x
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the quarterly period ended June 30, 2008,
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.
|
Financial
Statements (Unaudited)
|
|
|
||||
|
|
||||||
Condensed
Balance Sheets - As of June 30, 2008 and December 31, 2007
|
3
|
||||||
|
|
||||||
Condensed
Statements of Operations for the Three and Six Months Ended June
30, 2008
and 2007
|
4
|
||||||
|
|
||||||
Condensed
Statements of Cash Flows for the Six Months Ended June 30, 2008
and
2007
|
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.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
19
|
|||||
|
|
||||||
Item
4T.
|
Controls
and Procedures
|
19
|
|||||
|
|||||||
PART
II - OTHER INFORMATION
|
|||||||
Item
1.
|
Legal
Proceedings
|
20
|
|||||
|
|
||||||
Item
1A.
|
Risk
Factors
|
20
|
|||||
|
|
||||||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
|||||
|
|
||||||
Item
3.
|
Defaults
Upon Senior Securities
|
21
|
|||||
|
|
||||||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
21
|
|||||
|
|
||||||
Item
5.
|
Other
Information
|
21
|
|||||
|
|||||||
Item
6.
|
Exhibits
|
21
|
June
30,
|
December
31,
|
||||||
2008
|
|
2007
|
|||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
|
$
|
475,940
|
$
|
2,129,215
|
|||
Accounts
receivable, net
|
821,161
|
402,446
|
|||||
Inventories
|
680,509
|
447,044
|
|||||
Prepaid
advertising
|
244,482
|
204,976
|
|||||
Prepaid
expenses and other current assets
|
892,121
|
122,107
|
|||||
Deferred
income tax assets
|
12,829
|
12,829
|
|||||
Total
current assets
|
3,127,042
|
3,318,617
|
|||||
Property
and equipment, net
|
447,253
|
328,077
|
|||||
Deferred
income tax assets
|
407,188
|
444,118
|
|||||
Deposits
and other assets
|
30,537
|
30,547
|
|||||
Intangible
assets, net
|
46,535
|
46,894
|
|||||
Total
assets
|
$
|
4,058,555
|
$
|
4,168,253
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities
|
|||||||
Notes
payable
|
$
|
29,655
|
$
|
42,090
|
|||
Accounts
payable
|
236,693
|
505,575
|
|||||
Accrued
liabilities
|
41,997
|
35,814
|
|||||
Accrued
wages and wage related expenses
|
101,283
|
95,537
|
|||||
Deferred
licensing revenue
|
71,703
|
100,911
|
|||||
Sales
returns liability
|
66,658
|
23,861
|
|||||
Total
current liabilities
|
547,989
|
803,788
|
|||||
Total
liabilities
|
547,989
|
803,788
|
|||||
Stockholders'
equity
|
|||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized;
|
|||||||
18,893,995
and 18,853,995 shares issued and outstanding, respectively
|
18,895
|
18,855
|
|||||
Warrants
to purchase common stock
|
750,476
|
750,476
|
|||||
Additional
paid-in capital
|
3,422,169
|
3,341,388
|
|||||
Cumulative
translation adjustment
|
882
|
(3,866
|
)
|
||||
Accumulated
deficit
|
(681,856
|
)
|
(742,388
|
)
|
|||
Total
stockholders' equity
|
3,510,566
|
3,364,465
|
|||||
Total
liabilities and stockholders' equity
|
$
|
4,058,555
|
$
|
4,168,253
|
Three
Months Ended
|
Three
Months Ended
|
Six
Months Ended
|
|
Six
Months Ended
|
|||||||||
June
30, 2008
|
June
30, 2007
|
June
30, 2008
|
June
30, 2007
|
||||||||||
Net
sales
|
$
|
2,739,176
|
$
|
804,458
|
$
|
5,584,597
|
$
|
1,597,306
|
|||||
Cost
of sales
|
712,214
|
203,672
|
1,490,006
|
390,831
|
|||||||||
Gross
profit
|
2,026,962
|
600,786
|
4,094,591
|
1,206,475
|
|||||||||
Operating
expenses:
|
|||||||||||||
Advertising
and marketing
|
484,728
|
