x
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the quarterly period ended June 30, 2007,
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, 2007 and December 31, 2006
|
3
|
|
|
||
Condensed
Statements of Operations for the Three and Six Months
Ended
|
|
|
June
30, 2007 and 2006
|
4
|
|
|
||
Condensed
Statements of Cash Flows for the Six Months Ended
|
|
|
June
30, 2007 and 2006
|
5
|
|
|
||
Notes
to Condensed Financial Statements
|
7
|
|
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
|
||
Item
3.
|
Controls
and Procedures
|
19
|
|
||
|
||
PART
II - OTHER INFORMATION
|
||
|
||
Item
1.
|
Legal
Proceedings
|
20
|
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
23
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
23
|
|
||
Item
5.
|
Other
Information
|
23
|
|
||
Item
6.
|
Exhibits
|
23
|
June
30,
|
December
31,
|
||||||
|
2007
|
2006
|
|||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
|
$
|
993,380
|
$
|
468,382
|
|||
Accounts
receivable, net
|
64,427
|
121,149
|
|||||
Inventories
|
152,922
|
102,522
|
|||||
Prepaid
income taxes
|
44,361
|
44,361
|
|||||
Prepaid
advertising
|
124,076
|
-
|
|||||
Prepaid
expenses and other current assets
|
182,811
|
31,724
|
|||||
Deferred
income tax assets
|
16,796
|
19,468
|
|||||
Due
from employees
|
-
|
3,714
|
|||||
Total
current assets
|
1,578,773
|
791,320
|
|||||
Property
and equipment, net
|
226,629
|
221,474
|
|||||
Deposits
and other assets
|
37,119
|
12,119
|
|||||
Intangible
assets
|
50,054
|
2,340
|
|||||
Total
assets
|
$
|
1,892,575
|
$
|
1,027,253
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities
|
|||||||
Convertible
note payable
|
$
|
-
|
$
|
250,000
|
|||
Convertible
note payable - officer
|
-
|
100,000
|
|||||
Notes
payable
|
250,000
|
-
|
|||||
Advance
on financing transaction
|
800,000
|
-
|
|||||
Accounts
payable
|
268,994
|
246,691
|
|||||
Accrued
liabilities
|
9,164
|
33,573
|
|||||
Accrued
wages and wage related expenses
|
68,272
|
121,728
|
|||||
Deferred
licensing revenue
|
99,300
|
86,801
|
|||||
Sales
returns liability
|
15,483
|
32,000
|
|||||
Total
current liabilities
|
1,511,213
|
870,793
|
|||||
Long-term
liabilities
|
|||||||
Non-current
deferred income tax liablility, net
|
12,361
|
12,087
|
|||||
Total
liabilities
|
1,523,574
|
882,880
|
|||||
Stockholders'
equity
|
|||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized;
|
|||||||
15,168,995
and 10,175,000 shares issued and outstanding, respectively
|
15,170
|
10,175
|
|||||
Additional
paid-in capital
|
655,189
|
117,075
|
|||||
Retained
(deficit) earnings
|
(301,358
|
)
|
17,123
|
||||
Total
stockholders' equity
|
369,001
|
144,373
|
|||||
Total
liabilities and stockholders' equity
|
$
|
1,892,575
|
$
|
1,027,253
|
Three
Months Ended
|
Three
Months Ended
|
Six
Months Ended
|
Six
Months Ended
|
||||||||||
|
June
30, 2007
|
June
30, 2006
|
June
30, 2007
|
June
30, 2006
|
|||||||||
Net
sales
|
$
|
804,458
|
$
|
638,253
|
$
|
1,597,306
|
$
|
1,162,511
|
|||||
Cost
of sales
|
203,672
|
182,623
|
390,831
|
344,222
|
|||||||||
Gross
profit
|
600,786
|
455,630
|
1,206,475
|
818,289
|
|||||||||
Operating
expenses:
|
|||||||||||||
Salaries
and related taxes
|
346,035
|
223,615
|
654,443
|
406,351
|
|||||||||
Consulting
|
2,000
|
-
|
38,500
|
73,750
|
|||||||||
Advertising
and marketing
|
78,651
|
73,760
|
239,786
|
161,301
|
|||||||||
Other
selling, general and administrative
|
206,539
|
126,898
|
568,287
|
196,150
|
|||||||||
Total
operating expenses
|
633,225
|
424,273
|
1,501,016
|
837,552
|
|||||||||
(Loss)
income from operations
|
(32,439
|
)
|
31,357
|
(294,541
|
)
|
(19,263
|
