x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
NEVADA
|
20-2559624
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
3855
S 500 W, Suite J, Salt Lake City, UT
|
84115
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Page
|
||
PART
I
|
||
ITEM 1.
|
BUSINESS
|
1
|
ITEM 1A.
|
RISK
FACTORS
|
6
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
6
|
ITEM 2.
|
PROPERTIES
|
6
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
7
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
7
|
PART
II
|
||
ITEM 5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND
ISSUER PURCHASES OF EQUITY SECURITIES
|
7
|
ITEM 6.
|
SELECTED FINANCIAL DATA |
9
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
9
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
14
|
ITEM
8.
|
FINANCIAL SATTEMENTS AND SUPPLEMENTARY DATA | 14 |
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
|
15
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
15
|
ITEM 9B.
|
OTHER
INFORMATION
|
16
|
PART
III
|
||
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
16
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
19
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
21
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
22
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
22
|
PART
IV
|
||
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
22
|
SIGNATURES
|
23
|
|
·
|
INVISIBLE
SHIELD, Serial Number 77096911
|
|
·
|
SHIELD
ZONE, Serial Number 77146708
|
|
·
|
SHIELD
DESIGN TRADEMARK, Serial Number
77148206
|
|
·
|
INVISIBLESHEILD
(with stylized logo image), Serial Number
78905019
|
|
·
|
ZAGG,
Serial Number 77146689
|
|
·
|
SHIELD
DESIGN filed on, Serial Number
77148206
|
|
·
|
INVISIBLE
SHIELD, Serial Number 006157465
|
|
·
|
ZAGG,
Serial Number 006328215
|
|
·
|
ZAGG,
Serial Number 301217754 – Hong Kong
|
|
·
|
ZAGG,
Serial Number 83759/2008 – Japan
|
|
·
|
ZAGG,
Serial Number 40-2008-0048050 – South
Korea
|
|
·
|
ZAGG,
Serial Number 967076 - Mexico
|
|
·
|
ZAGG,
Serial Number 1742932 – India
|
ITEM
1A.
|
RISK
FACTORS
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
ITEM
2.
|
PROPERTIES
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
2008
Quarter Ended
|
High
|
Low
|
||
December
31, 2008
|
$1.09
|
$0.60
|
||
September
30, 2008
|
$1.17
|
$0.65
|
||
June
30, 2008
|
$0.82
|
$0.56
|
||
March
31, 2008
|
$0.97
|
$0.59
|
2007
Quarter Ended
|
High
|
Low
|
||
December
31, 2007
|
$0.87
|
$0.56
|
||
September
30, 2007*
|
$2.10
|
$0.56
|
||
*Trading
began on July 25, 2007
|
|
§
|
We
would not be able to pay our debts as they become due in the usual course
of business; or
|
|
§
|
Our
total assets would be less than the sum of our total liabilities, plus the
amount that would be needed to satisfy the rights of shareholders who have
preferential rights superior to those receiving the
distribution.
|
Plan
Category
|
Number
of
securities
to be
issued
upon
exercise
of
outstanding
option,
warrants
and rights
|
Weighted-average
exercise
price
of
outstanding
options,
warrants
and
rights
|
Number
of
securities
remaining
available
for
future
issuances
under
equity
compensation
plans
|
|||
Equity
compensation plans approved by security holders
|
1,635,000
|
$0.65
|
315,000
|
|||
Equity
compensation plans not
approved by security
holders
|
--
|
--
|
--
|
|||
Total
|
1,635,000
|
$0.65
|
315,000
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
|
·
|
For
the year ended December 31, 2008, salaries and related taxes increased by
$469,657 to $2,896,919 from $2,427,262 for the year ended December 31,
2007, which includes $845,000 related to the issuance of restricted stock
to our employees. The overall 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 $215,741,
partially offset by the non-cash expense recognized for the year ended
December 31, 2007 of $845,000 related to the issuance of shares of our
common stock to employees.
