the lawsuit and these intervenors in turn dismissed a separate lawsuit they had commenced on December 30, 2003. In their current pleading, the intervenors assert claims against the Company, Portsmith, Mr. Mollo and Ms. Brubacher, for breach of contract, breach of an alleged covenant of good faith and fair dealing, unjust enrichment, declaratory judgment, fraud, misrepresentation, concealment, breach of fiduciary duty, constructive trust, conversion, and constructive fraud. Intervenors are seeking monetary damages and/or the recovery of unspecified shares of the Company’s common stock. Among other things, plaintiffs and intervenors disputed that the Company appropriately calculated and paid the earn-out consideration called for by the Portsmith merger agreement. The court issued an order on April 15, 2004 granting the Company’s motion for partial summary judgment on this pricing issue, which means that the court agreed that the Company had properly calculated the pricing of the shares issued by the Company in the Portsmith

- 22 -

merger. The plaintiffs have filed a motion requesting that the court reconsider its order granting the Company’s motion for partial summary judgment on the pricing issue. The court held a hearing on this motion on October 27, 2004, but has not yet issued its ruling. The remaining claims are still pending and the Company intends to vigorously defend against the claims as well as pursue its own claims against the plaintiffs and intervenors.

     The Company and two of its executive officers have been named as defendants in lawsuits filed between February and April of 2004 and subsequently amended and consolidated in the United States District Court for the District of Arizona. The consolidated lawsuit asserts claims for securities fraud under Sections 10(b), 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934, on behalf of a purported class of persons who purchased the Company’s publicly traded securities between September 2, 2003 and January 5, 2004. The complaint generally alleges that various public statements made by defendants were false and misleading when made, and that members of the purported stockholder class suffered damages when the market price of the Company’s common stock declined following disclosure of the information that allegedly had not been previously disclosed. The complaint seeks to proceed on behalf of the alleged class described above, seeks monetary damages in an unspecified amount and seeks recovery of plaintiffs’ costs and attorneys’ fees. The Company filed a motion to dismiss this lawsuit on September 7, 2004, and is currently awaiting a response from the plaintiffs. The Company intends to vigorously defend itself against these claims.

     On May 7, 2004, the Company filed separate complaints with the International Trade Commission (the “ITC”) in Washington, DC and the United States District Court for the Eastern District of Texas against Formosa Electronic Industries, Inc., Micro Innovations Corp. and SPS, Inc. On July 13, 2004, the Company filed an amended complaint with the United States District Court for the Eastern District of Texas to add Sakar International Inc. and Worldwide Marketing Ltd. as parties to the federal district court action. With the exception of Formosa, the Company subsequently reached favorable settlements with each of the other defendants and dismissed them from both the ITC and federal district court actions. In addition, the Company subsequently and voluntarily terminated its ITC action against Formosa and is instead aggressively pursuing all of its claims against Formosa through the federal district court action in the United States District Court for the Eastern District of Texas. The Company’s complaint against Formosa alleges infringement of one or more of U.S. Patent Nos. 5,347,211, 6,064,177, 6,650,560, and 6,700,808 owned by the Company. The Company, through the federal district court action, seeks to enjoin Formosa from further infringement of these patents and compensatory and treble damages for willful infringement of these patents. The Company intends to vigorously pursue its claims in this action.

     On August 26, 2004, the Company and iGo Direct Corporation, the Company’s wholly owned subsidiary, filed a complaint against Twin City Fire Insurance Co. in the United States District Court for the District of Nevada. The complaint alleges breach of contract in connection with Twin City’s refusal to reimburse iGo, under director and liability insurance policies issued to iGo by Twin City, for fees and expenses incurred in connection with the defense of certain former officers of iGo relating to a Securities and Exchange Commission matter that arose prior to the Company’s acquisition of iGo Corporation in September 2002. Twin City filed an answer to this complaint on September 20, 2004. The court has not yet set a date for trial. The Company and iGo intend to vigorously pursue their claims in this action.

     We are from time to time involved in various legal proceedings other than those set forth above incidental to the conduct of our business. We believe that the outcome of all such pending legal proceedings will not in the aggregate have a material adverse effect on our business, financial condition, results of operations or liquidity.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

     None

ITEM 5. OTHER INFORMATION:

     None

- 23 -

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:

(a) Exhibits:

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

(b) Reports on Form 8-K:

We filed the following reports on Form 8-K during the quarter ended September 30, 2004:

• Form 8-K dated July 29, 2004 furnishing under Items 7 and 12, our press release, dated July 29, 2004, announcing our results of operations for the three and six months ended June 30, 2004.

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MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES

SIGNATURES

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

	MOBILITY ELECTRONICS, INC.
Dated: November 5, 2004	By:	/s/ Charles R. Mollo
	Charles R. Mollo
	President, Chief Executive Officer
	and Chairman of the Board
	(Principal Executive Officer)
	By:	/s/ Joan W. Brubacher
	Joan W. Brubacher
	Executive Vice President and Chief Financial Officer
	and Authorized Officer of Registrant
	(Principal Financial and Accounting Officer)

- 25 -

EXHIBIT INDEX

Exhibit Number	Description of Document
2.1	Agreement and Plan of Merger dated October 2, 2000, by and among the Company, Mesa Ridge Technologies, Inc. d/b/a MAGMA and the stockholders of MAGMA (1)***
2.2	Agreement and Plan of Merger dated as of February 20, 2002, by and among Portsmith, Inc., certain holders of the outstanding capital stock of Portsmith, Mobility Electronics, Inc. and Mobility Europe Holdings, Inc. (2)***
2.3	Agreement and Plan of Merger dated March 23, 2002, by and among Mobility Electronics, Inc., iGo Corporation and IGOC Acquisition (2)***
2.4	Agreement and Plan of Merger by and among Cutting Edge Software, Inc., Jeff Musa, Mobility Electronics, Inc. and CES Acquisition, Inc. dated August 20, 2002 (3)***
2.5	Agreement and Plan of Merger among Cutting Edge Software, Inc. and CES II Acquisition, Inc. dated August 21, 2002 (4)***
3.1	Certificate of Incorporation of the Company (5)
3.2	Articles of Amendment to the Certificate of Incorporation of the Company dated as of June 17, 1997 (6)
3.3	Articles of Amendment to the Certificate of Incorporation of the Company dated as of September 10, 1997 (5)
3.4	Articles of Amendment to the Certificate of Incorporation of the Company dated as of July 20, 1998 (5)
3.5	Articles of Amendment to the Certificate of Incorporation of the Company dated as of February 3, 2000 (5)
3.6	Articles of Amendment to the Certificate of Incorporation of the Company dated as of June 30, 2000 (6)
3.7	Certificate of Designations, Preferences, Rights and Limitations of Series C Preferred Stock (5)
3.8	Certificate of the Designations, Preferences, Rights and Limitations of Series D Preferred Stock (7)
3.9	Certificate of the Designations, Preferences, Rights and Limitations of Series E Preferred Stock of Mobility Electronics, Inc. (8)
3.10	Certificate of the Designations, Preferences, Rights and Limitations of Series F Preferred Stock of Mobility Electronics, Inc. (8)
3.11	Certificate of Designations, Preferences, Rights and Limitations of Series G Junior Participating Preferred Stock of Mobility Electronics, Inc. (9)
3.12	Amended and Restated Bylaws of the Company (5)
4.1	Specimen of Common Stock Certificate (10)
4.2	Form of Warrant to Purchase Shares of common stock of the Company used with the Series C Preferred Stock Private Placements (6)**
4.3	Form of Series C Preferred Stock Purchase Agreement used in 1998 and 1999 Private Placements (5)**
4.4	Form of Series C Preferred Stock and Warrant Purchase Agreement used in 1999 and 2000 Private Placements (5)**
4.5	Form of Warrant to Purchase common stock of the Company issued to certain holders in connection with the Contribution and Indemnification Agreement by and among Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo, Cameron Wilson, the Company and certain Stockholders of the Company, dated November 2, 1999 (7)**
4.6	Form of Series E Preferred Stock and Warrant Purchase Agreement (8)**
4.7	Form of Series F Preferred Stock and Warrant Purchase Agreement (8)**
4.8	Form of Warrant issued to purchasers of Series E Stock (8)
4.9	Form of Warrant issued to purchasers of Series F Stock (8)
4.10	Rights Agreement between the Company and Computershare Trust Company, dated June 11, 2003 (9)
4.11	Form of Common Stock Purchase Agreement relating to private placement completed August 29, 2003.**(11)
4.12	Form of Warrant to Purchase Common Stock of the Company issued to Silicon Valley Bank on September 3, 2003.(12)

