x
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the quarterly period ended September 30, 2007,
or
|
o
|
Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the transition period
from
______________ to _____________.
|
Nevada
|
20-2559624
|
|
(State
or other jurisdiction of
incorporation or organization) |
(I.R.S.
Employer
Identification No.) |
Page
|
||
Item
1.
|
Consolidated
Financial Statements (Unaudited)
|
|
Condensed
Consolidated Balance Sheets - As of September 30, 2007 and December
31,
2006
|
3
|
|
Condensed
Consolidated Statements of Operations for the Three and Nine Months
Ended
September 30, 2007 and 2006
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended
September
30, 2007 and 2006
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
Item
3.
|
Controls
and Procedures
|
20
|
PART
II - OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
21
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
21
|
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
|
23
|
September
30,
|
December
31,
|
||||||
2007
|
2006
|
||||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
|
$
|
2,146,753
|
$
|
468,382
|
|||
Accounts
receivable, net
|
195,667
|
121,149
|
|||||
Inventories
|
328,925
|
102,522
|
|||||
Prepaid
income taxes
|
41,043
|
44,361
|
|||||
Prepaid
advertising
|
205,782
|
-
|
|||||
Prepaid
expenses and other current assets
|
183,910
|
31,724
|
|||||
Deferred
income tax assets
|
16,796
|
19,468
|
|||||
Due
from employees
|
-
|
3,714
|
|||||
Total
current assets
|
3,118,876
|
791,320
|
|||||
Property
and equipment, net
|
278,479
|
221,474
|
|||||
Deposits
and other assets
|
30,712
|
12,119
|
|||||
Intangible
assets, net
|
50,025
|
2,340
|
|||||
Total
assets
|
$
|
3,478,092
|
$
|
1,027,253
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities
|
|||||||
Convertible
note payable
|
$
|
-
|
$
|
250,000
|
|||
Convertible
note payable - officer
|
-
|
100,000
|
|||||
Accounts
payable
|
316,659
|
246,691
|
|||||
Accrued
liabilities
|
16,592
|
33,573
|
|||||
Accrued
wages and wage related expenses
|
72,962
|
121,728
|
|||||
Deferred
licensing revenue
|
94,953
|
86,801
|
|||||
Sales
returns liability
|
16,599
|
32,000
|
|||||
Total
current liabilities
|
517,765
|
870,793
|
|||||
Long-term
liabilities
|
|||||||
Non-current
deferred income tax liability, net
|
12,365
|
12,087
|
|||||
Total
liabilities
|
530,130
|
882,880
|
|||||
Stockholders'
equity
|
|||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized; 18,793,995
and
10,175,000 shares issued and outstanding, respectively
|
18,790
|
10,175
|
|||||
Additional
paid-in capital
|
3,964,012
|
117,075
|
|||||
Cumulative
translation adjustment
|
(54
|
)
|
-
|
||||
Retained
(deficit) earnings
|
(1,034,786
|
)
|
17,123
|
||||
Total
stockholders' equity
|
2,947,962
|
144,373
|
|||||
Total
liabilities and stockholders' equity
|
$
|
3,478,092
|
$
|
1,027,253
|
Three
Months Ended
|
Three
Months Ended
|
Nine
Months Ended
|
Nine
Months Ended
|
||||||||||
September
30, 2007
|
September
30, 2006
|
September
30, 2007
|
September
30, 2006
|
||||||||||
Net
sales
|
$
|
1,437,408
|
$
|
816,022
|
$
|
3,034,714
|
$
|
1,978,533
|
|||||
Cost
of sales
|
299,027
|
193,153
|
689,858
|
537,375
|
|||||||||
Gross
profit
|
1,138,381
|
622,869
|
2,344,856
|
1,441,158