|
|
·
|
For
the year ended December 31, 2008, marketing, advertising and promotion
expenses were $3,976,015, an increase of $3,031,300 as compared to
$944,715 for the year ended December 31, 2007. We continue to
invest heavily in the development of the invisibleSHIELD and ZAGG brands
through internet key word advertising, traditional print media and radio
advertising. During the year ended December 31, 2008, we also
printed coupons and handed them out at various trade shows and events
wherein customers logged onto our website through a specific link and were
able to redeem the coupon. These coupons run for specific time
frames with expiration dates and the redemption of the coupons of
$1,569,184 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 advertising and promotion of our
products as well as sales training. During fiscal 2009, we
intend to continue to expand our marketing efforts related to our existing
products and for new product
introductions.
|
|
·
|
For
the year ended December 31, 2008, other selling, general and
administrative expenses, net of salaries and related taxes described
above, were $3,946,002 as compared to $1,660,438 for the year ended
December 31, 2007. The increase was attributable to the
increase in operations as we implement our business plan and is summarized
below:
|
2008
|
2007
|
|||||||
Professional
fees
|
$ | 194,400 | $ | 280,496 | ||||
Contract
labor
|
614,022 | 260,340 | ||||||
Rent
|
437,440 | 193,593 | ||||||
Credit
card and bank fees
|
387,144 | 127,195 | ||||||
Travel
and entertainment
|
197,134 | 102,311 | ||||||
Depreciation
and amortization
|
160,544 | 86,160 | ||||||
Investor
relations
|
442,648 | 71,172 | ||||||
Insurance
|
226,115 | 74,987 | ||||||
Telephone
and utilities
|
133,276 | 58,861 | ||||||
Office
supplies
|
69,466 | 51,960 | ||||||
Printing
expenses
|
88,688 | 40,166 | ||||||
Commissions
|
410,642 | 12,471 | ||||||
Bad
debt
|
155,695 | 14,263 | ||||||
Consulting
|
101,500 | 39,100 | ||||||
Other
|
327,288 | 247,363 | ||||||
Total
|
$ | 3,946,002 | $ | 1,660,438 |
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
|
ITEM
9.
|
CHANGES
IN AND DISAGREEEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
ITEM
9B.
|
OTHER
ITEMS
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
|
Name
|
Age
|
Position
|
||
Robert
G. Pedersen II
|
42
|
Chief
Executive Officer, Chairman
|
||
Larry
Harmer
|
37
|
Director
|
||
Brandon
T. O’Brien
|
38
|
Chief
Financial Officer
|
|
1.
|
Reviewed
and discussed the audited financial statements with management,
and
|
|
2.
|
Reviewed
and discussed the written disclosures and the letter from our independent
auditors on the matters relating to the auditor's
independence.
|
Name
and principal position
|
Number
of late reports
|
Transactions
not timely reported
|
Known
failures to file a required form
|
|||
Robert
G. Pedersen II
Chief
Executive Officer, Chairman
|
--
|
--
|
--
|
|||
Brandon
T. O’Brien
Chief
Financial Officer
|
--
|
2
|
--
|
|||
Larry
Harmer
Director
|
1
|
--
|
--
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
All
Other
Compensation
|
Total
|
||||||||||||||||||
Robert
G. Pedersen II President,
Chief
Executive Officer and Director
|
2008
|
$ | 179,000 | $ | 34,000 | -- | $ | 9,728 | (1) | -- | $ | 228,728 | |||||||||||||
2007
|
$ | 120,000 | $ | 12,000 | $ | 95,000 | (1) | -- | -- | $ | 227,000 | ||||||||||||||
Brandon
T. O’Brien
Chief
Financial Officer
|
2008
|
$ | 120,000 | $ | 16,000 | $ | 64,400 | (1) | $ | 8,107 | (1) | -- | $ | 208,507 | |||||||||||
2007
|
$ | 101,846 | $ | 12,000 | $ | 120,000 | (1) | -- | -- | $ | 233,846 | (2) |
(1)
|
These
amounts reflect the dollar amount recognized for financial statement
reporting purposes for the fiscal years indicated in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share Based
Payments of awards of restricted stock and stock options, as applicable,
granted pursuant to the Company’s long-term incentive
plans. Assumptions and methodologies used in the calculation of
these amounts with respect to the 2008 fiscal year are included in
footnotes to the Company’s audited financial statements for the fiscal
years ended December 31, 2008 and 2007 which were included in the
Company’s Annual Reports on Form 10-K for those
years.