- 26 -

Exhibit Number	Description of Document
10.1	Amendment to Loan Documents by and between Silicon Valley Bank, the Company and certain of its subsidiaries, dated as of July 31, 2004.*
10.2	Third Amendment to Lease Agreement by and between the Company and Mountain Valley Community Church, effective as of October 6, 2004.*
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*	Filed herewith
**	Each of these agreements is identical in all material respects except for the Purchasers.
(1)	Previously filed as an exhibit to Current Report on Form 8-K dated October 17, 2000.
(2)	Previously filed as an exhibit to Form 10-K for the year ended December 31, 2001.
(3)	Previously filed as an exhibit to Registration Statement No. 333-99845 on Form S-3 dated September 19, 2002.
(4)	Previously filed as an exhibit to Form 10-K for the year ended December 31, 2002.
(5)	Previously filed as an exhibit to Registration Statement No. 333-116182 dated June 4, 2004.
(6)	Previously filed as an exhibit to Amendment No. 2 to Registration Statement No. 333-30264 on Form S-1 dated May 4, 2000.
(7)	Previously filed as an exhibit to Amendment No. 1 to Registration Statement No. 333-30264 on Form S-1 dated March 28, 2000.
(8)	Previously filed as an exhibit to Current Report on Form 8-K filed on January 14, 2003.
(9)	Previously filed as an exhibit to Current Report on Form 8-K filed on June 19, 2003.
(10)	Previously filed as an exhibit to Amendment No. 3 to Registration Statement No. 333-30264 on Form S-1 dated May 18, 2000.
(11)	Previously filed as an exhibit to Registration Statement No. 333-108623 on Form S-3 filed on September 9, 2003.
(12)	Previously filed as an exhibit to Form 10-Q for the quarter ended September 30, 2003.

     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.

- 27 -

EX-10.1

                                                                    Exhibit 10.1

SILICON VALLEY BANK

       AMENDMENT TO LOAN DOCUMENTS

BORROWER(S):         MOBILITY ELECTRONICS, INC.
                     MOBILITY IDAHO, INC. (FORMERLY PORTSMITH, INC.)
                     MAGMA, INC.

ADDRESS:             17800 N. PERIMETER DRIVE
                     SCOTTSDALE, ARIZONA 85255-5449

DATE AS OF JULY 31, 2004 (THE "JULY 2004 AMENDMENT DATE")


         THIS AMENDMENT TO LOAN DOCUMENTS (THIS "AMENDMENT") is entered into
between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa
Clara, California 95054, and the borrower(s) named above (individually and
collectively, and jointly and severally, the "Borrower"), whose address is set
forth above.

         Bank and Borrower agree to amend the Loan and Security Agreement
between them, dated as of September 27, 2002 (as amended, restated,
supplemented, or otherwise modified from time to time, the "Loan Agreement"), as
set forth herein, effective as of the date hereof. Capitalized terms used but
not defined in this Amendment, shall have the meanings set forth in the Loan
Agreement (as amended by this Amendment). The term "July 2004 Amendment Date" as
defined above hereby is incorporated into the Loan Agreement. This Amendment is
the "July 2004 Amendment" referenced in the Amended and Restated Schedule.

         1.       AMENDED AND RESTATED SCHEDULE; UPDATED SCHEDULE 2.

                  (a) The Schedule 1 to the Loan Agreement, dated September 27,
2002, between Borrower and Silicon (as amended, restated, supplemented, or
otherwise modified from time to time prior to the date hereof, the "Existing
Schedule"), hereby is amended and restated in its entirety to read as set forth
in the Amended and Restated Schedule 1 to Loan and Security Agreement of even
date herewith (the "Amended and Restated Schedule"). Accordingly, from and after
the date hereof, all references in the Loan Agreement and the other Loan
Documents to the "Schedule" or words of like import referring to the Existing
Schedule shall mean and refer to the Amended and Restated Schedule (as amended,
restated, supplemented, or otherwise modified from time to time from and after
the date hereof) instead of the Existing Schedule.

                  (b) The Schedule 2 attached to the Loan Agreement as in effect
immediately prior to the effectiveness of this Amendment (the "Old Schedule 2")
hereby is replaced by the updated Schedule 2 attached hereto (the "Updated
Schedule 2"). Accordingly, from and after the date


                                       1

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


hereof, all references in the Loan Agreement and the other Loan Documents to the
"Schedule 2" or words of like import referring to the Old Schedule 2 shall mean
and refer to the Updated Schedule 2 (as amended, restated, supplemented, or
otherwise modified from time to time from and after the date hereof) instead of
the Old Schedule 2.

         2.       AMENDMENTS TO LOAN AGREEMENT.

                  (a) Exhibit E to the Loan Agreement hereby is deleted in its
entirety, and Section 9.8 of the Loan Agreement hereby is amended and restated
in its entirety to read as follows:

                     "9.8           [INTENTIONALLY OMITTED]"

                  (b) Section 2.1.2 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

                     "2.1.2         LETTER OF CREDIT SUBLIMIT.

                           Section 1.3(a) of the Schedule is incorporated herein
                     by this reference as though fully set forth herein."

                  (c) Section 2.1.3 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

                     "2.1.3         FX SUBLIMIT; CASH MANAGEMENT SERVICES AND
                                    RESERVES.

                           (a) FX Sublimit. Section 1.3(b) of the Schedule is
                     incorporated herein by this reference as though fully set
                     forth herein."

                           (b) Cash Management Services and Reserves. Section
                     1.3(c) of the Schedule is incorporated herein by this
                     reference as though fully set forth herein."

