[X]
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Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended March 31, 2009,
or
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[ ]
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Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the transition period from ______________ to
_____________.
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Nevada
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20-2559624
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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Page
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Item
1.
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Financial
Statements (Unaudited)
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Condensed
Consolidated Balance Sheets – As of March 31, 2009, and December 31,
2008
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3
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Condensed
Consolidated Statements of Operations for the Three Months
Ended
March
31, 2009 and 2008
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4
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Condensed
Consolidated Statements of Cash Flows for the Three Months
Ended
March
31, 2009 and 2008
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5
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Notes
to Condensed Consolidated Financial Statements
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7
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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12
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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16
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Item
4T.
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Controls
and Procedures
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16
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PART
II - OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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17
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Item
1A.
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Risk
Factors
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17
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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17
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Item
3.
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Defaults
Upon Senior Securities
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18
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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18
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Item
5.
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Other
Information
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18
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Item
6.
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Exhibits
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19
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March
31,
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December
31,
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|||||||
2009
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2008
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|||||||
ASSETS
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||||||||
Current
assets
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||||||||
Cash
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$ | 1,028,547 | $ | 1,065,652 | ||||
Accounts
receivable, net
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4,267,669 | 3,593,887 | ||||||
Inventories
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3,128,715 | 1,913,297 | ||||||
Prepaid
expenses and other current assets
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1,436,988 | 676,077 | ||||||
Notes
receivable
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513,000 | 513,000 | ||||||
Deferred income tax assets
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- | 81,663 | ||||||
Total
current assets
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10,374,919 | 7,843,576 | ||||||
Property
and equipment, net
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634,752 | 549,370 | ||||||
Deferred
income tax assets
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- | 4,937 | ||||||
Deposits
and other assets
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9,688 | 9,688 | ||||||
Intangible assets, net
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46,220 | 47,344 | ||||||
Total assets
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$ | 11,065,579 | $ | 8,454,915 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Notes
payable
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$ | 14,281 | $ | 20,223 | ||||
Accounts
payable
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2,301,625 | 1,626,390 | ||||||
Accrued
liabilities
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184,386 | 212,754 | ||||||
Accrued
wages and wage related expenses
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121,424 | 121,112 | ||||||
Deferred
revenue
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182,654 | 366,590 | ||||||
Deferred
income tax liability
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528,634 | - | ||||||
Sales returns liability
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533,017 | 291,119 | ||||||
Total current liabilities
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3,866,021 | 2,638,188 | ||||||
Total liabilities
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3,866,021 | 2,638,188 | ||||||
Stockholders'
equity
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||||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized;
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||||||||
19,392,328
and 19,163,995 shares issued and outstanding, respectively
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19,393 | 19,165 | ||||||
Warrants
to purchase common stock
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731,379 | 739,338 | ||||||
Additional
paid-in capital
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4,171,662 | 3,808,280 | ||||||
Cumulative
translation adjustment
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(107,339 | ) | (106,630 | ) | ||||
Retained earnings
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2,384,463 | 1,356,574 | ||||||
Total stockholders' equity
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7,199,558 | 5,816,727 | ||||||
Total liabilities and stockholders'
equity
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$ | 11,065,579 | $ | 8,454,915 |
Three Months Ended March
31,
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||||||||
2009
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2008
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|||||||
Net
sales
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$ | 8,090,951 | $ | 2,845,362 | ||||
Cost of sales
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2,895,143 | 777,742 | ||||||
Gross profit
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5,195,808 | 2,067,620 | ||||||
Operating
expenses:
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||||||||
Advertising
and marketing
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1,454,871 | 790,022 | ||||||
Selling, general and
administrative
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2,137,045 | 1,504,843 | ||||||
Total operating expenses
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3,591,916 | 2,294,865 | ||||||
Income
(loss) from operations
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1,603,892 | (227,245 | ) | |||||
Other
income (expense):
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||||||||
Interest
expense
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(2,442 | ) | (1,702 | ) | ||||
Interest and other income
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42,048 | 47,776 | ||||||
Total other income
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39,606 | 46,074 | ||||||
Income
(loss) before (provision) benefit for income taxes
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1,643,498 | (181,171 | ) | |||||
Income tax (provision)
benefit
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(615,258 | ) | 67,000 | |||||
Net income (loss)
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$ | 1,028,240 | $ | (114,171 | ) | |||
Basic net income (loss) per common
share
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$ | 0.05 | $ | (0.01 | ) | |||
Diluted net income (loss) per common
share
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$ | 0.05 | $ | (0.01 | ) | |||
Weighted average number of shares outstanding -
basic
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19,185,642 | 18,863,885 | ||||||
Weighted average number of shares outstanding -
diluted
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19,869,440 | 18,863,885 |
For the Three Months Ended March
31,
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||||||||
2009
|
2008
