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TMCNet:  IGO, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

[March 21, 2014]

IGO, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and notes thereto contained in this report. The following discussion contains forward-looking statements. Our actual results may differ significantly from the results discussed in these forward-looking statements. Please see the "Disclosure Concerning Forward-Looking Statements" and "Risk Factors" above for a discussion of factors that may affect our future results.


Overview Our products make mobile electronic devices more efficient and cost effective, thus allowing professionals and other consumers to better utilize their mobile devices and access information more readily. Our current product offering primarily consists of power, batteries, audio and protection solutions for mobile electronic devices.

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

25-------------------------------------------------------------------------------- In August 2013, we began a comprehensive, strategic review of our business in light of declining revenue and margins, continuing operating losses and cash usage. Our goal was to determine how to continue to operate the business while taking steps to reduce operating expenses, reduce and/or eliminate operating losses and improve cash flow.

Effective October 1, 2013, as a cost reduction measure, we executed a management services agreement with SP Corporate. The management services agreement, as approved by our independent directors, allowed us to reduce our operating expenses by consolidating executive positions and by using the services of SP Corporate for administrative functions on a shared services model.

In November 2013, we announced our intention to voluntarily delist our common stock from The NASDAQ Stock Market ("NASDAQ") and to deregister our common stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Both decisions were made after a review of the respective benefits from a NASDAQ listing and registration of our common stock under the Exchange Act, respectively, as compared to the costs of such activities. On November 22, 2013, we filed a Form 25 with the Securities and Exchange Commission to voluntarily delist our common stock from NASDAQ and deregister our common stock under Section 12(b) of the Exchange Act. On December 18, 2013, we filed a Form 15 with the Securities and Exchange Commission to voluntarily deregister our common stock under Section 12(g) of the Exchange Act.

In December 2013, we signed an inventory Purchase and License Agreement (the "License Agreement") with Incipio Technologies, Inc., (the "Licensee") pursuant to which Licensee will manage the manufacture, sales and distribution of our iGo© branded line of battery, charger and power supply products and accessories and other future products that may be developed by us or Licensee. Based on our strategic review, we concluded that the License Agreement would allow us to generate ongoing revenue, while allowing us to minimize operating expenses and working capital. We are currently taking steps for the implementation of the License Agreement. We expect to substantially complete these activities in the first quarter of 2014.

Concurrent with the execution of the License Agreement, we determined that certain of our battery, audio and protection products were not generating sufficient revenue and margins and determined that we will no longer offer such products once we have fulfilled existing orders and depleted current stock.

The Licensee will manage all aspects of selling and distributing the substantial majority of the Company's remaining inventory as well as future procurement, distribution and sale of iGo branded products. We will generate future revenue through license fees earned from Licensee under the terms of the License Agreement. Therefore, most accounts receivable will result from the revenue earned through license fees, in the form of royalties and profit-sharing with the Licensee.

In concert with the processes described above we have reduced headcount, terminated contractor and supplier agreements, and determined that we will no longer need to lease our current office building in Scottsdale, Arizona, as our ongoing functions will be supported by a combination of SP Corporate and our Licensee. The lease will expire in April 2014.

Power Power management, which remains our core product line, includes portable power, device power, and laptop power solutions. We continually strive to bring to market high quality, uniquely differentiated power solutions that meet our customers' needs and exceed their expectations.

Batteries Since June 2011, through our relationship with Pure Energy Solutions ("Pure Energy"), we have been the exclusive marketer and distributor of Pure Energy's patented rechargeable alkaline (RAMcell) batteries to retailers worldwide (excluding China) with non-exclusive distribution rights in Africa. RAMcell batteries are pre-charged and hold a charge for up to seven years. Approximately three billion single-use alkaline batteries are sold annually in the United States. RAMcell batteries provide users an environmentally friendly, cost-effective alternative to disposable alkaline batteries. However, as a result of the License Agreement and directing our focus primarily toward power products, we do not expect batteries and related battery chargers to provide a significant contribution to revenue in the future, and we do not plan to offer such products for sale once we deplete our existing inventories.

26 -------------------------------------------------------------------------------- Audio As a result of our acquisition of Aerial7 in 2010, we have offered a line of ear-buds and headphones. As mobile phones evolved into smartphones and new portable media devices capable of playing music and video, many consumers utilize a variety of mobile electronic devices for both communication and entertainment purposes. Our audio products have been designed to provide enhanced sound quality compared to competitive products at similar price points.