                  (d) The portion of Section 5 of the Loan Agreement that
currently reads as follows:

                     "Borrower represents and warrants that the following
                     statements are true and correct on the date hereof and
                     Borrower covenants that the following statements will
                     continue to be true and correct throughout the term of this
                     Agreement and so long as any Obligations are outstanding:"


, hereby is amended and restated in its entirety to read as follows:

                     "Borrower represents and warrants that the following
                     statements are true and correct on the July 2004 Amendment
                     Date and Borrower covenants that the following statements
                     will continue to be true and correct throughout the term of
                     this Agreement and so long as any Obligations are
                     outstanding:"


                                       2

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


                  (e) The portion of Section 5.7 of the Loan Agreement that
currently reads as follows:

                     "The information in the Representations previously
                     submitted to Bank continues to be true and correct as of
                     the date hereof."


, hereby is amended and restated in its entirety to read as follows:

                     "The information in the Representations previously
                     submitted to Bank continues to be true and correct as of
                     the July 2004 Amendment Date."

                  (f) Section 6.2(a)(ii) of the Loan Agreement, which currently
reads as follows:

                     "(ii) Monthly perpetual inventory reports for the Inventory
                     valued on a first-in, first-out basis at the lower of cost
                     or market (in accordance with GAAP) and such other
                     inventory reports as are requested by Bank in its good
                     faith business judgment, all within 20 days after the end
                     of each month. Notwithstanding the foregoing, Bank
                     understands that Borrower presently reports its inventory
                     on a standard cost basis and Borrower may continue to do so
                     until it converts its accounting system to enable it to
                     report its inventory on a first-in, first-out basis at the
                     lower of cost or market (in accordance with GAAP), which
                     Borrower shall do beginning with reports for the month of
                     April, 2003. Borrower's reports on a standard cost basis
                     shall be accompanied by variance data in form acceptable to
                     Bank showing variance to actual costs and other data as
                     Bank shall specify. In the event the Asset Based Terms are
                     in effect before Borrower reports its Inventory on a
                     first-in, first-out basis, the variance between standard
                     cost and actual cost shall be subject to a reserve
                     established by the Bank in its good faith business
                     judgment."


, hereby is amended and restated in its entirety to read as follows:

                     "(ii) From and after Bank's receipt of the "Designated
                     Inventory Appraisal" (as such term is defined in Section
                     1.1 of the Schedule), monthly perpetual inventory reports
                     for the Inventory, including any adjustments or reserves
                     made by Borrower in order to value Inventory at a first-in,
                     first-out basis at the lower of cost or market (in
                     accordance with GAAP), and such other inventory reports as
                     are requested by Bank in its good faith business judgment,
                     all within 20 days after the end of each month."

                  (g) Section 6.2(a)(iii) of the Loan Agreement, which currently
reads as follows:

                     "(iii) Within 20 days after the last day of each month,
                     Borrower will deliver to Bank a Borrowing Base Certificate
                     signed by a Responsible Officer in the form of Exhibit C,
                     provided that if the Asset Based Terms are in effect such
                     Borrowing Base Certificate shall be delivered to Bank
                     weekly as specified by Bank."


                                       3

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


, hereby is amended and restated in its entirety to read as follows:

                     "(iii) Within 30 days after the last day of each month,
                     Borrower will deliver to Bank: (y) a Borrowing Base
                     Certificate signed by a Responsible Officer in the form of
                     Exhibit C; and (z) transaction reports, schedules of
                     Accounts, and schedules of collections, all on Bank's
                     standard forms; provided, however, that Borrower's failure
                     to execute and deliver the same shall not affect or limit
                     Bank's security interest and other rights in all of
                     Borrower's Accounts. If requested by Bank, Borrower shall
                     furnish Bank with copies (or, at Bank's request, originals)
                     of all contracts, orders, invoices, and other similar
                     documents, and all shipping instructions, delivery
                     receipts, bills of lading, and other evidence of delivery,
                     for any goods the sale or disposition of which gave rise to
                     such Accounts, and Borrower warrants the genuineness of all
                     of the fore-going. Borrower shall also furnish to Bank an
                     aged accounts receivable trial balance in such form and at
                     such intervals as Bank shall request. In addition, Borrower
                     shall deliver to Bank the originals of all instruments,
                     chattel paper, security agreements, guarantees and other
                     documents and property evidencing or securing any Accounts,
                     immediately upon receipt thereof and in the same form as
                     received, with all necessary endorsements, all of which
                     shall be with recourse. Borrower shall also provide Bank
                     with copies of all credit memos from time to time on
                     request by Bank."

                  (h) The portion of Section 6.2(a) of the Loan Agreement that
currently reads as follows:

                     "Provided that if there are no Advances or Letters of
                     Credit outstanding throughout a month, then the following
                     reports under the following clauses above need not be
                     provided with respect to such month: 6.2(a)(i), (ii),
                     (iii), (iv), and (v), provided that if, in a following
                     month, the Borrower requests an Advance, Borrower shall
                     provide said reports at the time the request for the
                     Advance is made."


, hereby is deleted in its entirety.

                  (i) The portion of Section 6.9 of the Loan Agreement that
currently reads as follows:

                     "The sums received in such lockbox account shall be applied
                     to the outstanding monetary Obligations in such order as
                     Bank shall determine, and any excess will be deposited by
                     Bank in Borrower's operating account at Bank."


, hereby is amended and restated in its entirety to read as follows:


                                       4

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


                     "So long as no Event of Default has occurred and is
                     continuing, the sums received in such lockbox account will
                     be deposited by Bank in Borrower's operating account at
                     Bank. Upon the occurrence and during the continuation of an
                     Event of Default, Bank may, in its good faith business
                     judgment, elect to apply any or all sums received in such
                     lockbox account to the outstanding monetary Obligations in
                     such order as Bank shall determine or hold such sums as
                     additional cash security for the Obligations, and any such
                     sums not so applied to (or held as additional cash security
                     for) the outstanding monetary Obligations will be deposited
                     by Bank in Borrower's operating account at Bank."

                  (j) The definition of "Credit Extension" set forth in Section
13.1 of the Loan Agreement hereby is amended and restated in its entirety to
read as follows:

                     " "CREDIT EXTENSION" is each Advance, Letter of Credit, FX
                     Contract, Cash Management Service, or any other extension
                     of credit by Bank for Borrower's benefit."

                  (k) The definition of "Representations" set forth in Section
13.1 of the Loan Agreement hereby is amended and restated in its entirety to
read as follows:

                     " "REPRESENTATIONS " are, collectively, the written
                     Representations and Warranties of Borrower dated July 28,
                     2004 and the Litigation Update of Borrower dated August 5,
                     2004."

                  (l) The portion of Section 5.2 of the Loan Agreement that
currently reads as follows:

                     "The Collateral is not in the possession of any third party
                     bailee (such as at a warehouse), except for Collateral
                     consisting of Inventory located at the following warehouse
                     in Memphis, Tennessee: 4638 E. Shelby Drive, Memphis,
                     Tennessee 38118 (the "Tennessee Warehouse"). Borrower shall
                     cause the Tennessee Warehouse to execute and deliver to
                     Bank an agreement pursuant to which the Tennessee Warehouse
                     waives any liens on the Collateral stored with it and
                     acknowledges that it is holding such Collateral for the
                     benefit of Bank in form acceptable to the Bank. In the
                     event that Borrower, after the date hereof, intends to
                     store or otherwise deliver the Collateral to such a bailee,
                     then Borrower will receive the prior written consent of
                     Bank and such bailee must acknowledge in writing that the
                     bailee waives any liens on the Collateral and acknowledges
                     that the bailee is holding such Collateral for the benefit
                     of Bank in form acceptable to the Bank."