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|||||||
Cash
flows from operating activities
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||||||||
Net
income (loss)
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$ | 1,028,240 | $ | (114,171 | ) | |||
Adjustments
to reconcile net income (loss) to net cash
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||||||||
used
in operating activities:
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||||||||
Non-cash
expense related to stock-based compensation
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126,985 | 20,908 | ||||||
Depreciation
and amortization
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52,246 | 32,164 | ||||||
Deferred
income tax expense (benefit)
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- | (67,000 | ) | |||||
Bad
debt expense
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60,421 | - | ||||||
Foreign
currency translation adjustment
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(709 | ) | 450 | |||||
Changes
in assets and liabilities
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||||||||
Accounts
receivable
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(734,203 | ) | 67,195 | |||||
Inventories
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(1,215,418 | ) | (237,688 | ) | ||||
Prepaid
advertising
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- | (46,832 | ) | |||||
Prepaid
expenses and other current assets
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(760,911 | ) | (117,174 | ) | ||||
Other
assets
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- | 11 | ||||||
Accounts
payable
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674,860 | 94,793 | ||||||
Accrued
liabilities
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(28,368 | ) | 15,903 | |||||
Accrued
wages and wage related expenses
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312 | 872 | ||||||
Deferred
revenues
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(183,936 | ) | (9,458 | ) | ||||
Deferred
tax liabilities
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615,234 | - | ||||||
Sales return liability
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241,898 | 12,722 | ||||||
Net cash used in operating
activities
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(123,349 | ) | (347,305 | ) | ||||
Cash
flows from investing activities
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||||||||
Short-term
loans
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- | (450,000 | ) | |||||
Purchase of property and
equipment
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(136,480 | ) | (97,658 | ) | ||||
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||||||||
Net cash used in investing
activities
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(136,480 | ) | (547,658 | ) | ||||
Cash
flows from financing activities
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||||||||
Payments
on debt
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(5,942 | ) | (6,997 | ) | ||||
Proceeds from issuance of common stock and
warrants
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228,666 | - | ||||||
Net cash provided by (used in) financing
activities
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222,724 | (6,997 | ) | |||||
Net
decrease in cash and cash equivalents
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(37,105 | ) | (901,960 | ) | ||||
Cash and cash equivalents at beginning of the
period
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1,065,652 | 2,129,215 | ||||||
Cash and cash equivalents at end of the
period
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$ | 1,028,547 | $ | 1,227,255 | ||||
Supplemental
disclosure of cash flow information
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||||||||
Cash paid during the period for
interest
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$ | 2,442 | $ | 1,702 |
Net
Income
(Loss)
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Weighted
Average
Shares
|
Per Share
Amount
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|||||||||
Three
months ended March 31, 2009:
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|||||||||||
Basic
EPS
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$
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1,028,240
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19,185,642
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$
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0.05
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||||||
Effect
of common stock equivalents
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—
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683,798
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|||||||||
Diluted
EPS
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$
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1,028,240
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19,869,440
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$
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0.05
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||||||
Three
months ended March 31, 2008:
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|||||||||||
Basic
EPS
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$
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(114,171)
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18,863,885
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$
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(0.01)
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||||||
Effect
of common stock equivalents
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—
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—
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|||||||||
Diluted
EPS
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$
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(114,171)
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18,863,885
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$
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(0.01)
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March 31,
2009
|
December 31,
2008
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|||||||
Accounts
receivable
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$ | 4,547,026 | $ | 3,812,823 | ||||
Less:
Allowance for doubtful accounts
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(279,357 | ) | (218,936 | ) | ||||
Accounts
receivable, net
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$ | 4,267,669 | $ | 3,593,887 |
March 31, 2009
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December 31, 2008
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|||||||
Finished
goods
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$ | 379,179 | $ | 204,766 | ||||
Raw
materials
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2,749,536 | 1,708,531 | ||||||
$ | 3,128,715 | $ | 1,913,297 |
Useful Lives
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March 31, 2009
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December 31, 2008
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|||||||
Computer
equipment and software
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3 to
5 years
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$ | 285,737 | $ | 271,287 | ||||
Equipment
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3
to7 years
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360,498 | 314,412 | ||||||
Furniture
and fixtures
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7
years
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58,470 | 56,021 | ||||||
Automobiles
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5
years
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93,002 | 84,955 | ||||||
Leasehold
improvements
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1 to
2.75 years
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169,269 | 103,821 | ||||||
966,976 | 830,946 | ||||||||
Less:
accumulated depreciation
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(332,224 | ) | (281,126 | ) | |||||
$ | 634,752 | $ | 549,370 |
Useful Life
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March 31, 2009
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December 31, 2008
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|||||||
Internet
addresses
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10
years
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$ | 44,968 | $ | 44,968 | ||||
Patents
|
Indefinite
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11,040 | 11,040 | ||||||
Less:
accumulated amortization
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(9,788 | ) | (8,664 | ) | |||||
$ | 46,220 | $ | 47,344 |
ITEM 2.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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|
·
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For
the quarter ended March 31, 2009, salaries and related taxes increased by
$123,434 to $837,602 from $714,168 for the quarter ended March 31,
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.