They have offered consumers the ability to both communicate with others via an integrated microphone that can be used with a portable computer, mobile phone, computer or other portable media device as well as the ability to listen to music or video from these devices. In addition to delivering quality sound output, our line of audio products have been designed to appeal to the fashion sense of consumers, allowing them to express their unique and personal style through their mobile electronic devices.. Our audio products have been offered primarily through lifestyle and music retailers around the world. However, as a result of the License Agreement and directing our focus primarily toward power products, we do not expect audio products to provide a significant contribution to revenue in the future, and we do not plan to offer such products for sale once we deplete our existing inventories.

Protection As a result of our acquisition of Adapt in 2010, we also offer a line of skins, cases and screen protectors for mobile electronic devices. Consumers value the protection of their mobile electronic devices as they rely on them heavily in their daily lives to both connect with others and store information. Consumers also view our protection products as a way to express personal fashion and style, much like they do with our audio products, clothing and other personal accessories. Our line of protection products was designed to meet both of these consumer needs by providing consumers with a high degree of protection and a unique, fashionable design that fits their personal styles. Our cases, skins, screen protectors and other similar products have been offered primarily in Europe.

However, as a result of the License Agreement and directing our focus primarily toward power products, we do not expect protection products to provide a significant contribution to revenue in the future, and we do not plan to offer such products for sale once we deplete our existing inventories.

Recent Developments On November 22, 2013, we filed a notification of removal from listing and registration on Form 25 with the U.S. Securities and Exchange Commission (the "SEC") to voluntarily delist our common stock, par value $0.10 per share, from NASDAQ and deregister our common stock, with associated Series H Junior Participating Preferred Stock Purchase Rights, under Section 12(b) of the Exchange Act. On December 18, 2013, we filed a notice of termination of registration on Form 15 with the SEC to voluntarily deregister our common stock, with associated Series G Junior Participating Preferred Stock Purchase Rights, under Section 12(g) of the Exchange Act. Our obligation to file periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, under Section 13(a) of the Exchange Act was suspended upon the filing of the Form 15 under Section 12(g) of the Exchange Act. The deregistration under Section 12(g) of the Exchange Act was effective as of March 18, 2014, 90 days after the filing of the Form 15 under Section 12(g) of the Exchange Act, at which time our other filing requirements under Section 13(a) of the Exchange Act terminated.

As of January 1, 2014, we had less than 300 holders of record of its securities, as determined pursuant to Rule 12g5-1 promulgated under the Exchange Act.

Accordingly, we expect that our obligation to file periodic reports under Section 15(d) of the Exchange Act will also be suspended upon the filing of this 2013 Annual Report on Form 10-K. We have no intention of continuing to file periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K under Exchange Act once our obligations to do so under Sections 13(a) and 15(d) of the Exchange Act are terminated or otherwise suspended.

27-------------------------------------------------------------------------------- On December 23, 2013, the Company, and Incipio Technologies, Inc., a California corporation (the "Licensee"), entered into an Inventory Purchase and License Agreement (the "License Agreement"), pursuant to which Licensee will manage the manufacture, sales and distribution of our iGO® branded line of battery, charger, and power supply products and accessories and other future products that maybe developed by us and Licensee (the " Licensed Products"). We believe the License Agreement offers us a means to significantly reduce overhead, consistent with its previous cost-saving decisions, by transferring to Licensee the costs of the manufacture and distribution of the our line of products, from which we will receive an ongoing revenue stream.

Under the terms of the License Agreement, we granted Licensee a non-exclusive license to use our iGO® trademarks and other intellectual property as necessary for Licensee to manufacture, promote, sell and distribute the licensed products worldwide through Licensee's network of distributors and retail partners and our online store. In consideration for the rights granted under the Agreement, Licensee will pay us a percentage of net sales of certain licensed products and the net profits of certain other licensed product sold worldwide and Licensee will bear all the costs of manufacture, inventory management, distribution and sale of licensed products, as well as the costs of developing new products at its discretion.

Also in consideration for the rights granted under the License Agreement and to facilitate the transition to Licensee's management of our iGO® branded line of licensed products, Licensee purchased for resale our existing, on hand inventory of licensed products and outstanding, unfulfilled purchase orders for licensed products, except for certain product inventory that had been identified by us and Licensee as obsolete or which lacked sufficient market demand. Licensee purchased such inventory of licensed products at pre-determined prices based on the parties' joint inspection of such inventory, the estimated retail value of such inventory, Licensee's anticipated costs of reworking, repackaging and distributing such inventory and the current market opportunities for such inventory.