, hereby is amended and restated in its entirety to read as follows:

                     "The Collateral is not in the possession of any third party
                     bailee (such as at a warehouse), except for Collateral
                     consisting of Inventory located at the locations expressly
                     identified in Section 3(f) of the Representations,
                     including


                                       5

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


                     the following warehouse in Memphis, Tennessee: 4638 E.
                     Shelby Drive, Memphis, Tennessee 38118 (the "Tennessee
                     Warehouse"). Borrower previously has caused the
                     warehouseman or bailee in respect of the Tennessee
                     Warehouse to execute and deliver to Bank a bailee agreement
                     (in form and substance satisfactory to the Bank). Borrower
                     hereby covenants that Borrower promptly shall deliver
                     written notice to the Bank of any goods or other Collateral
                     of Borrower being in the possession of any other
                     warehouseman or other bailee. With respect to any goods or
                     other Collateral of Borrower in the possession of any
                     warehouseman or other bailee located within the United
                     States, Borrower shall, promptly upon the Bank's request
                     therefor, use commercially reasonable efforts to deliver to
                     the Bank a bailee agreement (in form and substance
                     satisfactory to the Bank) duly executed by such
                     warehouseman or other bailee. In the event that the Bank
                     requests such a bailee agreement and Borrower uses such
                     efforts but does not succeed in delivering such a bailee
                     agreement, the Bank may (in its good faith business
                     judgment) maintain a reserve with respect to such warehouse
                     or other bailee location."

                  (m) Section 5.3 of the Loan Agreement, which currently reads
as follows:

                     "Except as shown in the Schedule, there are no actions or
                     proceedings pending or, to the knowledge of Borrower's
                     Responsible Officers and legal counsel, threatened by or
                     against Borrower or any Subsidiary, which could reasonably
                     be expected to result in damages or costs to Borrower or
                     any Subsidiary of $100,000 or more, or in which an adverse
                     decision could reasonably be expected to cause a Material
                     Adverse Change."


, hereby is amended and restated in its entirety to read as follows:

                     "Except as shown in the Litigation Update referenced within
                     the definition of "Representations" or in Schedule 2, there
                     are no actions or proceedings pending or, to the knowledge
                     of Borrower's Responsible Officers and legal counsel,
                     threatened by or against Borrower or any Subsidiary, which
                     could reasonably be expected to result in damages or costs
                     to Borrower or any Subsidiary of $100,000 or more, or in
                     which an adverse decision could reasonably be expected to
                     cause a Material Adverse Change."

                  (n) The portion of Section 6.2(b) of the Loan Agreement that
currently reads as follows:

                     "Such audits will be conducted no more often than every 6
                     months, provided that if the Asset Based Terms are in
                     effect, such audits may be conducted by Bank quarterly, and
                     if an Event of Default or an event which, with notice or
                     passage of time or both would constitute an Event of
                     Default, has occurred and is continuing, there shall not be
                     a limit on the number of such audits."


, hereby is amended and restated in its entirety to read as follows:


                                       6

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


                     "Such audits will be conducted no more often than (a)
                     subject to the following proviso and clause (b) below, once
                     in any consecutive-6-month-period (which period commences
                     on or after the July 2004 Amendment Date), so long as no
                     Event of Default and no event which, with notice or passage
                     of time or both would constitute an Event of Default
                     ("Default") has occurred and is continuing, or (b) subject
                     to the following proviso, once in any
                     consecutive-12-month-period (which period commences on or
                     after the July 2004 Amendment Date), so long as no Advances
                     were outstanding at any time during such 12-month period
                     and no Default or Event of Default has occurred and is
                     continuing; provided, however, that any such audits
                     conducted upon the occurrence and during the continuation
                     of any Default or Event of Default shall not count toward
                     any of the foregoing limitations on the number of such
                     audits."


         3. LIMITED AND CONDITIONAL CONSENT TO SALE OF MOBILITY TEXAS, INC. Bank
hereby agrees to not unreasonably withhold its consent to the sale of all or
substantially all of the assets or capital stock of Mobility Texas, Inc.
(formerly known as Cutting Edge Software, Inc.); provided, however, that, as
conditions to the effectiveness of any such consent:

         (a) no Event of Default shall have occurred and be continuing, both
immediately before and immediately after the consummation of such sale;

         (b) such sale shall be in accordance (in all material respects) with
the terms and conditions of a commercially-reasonable, definitive purchase/sale
agreement relative thereto;

         (c) all consideration received by Borrower (in the case of a stock
sale) or Mobility Texas, Inc. (in the case of an asset sale) for such sale shall
be promptly delivered to Bank in the same form as received (with any and all
necessary endorsements): (i) in the case of monetary payments, to be applied to
(or held by Bank as cash security for) the outstanding monetary Obligations in
such order as Bank shall determine, and any excess will be deposited by Bank in
Borrower's operating account at Bank; and (ii) in all other cases, as additional
Collateral.

It is understood and agreed that such consent to such sale (the "Permitted
Mobility Texas Sale") does not constitute a waiver of any provision or term of
the Loan Documents restricting the sale or other disposition of assets of any
Borrower or any Guarantor in respect of any matter other than the Permitted
Mobility Texas Sale, nor a waiver of any other provision or term of the Loan
Agreement or any other Loan Document, nor an agreement to waive, in the future,
any provision or term of the Loan Documents restricting the sale or other
disposition of assets of any Borrower or any Guarantor in respect of any matter
other than the Permitted Mobility Texas Sale, nor a waiver of any other
provision or term of the Loan Agreement or any other Loan Document.

Concurrently with the effectiveness of such consent and the consummation of such
sale, Bank will (at Borrower's expense): (y) (1) release its security interests
(without recourse, representation, or warranty) in such assets or capital stock
that are sold pursuant to such sale, (2) authorize and authenticate in writing
the filing of UCC-2/3 Partial Releases relative to the applicable financing
statements of record in favor of the Bank, in form and substance reasonably
satisfactory to Bank and otherwise in suitable form for filing in the
appropriate governmental


                                       7

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


offices, in order to reflect such release of security interests, and (3) execute
and deliver any other documents (in form and substance reasonably satisfactory
to Bank) reasonably requested by Borrower to effect or reflect such release of
security interests; and (z) if and to the extent that Borrower no longer owns
any capital stock of Mobility Texas, Inc. (formerly known as Cutting Edge
Software, Inc.), release Mobility Texas, Inc. (formerly known as Cutting Edge
Software, Inc.) from its guaranty of the Obligations in favor of Bank (except
that Borrower shall assume any and all obligations of Mobility Texas, Inc.
(formerly known as Cutting Edge Software, Inc.) under the Loan Documents to
reimburse Bank for costs and expenses and to indemnify Bank).

         4. FEES. In consideration for Bank entering into this Amendment and the
Amended and Restated Schedule, Borrower shall pay Bank the $50,000 facility fee
described in Section 3 of the Amended and Restated Schedule, concurrently with
the execution and delivery of this Amendment and the Amended and Restated
Schedule, which fee shall be non-refundable and in addition to all interest and
other fees payable to Bank under the Loan Documents. Bank is authorized to
charge said fees to Borrower's loan account.

