x
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended June 30, 2009,
or
|
¨
|
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
|
||
PART I - FINANCIAL INFORMATION | ||
Item
1.
|
Financial
Statements (Unaudited)
|
|
Condensed
Consolidated Balance Sheets – As of June 30, 2009 and December 31,
2008
|
3
|
|
Condensed
Consolidated Statements of Operations for the Three and Six Months
Ended
|
||
June
30, 2009 and 2008
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months
Ended
|
||
June
30, 2009 and 2008
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
21
|
Item
4T.
|
Controls
and Procedures
|
22
|
PART
II - OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
22
|
Item
1A.
|
Risk
Factors
|
22
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
22
|
Item
3.
|
Defaults
Upon Senior Securities
|
23
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
23
|
Item
5.
|
Other
Information
|
24
|
Item
6.
|
Exhibits
|
24
|
June 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
|
$ | 3,334,158 | $ | 1,065,652 | ||||
Accounts
receivable, net
|
5,088,329 | 3,593,887 | ||||||
Inventories
|
4,179,258 | 1,913,297 | ||||||
Prepaid
expenses and other current assets
|
1,270,241 | 676,077 | ||||||
Notes
receivable
|
513,000 | 513,000 | ||||||
Deferred
income tax assets
|
- | 81,663 | ||||||
Total
current assets
|
14,384,986 | 7,843,576 | ||||||
Property
and equipment, net
|
689,069 | 549,370 | ||||||
Deferred
income tax assets
|
- | 4,937 | ||||||
Deposits
and other assets
|
9,688 | 9,688 | ||||||
Intangible
assets, net
|
78,017 | 47,344 | ||||||
Total
assets
|
$ | 15,161,760 | $ | 8,454,915 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Notes
payable
|
$ | 10,199 | $ | 20,223 | ||||
Accounts
payable
|
2,317,626 | 1,626,390 | ||||||
Accrued
liabilities
|
137,396 | 212,754 | ||||||
Accrued
wages and wage related expenses
|
129,784 | 121,112 | ||||||
Deferred
revenue
|
214,052 | 366,590 | ||||||
Deferred
income tax liability
|
1,243,165 | - | ||||||
Sales
returns liability
|
544,563 | 291,119 | ||||||
Total
current liabilities
|
4,596,785 | 2,638,188 | ||||||
Total
liabilities
|
4,596,785 | 2,638,188 | ||||||
Stockholders'
equity
|
||||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized;
|
||||||||
21,141,112
and 19,163,995 shares issued and outstanding, respectively
|
21,142 | 19,165 | ||||||
Warrants
to purchase common stock
|
425,666 | 739,338 | ||||||
Additional
paid-in capital
|
6,743,220 | 3,808,280 | ||||||
Cumulative
translation adjustment
|
(203,781 | ) | (106,630 | ) | ||||
Retained
earnings
|
3,578,728 | 1,356,574 | ||||||
Total
stockholders' equity
|
10,564,975 | 5,816,727 | ||||||
Total
liabilities and stockholders' equity
|
$ | 15,161,760 | $ | 8,454,915 |
Three Months Ended
|
Three Months Ended
|
Six Months Ended
|
Six Months Ended
|
|||||||||||||
June 30, 2009
|
June 30, 2008
|
June 30, 2009
|
June 30, 2008
|
|||||||||||||
Net
sales
|
$ | 9,214,971 | $ | 2,739,176 | $ | 17,290,146 | $ | 5,584,597 | ||||||||
Cost
of sales
|
3,699,517 | 712,214 | 6,581,748 | 1,490,006 | ||||||||||||
Gross
profit
|
5,515,454 | 2,026,962 | 10,708,398 | 4,094,591 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Advertising
and marketing
|
1,393,194 | 484,728 | 2,846,248 | 1,274,792 | ||||||||||||
Selling,
general and administrative
|
2,259,150 | 1,343,778 | 4,395,148 | 2,849,199 | ||||||||||||
Total
operating expenses
|
3,652,344 | 1,828,506 | 7,241,396 | 4,123,991 | ||||||||||||
Income
(loss) from operations
|
1,863,110 | 198,456 | 3,467,002 | (29,400 | ) | |||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(178 | ) | (972 | ) | (2,620 | ) | (2,674 | ) | ||||||||