79,188
|
1,274,792
|
254,231
|
|||||||||
Selling,
general and administrative
|
1,343,778
|
554,037
|
2,849,199
|
1,246,785
|
|||||||||
Total
operating expenses
|
1,828,506
|
633,225
|
4,123,991
|
1,501,016
|
|||||||||
Income
(loss) from operations
|
198,456
|
(32,439
|
)
|
(29,400
|
)
|
(294,541
|
)
|
||||||
Other
income (expense):
|
|||||||||||||
Interest
expense
|
(972
|
)
|
(20,231
|
)
|
(2,674
|
)
|
(26,099
|
)
|
|||||
Interest
and other income
|
81,149
|
3,969
|
129,536
|
4,085
|
|||||||||
Total
other income (expense)
|
80,177
|
(16,262
|
)
|
126,862
|
(22,014
|
)
|
|||||||
Income
(loss) before benefit (provision) for income
taxes
|
278,633
|
(48,701
|
)
|
97,462
|
(316,555
|
)
|
|||||||
Income
tax benefit (provision)
|
(103,930
|
)
|
408
|
(36,930
|
)
|
(2,310
|
)
|
||||||
Net
income (loss)
|
$
|
174,703
|
$
|
(48,293
|
)
|
$
|
60,532
|
$
|
(318,865
|
)
|
|||
Basic
net income (loss) per common share
|
$
|
0.01
|
$
|
(0.00
|
)
|
$
|
0.00
|
$
|
(0.02
|
)
|
|||
Diluted
net income (loss) per common share
|
$
|
0.01
|
$
|
(0.00
|
)
|
$
|
0.00
|
$
|
(0.02
|
)
|
|||
Weighted
average number of shares outstanding - basic
|
18,884,105
|
15,168,995
|
18,884,050
|
14,596,739
|
|||||||||
Weighted
average number of shares outstanding - diluted
|
18,936,055
|
15,168,995
|
18,976,547
|
14,596,739
|
For
the Six Months Ended
|
|||||||
June
30, 2008
|
June
30, 2007
|
||||||
Cash
flows from operating activities
|
|||||||
Net
income (loss)
|
$
|
60,532
|
$
|
(318,865
|
)
|
||
Adjustments
to reconcile net income (loss) to net cash
|
|||||||
provided
by (used in) operating activities:
|
|||||||
Non-cash
expense related to stock compensation
|
80,821
|
-
|
|||||
Depreciation
and amortization
|
69,961
|
36,976
|
|||||
Deferred
income tax (benefit) expense
|
36,930
|
2,946
|
|||||
Bad
debt expense
|
19,170
|
-
|
|||||
(Gains)
losses on asset disposals
|
(12,215
|
)
|
-
|
||||
Currency
exchange gain
|
4,748
|
-
|
|||||
Changes
in assets and liabilities
|
|||||||
Accounts
receivable
|
(437,885
|
)
|
56,722
|
||||
Inventories
|
(233,465
|
)
|
(50,400
|
)
|
|||
Due
from employees
|
-
|
3,714
|
|||||
Prepaid
advertising
|
(39,506
|
)
|
(124,076
|
)
|
|||
Prepaid
expenses and other current assets
|
(307,799
|
)
|
(101,087
|
)
|
|||
Other
assets
|
10
|
(25,000
|
)
|
||||
Accounts
payable
|
(268,882
|
)
|
(24,947
|
)
|
|||
Accrued
liabilities
|
6,183
|
(8,716
|
)
|
||||
Accrued
wages and wage related expenses
|
5,746
|
(53,456
|
)
|
||||
Deferred
licensing revenues
|
(29,208
|
)
|
12,499
|
||||
Sales
return liability
|
42,797
|
(16,517
|
)
|
||||
Net
cash used in operating activities
|
(1,002,062
|
)
|
(610,207
|
)
|
|||
Cash
flows from investing activities
|
|||||||
Payments
for intangible assets
|
(1,800
|
)
|
(47,714
|
)
|
|||
Short-term
loans
|
(450,000
|
)
|
-
|
||||
Proceeds
from disposal of equipment
|
2,994
|
-
|
|||||
Purchase
of property and equipment
|
(189,972
|
)
|
(42,131
|
)
|
|||
Net
cash used in investing activities
|
(638,778
|
)
|
(89,845
|
)
|
|||
Cash
flows from financing activities
|
|||||||
Payments
on debt
|
(12,435
|
)
|
-
|
||||
Proceeds
from advance on financing transaction
|
-
|
800,000
|
|||||
Proceeds
from notes payable
|
-
|
200,000
|
|||||
Proceeds
from issuance of common stock and warrants
|
-
|
275,050
|
|||||
Payments
on convertible note payable - officer
|
-
|
(50,000
|
)