The License Agreement contains customary representations and warranties and indemnities by each of us and Licensee. The License Agreement also includes certain restrictions on our ability to directly or indirectly sell licensed products during the term of the License Agreement, except for inventory not otherwise purchased by Licensee.

The License Agreement has a term of two years, which will automatically renew for successive one-year periods unless and until terminated: (i) by a party alleging a material breach of the License Agreement by giving written notice to the other party and a reasonable period of time to cure such breach; (ii) immediately by either party upon the bankruptcy, insolvency, liquidation, dissolution of the other party; (iii) immediately by either party if any material representation or warranty made by a party is found to be materially incorrect or misleading; (iv) ) immediately by either party upon a "change in control" (as defined in the License Agreement) of the other party; and (v) without cause upon six (6) months written notice. Either party may also terminate the License Agreement upon thirty (30) days written notice if the parties are unable to resolve, in good faith, disputes arising under the License Agreement concerning Licensee's use of our iGO® trademarks , the quality of the licensed products sold by Licensee, or the extent or scope of Licensee's efforts to manufacture and sell licensed products.

During the term of the License Agreement and for a period of six (6) months after expiration or termination of the License Agreement, we will not sell our iGO® trademarks to any unaffiliated third party unless we have first offered our iGO® trademarks to Licensee at a price not greater than and on material terms no less favorable to Licensee than the price and terms Licensor offers to any third party. .

A copy of License Agreement is included as an exhibit this Form 10-K for the year ending December 31, 2013.

Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make a number of estimates and judgments which impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including those related to bad debt expense, warranty obligations, inventories, sales returns and price protection, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates under different assumptions or conditions.

28 --------------------------------------------------------------------------------We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: Revenue Recognition. Revenue from product sales is generally recognized upon shipment and transfer of ownership from us or our contract manufacturers to our customers. Allowances for sales returns and credits are provided for in the same period the related sales are recorded. Should the actual return or sales credit rates differ from our estimates, revisions to our estimated allowance for sales returns and credits may be required.

Our recognition of revenue from product sales to distributors, resellers and retailers, or the "retail and distribution channel," is affected by agreements we have with certain customers giving them rights to return up to 15% of their prior quarter's purchases, provided that the customer places a new order for an equal or greater dollar value of the amount returned. We also have agreements with certain customers that allow them to receive credit for subsequent price reductions, or "price protection." At the time we recognize revenue related to these agreements, we reduce revenue for the gross sales value of estimated future returns, as well as our estimate of future price protection. We also reduce cost of revenue for the gross product cost of estimated future returns.

We record an allowance for sales returns, including those of WalMart, in the amount of the difference between the gross sales value and the cost of revenue as a reduction of accounts receivable. We have historically maintained agreements with certain customers that provided them with a 100% right of return prior to the ultimate sale to an end user of the product. Accordingly, we recorded $307,000 deferred revenue as of December 31, 2012. At December 31, 2013, we recorded no deferred revenue for our remaining customer base. Gross sales to the retail and distribution channel accounted for approximately 97% of revenue for the year ended December 31, 2013 and 89% of revenue for the year ended December 31, 2012.

Historically, a correlation has existed between the amount of retail and distribution channel inventory and the amount of returns that actually occur.

The greater the inventory held by our distributors, the more product returns we expect. As part of our effort to reach an appropriate accounting estimate for returns, for each of our products, we monitor levels of product sales and inventory at our distributors' warehouses and at retailers. In estimating returns, we analyze historical returns, current inventory in the retail and distribution channel, current economic trends, changes in consumer demand, the introduction of new competing products and market acceptance of our products.

In recent years, as a result of a combination of the factors described above, we have reduced our gross sales to reflect our estimated amounts of returns and price protection. It is possible that returns could increase rapidly and significantly in the future. Accordingly, estimating product returns requires significant judgment on the part of management. Slight differences in the assumptions management uses to estimate sales returns could have a material impact on our reported sales and thus could have a material impact on the presentation of the results of our operations.