Interest
and other income
|
50,226 | 81,149 | 92,274 | 129,536 | ||||||||||||
Total
other income
|
50,048 | 80,177 | 89,654 | 126,862 | ||||||||||||
Income
before provision for income taxes
|
1,913,158 | 278,633 | 3,556,656 | 97,462 | ||||||||||||
Income
tax provision
|
(718,894 | ) | (103,930 | ) | (1,334,152 | ) | (36,930 | ) | ||||||||
Net
income
|
$ | 1,194,264 | $ | 174,703 | $ | 2,222,504 | $ | 60,532 | ||||||||
Basic
net income per common share
|
$ | 0.06 | $ | 0.01 | $ | 0.11 | $ | 0.00 | ||||||||
Diluted
net income per common share
|
$ | 0.05 | $ | 0.01 | $ | 0.10 | $ | 0.00 | ||||||||
Weighted
average number of shares outstanding - basic
|
20,062,839 | 18,884,105 | 20,391,870 | 18,884,050 | ||||||||||||
Weighted
average number of shares outstanding – diluted
|
22,614,394 | 18,936,055 | 22,383,552 | 18,976,547 |
For the Six Months Ended June 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ | 2,222,504 | $ | 60,532 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by (used in) operating activities:
|
||||||||
Non-cash
expense related to stock-based compensation
|
308,149 | 80,821 | ||||||
Depreciation
and amortization
|
108,303 | 69,961 | ||||||
Deferred
income tax expense
|
- | 36,930 | ||||||
Bad
debt expense
|
60,421 | 19,170 | ||||||
Gain
on asset disposals
|
- | (12,215 | ) | |||||
Foreign
currency translation adjustment
|
(97,151 | ) | 4,748 | |||||
Changes
in assets and liabilities
|
||||||||
Accounts
receivable
|
(1,554,863 | ) | (437,885 | ) | ||||
Inventories
|
(2,265,961 | ) | (233,465 | ) | ||||
Prepaid
advertising
|
- | (39,506 | ) | |||||
Prepaid
expenses and other current assets
|
(594,164 | ) | (307,789 | ) | ||||
Accounts
payable
|
690,862 | (268,882 | ) | |||||
Accrued
liabilities
|
(75,358 | ) | 6,183 | |||||
Accrued
wages and wage related expenses
|
8,672 | 5,746 | ||||||
Deferred
revenues
|
(152,538 | ) | (29,208 | ) | ||||
Deferred
tax liabilities
|
1,329,765 | - | ||||||
Sales
return liability
|
253,444 | 42,797 | ||||||
Net
cash provided by (used in) operating activities
|
242,085 | (1,002,062 | ) | |||||
Cash
flows from investing activities
|
||||||||
Payments
for intangible assets
|
(32,921 | ) | (1,800 | ) | ||||
Short-term
loans
|
- | (450,000 | ) | |||||
Proceeds
from disposal of equipment
|
- | 2,994 | ||||||
Purchase
of property and equipment
|
(245,730 | ) | (189,972 | ) | ||||
Net
cash used in investing activities
|
(278,651 | ) | (638,778 | ) | ||||
Cash
flows from financing activities
|
||||||||
Payments
on debt
|
(10,024 | ) | (12,435 | ) | ||||
Proceeds
from issuance of common stock and warrants
|
2,315,096 | - | ||||||
Net
cash provided by (used in) financing activities
|
2,305,072 | (12,435 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
2,268,506 | (1,653,275 | ) | |||||
Cash
and cash equivalents at beginning of the period
|
1,065,652 | 2,129,215 | ||||||
Cash
and cash equivalents at end of the period
|
$ | 3,334,158 | $ | 475,940 | ||||
Supplemental
disclosure of cash flow information
|
||||||||
Cash
paid during the period for interest
|
$ | 2,620 | $ | 2,674 |
Net
Income
|
Weighted
Average
Shares
|
Per Share
Amount
|
||||||||||
Three months ended June 30,
2009:
|
||||||||||||
Basic
EPS
|
$ | 1,194,264 | 20,062,839 | $ | 0.06 | |||||||
Effect of common stock
equivalents
|
— | 2,551,555 | ||||||||||
Diluted EPS
|
$ | 1,194,264 | 22,614,394 | $ | 0.05 | |||||||
Three months ended June 30,
2008:
|
||||||||||||
Basic EPS
|
$ | 174,703 | 18,884,105 | $ | 0.01 | |||||||
Effect of common stock
equivalents
|
— | 51,950 | ||||||||||
Diluted EPS
|
$ | 174,703 | 18,936,055 | $ | 0.01 |