|
||||
Net
cash (used in) provided by financing activities
|
(12,435
|
)
|
1,225,050
|
||||
Net
decrease in cash and cash equivalents
|
(1,653,275
|
)
|
524,998
|
||||
Cash
and cash equivalents at beginning of the period
|
2,129,215
|
468,382
|
|||||
Cash
and cash equivalents at end of the period
|
$
|
475,940
|
$
|
993,380
|
|||
Supplemental
disclosure of cash flow information
|
|||||||
Cash
paid during the period for interest
|
$
|
2,674
|
$
|
12,605
|
Net
Income
(Loss)
|
Weighted
Average
Shares
|
Per Share
Amount
|
||||||||
Three
months ended June 30, 2008:
|
|
|
|
|||||||
Basic
EPS
|
$
|
174,703
|
18,884,105
|
$
|
0.01
|
|||||
Effect
of common stock equivalents
|
—
|
51,949
|
||||||||
Diluted
EPS
|
$
|
(174,703
|
)
|
18,936,055
|
$
|
0.01
|
||||
Three
months ended June 30, 2007:
|
||||||||||
Basic
EPS
|
$
|
(114,171
|
)
|
18,863,885
|
$
|
(0.01
|
)
|
|||
Effect
of common stock equivalents
|
—
|
—
|
||||||||
Diluted
EPS
|
$
|
(114,171
|
)
|
18,863,885
|
$
|
(0.01
|
)
|
Net
Income
(Loss)
|
Weighted
Average
Shares
|
Per Share
Amount
|
||||||||
Six
months ended June 30, 2008:
|
|
|
|
|||||||
Basic
EPS
|
$
|
60,532
|
18,884,050
|
$
|
0.00
|
|||||
Effect
of common stock equivalents
|
—
|
58,836
|
||||||||
Diluted
EPS
|
$
|
60,532
|
18,976,547
|
$
|
0.00
|
|||||
Six
months ended June 30, 2007:
|
||||||||||
Basic
EPS
|
$
|
(318,865
|
)
|
14,596,739
|
$
|
(0.02
|
)
|
|||
Effect
of common stock equivalents
|
—
|
—
|
||||||||
Diluted
EPS
|
$
|
(318,865
|
)
|
14,596,739
|
$
|
(0.02
|
)
|
June
30, 2008
|
December
31, 2007
|
||||||
Accounts
receivable
|
$
|
907,327
|
$
|
436,839
|
|||
Less:
Allowance for doubtful accounts
|
(86,166
|
)
|
(34,393
|
)
|
|||
Accounts
receivable, net
|
$
|
821,161
|
$
|
402,446
|
June
30, 2008
|
December
31, 2007
|
||||||
Finished
goods
|
$
|
376,971
|
$
|
230,937
|
|||
Raw
materials
|
303,538
|
216,107
|
|||||
$
|
680,509
|
$
|
447,044
|
Useful
Lives
|
June
30, 2008
|
December
31, 2007
|
||||||||
Computer
equipment and software
|
3
to 5 years
|
$
|
214,355
|
$
|
155,603
|
|||||
Office
equipment
|
3
to7 years
|
222,048
|
144,343
|
|||||||
Furniture
and fixtures
|
7
years
|
32,622
|
15,209
|
|||||||
Automobiles
|
5
years
|
68,995
|
47,063
|
|||||||
Leasehold
improvements
|
1
to 3.13 years
|
102,346
|
91,637
|
|||||||
640,366
|
453,855
|
|||||||||
Less:
accumulated depreciation
|
(193,113
|
)
|
(125,778
|
)
|
||||||
$
|
447,253
|
$
|
328,077
|
Useful
Life
|
June
30, 2008
|
December
31, 2007
|
||||||||
Internet
addresses
|
10
years
|
$
|
44,969
|
$
|
43,169
|
|||||
Less:
accumulated amortization
|
(6,369
|
)
|
(4,210
|
)
|
||||||
$
|
38,600
|
$
|
38,959
|
· |
For
the quarter ended June 30, 2008, salaries and related taxes increased
by
$310,036 to $656,071 from $346,035 for the quarter ended June 30,
2008.
The increase is due to the increase in our staff as we continue to
build
the people infrastructure to meet the demand for our product and
non-cash
expense related to equity based compensation of $59,913.
|
· |
For
the quarter ended June 30, 2008, marketing, advertising and promotion
expenses were $484,728, an increase of $405,540 as compared to $79,188
for
the quarter ended June 30, 2007. We continue to invest heavily in
the
development of the invisibleSHIELD brand through internet key word
advertising and through traditional print media and radio advertising.