Inventory Valuation. Inventories consist of finished goods and component parts purchased both partially and fully assembled. We experience all the typical risks and rewards of inventory held by contract manufacturers. Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories include material, labor and overhead costs. Labor and overhead costs are allocated to inventory based on a percentage of material costs. We monitor usage reports to determine if the carrying value of any items should be adjusted due to lack of demand. We make a downward adjustment to the value of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At December 31, 2013, a significant portion of our inventory has been written-down to the value agreed upon with the Licensee. Additional inventory write-downs may be required if the Licensee determines the market value is less than the agreed-upon value.

Deferred Tax Valuation Allowance. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which we operate. Historically, we have recorded a deferred tax valuation allowance in an amount equal to our net deferred tax assets. If we determine that we will ultimately be able to utilize all or a portion of deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released to income as a credit to income tax expense.

29-------------------------------------------------------------------------------- Goodwill and Long-Lived Asset Valuation. We have historically tested goodwill for impairment on an annual basis as of October 1. The goodwill impairment evaluation process is based on both a discounted future cash flows approach and a market comparable approach. The discounted cash flows approach uses our estimates of future market growth rates, market share, revenue and costs, as well as appropriate discount rates. We evaluated goodwill for impairment as of October 1, 2011 and determined that recorded goodwill was impaired at that time.

We test our recorded long-lived assets whenever events indicate the recorded intangible assets may be impaired. Our long-lived asset impairment approach is based on an undiscounted cash flows approach. As a result of the assessment of goodwill impairment at October 1, 2011, we tested long-lived assets for impairment at that time and determined some of these assets were impaired. As a result of the assessment of additional goodwill impairment at October 1, 2012, we tested long-lived assets for impairment at that time and determined all of these assets in connection with the acquisition of Aerial7 were impaired. The value of goodwill remained at zero throughout 2013.

Investments. The Company assesses its long-term investments for other-than-temporary declines in value by considering various factors that include, among other things, events that may affect the creditworthiness of a security's issuer, the length of time the security has been in a loss position, and the Company's ability and intent to hold the security until a forecasted recovery of fair value.

Results of Operations The following table sets forth certain consolidated financial data for the periods indicated expressed as a percentage of total revenue for the periods indicated: Year Ended December 31, 2013 2012 Revenue 100.0 % 100.0 % Cost of revenue 103.0 % 82.3 % Gross profit (loss) (3.0 )% 17.7 % Operating expenses: Sales and marketing 16.7 % 17.5 % Research and development 6.9 % 7.4 % General and administrative 45.1 % 23.6 % Asset impairment 2.7 % 4.8 % Total operating expenses 71.4 % 53.3 % Loss from operations (74.4 )% (35.6 )% Other income (expense): Interest income, net 0.0 % 0.0 % Gain on disposal of assets and other income (expense), net 0.2 % (4.6 )% Loss before income tax (74.2 )% (40.2 )% Income tax benefit - - Net loss (74.2 )% (40.2 )% Comparison of Years Ended December 31, 2013 and 2012 Revenue. Revenue generally consists of sales of products, net of returns and allowances. To date, our revenues have come predominantly from our laptop chargers. The following table summarizes the year-over-year comparison of our consolidated revenue for the periods indicated (dollars in thousands): 30 -------------------------------------------------------------------------------- Decrease from Percentage Change Year Annual Amount Prior Year from Prior Year 2013 $ 16,928 (12,948 ) (43.3 )% 2012 29,876 (8,496 ) (22.1 )% Following is a breakdown of revenue by significant account for the years ended December 31, 2013 and 2012 with corresponding dollar and percent changes (dollars in millions): Change from 2012 to 2013 $ $ $ % 2013 2012 Change Change Walmart 7.5 8.3 (0.8 ) (9.6 )% Convoy 0.5 0.4 0.1 25.0 % RadioShack 0.1 3.8 (3.7 ) (97.4 )% Belkin - 0.8 (0.8 ) (100.0 )% Office Depot 0.2 0.7 (0.5 ) (71.4 )% All other customers 8.6 15.9 (7.3 ) (45.8 )% 16.9 29.9 (13.0 ) (43.5 )% The 2013 decrease in revenue was primarily due to declines in sales volume of power products to Radio Shack, Hudson Group, and In Motion Pictures, combined with a decline in average selling price for power products to Walmart, partially offset by an increase in sales volume of power products to Walmart. The decline in sales to all other customers is primarily attributable to lower sales of power products in North American markets, as well as a $500,000 decrease in the sale of audio products to $1.8 million for the year ended December 31, 2013, compared to $2.3 million for the year ended December 31, 2012, a $1.2 million decrease in sales of batteries to $1 million for the year ended December 31, 2013, compared to $2.2 million for the year ended December 31, 2012, and a $500,000 decrease in the sale of protection products to $200,000 for the year ended December 31, 2013, compared to $700,000 for the year ended December 31, 2012. We will generate reduced future revenue through the license fees earned from Licensee under the terms of the License Agreement, primarily a percentage of net sales of certain Licensed Products and the net profits of certain other Licensed Products.