|
|||||||||
Operating
expenses:
|
|||||||||||||
Salaries
and related taxes
|
451,076
|
263,544
|
1,105,519
|
669,895
|
|||||||||
Compensation
expense related to stock issuance
|
800,000
|
-
|
800,000
|
-
|
|||||||||
Consulting
|
-
|
-
|
38,500
|
73,750
|
|||||||||
Advertising
and marketing
|
227,624
|
108,388
|
467,410
|
269,689
|
|||||||||
Legal
and accounting
|
25,795
|
30,050
|
248,240
|
34,937
|
|||||||||
Other
selling, general and administrative
|
383,851
|
186,631
|
729,693
|
377,894
|
|||||||||
Total
operating expenses
|
1,888,346
|
588,613
|
3,389,362
|
1,426,165
|
|||||||||
(Loss)
income from operations
|
(749,965
|
)
|
34,256
|
(1,044,506
|
)
|
14,993
|
|||||||
Other
(expense) income:
|
|||||||||||||
Interest
expense
|
(4,132
|
)
|
(18,700
|
)
|
(30,231
|
)
|
(18,559
|
)
|
|||||
Interest
and other income
|
20,903
|
-
|
24,988
|
6,819
|
|||||||||
Total
other income (expense)
|
16,771
|
(18,700
|
)
|
(5,243
|
)
|
(11,740
|
)
|
||||||
(Loss)
income before benefit (provision) for income
taxes
|
(733,194
|
)
|
15,556
|
(1,049,749
|
)
|
3,253
|
|||||||
Income
tax (expense) benefit
|
(234
|
)
|
-
|
(2,544
|
)
|
13,464
|
|||||||
Net
(loss) income
|
(733,428
|
)
|
15,556
|
(1,052,293
|
)
|
16,717
|
|||||||
Basic
and diluted net (loss) income per common share
|
$
|
(0.04
|
)
|
$
|
0.00
|
$
|
(0.07
|
)
|
$
|
0.00
|
|||
Weighted
average number of shares outstanding - basic and
diluted
|
17,631,495
|
10,000,000
|
16,131,123
|
10,033,333
|
Nine
Months Ended
|
Nine
Months Ended
|
||||||
September
30, 2007
|
September
30, 2006
|
||||||
Cash
flows from operating activities
|
|||||||
Net
(loss) income
|
$
|
(1,052,293
|
)
|
$
|
16,717
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Non-cash
expense related to issuance of stock to employees
|
800,000
|
-
|
|||||
Depreciation
and amortization
|
58,430
|
17,094
|
|||||
Deferred
income tax (benefit) expense
|
2,950
|
(46,847
|
)
|
||||
Currency
exchange (gain) loss
|
(54
|
)
|
-
|
||||
Changes
in assets and liabilities
|
|||||||
Accounts
receivable
|
(74,518
|
)
|
31,579
|
||||
Inventories
|
(226,403
|
)
|
(66,595
|
)
|
|||
Due
from employees
|
3,714
|
4,268
|
|||||
Prepaid
income taxes
|
3,318
|
-
|
|||||
Prepaid
advertising
|
(205,782
|
)
|
-
|
||||
Prepaid
expenses and other current assets
|
(111,805
|
)
|
51,491
|
||||
Other
assets
|
(18,593
|
)
|
-
|
||||
Accounts
payable
|
21,280
|
148,689
|
|||||
Accrued
liabilities
|
(1,288
|
)
|
60,636
|
||||
Accrued
wages and wage related expenses
|
(48,766
|
)
|
-
|
||||
Deferred
licensing revenues
|
8,152
|
-
|
|||||
Sales
return liability
|
(15,401
|
)
|
-
|
||||
Net
cash (used in) provided by operating activities
|
(857,059
|
)
|
217,032
|
||||
Cash
flows from investing activities
|
|||||||
Payments
for intangible assets
|
(48,764
|
)
|
-
|
||||
Purchase
of property and equipment
|
(114,356
|
)
|
(171,263
|
)
|
|||
Net
cash used in investing activities
|
(163,120
|
)
|
(171,263
|
)
|
|||
Cash
flows from financing activities
|
|||||||
Repayments
on equipment financing payable
|
-
|
(10,016
|
)
|
||||
Proceeds
from issuance of common stock and warrants
|
2,570,750
|
-
|
|||||
Payments
on debt
|
(250,000
|
)
|
-
|
||||
Proceeds
from notes payable
|
200,000
|
-
|
|||||
Payments
on convertible note payable - officer
|
(50,000