         5. REPRESENTATIONS TRUE. Borrower represents and warrants to Bank that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.

         6. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Bank and Borrower, and the
other Loan Documents set forth in full all of the representations and agreements
of the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as expressly amended herein (or as
amended and restated in the Loan Documents as expressly contemplated herein),
all of the terms and provisions of the Loan Agreement and all other Loan
Documents shall continue in full force and effect and the same are hereby
ratified and confirmed.

[remainder of page intentionally left blank; signature page follows]



                                       8

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


         7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same document.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Amendment. The foregoing shall apply to each other Loan Document mutatis
mutandis.

Borrower:                                     Bank:

  MOBILITY ELECTRONICS, INC.                  SILICON VALLEY BANK


  By                                            By
    -------------------------------               ------------------------------
       President or Vice President              Title
                                                     ---------------------------

Borrower:                                     Borrower:

  MOBILITY IDAHO, INC. (formerly                 MAGMA, INC.
  Portsmith, Inc.)

                                                By
                                                  ------------------------------
  By                                                 President or Vice President
    -------------------------------
       President or Vice President


                                       9

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------



                                     CONSENT

         The undersigned acknowledges that the undersigned's consent to the
foregoing Amendment and to the Amended and Restated Schedule is not required,
but the undersigned nevertheless does hereby consent to the foregoing Amendment
and the Amended and Restated Schedule and to the documents and agreements
referred to therein and to all future modifications and amendments thereto, and
any termination thereof, and to any and all other present and future documents
and agreements between or among the foregoing parties. Nothing herein shall in
any way limit any of the terms or provisions of the guaranty, security
agreement, or any other Loan Document of the undersigned, all of which are
hereby ratified and affirmed.

                                                
Mobility Texas, Inc. (formerly Cutting Edge        iGo Direct Corporation, a Delaware
Software, Inc.)                                    corporation formerly known as IGOC
                                                   Acquisition, Inc. and successor-by-merger
                                                   to iGo Corporation
By
  -----------------------------------
     President or Vice President                   By
                                                     -----------------------------------
                                                        President or Vice President




                                       9

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


                    Schedule 2 to Loan and Security Agreement



Deposit Accounts at Silicon Valley Bank:

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------


Liens existing on the July 2004 Amendment Date and disclosed to and accepted by
Bank in writing:

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------


Investments existing on the July 2004 Amendment Date and disclosed to and
accepted by Bank in writing:

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------


Subordinated Debt:


Indebtedness on the July 2004 Amendment Date and disclosed to and consented to
by Bank in writing:

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

                               Updated Schedule 2

SILICON VALLEY BANK                                  AMENDMENT TO LOAN DOCUMENTS
- --------------------------------------------------------------------------------


Except as shown below, there are no actions or proceedings pending or, to the
knowledge of Borrower's Responsible Officers and legal counsel, threatened by or
against Borrower or any Subsidiary, which could result in damages or costs to
Borrower or any Subsidiary of $100,000 or more, or in which an adverse decision
could reasonably be expected to cause a Material Adverse Change (attach
additional comments, if needed):

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

                         Updated Schedule 2 (continued)


                       AMENDED AND RESTATED SCHEDULE 1 TO

                          LOAN AND SECURITY AGREEMENT

BORROWER(S):      MOBILITY ELECTRONICS, INC.
                  MOBILITY IDAHO, INC. (FORMERLY PORTSMITH, INC.)
                  MAGMA, INC.

DATED AS OF JULY 31, 2004 (THE "JULY 2004 AMENDMENT DATE")

This Amended and Restated Schedule 1 (this "Schedule") forms an integral part of
the Loan and Security Agreement, dated September 27, 2002 (as amended, restated,
supplemented, or otherwise modified from time to time (including without
limitation pursuant to the July 2004 Amendment referred to below), the "Loan
Agreement" or "this Agreement"), between Silicon Valley Bank ("Bank" or
"Silicon") and the borrower(s) named above (individually and collectively, and
jointly and severally, "Borrower"), and, effective as of the date hereof, this
Schedule amends and restates in its entirety the prior Schedule 1 to Loan and
Security Agreement, dated September 27, 2002 (as amended, restated,
supplemented, or otherwise modified from time to time prior to the date hereof),
between Bank and Borrower. This Schedule is the "Amended and Restated Schedule"
referred to in Section 1 of the Amendment to Loan Documents, dated as of even
date herewith, between Borrower and Bank (the "July 2004 Amendment") relative to
the Loan Agreement. (Capitalized terms used herein, which are not defined, shall
have the meanings set forth in the Loan Agreement.) The term "July 2004
Amendment Date" as defined above hereby is incorporated into the Loan Agreement.

1.    CREDIT LIMIT

      (Section 2.1.1):

      1.1   Subject to Sections 1.2 and 1.3 below, the Credit Limit shall be an
            amount not to exceed the lesser of (i) $10,000,000 at any one time
            outstanding (the "Committed Revolving Line") or (ii) the Borrowing
            Base (as defined below). As used herein, the term "Borrowing Base"
            means, as of any date of determination, the result of (a), (b), and
            (c) below:

            (a)   80% (the "Accounts Advance Rate" and also an "Advance Rate")
                  of the amount of Borrower's Eligible Accounts,

            plus

            (b)   the lesser of (1) or (2) below (the "Inventory Component"):

                  (1)   25% (the "Inventory Advance Rate" and also an "Advance
                        Rate") of the value of Borrower's Eligible Inventory (as
                        defined in Section 13.1 of the Loan Agreement),
                        calculated at the lower of cost or


                                      -1-

SILICON VALLEY BANK                A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT


                        market value and determined on a first-in, first-out
                        basis, or

                  (2)   $2,000,000 (the "Inventory Sublimit"),

            minus

            (c)   Reserves for accrued interest and such other reserves as Bank
                  deems proper from time to time in its good faith business
                  judgment.

            Anything in the Loan Agreement to the contrary notwithstanding, in
            no event shall the aggregate outstanding amount of Advances and
            other Credit Extensions based on the Inventory Component exceed 20%
            (the "Inventory Percentage Limit" and also an "Advance Rate") of the
            aggregate amount of all Advances and other Credit Extensions
            outstanding hereunder.

            Anything in the Loan Agreement to the contrary notwithstanding, the
            Inventory Sublimit shall equal Zero Dollars ($-0-), unless and until
            Bank has received, on or after the July 2004 Amendment Date, the
            results of an appraisal of the Inventory completed by or on behalf
            of Bank, which results shall be satisfactory to Bank in its good
            faith business judgment (the "Designated Inventory Appraisal").

            Silicon may, from time to time, modify the Advance Rates, in its
            good faith business judgment, upon notice to the Borrower, based on
            changes in collection experience with respect to Accounts, its
            evaluation of the Inventory or other issues or factors relating to
            the Accounts, Inventory or other Collateral.

      1.2   Advances will be made separately to each Borrower, based on the
            Eligible Accounts and Eligible Inventory of each Borrower. Accounts
            and Inventory of Mobility Idaho, Inc. (formerly Portsmith, Inc.) and
            Magma, Inc. will not be "Eligible" unless and until they are
            approved by Bank in writing in its sole discretion.