Cost of revenue, gross profit and gross margin. Cost of revenue generally consists of costs associated with components, outsourced manufacturing and in-house labor associated with assembly, testing, packaging, shipping and quality assurance, depreciation of equipment and indirect manufacturing costs.

Gross profit is the difference between revenue and cost of revenue. Gross margin is gross profit stated as a percentage of revenue. The following tables summarize the year-over-year comparison of our cost of revenue, gross profit and gross margin for the periods indicated (dollars in thousands): Cost of revenue: Increase/ (Decrease) from Percentage Change Year Annual Amount Prior Year from Prior Year 2013 $ 17,440 (7,153 ) (29.1 )% 2012 24,593 (5,310 ) (17.8 )% 31--------------------------------------------------------------------------------Gross profit and gross margin: Decrease in Percentage gross profit Change from Year Gross Profit Gross Margin from Prior Year Prior Year 2013 $ (512 ) (3.0 )% $ (5,795 ) (109.7 )% 2012 5,283 17.7 % $ (3,186 ) (37.6 )% The 2013 decrease in cost of revenue and corresponding decrease in gross margin for the year ended December 31, 2013 compared to the year ended December 31, 2012 were primarily due to the decline in overall sales, shift in product mix, increased inventory write-downs, and decline in average selling prices to Walmart and other customers. Labor and overhead decreased by $945,000 to $4.2 million, or 24.8% of revenue, for the year ended December 31, 2013, compared to 17.1% of revenue for the year ended December 31, 2012. The decrease in labor and overhead costs during 2013 was primarily due to decreases of $395,000 in salaries and other personnel-related costs, $286,000 in third-party logistics costs, $443,000 in freight charges, and $86,000 in depreciation expense, partially offset by $759,000 in allowances for excess and obsolete inventory.

Despite the decrease in labor and overhead costs, cost of revenue as a percentage of revenue increased to 103% for the year ended December 31, 2013, from 82.3% for the year ended December 31, 2012, primarily due to increased inventory write-downs, fixed labor and overhead costs being spread over reduced revenue, and a shift to lower margin customers. Upon implementation of the License Agreement, Licensee will bear all the costs of manufacture of Licensed Products. By the second quarter of 2014, we expect to incur no costs of revenue.

Sales and marketing. Sales and marketing expenses generally consist of salaries, commissions and other personnel-related costs of our sales, marketing and support personnel, advertising, public relations, promotions, printed media and travel. The following table summarizes the year-over-year comparison of our sales and marketing expenses for the periods indicated (dollars in thousands): Increase/ (Decrease) from Percentage Change Year Annual Amount Prior Year from Prior Year 2013 $ 2,818 (2,415 ) (46.1 )% 2012 5,233 (2,462 ) (32.0 )% The 2013 decrease in sales and marketing expenses primarily resulted from decreases in advertising, market research, and personnel-related expenses.

Specifically, marketing, advertising and promotional expenses decreased $510,000 million or 47.5%, to $475,000 for the year ended December 31, 2013, compared to $1.0 million for the year ended December 31, 2012. In addition, there was a decrease in personnel-related and consulting expenses of $1.6 million, or 44.4%, to $2.0 million for the year ended December 31, 2013, compared to $3.6 million for the year ended December 31, 2012, and a decrease in outside commissions and professional fees of $195,000, or 51.1%, to $187,000 for the year ended December 31, 2013, compared to $382,000 for the year ended December 31, 2012 As a percentage of revenue, sales and marketing expenses decreased to 16.7% for the year ended December 31, 2013 from 17.5% for the year ended December 31, 2012.

