x
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the quarterly period ended March 31, 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.)
|
PART
I - FINANCIAL
INFORMATION
|
||||
Page
|
||||
Item
1.
|
Financial
Statements (Unaudited)
|
|||
Condensed
Consolidated Balance Sheets - As of March 31, 2008, and December
31,
2007
|
3
|
|||
Condensed
Consolidated Statements of Operations for the
|
||||
Three
Months Ended March 31, 2008 and 2007
|
4
|
|||
Condensed
Consolidated Statements of Cash Flows for the Three Months Ended
|
||||
March
31, 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
|
17
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||
Item
4T.
|
Controls
and Procedures
|
17
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PART
II - OTHER
INFORMATION
|
||||
Item
1.
|
Legal
Proceedings
|
18
|
||
Item
1A.
|
Risk
Factors
|
18
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
18
|
||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
18
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||
Item
5.
|
Other
Information
|
18
|
||
Item
6.
|
Exhibits
|
19
|
March
31,
|
December
31,
|
||||||
2008
|
2007
|
||||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
|
$
|
1,227,255
|
$
|
2,129,215
|
|||
Accounts
receivable, net
|
335,251
|
402,446
|
|||||
Inventories
|
684,732
|
447,044
|
|||||
Prepaid
advertising
|
251,808
|
204,976
|
|||||
Prepaid
expenses and other current assets
|
689,281
|
122,107
|
|||||
Deferred
income tax assets
|
12,829
|
12,829
|
|||||
Total
current assets
|
3,201,156
|
3,318,617
|
|||||
Property
and equipment, net
|
394,650
|
328,077
|
|||||
Deferred
income tax assets
|
511,118
|
444,118
|
|||||
Deposits
and other assets
|
30,536
|
30,547
|
|||||
Intangible
assets, net
|
45,815
|
46,894
|
|||||
Total
assets
|
$
|
4,183,275
|
$
|
4,168,253
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities
|
|||||||
Notes
payable
|
$
|
35,093
|
$
|
42,090
|
|||
Accounts
payable
|
600,368
|
505,575
|
|||||
Accrued
liabilities
|
51,717
|
35,814
|
|||||
Accrued
wages and wage related expenses
|
96,409
|
95,537
|
|||||
Deferred
licensing revenue
|
91,453
|
100,911
|
|||||
Sales
returns liability
|
36,583
|
23,861
|
|||||
Total
current liabilities
|
911,623
|
803,788
|
|||||
Total
liabilities
|
911,623
|
803,788
|
|||||
Stockholders'
equity
|
|||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized;
|
|||||||
18,873,995
and 18,853,995 shares issued and outstanding, respectively
|
18,875
|
18,855
|
|||||
Warrants
to purchase common stock
|
750,476
|
750,476
|
|||||
Additional
paid-in capital
|
3,362,276
|
3,341,388
|
|||||
Cumulative
translation adjustment
|
(3,416
|
)
|
(3,866
|
)
|
|||
Accumulated
deficit
|
(856,559
|
)
|
(742,388
|
)
|
|||
Total
stockholders' equity
|
3,271,652
|
3,364,465
|
|||||
Total
liabilities and stockholders' equity
|
$
|
4,183,275
|
$
|
4,168,253
|
Three
Months Ended March 31,
|
|||||||
2008
|
2007
|
||||||
Net
sales
|
$
|
2,845,362
|
$
|
792,849
|
|||
Cost
of sales
|
777,742
|
187,159
|
|||||
Gross
profit
|
2,067,620
|
605,690
|
|||||
Operating
expenses:
|
|||||||
Advertising
and marketing
|
790,022
|
161,135
|
|||||