|
(2)
|
Mr.
O’Brien was appointed our Chief Financial Officer on February 12,
2007.
|
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||||||||||||||||||||||
Name
of Executive
|
Number
of
Exercisable
Securities
Underlying
Unexercised
Options
|
Number
of
Unexercisable
Securities
Underlying
Unexercised
Options
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number
of
shares
or
Units
of
Stock
that
Have
Not
Vested
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
|
Equity
Incentive
Plan
Awards:
Number
of
unearned
Shares,
Units
or
Other
Rights That
Have
Not
Vested
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
|||||||||||||||||||||
Robert
G. Pedersen II
|
-- | 60,000 | $ | 0.65 |
3/6/2013
|
60,000 | $ | 55,800 | -- | -- | |||||||||||||||||||
Brandon
T. O’Brien
|
-- | 50,000 | $ | 0.65 |
3/6/2013
|
50,000 | $ | 46,500 | -- | -- |
DIRECTOR
COMPENSATION
|
||||||||||||||||||||||||||||
Name
|
Fees
Earned
or
Paid
in
Cash
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive
Plan
Compensation
|
Non-Qualified
Deferred
Compensation
Earnings
|
All
Other
Compensation
|
Total
|
|||||||||||||||||||||
Larry
Harmer
|
-- | -- | $ | 113,399 | (1) | -- | -- | -- | $ | 113,399 |
|
(1)
|
This
amount reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal year indicated in accordance with SFAS
No. 123R, Share Based Payments of awards of restricted stock and stock
options, as applicable, granted pursuant to the Company’s long-term
incentive plans. Assumptions and methodologies used in the
calculation of these amounts with respect to the 2008 fiscal year are
included in footnotes to the Company’s audited financial statements for
the fiscal year ended December 31, 2008 which were included in the
Company’s Annual Report on Form
10-K.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Title
of
Class
|
Name
and
Address
Of
Beneficial
Owners
(1)
|
Amount
and
Nature
Of
Beneficial
Ownership
|
Percent
Of
Class
(2)
|
|||
Common
Stock
|
Robert
G. Pedersen II
President
and Chief Executive Officer (3)
|
7,402,557
|
36.91%
|
|||
Common
Stock
|
Brandon
T. O’Brien
Chief
Financial Officer (4)
|
497,447
|
2.57%
|
|||
Common
Stock
|
Andrew
C. Park
201
Post Street, 11th Floor
San
Francisco, CA 94108
|
1,587,353
|
8.01%
|
|||
Common
Stock
|
SunCreek,
LLC
2873
Tolcate Lane
Holladay,
Utah 84121
|
5,000,000
|
25.93%
|
|||
Common
Stock
|
Larry
Harmer
Director
(5)
|
333,333
|
1.73%
|
|||
All
officers, directors and director nominees as a group (3
persons)
|
8,233,337
|
40.87%
|
(1)
|
Unless
otherwise noted, the address for each of the named beneficial owners is:
3855 South 500 West, Suite J, Salt Lake City, Utah, 84115. Unless
otherwise indicated, beneficial ownership is determined in accordance with
Rule 13d-3 promulgated under the Exchange Act and generally includes
voting and/or investment power with respect to securities. Shares of
common stock subject to options or warrants that are currently exercisable
or exercisable within sixty days of March 25, 2009, are deemed to be
beneficially owned by the person holding such options or warrants for the
purpose of computing the percentage of ownership set forth in the above
table, unless otherwise indicated.