)
|
||||||
Other
(expense) income:
|
|||||||||||||
Interest
expense
|
(20,231
|
)
|
-
|
(26,099
|
)
|
-
|
|||||||
Interest
and other income
|
3,969
|
6,819
|
4,085
|
6,960
|
|||||||||
Total
other (expense) income
|
(16,262
|
)
|
6,819
|
(22,014
|
)
|
6,960
|
|||||||
(Loss)
ncome before benefit (provision) for income taxes
|
(48,701
|
)
|
38,176
|
(316,555
|
)
|
(12,303
|
)
|
||||||
Income
tax benefit (expense)
|
408
|
-
|
(2,310
|
)
|
-
|
||||||||
Net
(loss) income
|
(48,293
|
)
|
38,176
|
(318,865
|
)
|
(12,303
|
)
|
||||||
Basic
and diluted net (loss) income per common share
|
$
|
(0.00
|
)
|
$
|
0.00
|
$
|
(0.02
|
)
|
$
|
(0.00
|
)
|
||
Weighted
average number of shares outstanding - basic and
diluted
|
15,168,995
|
10,000,000
|
14,596,739
|
10,000,000
|
Six
Months Ended
|
Six
Months Ended
|
||||||
|
June
30, 2007
|
June
30, 2006
|
|||||
Cash
flows from operating activities
|
|||||||
Net
loss
|
$
|
(318,865
|
)
|
$
|
(12,303
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
|
36,976
|
1,750
|
|||||
Deferred
income tax (benefit) expense
|
2,946
|
57,730
|
|||||
Changes
in assets and liabilities
|
|||||||
Accounts
receivable
|
56,722
|
87,955
|
|||||
Inventory
|
(50,400
|
)
|
(30,299
|
)
|
|||
Due
from employees
|
3,714
|
(33,138
|
)
|
||||
Prepaid
advertising
|
(124,076
|
)
|
-
|
||||
Prepaid
expenses and other current assets
|
(101,087
|
)
|
(2,507
|
)
|
|||
Other
assets
|
(25,000
|
)
|
(1,645
|
)
|
|||
Accounts
payable
|
(24,947
|
)
|
56,148
|
||||
Accrued
liabilities
|
(8,716
|
)
|
59,136
|
||||
Accrued
wages and wage related expenses
|
(53,456
|
)
|
-
|
||||
Deferred
licensing revenues
|
12,499
|
-
|
|||||
Sales
return liability
|
(16,517
|
)
|
-
|
||||
Net
cash (used in) provided by operating activities
|
(610,207
|
)
|
182,827
|
||||
Cash
flows from investing activities
|
|||||||
Payments
for intangible assets
|
(47,714
|
)
|
(123,466
|
)
|
|||
Purchase
of property and equipment
|
(42,131
|
)
|
-
|
||||
Net
cash used in investing activities
|
(89,845
|
)
|
(123,466
|
)
|
|||
Cash
flows from financing activities
|
|||||||
Repayments
on equipment financing payable
|
-
|
(7,376
|
)
|
||||
Proceeds
from advance on financing transaction
|
800,000
|
-
|
|||||
Proceeds
from related party notes payable
|
-
|
30,063
|
|||||
Proceeds
from notes payable
|
200,000
|
-
|
|||||
Payments
on convertible note payable - officer
|
(50,000
|
)
|
-
|
||||
Capital
contribution
|
-
|
25,000
|
|||||
Proceeds
from sale of common stock
|
275,050
|
-
|
|||||
Net
cash provided by financing activities
|
1,225,050
|
47,687
|
|||||
Net
(decrease) increase in cash and cash equivalents
|
524,998
|
107,048
|
|||||
Cash
and cash equivalents at beginning of the period
|
468,382
|
25,661
|
|||||
Cash
and cash equivalents at end of the period
|
$
|
993,380
|
$
|
132,709
|
|||
Supplemental
disclosure of cash flow information
|
|||||||
Cash
paid during the period for interest
|
$
|
12,605
|
$
|
-
|
|||
Cash
paid during the period for income taxes
|
$
|
-
|
$
|
8,796
|
Net
Loss
|
Weighted
Average
Shares
|
Per Share
Amount
|
||||||||
Three
months ended June 30, 2007:
|
|
|
|
|||||||
Basic
EPS
|
$
|
(48,293
|
)
|
15,168,995
|
$
|
(0.00
|
)
|
|||
Effect
of common stock equivalents
|
—
|
—
|
||||||||
Diluted
EPS
|
$
|
(48,293
|
)
|
15,168,995
|
$
|
(0.00
|
)
|
|||
Three
months ended June 30, 2006:
|
||||||||||
Basic
EPS
|
$
|
38,176
|
10,000,000
|
$
|
0.00
|
|||||
Effect
of common stock equivalents
|
—
|
—
|
||||||||
Diluted
EPS
|
$
|
38,176
|
10,000,000
|
$
|
0.00
|
|
Net
Loss
|
Weighted
Average
Shares
|
Per Share
Amount
|
|||||||
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