Selling,
general and administrative
|
1,504,843
|
706,656
|
|||||
Total
operating expenses
|
2,294,865
|
867,791
|
|||||
Loss
from operations
|
(227,245
|
)
|
(262,101
|
)
|
|||
Other
income:
|
|||||||
Interest
expense
|
(1,702
|
)
|
(5,868
|
)
|
|||
Interest
and other income
|
47,776
|
115
|
|||||
Total
other income
|
46,074
|
(5,753
|
)
|
||||
Loss
before benefit for income taxes
|
(181,171
|
)
|
(267,854
|
)
|
|||
Income
tax benefit
|
67,000
|
(2,718
|
)
|
||||
Net
loss
|
(114,171
|
)
|
(270,572
|
)
|
|||
Basic
and diluted net loss per common share
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|
Weighted
average number of shares outstanding - basic and
diluted
|
18,863,885
|
12,695,638
|
For
the Three Months Ended
|
|||||||
March
31, 2008
|
March
31, 2007
|
||||||
Cash
flows from operating activities
|
|||||||
Net
loss
|
$
|
(114,171
|
)
|
$
|
(270,572
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Non-cash
expense related to stock compensation
|
20,908
|
-
|
|||||
Depreciation
and amortization
|
32,164
|
17,965
|
|||||
Deferred
income tax (benefit) expense
|
(67,000
|
)
|
2,948
|
||||
Currency
exchange gain
|
450
|
-
|
|||||
Changes
in assets and liabilities
|
|||||||
Accounts
receivable
|
67,195
|
56,119
|
|||||
Inventories
|
(237,688
|
)
|
(12,601
|
)
|
|||
Due
from employees
|
-
|
(556
|
)
|
||||
Prepaid
advertising
|
(46,832
|
)
|
-
|
||||
Prepaid
expenses and other current assets
|
(117,174
|
)
|
17,715
|
||||
Other
assets
|
11
|
(25,000
|
)
|
||||
Accounts
payable
|
94,793
|
(76,609
|
)
|
||||
Accrued
liabilities
|
15,903
|
(21,124
|
)
|
||||
Accrued
wages and wage related expenses
|
872
|
(61,144
|
)
|
||||
Deferred
licensing revenues
|
(9,458
|
)
|
(8,333
|
)
|
|||
Sales
return liability
|
12,722
|
(7,162
|
)
|
||||
Net
cash used in operating activities
|
(347,305
|
)
|
(388,354
|
)
|
|||
Cash
flows from investing activities
|
|||||||
Payments
for intangible assets
|
-
|
(47,714
|
)
|
||||
Short-term
loans
|
(450,000
|
)
|
|||||
Purchase
of property and equipment
|
(97,658
|
)
|
(16,267
|
)
|
|||
Net
cash used in investing activities
|
(547,658
|
)
|
(63,981
|
)
|
|||
Cash
flows from financing activities
|
|||||||
Payments
on debt
|
(6,997
|
)
|
-
|
||||
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
|
(6,997
|
)
|
225,050
|
||||
Net
decrease in cash and cash equivalents
|
(901,960
|
)
|
(227,285
|
)
|
|||
Cash
and cash equivalents at beginning of the period
|
2,129,215
|
468,382
|
|||||
Cash
and cash equivalents at end of the period
|
$
|
1,227,255
|
$
|
241,097
|
|||
Supplemental
disclosure of cash flow information
|
|||||||
Cash
paid during the period for interest
|
$
|
1,702
|
$
|
7,288
|
|
Net
Loss
|
Weighted
Average
Shares
|
Per Share
Amount
|
|||||||
Three
months ended March 31, 2008:
|
|
|
|
|||||||
Basic
EPS
|
$
|
(114,171
|
)
|
18,863,885
|
$
|
(0.01
|
)
|
|||
Effect
of common stock equivalents
|
—
|
—
|
||||||||
Diluted
EPS
|
$
|
(114,171
|
)
|
18,863,885
|
$
|
(0.01
|
)
|
|||
Three
months ended March 31, 2007:
|
|
|
|
|||||||
Basic
EPS
|
$
|
(270,572
|
)
|
12,695,638
|
$
|
(0.02
|
)
|
|||
Effect
of common stock equivalents
|
—
|
—
|