|
(2)
|
The
calculations of percentage of beneficial ownership are based on 19,283,995
shares of common stock outstanding as of March 25,
2009.
|
(3)
|
Includes
1,595,000 shares of Common Stock held directly by Mr. Pedersen, 5,000
shares of Common Stock held by Mr. Pedersen’s spouse and 5,000,000 shares
of Common Stock held by SunCreek, LLC, an entity wholly owned by Mr.
Pedersen. Mr. Pedersen exercises sole voting and investment
control over the shares held by SunCreek, LLC. Also includes warrants to
purchase 750,000 shares of common stock at $1.30 per share and options to
purchase 20,000 shares of common stock at $0.65 per
share.
|
(4)
|
Includes
406,853 shares of Common Stock held directly by Mr. O’Brien, warrants to
purchase 73,927 shares of common stock at $1.30 per share and options to
purchase 16,667 shares of common stock at $0.65 per
share.
|
(5)
|
Includes
options to purchase 333,333 shares of common stock at $0.60 per
share.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
Exhibit Number
|
Description
|
|
3.1*
|
Articles
of Incorporation of Registrant as filed with the State of
Nevada
|
|
3.2*
|
Bylaws
of Registrant
|
|
14*
|
Code
of Ethics
|
|
21.1
|
List
of subsidiaries
|
|
31.1
|
Section
302 Certification of Principal Executive Officer
|
|
31.2
|
Section
302 Certification of Principal Financial Officer
|
|
32.1
|
Section
906 Certification of Principal Executive Officer
|
|
32.2
|
Section
906 Certification of Principal Financial
Officer
|
ZAGG
INCORPORATED
|
||
Dated: March
30, 2009
|
By:
|
/s/ ROBERT G. PEDERSEN
II
|
Robert
G. Pedersen II
President,
CEO and Chairman
(Principal
Executive Officer)
|
||
Dated: March
30, 2009
|
By:
|
/s/ BRANDON T.
O’BRIEN
|
Brandon
T. O’Brien
Chief
Financial Officer
(Principal
Accounting and Financial Officer)
|
||
Dated: March
30, 2009
|
By:
|
/s/ LARRY
HARMER
|
Larry
Harmer
Director
|
||
CONTENTS
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Financial
Statements:
|
|
Consolidated
Balance Sheets at December 31, 2008 and 2007
|
F-3
|
Consolidated
Statements of Operations for the years ended
December 31, 2008 and
2007
|
F-4
|
Consolidated
Statements of Stockholders’ Equity for the years ended
December 31, 2007 and
2008
|
F-5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-8
|
HANSEN, BARNETT & MAXWELL, P.C.