We
expect our marketing and advertising expenses to continue to be a
significant expenditure as our revenues increase and expect to spend
increased funds on adverting and promotion of our products as well
as
sales training. During fiscal 2008, we intend to continue to expand
our
marketing efforts related to our
products.
|
· |
For
the quarter ended June 30, 2008, other selling, general and administrative
expenses, net of salaries and related taxes described above, were
$687,707
as compared to $208,002 for the quarter ended June 30, 2007. The
increase
was attributable to the increase in operations as we implement our
business plan and is summarized
below:
|
Three
Months Ended June
30, 2008
|
Three
Months Ended June
30, 2007
|
||||||
Professional
fees
|
$
|
21,079
|
$
|
14,669
|
|||
Contract
labor
|
61,202
|
19,372
|
|||||
Insurance
|
62,300
|
15,188
|
|||||
Depreciation
and amortization
|
37,181
|
19,010
|
|||||
Rent
|
99,241
|
33,871
|
|||||
Travel
and entertainment
|
35,994
|
26,689
|
|||||
Telephone
and utilities
|
28,461
|
10,468
|
|||||
Printing
expenses
|
7,112
|
9,952
|
|||||
Office
supplies
|
14,075
|
10,122
|
|||||
Credit
card and bank fees
|
72,401
|
20,123
|
|||||
Investor
relations
|
95,605
|
--
|
|||||
Commissions
|
40,239
|
2,866
|
|||||
Consulting
|
31,000
|
2,000
|
|||||
Other
|
81,817
|
23,630
|
|||||
Total
|
$
|
687,707
|
$
|
207,960
|
· |
For
the six months ended June 30, 2008, salaries and related taxes increased
by $715,677 to $1,370,120 from $654,443 for the six months ended
June 30,
2007. The increase is due to the increase in our management and production
staff as we continue to build the people infrastructure to meet the
demand
for our product, the payment of a discretionary bonus of $155,000
during
the first quarter to our employees and non-cash expense related to
equity
based compensation of $80,821.
|
· |
For
the six months ended June 30, 2008, marketing, advertising and
promotion
expenses were $1,274,792, an increase of $1,020,561 as compared
to
$254,231 for the six months ended June 30, 2007. We continue to
invest
heavily in the development of the invisibleSHIELD brand through
internet
key word advertising and through traditional print media and radio
advertising. During the six months ended June 30, 2008, we have
also
printed coupons and handed them out at various trade shows wherein
customers logged onto our website through a specific link and were
able to
redeem the coupon. These coupons ran for specific time frames with
expiration dates and the redemption of the coupons of $405,268
was
recognized as marketing and advertising expense. We expect our
marketing
and advertising expenses to continue to be a significant expenditure
as
our revenues increase and expect to spend increased funds on adverting
and
promotion of our products as well as sales training. During fiscal
2008,
we intend to continue to expand our marketing efforts related to
our
products.
|
· |
For
the quarter ended June 30, 2008, other selling, general and administrative
expenses net of salaries and related taxes described above, were
$1,479,079 as compared to $592,342 for the six months ended June
30, 2007.
The increase was attributable to the increase in operations as
we
implement our business plan and is summarized
below:
|
Six
Months Ended June
30, 2008
|
Six
Months Ended June
30, 2007
|
||||||
Professional
fees
|
$
|
70,612
|
$
|
222,445
|
|||
Contract
labor
|
296,637
|
40,230
|
|||||
Insurance
|
114,182
|
28,162
|
|||||
Depreciation
and amortization
|
69,345
|
36,975
|
|||||
Rent
|
180,546
|
54,992
|
|||||
Travel
and entertainment
|
92,901
|
39,048
|
|||||
Telephone
and utilities
|
62,076
|
23,267
|
|||||
Printing
expenses
|
19,312
|
19,651
|
|||||
Office
supplies
|
34,486
|
24,140
|
|||||
Credit
card and bank fees
|
154,129
|
36,013
|
|||||
Investor
relations
|
132,187
|
--
|
|||||
Commissions
|
46,587
|
2,866
|
|||||
Consulting
|
41,500
|
2,000
|
|||||
Other
|
164,579
|
62,553
|
|||||
Total
|
$
|
1,479,079
|
$
|
592,342
|
Director
|
Votes
Cast For
|
Votes
Cast Against
|
Abstentions
|
Robert
G. Pedersen II
|
7,926,364
|
33,160
|
548
|
Larry
Harmer
|
7,954,814
|
4,710
|
548
|
Votes
Cast For
|
Votes
Cast Against
|
Abstentions
|
7,954,814
|
43,953
|
500
|
Votes
Cast For
|
Votes
Cast Against
|
Abstentions
|
7,928,756
|
27,500
|
3,816
|
a.
|
Exhibits:
The following Exhibits are filed with this Form 10-Q pursuant to
Item
601(a) of Regulation S-K:
|
Exhibit
No.
|
Description of Exhibit | |
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: August 14, 2008 | /s/ ROBERT G. PEDERSEN II | |
Robert G. Pedersen II, |
||
President and Chief Executive Officer |
Date: August 14, 2008 | /s/ BRANDON T. O’BRIEN | |
Brandon T. O’Brien, |
||
Chief
Financial Officer
(Principal
financial officer)
|