      1.3   Credit Extensions Sublines under the Committed Revolving Line:

            (a) Letter of Credit Sublimit (Section 2.1.2): $2,500,000; provided,
            however, that the sum of the aggregate face amount of outstanding
            Letters of Credit, plus the FX Reserve, plus the aggregate amount of
            Obligations in respect of Cash Management Services, shall not at any
            time exceed $2,500,000.

            At the request of Borrower, Bank may, in its good faith business
            judgment, issue or arrange for the issuance of letters of credit for
            the account of Borrower, in each case in form and substance
            satisfactory


                                      -2-

SILICON VALLEY BANK                A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT

            to Bank in its sole discretion (collectively, "Letters of Credit").
            The Borrower agrees that the aggregate face amount of all
            outstanding Letters of Credit shall never exceed the lesser of the
            Letter of Credit Sublimit set forth above or the amount of Advances
            and other Credit Extensions which are from time to time available
            hereunder, and that the amount of outstanding Letters of Credit
            shall be reserved against Advances and other Credit Extensions which
            would otherwise be available hereunder. If at any time or for any
            reason the aggregate face amount of all outstanding Letters of
            Credit shall exceed the foregoing limit, Borrower shall immediately
            pay an amount equal to said excess to Bank, without notice or
            demand. Borrower shall pay all bank charges (including charges of
            Bank) for the issuance of Letters of Credit, together with such
            additional fees as Bank's letter of credit department shall charge
            in connection with the issuance of the Letters of Credit. Any
            payment by Bank under or in connection with a Letter of Credit shall
            constitute an Advance hereunder on the date such payment is made.
            Each Letter of Credit will have an expiry date of no later than 180
            days after the Revolving Maturity Date (except that a Letter of
            Credit issued to HIPRO Electronics may have an expiry date beyond
            said 180-day period). Regardless of the expiry date of any Letter of
            Credit, Borrower's reimbursement obligations with respect to all
            Letters of Credit (including without limitation those with expiry
            dates after the Revolving Maturity Date and the Letter of Credit
            issued to HIPRO Electronics) shall be secured by cash on terms
            acceptable to Bank on or before the Revolving Maturity Date if the
            term of this Agreement is not extended by Bank. Borrower hereby
            agrees to indemnify, save, and hold Bank harmless from any loss,
            cost, expense, or liability, including payments made by Bank,
            expenses, and reasonable attorneys' fees incurred by Bank arising
            out of or in connection with any Letters of Credit. Borrower agrees
            to be bound by the regulations and interpretations of the issuer of
            any Letters of Credit guarantied by Bank and opened for Borrower's
            account or by Bank's interpretations of any Letter of C redit issued
            by Bank for Borrower's account, and Borrower understands and agrees
            that Bank shall not be liable for any error, negligence, or mistake,
            whether of omission or commission, in following Borrower's
            instructions or those contained in the Letters of Credit or any
            modifications, amendments, or supplements thereto. Borrower
            understands that Letters of Credit may require Bank to indemnify the
            issuing bank for certain costs or liabilities arising out of claims
            by Borrower against such issuing bank. Borrower hereby agrees to
            indemnify and hold Bank harmless with respect to any loss, cost,
            expense, or liability incurred by Bank under any Letter of Credit as
            a result of Bank's indemnification of any such issuing bank. The
            provisions of this Agreement, as it pertains to Letters of Credit,
            and any other Loan Documents relating to Letters of Credit are
            cumulative.

                                      -3-

SILICON VALLEY BANK           A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT

            (b) FX Sublimit: $2,500,000; provided, however, that the sum of the
            aggregate face amount of outstanding Letters of Credit, plus the FX
            Reserve, plus the aggregate amount of Obligations in respect of Cash
            Management Services, shall not at any time exceed $2,500,000.

            Borrower may enter into foreign exchange forward contracts with
            Bank, on its standard forms, under which Borrower commits to
            purchase from or sell to Bank a set amount of foreign currency more
            than one Business Day after the contract date (the "FX Forward
            Contracts"); provided that (1) at the time the FX Forward Contract
            is entered into, Borrower has Unfunded Availability (as defined
            below) under this Agreement in an amount at least equal to 10% of
            the amount of the FX Forward Contract; (2) the total FX Forward
            Contracts at any one time outstanding may not exceed 10 times the
            amount of the FX Sublimit set forth above. Bank shall have the right
            to withhold, from the Advances and other Credit Extensions otherwise
            available to Borrower under this Agreement, a reserve (which shall
            be in addition to all other reserves) in an amount equal to 10% of
            the total FX Forward Contracts from time to time outstanding (the
            "FX Reserve"), and in the event at any time there are insufficient
            Advances and other Credit Extensions available to Borrower for such
            reserve, Borrower shall deposit and maintain with Bank cash
            collateral in an amount at all times equal to such deficiency, which
            shall be held as Collateral for all purposes of this Agreement. Bank
            may, in its discretion, terminate the FX Forward Contracts at any
            time that an Event of Default occurs and is continuing. The FX
            Forward Contracts shall terminate upon the earlier of (a) the
            Revolving Maturity Date, or (b) any earlier effective date of
            termination of this Agreement (or such later date requested by
            Borrower as Bank may agree in writing in its sole discretion if and
            to the extent Borrower's Obligations in respect of the FX Forward
            Contracts are secured by cash in amounts and on terms and conditions
            acceptable to Bank in its good faith business judgment). Borrower
            shall execute all standard form applications and agreements of Bank
            in connection with the FX Forward Contracts, and without limiting
            any of the terms of such applications and agreements, Borrower shall
            pay all standard fees and charges of Bank in connection with the FX
            Forward Contracts. All amounts that Bank pays or expends in respect
            of any FX Forward Contracts shall constitute Obligations hereunder.

            As used herein, the term "Unfunded Availability" means, as of any
            date of determination, the amount, as determined by Bank in its good
            faith business judgment, equal to the aggregate Advances and other
            Credit Extensions available to the Borrower under the Loan Agreement
            (after deduction of all outstanding Advances and other Credit
            Extensions and all applicable reserves).

                                      -4-

SILICON VALLEY BANK                A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT

            (c) Cash Management Services and Reserves: Borrower may use up to
            $2,500,000 of Advances available hereunder for Bank's Cash
            Management Services (as defined below), including, merchant
            services, business credit card, ACH and other services identified in
            the cash management services agreement related to such service (the
            "Cash Management Services"); provided, however, that the sum of the
            aggregate face amount of outstanding Letters of Credit, plus the FX
            Reserve, plus the aggregate amount of Obligations in respect of Cash
            Management Services, shall not at any time exceed $2,500,000. Bank
            will reserve against Advances and other Credit Extensions otherwise
            available to Borrower under this Agreement such sums as Bank shall
            determine in its good faith business judgment in connection with the
            Cash Management Services, and Bank may charge to Borrower's Loan
            account any amounts that may become due or owing to Bank in
            connection with the Cash Management Services. Borrower agrees to
            execute and deliver to Bank all standard form applications and
            agreements of Bank in connection with the Cash Management Services,
            and, without limiting any of the terms of such applications and
            agreements, Borrower will pay all standard fees and charges of Bank
            in connection with the Cash Management Services. The Cash Management
            Services shall terminate upon the earlier of (a) the Revolving
            Maturity Date, or (b) any earlier effective date of termination of
            this Agreement (or such later date requested by Borrower as Bank may
            agree in writing in its sole discretion if and to the extent
            Borrower's Obligations in respect of the Cash Management Services
            are secured by cash in amounts and on terms and conditions
            acceptable to Bank in its sole discretion). Upon the occurrence and
            during the continuation of an Event of Default, Bank shall have the
            right to require the Obligations in respect of the Cash Management
            Services to be secured by cash in amounts and on terms and
            conditions acceptable to Bank in its good faith business judgment.