Research and development. Research and development expenses consist primarily of salaries and personnel-related costs, outside consulting, lab costs and travel-related costs of our product development group. The following table summarizes the year-over-year comparison of our research and development expenses for the periods indicated (dollars in thousands): 32 -------------------------------------------------------------------------------- Increase/ (Decrease) from Percentage Change Year Annual Amount Prior Year from Prior Year 2013 $ 1,172 (1,046 ) (47.2 )% 2012 2,218 (140 ) (5.9 )% The decrease in research and development expenses in 2013 resulted primarily from the decreases of approximately $500,000 in personnel-related expenses, or 31.3% to $1.1 million for the year ended December 31, 2013, compared to $1.6 million for the year ended December 31, 2012 (primarily from approximately reductions in labor force, partially offset by $290,000 in severance expenses due to a change in control). Non-recurring engineering expenses decreased by $144,000, or 82.8% to $30,000 for the year ended December 31, 2013, compared to $174,000 for the year ended December 31,2012, primarily due to the March 27, 2013 termination of the development of our power-saving microchip with Texas Instruments. Professional consulting expenses decreased by $99,000, or 89.2% to $12,000 for the year ended December 31, 2013, compared to $111,000 for the year ended December 31, 2012. As a percentage of revenue, research and development expenses increased to 6.9% for the year ended December 31, 2013 from 7.4% for the year ended December 31, 2012.

General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related expenses of our finance, human resources, information systems, corporate development and other administrative personnel, as well as facilities, legal and other professional fees, depreciation and amortization and related expenses. The following table summarizes the year-over-year comparison of our general and administrative expenses for the periods indicated (dollars in thousands): Increase/ (Decrease) from Percentage Change Year Annual Amount Prior Year from Prior Year 2013 $ 7,641 595 8.4 % 2012 7,046 (707 ) (9.1 )% The 2013 increase in general and administrative expenses resulted from an increase in personnel-related expenses of approximately $300,000 or 21.4%, to $1.7 million for the year ended December 31, 2013, compared to $1.4 million for the year ended December 31, 2012 (primarily from approximately $883,000 in severance expenses due to a change in control, partially offset by reductions in labor force), and an increase in consulting and legal professional fees of approximately $1.74 million, or 229%, to $2.5 million for the year ended December 31, 2013, compared to $760,000 for the year ended December 31, 2012, which were partially offset by a decrease in equity compensation and amortization expenses of approximately $1.5 million, or 53.6%, to $1.3 million for the year ended December 31, 2013, compared to $2.8 million for the year ended December 31, 2012. General and administrative expenses, as a percentage of revenue increased to 45.1% for the year ended December 31, 2013, from 23.6% for the year ended December 31, 2012.

Asset impairment. Asset impairment expense consists of expenses associated with impairment write-downs of goodwill and amortizable intangible assets. During the second quarter of 2013, in conjunction with the Company's long term investment impairment, we determined a triggering event had occurred, that caused us to evaluate the intangible assets related to Pure Energy for impairment, specifically the distribution rights and technology license. Based on the receivership of Pure Energy and the resulting delay of shipments, we determined the amortizable intangible assets with a remaining book value of $456,000 were fully impaired. A total asset impairment charge of $456,000, related to the amortizable intangible assets, was recorded for the year ended December 31, 2013, As of October 1, 2012, our annual impairment testing date, as a result of a significant decline in the fair value of the Aerial7 reporting unit, we determined goodwill in the amount of $285,000 related to our 2010 acquisition of Aerial7 was impaired. In conjunction with the goodwill impairment, we determined a triggering event had occurred that caused us to evaluate amortizable assets related to Aerial7 for impairment. Based on lower-than-anticipated sales of audio products, we determined amortizable intangible assets with a remaining net book value of $1,158,000 related to Aerial7 were impaired.

33 --------------------------------------------------------------------------------Interest income, net. Interest income, net consists primarily of interest earned on our cash balances and short-term investments. The following table summarizes the year-over-year comparison of interest income, net for the periods indicated (dollars in thousands): Increase/ (Decrease) from Percentage Change Year Annual Amount Prior Year from Prior Year 2013 $ 5 (7 ) (58.3 )% 2012 12 (50 ) (80.6 )% The 2013 decrease in interest income was primarily due to decreased yield on our short-term investment balances during 2013. The 2012 decrease in interest income was primarily due to decreased short-term investment balances during 2012 due to usage of those investments to fund operating losses and working capital requirements. The average yield on our cash and short-term investments at December 31, 2013 was less than 1%, consistent with the average yield in 2012.

Gain (loss) on disposal of assets and other income (expense), net. Gain (loss) on disposal of assets and other income, net consists of the net proceeds received from the disposal of assets, income derived from non-core sources, and losses due to foreign exchange transactions. Other income (expense), net was $88,000 for the year ended December 31, 2013, primarily due to a $200,000 reimbursement from Texas Instruments following the termination of its contract to create an integrated circuit based on iGo Green technology, partially offset by ($135,000) foreign exchange losses. Other income (expense), net was ($218,000) for the year ended December 31, 2012 primarily due to foreign exchange losses of $228,000.