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·
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For
the quarter ended March 31, 2009, marketing, advertising and promotion
expenses were $1,454,871, an increase of $664,849 as compared to $790,022
for the quarter ended March 31, 2008. 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 and through the use of coupons. 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 the fiscal year 2009, we intend to continue to
expand our marketing efforts related to our
products.
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·
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For the quarter ended March 31,
2009, other selling, general and administrative expenses, net of salaries
and related taxes described above, were $1,299,443 as compared to $790,675
for the quarter ended March 31, 2008. The increase was attributable to the
increase in operations as we implement our business plan and is summarized
below:
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Three
Months
Ended
March 31, 2009
|
Three
Months
Ended
March 31, 2008
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Professional
fees
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$ | 70,066 | $ | 49,693 | ||||
Contract
labor
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31,395 | 235,436 | ||||||
Insurance
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54,465 | 51,883 | ||||||
Depreciation
and amortization
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52,246 | 32,163 | ||||||
Rent
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97,620 | 83,607 | ||||||
Travel
and entertainment
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55,265 | 44,837 | ||||||
Telephone
and utilities
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30,550 | 33,616 | ||||||
Printing
expenses
|
21,315 | 12,201 | ||||||
Office
supplies
|
22,074 | 20,411 | ||||||
Credit
card and bank fees
|
176,532 | 81,728 | ||||||
Bad
debt
|
60,421 | -- | ||||||
Investor
relations
|
104,393 | 36,582 | ||||||
Commissions
|
250,177 | 6,348 | ||||||
Other
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272,924 | 102,170 | ||||||
Total
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$ | 1,299,443 | $ | 790,675 |
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Item
4T.
|
Controls
and Procedures
|
Item
1.
|
Legal
Proceedings
|
Item
1A:
|
Risk
Factors
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
|
§
|
20,000
shares of common stock to employees valued at
$29,600;
|
|
§
|
stock
options for 850,000 common shares exercisable at $1.23 per share expiring
in 5 years and vesting 33% at 12 months, 33% at 24 months and 33% at 36
months. The options were valued at $513,719 or $0.60 per option using the
Black-Scholes option pricing method with the following assumptions: stock
price $1.23, expected life of 5 years, volatility of 59% (using historical
volatility since the Company’s options do not trade to provide an implied
volatility) and a discount rate of
0.19%;
|
|
§
|
stock
options to a legal consultant for 30,000 common shares exercisable at
$1.42 per share expiring in 5 years and vesting
immediately. The options were valued at $20,863 or $0.70 per
share using the Black-Scholes method with the following assumptions: stock
price $1.42, expected life of 5 years, volatility of 59% (using historical
volatility since the Company’s options do not trade to provide an implied
volatility) and a discount rate of
0.18%;
|
|
§
|
103,333
shares of common stock in exercise of options to purchase 103,333
shares. We received proceeds of $92,166 related to the exercise
of the options; and
|
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§
|
105,000
shares of common stock in exercise of warrants to purchase 105,000
shares. We received proceeds of $136,500 related to the
exercise of the warrants;
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Item
3.
|
Defaults
Upon Senior Securities
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Item
5.
|
Other
Information
|
Item
6.
|
Exhibits
|
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 14, 2009
|
/s/
ROBERT G. PEDERSEN II
|
Robert
G. Pedersen II,
|
|
President
and Chief Executive Officer
|
|
Date:
May 14, 2009
|
/s/
BRANDON T. O’BRIEN
|
Brandon
T. O’Brien,
|
|
Chief
Financial Officer
|
|
(Principal
financial officer)
|