2.    INTEREST.

      INTEREST RATE

      (Section 2.3(a)):       A rate equal to the "Prime Rate" in effect from
                              time to time.

3.    FEES (Section 2.4(a)):

      Facility Fee:           $50,000, payable concurrently with the execution
                              and delivery of this Schedule and the July 2004
                              Amendment.


                                      -5-

SILICON VALLEY BANK                A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT

Unused Line Fee:              In the event, in any month (or portion thereof),
                              the average daily principal balance of the
                              Advances outstanding during such month (or portion
                              thereof) is less than the Committed Revolving
                              Line, then Borrower shall pay Bank an unused line
                              fee (the "Unused Line Fee") in an amount equal to
                              0.25% per annum on the difference of the Committed
                              Revolving Line minus the average daily principal
                              balance of the Advances outstanding during such
                              month (or portion thereof), computed on the basis
                              of a 360-day year, and the Unused Line Fee shall
                              be computed and paid monthly, in arrears, on the
                              first day of the following month.

Collateral Handling Fee:      During each month or portion thereof, Borrower
                              shall pay Bank a collateral handling fee in an
                              amount equal to $1,100 per month.

Termination Fee:
(Sections 2.1.1(d)
and 9.1(b)):                  None.

4.    REVOLVING MATURITY DATE

      (Section 13.1):         July 31, 2006.

5.  FINANCIAL COVENANTS

      (Section 6.7):          Parent (on a consolidated basis) shall comply with
                              each of the following financial covenants.
                              Compliance shall be determined as of the end of
                              each month, except as specifically otherwise
                              provided below:

      (a) Quick Ratio:        Parent (on a consolidated basis) shall maintain a
                              ratio, of

                                    (i)   the total of unrestricted cash and
                                          unrestricted cash equivalents, net
                                          billed Accounts (net of allowance for
                                          doubtful Accounts), and investments
                                          with maturities of less than 12
                                          months,

                                                TO

                                    (ii)  Current Liabilities,

                              of not less than 1.50 TO 1.00.

      (b) EBITDA:             Parent (on a consolidated basis) shall maintain
                              EBITDA of not less than Zero Dollars ($-0-) for
                              each fiscal quarter, commencing with the fiscal
                              quarter ending September 30, 2004.


                                      -6-

SILICON VALLEY BANK                A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT

DEFINITIONS.                  For purposes of this Agreement, the following
                              terms shall have the following meanings:

                              "Current Liabilities" and "liabilities" shall have
                              the meaning ascribed thereto by GAAP.

                              "EBITDA" shall mean Parent's earnings before
                              interest, taxes, depreciation and other non-cash
                              amortization expenses and other non-cash expenses
                              of parent, all determined in accordance with GAAP,
                              on a consolidated basis.

6.    BORROWER INFORMATION:

Borrower represents and warrants that the information set forth in the
Representations and Warranties of the Borrower dated July 28, 2004, and the
Litigation Update of Borrower dated August 5, 2004, in each case as previously
submitted to Silicon (collectively, the "Representations") is true and correct
as of the date hereof.

7.    ADDITIONAL PROVISIONS

      7.1   Intellectual Property. Borrower (and, by its execution and delivery
            of the Consent attached to the July 2004 Amendment, Guarantor) each
            represents and warrants that all Intellectual Property of the
            Borrower and Guarantor, as the case may be, is listed on Exhibit 7.1
            hereto and is owned by the Borrower or Guarantor (as the case may
            be) shown on said Exhibit. Without limiting the generality of
            Section 6.8 of the Loan Agreement (or Section 4.8 of the applicable
            Security Agreement between Bank and such Guarantor), neither
            Borrower nor Guarantor owns, as of the July 2004 Amendment Date, any
            maskworks, computer software, and other copyrights that are
            registered (or are the subject of any application for registration)
            with the United States Copyright Office, except as expressly and
            specifically identified on Exhibit 7.1 with respect to such Borrower
            or Guarantor.

      7.2   [intentionally omitted]

      7.3   [intentionally omitted]

      7.4   [intentionally omitted]

      7.5   Pledge of Shares of Stock of Mobility Idaho, Inc. (formerly
            Portsmith, Inc.). Borrower hereby represents and warrants that, as
            discussed in Section 1 of the Litigation Update referenced within


                                      -7-

SILICON VALLEY BANK                A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT

            the definition of "Representations" (set forth in Section 13.1 of
            the Loan Agreement), the outstanding shares of stock of Mobility
            Idaho, Inc. (formerly Portsmith, Inc.) have been released from the
            Borrower's pledge thereof. Accordingly, such shares constitute
            Collateral subject to the Bank's first-priority continuing security
            interests.

      7.6   Removal of Negative Trends Reserve. Without limiting the Bank's
            rights and discretion relative to any other reserves, Borrower and
            Bank hereby acknowledge and agree that the "Negative Trends Reserve"
            (as defined in Section 3(b) of that certain Amendment to Loan
            Documents, dated as of August 25, 2003, between Borrower and Bank)
            as previously in effect is removed from and after the July 2004
            Amendment Date.

      7.7   Notification. Bank or its designee may, at any time, notify Account
            Debtors that it has a security interest in the Accounts and that
            payment on the Accounts is to be made directly to the Bank.

      7.8   Loan Requests. Requests for Advances shall be in writing and shall
            be accompanied by a current Transaction Report on Bank's standard
            form.

      7.9   Reserves. Bank shall have the right to establish and maintain, from
            time to time, such reserves as Bank deems proper in its good faith
            business judgment against the unfunded amount of Advances and other
            Credit Extensions otherwise available under Section 1 of this
            Schedule, including the following: (a) reserves to reflect events,
            conditions, contingencies or risks which, as determined by Bank in
            good faith, do or may affect adversely (i) the Collateral or any
            other property which is security for the Obligations or its value
            (including without limitation any increase in delinquencies of
            Accounts), (ii) the assets, business or prospects of Borrower, or
            (iii) the security interests and other rights of Bank in the
            Collateral (including the enforceability, perfection and priority
            thereof); and (b) reserves to reflect Bank's good faith belief that
            any collateral report or financial information furnished by or on
            behalf of Borrower to Bank is or may have been incomplete,
            inaccurate or misleading in any material respect.

[remainder of page intentionally left blank; signature page follows]


                                      -8-

SILICON VALLEY BANK           A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT


      IN WITNESS WHEREOF, the parties hereto have caused this Schedule to be
executed and delivered as of the date first above written.

Borrower:                                 Bank:

MOBILITY ELECTRONICS, INC.                SILICON VALLEY BANK


By                                        By
  ----------------------------------         -----------------------------------
     President or Vice President          Title
                                                --------------------------------

Borrower:                                 Borrower:

Mobility Idaho, Inc.
(formerly Portsmith, Inc.)                MAGMA, INC.