The following table summarizes the year-over-year comparison of gain on disposal of assets for the periods indicated (dollars in thousands): Increase/ (Decrease) from Percentage Change Year Annual Amount Prior Year from Prior Year 2013 $ 88 $ 306 140.4 % 2012 $ (218 ) $ (224 ) N/A Other-than-temporary impairment of long-term investments. The 2013 loss of ($60,000) and the 2012 loss of ($1,161,000), respectively, were due to the recognition of other-than-temporary impairment charges related to long term investment securities discussed in Note 4 to the consolidated financial statements.

Income taxes. Based on historical operating losses and projections for future taxable income, it is more likely than not that we will not fully realize the benefits of the net operating loss carryforwards. We have not, therefore, recorded a tax benefit from our net operating loss carryforwards for the year ended December 31, 2013, which at December 31, 2013 were $184 million for federal purposes.

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

34-------------------------------------------------------------------------------- While we have taken certain actions to reduce costs, we also assessed opportunities to implement a further-reduced cost structure while evaluating alternative business models. We explored opportunities that would allow us to utilize our brand to expand our higher volume products, and potential strategic alliances that could provide for expanded product lines. As a result, we entered into the license agreement on December 23, 2013 with Incipio Technologies, Inc.

whereby Incipio Technologies, Inc. will manage the manufacture, sales and distribution of our branded line of battery, charger, and power supply products and accessories and other future products that may be developed by us and Incipio Technologies, Inc.

Concurrent with the execution of the License Agreement, we decided that our battery, audio, and protection products were not generating sufficient revenue and were unlikely to provide a significant contribution to revenue in the future. Accordingly, we do not plan to offer such products for sale once we have depleted existing inventories.

We believe this new sales model, new distribution method, elimination of certain product lines, and reductions in operating expenses will allow us to create an ongoing revenue stream, reduce working capital requirements, and significantly reduce overhead. Upon implementation of the License Agreement, Licensee will bear all the costs of manufacture, inventory management, distribution and sale of Licensed Products as well as the costs of developing new products at its discretion. By the second quarter of 2014, we anticipate no expenses related to sales, marketing, or research and development, while general and administrative expenses will be limited to the administration of the License Agreement and the fixed annual fee to SP Corporate as discussed in Note 15 to the financial statements.

Liquidity and Capital Resources Cash and Cash Flow. Our available cash and cash equivalents are held in bank deposits and money market funds in the United States and in the United Kingdom.

We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal while secondarily maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities. To date, we have experienced no material loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets or liquidity requirements to fund our operations.

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

A primary use of cash has been to fund operating losses and working capital needs of our business. Some of our suppliers of batteries, protection and audio products have been unwilling to extend trade credit to us on the same terms and conditions as our power product suppliers have historically done. As a result, we have been required to pay for purchases of inventory of these products in advance of the related sale of these products, which has increased our use of cash to support the working capital required to effectively operate our business.

We currently do not maintain a credit facility with a bank. However, we may attempt to access this source of financing, to the extent available, at some point in the future.

The following table sets forth for the period presented certain consolidated cash flow information (in thousands): Year Ended December 31, 2013 2012 Net cash used in operating activities $ (1,395 ) $ (4,247 ) Net cash provided by (used in) investing activities (108 ) 2,204 Foreign currency exchange impact on cash flow 128 (18 ) Increase (decrease) in cash and cash equivalents $ (1,375 ) $ (2,061 ) Cash and cash equivalents at beginning of period $ 8,229 $ 10,290 Cash and cash equivalents at end of period $ 6,854 $ 8,229 35-------------------------------------------------------------------------------- ? Net cash provided by (used in) operating activities. Cash was used in operating activities for the year ended December 31, 2013 to fund the working capital needs of our business, including inventory purchases. We expect to continue to use cash in operating activities in 2013 to fund our working capital needs. Our consolidated cash flow operating metrics are as follows: Year Ended December 31, 2013 2012 Days outstanding in ending accounts receivable ("DSOs") 23 44 Inventory turns 4 3 ? The decrease in DSOs at December 31, 2013 compared to December 31, 2012 was primarily due to the decrease in revenue, partially offset by the decline in accounts receivable. The increase in inventory turnover was primarily due to the reduction in average inventory, partially offset by the decrease in cost of revenue.