|
)
|
-
|
||||
Capital
contribution
|
-
|
25,000
|
|||||
Proceeds
from issuance of common stock
|
227,800
|
75,000
|
|||||
Net
cash provided by financing activities
|
2,698,550
|
89,984
|
|||||
Net
increase in cash and cash equivalents
|
1,678,371
|
135,753
|
|||||
Cash
and cash equivalents at beginning of the period
|
468,382
|
25,661
|
|||||
Cash
and cash equivalents at end of the period
|
$
|
2,146,753
|
$
|
161,414
|
|||
Supplemental
disclosure of cash flow information
|
|||||||
Cash
paid during the period for interest
|
$
|
16,736
|
$
|
-
|
|||
Cash
paid during the period for income taxes
|
$
|
-
|
$
|
35,247
|
|||
Non-cash
investing and financing activities
|
|||||||
Property
and equipment acquired for equipment financing payable
|
$
|
-
|
$
|
-
|
|
|
Net
Loss
|
|
Weighted
Average
Shares
|
|
Per Share
Amount
|
|
||||
Three
months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
||
Basic
EPS
|
|
$
|
(733,428)
|
17,631,495
|
|
|
$
|
(0.04)
|
|
||
Effect
of common stock equivalents
|
|
—
|
|
—
|
|
|
|
|
|
||
Diluted
EPS
|
|
$
|
(733,428)
|
17,631,495
|
|
|
$
|
(0.04)
|
|
||
Three
months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
||
Basic
EPS
|
|
$
|
15,556
|
10,098,913
|
|
|
$
|
0.00
|
|
||
Effect
of common stock equivalents
|
|
—
|
|
—
|
|
|
|
|
|
||
Diluted
EPS
|
|
$
|
15,556
|
10,098,913
|
|
|
$
|
0.00
|
|
|
|
Net
Loss
|
|
Weighted
Average
Shares
|
|
Per Share
Amount
|
|
||||
Nine
months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
||
Basic
EPS
|
|
$
|
(1,052,293)
|
16,131,123
|
|
|
$
|
(0.07)
|
|
||
Effect
of common stock equivalents
|
|
—
|
|
—
|
|
|
|
|
|
||
Diluted
EPS
|
|
$
|
(1,052,293)
|
16,131,123
|
|
|
$
|
(0.07)
|
|
||
Nine
months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
||
Basic
EPS
|
|
$
|
16,717
|
10,033,000
|
|
|
$
|
0.00
|
|
||
Effect
of common stock equivalents
|
|
—
|
|
—
|
|
|
|
|
|
||
Diluted
EPS
|
|
$
|
16,717
|
10,033,000
|
|
|
$
|
0.00
|
|
September
30, 2007
|
December
31, 2006
|
||||||
Accounts
receivable
|
$
|
215,860
|
$
|
141,342
|
|||
Less:
Allowance for doubtful accounts
|
(20,193
|
)
|
(20,193
|
)
|
|||
Accounts
receivable, net
|
$
|
195,667
|
$
|
121,149
|
September
30, 2007
|
December
31, 2006
|
||||||
Finished
Goods
|
$
|
180,855
|
$
|
67,257
|
|||
Raw
Materials
|
148,070
|
35,265
|
|||||
$
|
328,925
|
$
|
102,522
|
Useful
Lives
|
September
30, 2007
|
December
31, 2006
|
||||||||
Computer
equipment and software
|
3
to 5 years
|
$
|
95,865
|
$
|
58,790
|
|||||
Office
equipment
|
3
to7 years
|
102,518
|
58,407
|
|||||||
Furniture
and fixtures
|
7
years
|
42,575
|
9,405
|
|||||||
Automobiles
|
5
years
|
47,063
|
47,063
|
|||||||
Leasehold
improvements
|
1
to 3.13 years
|
91,637
|
91,637
|
|||||||
379,658
|
265,302
|
|||||||||
Less
Accumulated depreciation
|
(101,179
|
)
|
(43,828
|
)
|
||||||
$
|
278,479
|
$
|
221,474
|
September
30, 2007
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||
Internet
addresses
|
$
|
43,169
|
$
|
(1,079
|
)
|
$
|
42,090
|
· |
For
the quarter ended September 30, 2007, we recognized $800,000 in expense
related to the issuance of restricted stock to employees and key
consultants of the Company. Exclusive of this non-cash charge, total
operating expenses were $1,088,346 and income from operations was
$50,035.