|
)
|
|||
Six
months ended June 30, 2006:
|
||||||||||
Basic
EPS
|
$
|
(12,303
|
)
|
10,000,000
|
$
|
(0.00
|
)
|
|||
Effect
of common stock equivalents
|
—
|
—
|
||||||||
Diluted
EPS
|
$
|
(12,303
|
)
|
10,000,000
|
$
|
(0.00
|
)
|
June
30, 2007
|
December
31, 2006
|
||||||
Accounts
receivable
|
$
|
84,620
|
$
|
141,342
|
|||
Less:
Allowance for doubtful accounts
|
(20,193
|
)
|
(20,193
|
)
|
|||
Accounts
Receivable, net
|
$
|
64,427
|
$
|
121,149
|
June
30, 2007
|
December
31, 2006
|
||||||
Finished
Goods
|
$
|
44,823
|
$
|
67,257
|
|||
Raw
Materials
|
108,099
|
35,265
|
|||||
$
|
152,922
|
$
|
102,522
|
Useful
Lives
|
June
30, 2007
|
December
31, 2006
|
||||||||
Computer
Equipment and Software
|
3
to 5 years
|
$
|
84,623
|
$
|
58,790
|
|||||
Office
Equipment
|
3
to7 years
|
62,606
|
58,407
|
|||||||
Furniture
and Fixtures
|
7
years
|
21,504
|
9,405
|
|||||||
Automobiles
|
5
years
|
47,063
|
47,063
|
|||||||
Leasehold
improvements
|
1
to 3.13 years
|
91,637
|
91,637
|
|||||||
307,433
|
265,302
|
|||||||||
Less
Accumulated Depreciation
|
(80,804
|
)
|
(43,828
|
)
|
||||||
$
|
226,629
|
$
|
221,474
|
·
|
For
the quarter ended June 30, 2007, salaries and related taxes increased
by
$122,420 to $346,035 from $223,615 for the quarter ended June 30,
2006 due
to the hiring of additional staff to implement our business
plan.
|
·
|
For
the quarter ended June 30, 2007, consulting expense was $2,000, an
increase of $2,000 from the quarter ended June 30, 2006. The increase
relates to consulting expenses paid to a consultant who assisted
us in
opening additional mall carts during the quarter ended June 30,
2007.
|
·
|
For
the quarter ended June 30, 2007, marketing and advertising expenses
were
$78,651, an increase of $4,891 as compared to $73,760 for the quarter
ended June 30, 2006. This increase is attributable to an increase
in our
marketing efforts as we roll out product and implement our business
plan.
The primary marketing expenditures continue to be in web advertising
and
search engine optimization. We also spent approximately $19,000 during
the
quarter to redesign our consumer packaging. We expect our marketing
and
advertising expenses to increase as our revenues increase and expect
to
spend increased funds on adverting and promotion of our products
as well
as sales training. During fiscal 2007, we intend to significantly
expand
our marketing efforts related to our
products.
|
·
|
For
the quarter ended June 30, 2007, other selling, general and administrative
expenses were $206,539 as compared to $126,898 for the quarter ended
June
30, 2006, an increase of $79,641. The increase was attributable to
the
increase in operations as we implement our business plan and is summarized
below:
|
Three
Months
Ended
June
30, 2007
|
Three
Months
Ended
June
30, 2006
|
||||||
Professional
fees
|
$
|
14,669
|
$
|
3,512
|
|||
Contract
labor
|
19,732
|
12,510
|
|||||
Insurance
|
15,188
|
6,985
|
|||||
Depreciation
|
19,010
|
750
|
|||||
Rent
|
33,871
|
12,399
|
|||||
Travel
and entertainment
|
23,689
|
7,350
|
|||||
Telephone
and utilities
|
10,468
|
7,154
|
|||||
Printing
expenses
|
9,952
|
11,769
|
|||||
Office
supplies
|
10,122
|
17,290
|
|||||
Credit
card and bank fees
|
20,123
|
8,452
|
|||||
Promotion
|
537
|
27,676
|
|||||
Other
|
29,178
|
11,051
|
|||||
Total
|
$
|
206,539
|
$
|
126,898
|
·
|
For
the six months ended June 30, 2007, salaries and related taxes increased
by $248,092 to $654,443 from $406,351 for the six months ended June
30,
2006 due to the hiring of key management personnel and additional
staff to
implement our business plan.