? Net cash provided by (used in) investing activities. For the year ended December 31, 2013, net cash was used in investing activities primarily as a result of the purchase of intangible assets. For the year ended December 31, 2012, net cash was generated by investing activities primarily as a result of the sale of short-term investments (net of purchases), partially offset by our purchase of property and equipment.

Investments. At December 31, 2013, our investments in marketable securities included one issuance of corporate common stock, one corporate debenture, and one municipal mutual fund with an aggregate fair value of approximately $2.1 million.

In June 2011, we made an investment in Pure Energy, in which we received 2,142,858 shares of Pure Energy Visions common stock at a price per share equal to $0.286, and an interest-free convertible secured debenture having a one-year repayment term that converts into an additional 2,142,858 shares of Pure Energy Visions common stock in lieu of repayment either upon the achievement of certain business goals or earlier at our discretion. We concluded, however, that unrealized losses on our long-term investments were other-than-temporary and, therefore, recorded impairment charges of $60,000 during the year ended December 31, 2013 and $1.2 million during the year ended December 31, 2012 to reflect the amortized cost of the securities at fair value of zero and $60,000 at December 31, 2013 and December 31, 2012, respectively.

We believe we have the ability to hold all marketable debt securities to maturity. However, we may dispose of debt securities prior to their scheduled maturity due to changes in interest rates, prepayments, tax and credit considerations, liquidity or regulatory capital requirements, or other similar factors. As a result, we classify all marketable securities as available-for-sale. These securities are reported at fair value based on third-party broker statements, which represents level 2 in the fair value hierarchy set forth by the Financial Accounting Standards Board ("FASB") in Accounting Standards Codification 820-Fair Value Measurements and Disclosures.

Our investment in Pure Energy is reported at fair value based on a quoted market price, which represents level 1 in the FASB's fair value hierarchy. Accordingly, unrealized gains and losses related to these investments are reported in equity as a separate component of accumulated other comprehensive income (loss).

Contractual Obligations. In our day-to-day business activities, we incur certain commitments to make future payments under contracts such as operating leases and purchase orders. Maturities under these contracts are set forth in the following table as of December 31, 2013 (dollars in thousands): Payment due by Period More than 5 2014 2015 2016 2017 2018 years Operating lease obligations $ 83 Inventory purchase obligations $ 709 $ - $ - $ - $ - $ - Totals $ 792 $ - $ - $ - $ - $ - 36--------------------------------------------------------------------------------Off-Balance Sheet Arrangements. We have no off-balance sheet financing arrangements.

Acquisitions and dispositions. In 2010 we acquired Adapt and Aerial7 to complement our product offerings and expand our revenue base. The magnitude, timing and nature of any future acquisitions will depend on a number of factors, including the availability of suitable acquisition candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Financing of future acquisitions would result in the utilization of cash, incurrence of additional debt, issuance of additional equity securities or a combination of all of these. Our future strategy may also include the possible disposition of assets that are not considered integral to our business which would likely result in the generation of cash.

Net Operating Loss Carryforwards. As of December 31, 2013, we had approximately $184.0 million of federal net operating loss carryforwards which expire at various dates. We anticipate that the sale of common stock in our initial public offering and in subsequent private offerings, as well as the issuance of our common stock for acquisitions, coupled with prior sales of common stock could cause an annual limitation on the use of our net operating loss carryforwards pursuant to the change in ownership provisions of Section 382 of the Internal Revenue Code of 1986, as amended. This limitation is expected to have a material effect on the timing of and our ability to use the net operating loss carryforwards in the future. Additionally, our ability to use the net operating loss carry-forwards is dependent upon our level of future profitability, which cannot be determined.

Liquidity Outlook. Based on our projections, we believe that our existing cash, cash equivalents, and short-term investments will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months and, upon implementation of the License Agreement, our working capital requirements will decrease significantly. If we require additional capital resources to grow our business internally or to acquire complementary technologies and businesses at any time in the future, we may seek to obtain debt financing or sell additional equity securities. The sale of additional equity securities would result in more dilution to our stockholders. In addition, additional capital resources may not be available to us in amounts or on terms that are acceptable to us.

Recent Accounting Pronouncements See Note 2(t) to our consolidated financial statements for a summary of recently issued accounting pronouncements.

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