A
Professional Corporation
CERTIFIED
PUBLIC ACCOUNTANTS
5
Triad Center, Suite 750
Salt
Lake City, UT 84180-1128
Phone:
(801) 532-2200
Fax:
(801) 532-7944
www.hbmcpas.com
|
Registered
with the Public Company
Accounting
Oversight Board
A
Member of the Forum of
Firms
|
ZAGG
INCORPORATED AND SUBSIDIARY
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
December
31,
|
||||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
|
$ | 1,065,652 | $ | 2,129,215 | ||||
Accounts
receivable, net
|
3,593,887 | 402,446 | ||||||
Inventories
|
1,913,297 | 447,044 | ||||||
Prepaid
advertising
|
- | 204,976 | ||||||
Prepaid
expenses and other current assets
|
676,077 | 122,107 | ||||||
Notes
receivable
|
513,000 | - | ||||||
Deferred
income tax assets
|
81,663 | 12,829 | ||||||
Total
current assets
|
7,843,576 | 3,318,617 | ||||||
Property
and equipment, net
|
549,370 | 328,077 | ||||||
Deferred
income tax assets
|
4,937 | 444,118 | ||||||
Deposits
and other assets
|
9,688 | 30,547 | ||||||
Intangible
assets, net
|
47,344 | 46,894 | ||||||
Total
assets
|
$ | 8,454,915 | $ | 4,168,253 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Notes
payable
|
$ | 20,223 | $ | 42,090 | ||||
Accounts
payable
|
1,626,390 | 505,575 | ||||||
Accrued
liabilities
|
212,754 | 35,814 | ||||||
Accrued
wages and wage related expenses
|
121,112 | 95,537 | ||||||
Deferred
revenue
|
366,590 | 100,911 | ||||||
Sales
returns liability
|
291,119 | 23,861 | ||||||
Total
current liabilities
|
2,638,188 | 803,788 | ||||||
Total
liabilities
|
2,638,188 | 803,788 | ||||||
Stockholders'
equity
|
||||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized;
|
||||||||
19,163,995
and 18,853,995 shares issued and outstanding, respectively
|
19,165 | 18,855 | ||||||
Warrants
to purchase common stock
|
739,338 | 750,476 | ||||||
Additional
paid-in capital
|
3,808,280 | 3,341,388 | ||||||
Cumulative
translation adjustment
|
(106,630 | ) | (3,866 | ) | ||||
Retained
earnings (deficit)
|
1,356,574 | (742,388 | ) | |||||
Total
stockholders' equity
|
5,816,727 | 3,364,465 | ||||||
Total
liabilities and stockholders' equity
|
$ | 8,454,915 | $ | 4,168,253 |
ZAGG
INCORPORATED AND SUBSIDIARY
|
||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||
For
the Years Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Net
sales
|
$ | 19,791,603 | $ | 5,135,715 | ||||
Cost
of sales
|
6,593,718 | 1,340,850 | ||||||
Gross
profit
|
13,197,885 | 3,794,865 | ||||||
Operating
expenses:
|
||||||||
Advertising
and marketing
|
3,976,015 | 944,715 | ||||||
Selling,
general and administrative
|
6,842,921 | 4,087,700 | ||||||
Total
operating expenses
|
10,818,936 | 5,032,415 | ||||||
Income
(loss) from operations
|
2,378,949 | (1,237,550 | ) | |||||
Other
income (expense):
|
||||||||
Interest
expense
|
(6,022 | ) | (31,452 | ) | ||||
Interest
and other income
|
227,223 | 60,671 | ||||||
Total
other income (expense)
|
221,201 | 29,219 | ||||||
Income
(loss) before (provision) benefit for income taxes
|
2,600,150 | (1,208,331 | ) | |||||
Income
tax (provision) benefit
|
(501,188 | ) | 448,820 | |||||
Net
income (loss)
|
$ | 2,098,962 | $ | (759,511 | ) | |||
Basic