|
·
|
For
the six months ended June 30, 2007, consulting expense was $38,500,
a
decrease of $35,250 from the expense recognized for the six months
ended
June 30, 2006 of $73,750. The decrease is primarily due to approximately
$63,000 that was paid to a consultant who then became our president
in
2006, partially offset by expenses incurred related to the hiring
of key
personnel during the six months ended June 30, 2007 of $24,000 and
payments to a consulting firm for website optimization of
$10,000.
|
·
|
For
the six months ended June 30, 2007, marketing and advertising expenses
were $239,786, an increase of $78,485 as compared to $161,301 for
the six
months ended June 30, 2007. This increase is attributable to an increase
in our marketing efforts as we roll out product and implement our
business
plan. The primary marketing expenditures continue to be in web advertising
and search engine optimization. We also spent approximately $28,000
on
television advertising and $19,000 during the quarter to redesign
our
consumer packaging. We expect our marketing and advertising expenses
to
increase as our revenues increase and expect to spend increased funds
on
adverting and promotion of our products as well as sales training.
During
fiscal 2007, we intend to significantly expand our marketing efforts
related to our products.
|
·
|
For
the six months ended June 30, 2007, other selling, general and
administrative expenses were $568,287 as compared to $196,150 for
the six
months ended June 30, 2006. The increase was attributable to the
increase
in operations as we implement our business plan and is summarized
below:
|
Six
Months
Ended
June
30, 2007
|
Six
Months
Ended
June
30, 2006
|
||||||
Professional
fees
|
$
|
222,445
|
$
|
4,887
|
|||
Contract
labor
|
40,230
|
7,801
|
|||||
Insurance
|
28,162
|
10,293
|
|||||
Depreciation
|
36,975
|
1,750
|
|||||
Rent
|
54,992
|
22,842
|
|||||
Travel
and entertainment
|
39,048
|
15,162
|
|||||
Telephone
and utilities
|
23,267
|
14,576
|
|||||
Printing
expenses
|
19,651
|
17,525
|
|||||
Office
supplies
|
24,140
|
25,484
|
|||||
Credit
card and bank fees
|
36,013
|
23,443
|
|||||
Promotion
|
14,445
|
28,168
|
|||||
Other
|
28,919
|
24,219
|
|||||
Total
|
$
|
568,287
|
$
|
196,150
|
1.
|
The
right to participate in any subsequent financing of the Company in
the
next twelve months;
|
2.
|
Except
for certain exempt issuances, restrictions on the Company’s ability to
issue securities 90 days following an effective registration statement
on
behalf of the
Purchasers.
|
3.
|
For
as long as any Purchaser holds Company securities, restrictions on
the
Company’s ability to issue securities that are convertible into common
stock at some future or variable price;
|
4.
|
For
twelve months, restrictions on the Company’s ability to undertake a
reverse or forward stock split of its common stock;
|
5.
|
For
two years and except for certain exempt issuances, the right to certain
anti-dilution provisions;
|
6.
|
The
right to rescind in the event the Company fails to meet certain deadlines.
|
1.
|
File
with the Securities and Exchange Commission (the “Commission”) a
pre-effective amendment within ten trading days after the receipt
of
comments from the Commission;
|
2.
|
File
with the Commission a request for acceleration with five trading
days of
the date the Commission notifies the Company orally or in writing
that the
registration statement will not be reviewed or subject to further
review;
|
3.
|
Fail
to notify the Purchasers within one trading day of when the Company
requests effectiveness of the registration statement;
|
4.
|
Fail
to file a final prospectus within one trading day after effectiveness;
|
5.
|
Fail
to maintain an effective registration statement for more than ten
consecutive calendar days or more than an aggregate of fifteen calendar
days in a twelve month period; and
|
6.
|
Fail
to register all of the common stock and the shares of common stock
underlying the warrants pursuant to one or more registration statements
on
or before December 28, 2007.
|
a.
|
Exhibits:
The following Exhibits are filed with this Form 10-QSB 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 7, 2007 | /s/ Robert G. Pedersen II | |
Robert G. Pedersen II, |
||
President and Chief Executive Officer |
Date: August 7, 2007 | /s/ Brandon T. O’Brien | |
Brandon T. O’Brien, |
||
Chief
Financial Officer
(Principal
Financial Officer)
|