Net
Income
|
Weighted
Average
Shares
|
Per Share
Amount
|
||||||||||
Six
months ended June 30, 2009:
|
||||||||||||
Basic
EPS
|
$ | 2,222,504 | 20,391,870 | $ | 0.11 | |||||||
Effect
of common stock equivalents
|
— | 1,991,682 | ||||||||||
Diluted
EPS
|
$ | 2,222,504 | 22,383,552 | $ | 0.10 | |||||||
Six
months ended June 30, 2008:
|
||||||||||||
Basic
EPS
|
$ | 60,532 | 18,884,050 | $ | 0.00 | |||||||
Effect
of common stock equivalents
|
— | 92,497 | ||||||||||
Diluted
EPS
|
$ | 60,532 | 18,976,547 | $ | 0.00 |
June 30, 2009
|
December 31, 2008
|
|||||||
Accounts
receivable
|
$ | 5,367,686 | $ | 3,812,823 | ||||
Less:
Allowance for doubtful accounts
|
(279,357 | ) | (218,936 | ) | ||||
Accounts
receivable, net
|
$ | 5,088,329 | $ | 3,593,887 |
June 30, 2009
|
December 31, 2008
|
|||||||
Finished
goods
|
$ | 1,635,976 | $ | 204,766 | ||||
Raw
materials
|
2,543,282 | 1,708,531 | ||||||
$ | 4,179,258 | $ | 1,913,297 |
Useful Lives
|
June 30, 2009
|
December 31, 2008
|
||||||||
Computer
equipment and software
|
3
to 5 years
|
$ | 352,316 | $ | 271,287 | |||||
Equipment
|
3
to7 years
|
395,598 | 314,412 | |||||||
Furniture
and fixtures
|
7
years
|
61,170 | 56,021 | |||||||
Automobiles
|
5
years
|
93,002 | 84,955 | |||||||
Leasehold
improvements
|
1
to 2.75 years
|
174,140 | 103,821 | |||||||
1,076,226 | 830,496 | |||||||||
Less:
accumulated depreciation
|
(387,157 | ) | (281,126 | ) | ||||||
$ | 689,069 | $ | 549,370 |
Useful Life
|
June 30, 2009
|
December 31, 2008
|
||||||||
Internet
addresses
|
10
years
|
$ | 77,890 | $ | 44,968 | |||||
Patents
|
Finite
|
11,040 | 11,040 | |||||||
Less:
accumulated amortization
|
(10,913 | ) | (8,664 | ) | ||||||
$ | 78,017 | $ | 47,344 |
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
|
·
|
For
the quarter ended June 30, 2009, salaries and related taxes increased by
$427,161 to $1,083,232 from $656,071 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 compensation expense related to our stock based compensation
plan of $181,164.
|
|
·
|
For
the quarter ended June 30, 2009, marketing, advertising and promotion
expenses were $1,393,194, an increase of $908,466 as compared to $484,728
for the quarter ended June 30, 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.
|
|
·
|
For the quarter ended June 30,
2009, other selling, general and administrative expenses, net of salaries
and related taxes described above, were $1,175,918 as compared to $687,707
for the quarter ended June 30, 2008. The increase was attributable to the
increase in operations as we implement our business plan and is summarized
below:
|
Three Months
Ended
June 30, 2009
|
Three Months
Ended
June 30, 2008
|
|||||||
Professional
fees
|
$ | 134,933 | $ | 21,079 | ||||
Contract
labor
|
28,490 | 61,202 | ||||||
Insurance
|
78,471 | 62,300 | ||||||
Depreciation
and amortization
|
55,832 | 37,181 | ||||||
Rent
|
124,635 | 99,241 | ||||||
Travel
and entertainment
|
53,270 | 35,994 | ||||||
Telephone
and utilities
|
23,860 | 28,461 | ||||||
Printing
expenses
|
13,454 | 7,112 | ||||||
Office
supplies
|
24,292 | 14,075 | ||||||
Credit
card and bank fees
|
172,215 | 72,401 | ||||||
Bad
debt
|
— | 19,170 | ||||||
Investor
relations
|
104,379 | 95,605 | ||||||
Commissions
|
171,261 | 40,239 | ||||||
Other
|
190,826 | 93,647 | ||||||
Total
|
$ | 1,175,918 | $ | 687,707 |
|
·
|
For
the six months ended June 30, 2009, salaries and related taxes increased
by $550,714 to $1,920,834 from $1,370,120 for the six months 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 compensation expense related to our stock based compensation
plan of $308,149.