net income (loss) per common share
|
$ | 0.11 | $ | (0.05 | ) | |||
Diluted
net income (loss) per common share
|
$ | 0.11 | $ | (0.05 | ) | |||
Weighted
average number of shares outstanding - basic
|
18,971,399 | 16,139,177 | ||||||
Weighted
average number of shares outstanding - diluted
|
19,265,229 | 16,139,177 |
ZAGG
INCORPORATED AND SUBSIDIARY
|
||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||
Outstanding
|
Accumulated
|
|||||||||||||||||||||||||||
Additional
|
Warrants
|
Retained
|
Other
|
Total
|
||||||||||||||||||||||||
Common
Stock
|
Paid-in
|
to
Purchase
|
Earnings
|
Comprehensive
|
Stockholders'
|
|||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Common
Stock
|
(Deficit)
|
Loss
|
Equity
|
||||||||||||||||||||||
Balances,
December 31, 2006
|
10,175,000 | $ | 10,175 | $ | 117,075 | $ | - | $ | 17,123 | $ | - | $ | 144,373 | |||||||||||||||
Issuance
of common stock
and
warrants for cash
|
3,610,856 | 3,611 | 2,736,633 | - | - | - | 2,740,244 | |||||||||||||||||||||
Issuance
of common stock
with
reverse merger
|
3,346,000 | 3,346 | (3,346 | ) | - | - | - | - | ||||||||||||||||||||
Issuance
of common stock
in
conversion of debt
|
862,139 | 863 | 299,138 | - | - | - | 300,001 | |||||||||||||||||||||
Issuance
of common stock
to
employees
|
860,000 | 860 | 844,140 | - | - | - | 845,000 | |||||||||||||||||||||
Issuance
of warrants for
settlement
of dispute
|
- | - | (652,252 | ) | 734,981 | - | - | 82,729 | ||||||||||||||||||||
Issuance
of warrants
associated
with short-term
loan
|
- | - | - | 15,495 | - | - | 15,495 | |||||||||||||||||||||
Foreign
currency translation loss
|
- | - | - | - | - | (3,866 | ) | (3,866 | ) | |||||||||||||||||||
Net
loss
|
- | - | - | - | (759,511 | ) | - | (759,511 | ) | |||||||||||||||||||
Balances,
December 31, 2007
|
18,853,995 | 18,855 | 3,341,388 | 750,476 | (742,388 | ) | (3,866 | ) | 3,364,465 | |||||||||||||||||||
Issuance
of common stock
to
employees
and
consultants
|
210,000 | 210 | 178,229 | - | - | - | 178,439 | |||||||||||||||||||||
Issuance
of common stock
for
exercise of warrants
|
100,000 | 100 | 49,900 | (11,138 | ) | - | - | 38,862 | ||||||||||||||||||||
Option
expense
|
- | - | 238,763 | - | - | - | 238,763 | |||||||||||||||||||||
Foreign
currency translation loss
|
- | - | - | - | - | (102,764 | ) | (102,764 | ) | |||||||||||||||||||
Net
income
|
- | - | - | - | 2,098,962 | - | 2,098,962 | |||||||||||||||||||||
Balances,
December 31, 2008
|
19,163,995 | $ | 19,165 | $ | 3,808,280 | $ | 739,338 | $ | 1,356,574 | $ | (106,630 | ) | $ | 5,816,727 | ||||||||||||||
ZAGG
INCORPORATED AND SUBSIDIARY
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
For
the Years Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income (loss)
|
$ | 2,098,962 | $ | (759,511 | ) | |||
Adjustments
to reconcile net income (loss) to net cash
|
||||||||
used
in operating activities:
|
||||||||
Non-cash
expense related to stock-based compensation
|
406,064 | 845,000 | ||||||
Depreciation
and amortization
|
160,269 | 86,160 | ||||||
Deferred
income tax expense (benefit)
|
370,347 | (449,566 | ) | |||||
Expense
related to issuance of warrants
|
- | 82,729 | ||||||
Bad
debt expense