|
· |
For
the quarter ended September 30, 2007, salaries and related taxes
increased
by $187,532 to $451,076 from $263,544 for the quarter ended September
30,
2006 due to the hiring of some key management personnel and additional
staff to facilitate our continued grown and development of our overall
business plan and marketing strategy.
|
· |
For
the quarter ended September 30, 2007, marketing and advertising expenses
were $227,624, an increase of $119,236 as compared to $108,388 for
the
quarter ended September 30, 2006. As a percentage of sales, the increase
was only 2.6% from 13.3% of sales for the quarter ended September
30, 2006
to 15.8% of sales for the quarter ended September 30, 2007. This
increase
is attributable to an increase in our marketing efforts as we roll
out
product and implement our business plan. The primary marketing
expenditures continue to be in web advertising and search engine
optimization. We expect our marketing and advertising expenses to
increase
as our revenues increase and expect to spend increased funds on adverting
and promotion of our products as well as sales training. We also
spent
approximately $51,000 on television advertising for the invisibleSHIELD
product line.
|
· |
For
the quarter ended September 30, 2007, other selling, general and
administrative expenses were $383,851 as compared to $186,631 for
the
quarter ended September 30, 2006, an increase of $197,220. The
increase
was attributable to the increase in operations as we continue to
implement
our business plan and is summarized
below:
|
Three
Months Ended September
30, 2007
|
Three
Months Ended September
30, 2006
|
||||||
Contract
labor
|
$
|
80,421
|
$
|
33,159
|
|||
Rent
|
59,547
|
9,211
|
|||||
Investor
relations
|
48,185
|
--
|
|||||
Credit
Card and bank fees
|
37,434
|
12,591
|
|||||
Travel
and entertainment
|
29,518
|
27,297
|
|||||
Insurance
|
24,327
|
14,380
|
|||||
Depreciation
and amortization
|
21,455
|
15,344
|
|||||
Telephone
and utilities
|
20,586
|
13,919
|
|||||
Office
supplies
|
17,636
|
7,699
|
|||||
Printing
expenses
|
12,068
|
6,566
|
|||||
Other
|
32,674
|
46,465
|
|||||
Total
|
$
|
383,851
|
$
|
186,631
|
· |
For
the nine months ended September 30, 2007, we recognized $800,000
in
expense related to the issuance of restricted stock to employees
and key
consultants of the Company. Exclusive of this non-cash charge, total
operating expenses were $2,589,362 and the loss from operations was
($244,506).
|
· |
For
the nine months ended September 30, 2007, salaries and related taxes
increased by $435,624 to $1,105,519 from $669,895 for the nine months
ended September 30, 2006 due to the hiring of key management personnel
and
additional staff to facilitate our continued grown and development
of our
overall business plan and marketing
strategy.
|
· |
For
the nine months ended September 30, 2007, consulting expense was
$38,500,
a decrease of $35,250 from the expense recognized for the nine months
ended September 30, 2006 of $73,750. The decrease is primarily due
to
approximately $63,000 that was paid to a consultant who then became
our
president in 2006, partially offset by expenses incurred related
to the
hiring of key personnel during the nine months ended September 30,
2007 of
$24,000 and payments to a consulting firm for website optimization
of
$10,000.
|
· |
For
the nine months ended September 30, 2007, legal and accounting expenses
were $248,240, an increase of $213,303 as compared to $34,937 for
the nine
months ended September 30, 2006. The overall increase is attributable
to
the reverse merger that we effectuated in February
2007.