By                                        By
  ----------------------------------         -----------------------------------
     President or Vice President                President or Vice President


                                 Signature Page

SILICON VALLEY BANK                A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT

                                   EXHIBIT 7.1

1.    Intellectual Property of Mobility Electronics, Inc.:

      a. maskworks, computer software, and other copyrights that are registered
(or are the subject of any application for registration) with the United States
Copyright Office: NONE

      b. patents that are issued (or are the subject of any application for
issuance) by the United States Patent & Trademark Office: see Section 4.a of the
Representations and Warranties of the Borrower dated July 28, 2004 (which by
this reference is incorporated herein)

      c. trademarks that are registered (or are the subject of any application
for registration) with the United States Patent & Trademark Office: see Section
4.a of the Representations and Warranties of the Borrower dated July 28, 2004
(which by this reference is incorporated herein)

2.    Intellectual Property of Mobility Idaho, Inc. (formerly Portsmith, Inc.):

      a. maskworks, computer software, and other copyrights that are registered
(or are the subject of any application for registration) with the United States
Copyright Office: NONE

      b. patents that are issued (or are the subject of any application for
issuance) by the United States Patent & Trademark Office: NONE

      c. trademarks that are registered (or are the subject of any application
for registration) with the United States Patent & Trademark Office: NONE

3.    Intellectual Property of Magma, Inc.:

      a. maskworks, computer software, and other copyrights that are registered
(or are the subject of any application for registration) with the United States
Copyright Office: NONE

      b. patents that are issued (or are the subject of any application for
issuance) by the United States Patent & Trademark Office: NONE

      c. trademarks that are registered (or are the subject of any application
for registration) with the United States Patent & Trademark Office: NONE

                                  Exhibit 7.1

SILICON VALLEY BANK                A&R SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT

4.    Intellectual Property of Mobility Texas, Inc. (formerly Cutting Edge
      Software, Inc.):

      a. maskworks, computer software, and other copyrights that are registered
(or are the subject of any application for registration) with the United States
Copyright Office: NONE

      b. patents that are issued (or are the subject of any application for
issuance) by the United States Patent & Trademark Office: NONE

      c. trademarks that are registered (or are the subject of any application
for registration) with the United States Patent & Trademark Office: see Section
4.a of the Representations and Warranties of the Borrower dated July 28, 2004
(which by this reference is incorporated herein)

5.    Intellectual Property of iGo Direct Corporation, a Delaware corporation
      formerly known as IGOC Acquisition, Inc. and successor-by-merger to iGo
      Corporation:

      a. maskworks, computer software, and other copyrights that are registered
(or are the subject of any application for registration) with the United States
Copyright Office: NONE

      b. patents that are issued (or are the subject of any application for
issuance) by the United States Patent & Trademark Office: see Section 4.a of the
Representations and Warranties of the Borrower dated July 28, 2004 (which by
this reference is incorporated herein)

      c. trademarks that are registered (or are the subject of any application
for registration) with the United States Patent & Trademark Office: see Section
4.a of the Representations and Warranties of the Borrower dated July 28, 2004
(which by this reference is incorporated herein)


                                  Exhibit 7.1

EX-10.2

                                                                    Exhibit 10.2

                               THIRD AMENDMENT TO
                                 LEASE AGREEMENT

Effective Date:  October 6, 2004

         Mountain Valley Community Church (assignee of I.S. Capital, LLC)
(LESSOR) and Mobility Electronics, Inc. (LESSEE), entered into that certain
Standard Multi-Tenant Office Lease dated July 17, 2002, as amended (the
"LEASE"), pertaining to the lease of certain premises (the "PREMISES") located
at 17800 North Perimeter Drive, Scottsdale, Arizona 85255. The parties wish to
amend the Lease pursuant to this amendment (the "AMENDMENT").

         Section 32 (Lessor's Access; Showing Premises; Repairs) of the Lease
shall be amended as follows:

         The last sentence shall be deleted and replaced with the following
language:

         "Lessor shall notify Lessee at least forty-eight (48) hours prior to
         entering the Premises unless emergency access is required, in which
         case Lessor shall use its best efforts to provide as much advance
         notice to Lessee as is practicable under the circumstances, or as soon
         as possible thereafter. Access to the Premises shall only be granted to
         authorized representatives of Lessor and any independent contractors or
         others entering the Premises at the request of Lessor to make
         alterations, repairs, improvements or additions to the Premises. Any
         such contractors or other individuals entering the Premises must be
         fully licensed and bonded and must be accompanied at all times by an
         authorized representative of Lessor. If access is required after normal
         business hours, Lessor shall deactivate Lessee's security system upon
         entering the Premises, in accordance with Lessee's instructions, and
         Lessor shall reactivate Lessee's security system upon departure from
         the Premises. Lessor understands and acknowledges that Lessee has
         computers, laboratories, equipment and other valuable personal
         property, as well as proprietary business materials located on the
         Premises which Lessor shall not disturb during any period of access to
         the Premises. Lessor hereby assumes any and all risks of, and agrees to
         repair, replace or reimburse Lessee for, damage to or loss of any
         property located on the Premises and any injury, death, damage or loss
         to any third party or Lessor representatives occurring on the Premises
         during the time Lessor or its representatives are accessing the
         Premises, unless such injury, death, damage or loss is due to the
         negligence or willful misconduct of Lessee. Lessor agrees to indemnify,
         defend and hold Lessee, its affiliates and any of their respective
         officers, directors and employees harmless for, from and against any
         and all claims, demands, actions, causes of actions, lawsuits, damages,
         losses, injuries (including death) or other liabilities (including
         reasonable attorneys' fees) resulting from the entry of Lessor or any
         independent contractors or others entering

         the Premises at the request of Lessor pursuant to this Section 32,
         unless such injury, death, damage or loss is due to the negligence or
         willful misconduct of Lessee."

         In the event of any conflict between the Lease and this Amendment, this
Amendment will control. The Lease shall remain in full force and effect except
to the extent previously amended and as amended hereby.

MOBILITY ELECTRONICS, INC.                  MOUNTAIN VALLEY COMMUNITY CHURCH
LESSEE                                      LESSOR

By:      /s/ Joan W. Brubacher              By:      /s/ Marilee M. Kay
   ---------------------------------            -------------------------------
Name:    Joan W. Brubacher                  Name:    Marilee M. Kay
     -------------------------------             ------------------------------
Title:   EVP and CFO                        Title:   Office Manager
      ------------------------------               ----------------------------
Date:    October 6, 2004                    Date:    October 6, 2004
     -------------------------------             ------------------------------

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Charles R. Mollo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mobility Electronics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Charles R. Mollo

Charles R. Mollo

President and Chief Executive Officer

November 5, 2004

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Joan W. Brubacher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mobility Electronics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Joan W. Brubacher

Joan W. Brubacher

Chief Financial Officer

November 5, 2004

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     The undersigned, the Chief Executive Officer and the Chief Financial Officer of Mobility Electronics, Inc. (the “Company”), each certifies that, to his or her knowledge on the date of this certification:

     1. The quarterly report of the Company for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on this date (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 5, 2004	/s/ Charles R. Mollo
	Charles R. Mollo
	President and Chief Executive Officer
	/s/ Joan W. Brubacher
	Joan W. Brubacher
	Chief Financial Officer