|
155,695 | 14,263 | ||||||
Gain
on asset disposals
|
(12,215 | ) | - | |||||
Foreign
currency translation adjustment
|
(102,764 | ) | (3,866 | ) | ||||
Changes
in assets and liabilities
|
||||||||
Accounts
receivable
|
(3,347,136 | ) | (295,560 | ) | ||||
Inventories
|
(1,466,253 | ) | (344,522 | ) | ||||
Prepaid
advertising
|
204,976 | (204,976 | ) | |||||
Prepaid
expenses and other current assets
|
(541,755 | ) | (1,927 | ) | ||||
Other
assets
|
20,859 | (18,428 | ) | |||||
Accounts
payable
|
1,120,815 | 210,201 | ||||||
Accrued
liabilities
|
176,940 | 17,733 | ||||||
Accrued
wages and wage related expenses
|
25,575 | (26,191 | ) | |||||
Deferred
revenues
|
265,679 | 14,110 | ||||||
Sales
return liability
|
267,258 | (8,139 | ) | |||||
Net
cash used in operating activities
|
(196,684 | ) | (842,490 | ) | ||||
Cash
flows from investing activities
|
||||||||
Payments
for intangible assets
|
(4,904 | ) | (48,764 | ) | ||||
Notes
receivable
|
(513,000 | ) | - | |||||
Proceeds
from disposal of equipment
|
2,994 | - | ||||||
Purchase
of property and equipment
|
(380,102 | ) | (146,463 | ) | ||||
Net
cash used in investing activities
|
(895,012 | ) | (195,227 | ) | ||||
Cash
flows from financing activities
|
||||||||
Payments
on debt
|
(21,867 | ) | (250,000 | ) | ||||
Proceeds
from notes payable
|
- | 200,000 | ||||||
Proceeds
from issuance of common stock and warrants
|
50,000 | 2,798,550 | ||||||
Payments
on convertible note payable - officer
|
- | (50,000 | ) | |||||
Net
cash provided by financing activities
|
28,133 | 2,698,550 | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(1,063,563 | ) | 1,660,833 | |||||
Cash
and cash equivalents at beginning of the period
|
2,129,215 | 468,382 | ||||||
Cash
and cash equivalents at end of the period
|
$ | 1,065,652 | $ | 2,129,215 | ||||
Supplemental
disclosure of cash flow information
|
||||||||
Cash
paid during the period for interest
|
$ | 6,022 | $ | 17,959 |
Net
Income (Loss)
|
Weighted
Average
Shares
|
Per
Share Amount
|
||||||||||
Year
Ended December 31, 2007
|
||||||||||||
Basic
EPS
|
$ | (759,511 | ) | 16,139,177 | $ | (0.05 | ) | |||||
Effect
of common stock equivalents
|
-- | -- | -- | |||||||||
Diluted
EPS
|
$ | (759,511 | ) | 16,139,177 | $ | (0.05 | ) | |||||
Year
Ended December 31, 2008
|
||||||||||||
Basic
EPS
|
$ | 2,098,962 | 18,971,399 | $ | 0.11 | |||||||
Effect
of common stock equivalents
|
-- | 293,830 | -- | |||||||||
Diluted
EPS
|
$ | 2,098,962 | 19,265,229 | $ | 0.11 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
Accounts
receivable
|
$ | 3,812,823 | $ | 436,839 | ||||
Less:
Allowance for doubtful accounts
|
(218,936 | ) | (34,393 | ) | ||||
Accounts
receivable, net
|
$ | 3,593,887 | $ | 402,446 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
Finished
goods
|
$ | 204,766 | $ | 230,937 | ||||
Raw
materials
|
1,708,531 | 216,107 | ||||||
Total
inventory
|
$ | 1,913,297 | $ | 447,044 |
December
31,
|
|||||||||
2008
|
2007
|
||||||||
Useful Lives
|
|||||||||
Computer
equipment and software
|
3
to 5 years
|
$ | 271,287 | $ | 155,603 | ||||
Equipment
|
3
to10 years
|
314,412 | 144,343 | ||||||
Furniture
and fixtures
|
7
years
|