|
· |
For
the nine months ended September 30, 2007, marketing and advertising
expenses were $467,410, an increase of $197,721 as compared to $269,689
for the nine months ended September 30, 2006. This increase is
attributable to an increase in our marketing efforts as we roll out
product and implement our business plan. The primary marketing
expenditures continue to be in web advertising and search engine
optimization. We also spent approximately $79,000 on television
advertising and $19,000 for the nine months ended September 30, 2007
to
redesign our consumer packaging. We expect our marketing and advertising
expenses to increase as our revenues increase and expect to spend
increased funds on adverting and promotion of our products as well
as
sales training.
|
· |
For
the nine months ended September 30, 2007, other selling, general
and
administrative expenses were $729,963 as compared to $377,894 for
the nine
months ended September 30, 2006. The increase was attributable to
the
increase in operations as we implement our business plan and is summarized
below:
|
Nine
Months Ended September
30, 2007
|
Nine
Months Ended September
30, 2006
|
||||||
Contract
labor
|
$
|
120,650
|
$
|
40,960
|
|||
Rent
|
114,538
|
32,053
|
|||||
Credit
Card and bank fees
|
73,447
|
36,034
|
|||||
Travel
and entertainment
|
68,565
|
42,459
|
|||||
Depreciation
and amortization
|
58,430
|
17,094
|
|||||
Investor
relations
|
52,584
|
--
|
|||||
Insurance
|
52,536
|
24,673
|
|||||
Telephone
and utilities
|
44,893
|
30,011
|
|||||
Office
supplies
|
41,776
|
33,183
|
|||||
Printing
expenses
|
31,719
|
24,091
|
|||||
Other
|
70,555
|
97,336
|
|||||
Total
|
$
|
729,963
|
$
|
377,894
|
1. |
The
right to participate in any subsequent financing of the Company in
the
next twelve months;
|
2. |
Except
for certain exempt issuances, restrictions on the Company’s ability to
offer securities in the next 90 days and beyond in certain circumstances;
|
3. |
For
as long as any Purchaser holds Company securities, restrictions on
the
Company’s ability to issue securities that are convertible into common
stock at some future or variable price;
|
4. |
For
twelve months, restrictions on the Company’s ability to undertake a
reverse or forward stock split of its common stock;
|
5. |
For
two years and except for certain exempt issuances, the right to certain
anti-dilution provisions;
|
6. |
The
right to rescind in the event the Company fails to meet certain deadlines.
|
1. |
File
with the Securities and Exchange Commission (the “Commission”) a
pre-effective amendment within ten trading days after the receipt
of
comments from the Commission;
|
2. |
File
with the Commission a request for acceleration with five trading
days of
the date the Commission notifies the Company orally or in writing
that the
registration statement will not be reviewed or subject to further
review;
|
3. |
Fail
to notify the Purchasers within one trading day of when the Company
requests effectiveness of the registration statement;
|
4. |
Fail
to file a final prospectus within one trading day after effectiveness;
|
5. |
Fail
to maintain an effective registration statement for more than ten
consecutive calendar days or more than an aggregate of fifteen calendar
days in a twelve month period; and
|
6. |
Fail
to register all of the common stock and the shares of common stock
underlying the warrants pursuant to one or more registration statements
on
or before December 28, 2007.
|
a.
|
Exhibits:
The following Exhibits are filed with this Form 10-QSB pursuant to
Item
601(a) of Regulation S-K:
|
Exhibit
No.
|
Description of Exhibit | |
10.1
|
ZAGG
Incorporated 2007 Stock Incentive Plan
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S. C. Section 1350,
as adopted
pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S. C. Section 1350,
as adopted
pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
|
ZAGG INCORPORATED | ||
|
|
|
Date: November 14, 2007 | By: | /s/ ROBERT G. PEDERSEN II |
Robert G. Pedersen II, |
||
President and Chief Executive Officer |
|
|
|
Date: November 14, 2007 | By: | /s/ BRANDON T. O’BRIEN |
Brandon T. O’Brien, |
||
Chief Financial Officer | ||
(Principal Financial Officer) |