|
|
·
|
For
the six months ended June 30, 2009, marketing, advertising and promotion
expenses were $2,846,248, an increase of $1,571,456 as compared to
$1,274,792 for the six months ended June 30, 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.
|
|
·
|
For the six months ended June 30,
2009, other selling, general and administrative expenses, net of salaries
and related taxes described above, were $2,474,314 as compared to
$1,479,079 for the six months ended June 30, 2008. The increase was
attributable to the increase in operations as we implement our business
plan and is summarized
below:
|
Six Months Ended
June 30, 2009
|
Six Months Ended
June 30, 2008
|
|||||||
Professional
fees
|
$ | 204,999 | $ | 70,612 | ||||
Contract
labor
|
59,885 | 296,637 | ||||||
Insurance
|
132,935 | 114,182 | ||||||
Depreciation
and amortization
|
108,078 | 69,345 | ||||||
Rent
|
222,225 | 180,546 | ||||||
Travel
and entertainment
|
108,535 | 92,901 | ||||||
Telephone
and utilities
|
54,410 | 62,076 | ||||||
Printing
expenses
|
34,769 | 19,312 | ||||||
Office
supplies
|
46,366 | 34,486 | ||||||
Credit
card and bank fees
|
348,747 | 154,129 | ||||||
Bad
debt
|
60,421 | 19,205 | ||||||
Investor
relations
|
208,772 | 132,187 | ||||||
Commissions
|
421,437 | 46,587 | ||||||
Other
|
462,735 | 186,874 | ||||||
Total
|
$ | 2,474,314 | $ | 1,479,079 |
|
§
|
40,000
shares of common stock to employees valued at
$104,800;
|
|
§
|
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%;
|
|
§
|
warrants
for consulting services for 20,000 common shares exercisable at $2.05 per
share expiring in 1 year and vesting immediately. The warrants
were valued at $21,155 using the Black-Scholes method with the following
assumptions: stock price $2.05, expected life of 5 years; volatility of
62% (using historical volatility since the Company’s options do not trade
to provide an implied volatility) and a discount rate of
0.13%.
|
|
§
|
stock
options for 25,000 common shares exercisable at $2.53 per share expiring
in 5 years and vesting over a three year schedule. The options
were valued at $32,376 using the Black-Scholes option pricing method with
the following assumptions: stock price $2.53, expected life of 5 years,
volatility of 62% (using historical volatility since the Company’s options
do not trade to provide an implied volatility) and a discount rate of
0.04%.
|
|
§
|
stock
options for 3,000 common shares exercisable at $2.93 per share expiring in
5 years and vesting over a three year schedule. The options
were valued at $4,503 using the Black-Scholes option pricing method with
the following assumptions: stock price $2.93, expected life of 5 years,
volatility of 62% (using historical volatility since the Company’s options
do not trade to provide an implied volatility) and a discount rate of
0.07%.
|
|
§
|
295,999
shares of common stock in exercise of options to purchase 295,999
shares. We received proceeds of $265,499 related to the
exercise of the options; and
|
|
§
|
1,641,118
shares of common stock in exercise of warrants to purchase 1,641,118
shares. We received proceeds of $2,098,578 related to the
exercise of the warrants;
|
Director
|
Votes Cast For
|
Votes Cast Against
|
Abstentions
|
|||
Robert G. Pedersen II
|
17,652,543
|
316,734
|
2,886
|
|||
Larry Harmer
|
17,858,900
|
99,457
|
13,805
|
Votes Cast For
|
Votes Cast Against
|
Abstentions
|
||
17,858,126
|
105,662
|
8,375
|
Votes Cast For
|
Votes Cast Against
|
Abstentions
|
||
10,521,175
|
684,233
|
2,701
|
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 13, 2009
|
/s/
ROBERT G. PEDERSEN II
|
|
Robert
G. Pedersen II,
|
||
President
and Chief Executive Officer
|
||
Date:
August 13, 2009
|
/s/ BRANDON T. O’BRIEN
|
|
Brandon
T. O’Brien,
|
||
Chief
Financial Officer
|
||
(Principal
financial officer)
|