56,021 | 15,209 | ||||||
Automobiles
|
5
years
|
84,955 | 47,063 | ||||||
Leasehold
improvements
|
1
to 3.13 years
|
103,821 | 91,637 | ||||||
830,496 | 453,855 | ||||||||
Less
accumulated depreciation
|
(281,126 | ) | (125,778 | ) | |||||
Net
property and equipment
|
$ | 549,370 | $ | 328,077 |
December
31, 2008
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||||
Internet
addresses
|
$ | 56,008 | $ | (8,664 | ) | $ | 47,344 |
2008
|
2007
|
|||||||
Deferred
income tax (benefit) expense
|
$ | 501,188 | $ | (448,820 | ) | |||
Current
income tax (benefit) expense
|
-- | -- | ||||||
$ | 501,188 | $ | (448,820 | ) |
2008
|
2007
|
|||||||
Tax
at statutory rate (34%)
|
$ | 884,051 | $ | (412,089 | ) | |||
Non-deductible
expense and other
|
6,582 | 3,266 | ||||||
Utilization
of NOL carryforward
|
(475,250 | ) | -- | |||||
State
tax, net of federal tax rate
|
85,805 | (39,997 | ) | |||||
$ | 501,188 | $ | (448,820 | ) |
2008
|
2007
|
|||||||
Deferred
tax assets:
|
||||||||
Net operating loss
carryforward
|
$ | -- | $ | 481,322 | ||||
Allowance
for doubtful accounts
|
81,663 | 12,829 | ||||||
Charitable
contributions
|
1,209 | 811 | ||||||
Sales
returns accrual
|
108,587 | 8,900 | ||||||
Total
gross deferred tax assets
|
191,459 | 503,862 | ||||||
Less
valuation allowance
|
-- | -- | ||||||
Net
deferred tax assets
|
$ | 191,459 | $ | 503,862 |
Deferred
tax liabilities:
|
||||||||
Property
and equipment
|
$ | 104,859 | $ | 46,915 | ||||
Total
gross deferred tax liabilities
|
104,859 | 46,915 | ||||||
Net
deferred tax assets
|
$ | 86,600 | $ | 456,947 |
Deferred
tax assets, net – current
|
$ | 81,663 | $ | 12,829 | ||||
Deferred
tax assets, net – non-current
|
4,937 | 444,118 | ||||||
Net
deferred tax assets
|
$ | 86,600 | $ | 456,947 |
Stock
Options
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
||||||||||
Outstanding
at beginning of the year
|
— | $ | 0.00 | $ | — | |||||||
Granted
|
1,713,000 | 0.65 | 1,113,450 1,713,000 | |||||||||
Exercised
|
— | — | — | |||||||||
Forfeited
|
(78,000 | ) | 0.65 | (50,700 | ) | |||||||
Outstanding
at end of the year
|
1,635,000 | 0.65 | 1,062,750 | |||||||||
Exercisable
at the end of the year
|
200,000 | $ | 0.90 | $ | 180,000 |
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||||||||
$ | 0.60 – 1.13 | 1,635,000 |
4.4
years
|
$ | 0.65 | 200,000 | $ | 0.90 |
2008
|
||||
Risk-free
interest rate
|
1.54 | % | ||
Expected
dividend yield
|
0.0 | % | ||
Expected
exercise lives
|
5
years
|
|||
Expected
volatility
|
55.8 | % |
2008
|
2007
|
|||||
Shares
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Exercise Price
|
|||
Outstanding
at beginning of the year
|
4,299,453
|
$ 1.27
|
—
|
$ —
|
||
Granted
|
—
|
—
|
4,299,453
|
1.27
|
||
Exercised
|
(100,000)
|
0.50
|
—
|
—
|
||
Forfeited
|
—
|
—
|
—
|
—
|
||
Outstanding
at end of the year
|
4,199,453
|
1.29
|
4,299,453
|
1.27
|
||
Exercisable
at end of the year
|
4,199,453
|
$ 1.29
|
4,299,453
|
$ 1.27
|
2009
|
$ | 296,732 | ||
2010
|
22,468 | |||
2011
|
5,238 | |||
2012
|
1,188 | |||
Total
|
$ | 325,626 |
2008
|
2007
|
|||||||
United
States
|
83 | % | 88 | % | ||||
Europe
|
10 | % | 6 | % | ||||
Other
|
7 | % | 6 | % |