||||||||
Diluted
EPS
|
$
|
(270,572
|
)
|
12,695,638
|
$
|
(0.02
|
)
|
March
31, 2008
|
December
31, 2007
|
||||||
Accounts
receivable
|
$
|
369,644
|
$
|
436,839
|
|||
Less:
Allowance for doubtful accounts
|
(34,393
|
)
|
(34,393
|
)
|
|||
Accounts
receivable, net
|
$
|
335,251
|
$
|
402,446
|
March
31, 2008
|
December
31, 2007
|
||||||
Finished
goods
|
$
|
374,615
|
$
|
230,937
|
|||
Raw
materials
|
310,117
|
216,107
|
|||||
$
|
684,732
|
$
|
447,044
|
Useful
Lives
|
March
31, 2008
|
December
31, 2007
|
||||||||
Computer
equipment and software
|
3
to 5 years
|
$
|
197,266
|
$
|
155,603
|
|||||
Office
equipment
|
3
to7 years
|
193,854
|
144,343
|
|||||||
Furniture
and fixtures
|
7
years
|
21,693
|
15,209
|
|||||||
Automobiles
|
5
years
|
47,063
|
47,063
|
|||||||
Leasehold
improvements
|
1
to 3.13 years
|
91,637
|
91,637
|
|||||||
551,513
|
453,855
|
|||||||||
Less:
accumulated depreciation
|
(156,863
|
)
|
(125,778
|
)
|
||||||
$
|
394,650
|
$
|
328,077
|
Useful
Life
|
March
31, 2008
|
December
31, 2007
|
||||||||
Internet
addresses
|
10
years
|
$
|
43,169
|
$
|
43,169
|
|||||
Less:
accumulated amortization
|
(5,289
|
)
|
(4,210
|
)
|
||||||
$
|
37,880
|
$
|
38,959
|
· |
For
the quarter ended March 31, 2008, salaries and related taxes increased
by
$405,760 to $714,168 from $308,408 for the quarter ended March 31,
2007.
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
the
payment of a discretionary bonus of $155,000 during the quarter to
our
employees.
|
· |
For
the quarter ended March 31, 2008, marketing, advertising and promotion
expenses were $790,022, an increase of $628,887 as compared to $161,135
for the quarter ended March 31, 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 quarter, we 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. The coupon ran from mid-January
to the end of March and the redemption of the coupons of $316,068
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 March 31, 2008, other selling, general and
administrative expenses were $790,656 as compared to $398,248 for
the
quarter ended March 31, 2007. The increase was attributable to the
increase in operations as we implement our business plan and is summarized
below:
|
Three
Months Ended March
31, 2008
|
Three
Months Ended March
31, 2007
|
||||||
Professional
fees
|
$
|
49,693
|
$
|
210,192
|
|||
Contract
labor
|
235,436
|
20,498
|
|||||
Insurance
|
51,883
|
12,975
|
|||||
Depreciation
|
32,163
|
17,965
|
|||||
Rent
|
83,607
|
21,120
|
|||||
Travel
and entertainment
|
44,837
|
16,152
|
|||||
Telephone
and utilities
|
33,616
|
12,847
|
|||||
Printing
expenses
|
12,201
|
9,699
|
|||||
Office
supplies
|
20,411
|
14,018
|
|||||
Credit
card and bank fees
|
81,728
|
15,690
|
|||||
Investor
relations
|
36,582
|
–
|
|||||
Other
|
108,518
|
47,092
|
|||||
Total
|
$
|
790,675
|
$
|
398,248
|
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: May 15, 2008 | /s/ ROBERT G. PEDERSEN II | ||
Robert G. Pedersen II, | |||
President and Chief Executive Officer |
Date: May 15, 2008 | /s/ BRANDON T. O’BRIEN | ||
Brandon T. O’Brien, | |||
Chief Financial Officer | |||
(Principal financial officer) |