x
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the quarterly period ended September 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.
|
Consolidated
Financial Statements (Unaudited)
|
|
Condensed
Consolidated Balance Sheets - As of September 30, 2007 and December
31,
2006
|
3
|
|
Condensed
Consolidated Statements of Operations for the Three and Nine Months
Ended
September 30, 2007 and 2006
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended
September
30, 2007 and 2006
|
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.
|
Controls
and Procedures
|
20
|
PART
II - OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
21
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
21
|
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
|
September
30,
|
December
31,
|
||||||
2007
|
2006
|
||||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
|
$
|
2,146,753
|
$
|
468,382
|
|||
Accounts
receivable, net
|
195,667
|
121,149
|
|||||
Inventories
|
328,925
|
102,522
|
|||||
Prepaid
income taxes
|
41,043
|
44,361
|
|||||
Prepaid
advertising
|
205,782
|
-
|
|||||
Prepaid
expenses and other current assets
|
183,910
|
31,724
|
|||||
Deferred
income tax assets
|
16,796
|
19,468
|
|||||
Due
from employees
|
-
|
3,714
|
|||||
Total
current assets
|
3,118,876
|
791,320
|
|||||
Property
and equipment, net
|
278,479
|
221,474
|
|||||
Deposits
and other assets
|
30,712
|
12,119
|
|||||
Intangible
assets, net
|
50,025
|
2,340
|
|||||
Total
assets
|
$
|
3,478,092
|
$
|
1,027,253
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities
|
|||||||
Convertible
note payable
|
$
|
-
|
$
|
250,000
|
|||
Convertible
note payable - officer
|
-
|
100,000
|
|||||
Accounts
payable
|
316,659
|
246,691
|
|||||
Accrued
liabilities
|
16,592
|
33,573
|
|||||
Accrued
wages and wage related expenses
|
72,962
|
121,728
|
|||||
Deferred
licensing revenue
|
94,953
|
86,801
|
|||||
Sales
returns liability
|
16,599
|
32,000
|
|||||
Total
current liabilities
|
517,765
|
870,793
|
|||||
Long-term
liabilities
|
|||||||
Non-current
deferred income tax liability, net
|
12,365
|
12,087
|
|||||
Total
liabilities
|
530,130
|
882,880
|
|||||
Stockholders'
equity
|
|||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized; 18,793,995
and
10,175,000 shares issued and outstanding, respectively
|
18,790
|
10,175
|
|||||
Additional
paid-in capital
|
3,964,012
|
117,075
|
|||||
Cumulative
translation adjustment
|
(54
|
)
|
-
|
||||
Retained
(deficit) earnings
|
(1,034,786
|
)
|
17,123
|
||||
Total
stockholders' equity
|
2,947,962
|
144,373
|
|||||
Total
liabilities and stockholders' equity
|
$
|
3,478,092
|
$
|
1,027,253
|
Three
Months Ended
|
Three
Months Ended
|
Nine
Months Ended
|
Nine
Months Ended
|
||||||||||
September
30, 2007
|
September
30, 2006
|
September
30, 2007
|
September
30, 2006
|
||||||||||
Net
sales
|
$
|
1,437,408
|
$
|
816,022
|
$
|
3,034,714
|
$
|
1,978,533
|
|||||
Cost
of sales
|
299,027
|
193,153
|
689,858
|
537,375
|
|||||||||
Gross
profit
|
1,138,381
|
622,869
|
2,344,856
|
1,441,158
|
|||||||||
Operating
expenses:
|
|||||||||||||
Salaries
and related taxes
|
451,076
|
263,544
|
1,105,519
|
669,895
|
|||||||||
Compensation
expense related to stock issuance
|
800,000
|
-
|
800,000
|
-
|
|||||||||
Consulting
|
-
|
-
|
38,500
|
73,750
|
|||||||||
Advertising
and marketing
|
227,624
|
108,388
|
467,410
|
269,689
|
|||||||||
Legal
and accounting
|
25,795
|
30,050
|
248,240
|
34,937
|
|||||||||
Other
selling, general and administrative
|
383,851
|
186,631
|
729,693
|
377,894
|
|||||||||
Total
operating expenses
|
1,888,346
|
588,613
|
3,389,362
|
1,426,165
|
|||||||||
(Loss)
income from operations
|
(749,965
|
)
|
34,256
|
(1,044,506
|
)
|
14,993
|
|||||||
Other
(expense) income:
|
|||||||||||||
Interest
expense
|
(4,132
|
)
|
(18,700
|
)
|
(30,231
|
)
|
(18,559
|
)
|
|||||
Interest
and other income
|
20,903
|
-
|
24,988
|
6,819
|
|||||||||
Total
other income (expense)
|
16,771
|
(18,700
|
)
|
(5,243
|
)
|
(11,740
|
)
|
||||||
(Loss)
income before benefit (provision) for income
taxes
|
(733,194
|
)
|
15,556
|
(1,049,749
|
)
|
3,253
|
|||||||
Income
tax (expense) benefit
|
(234
|
)
|
-
|
(2,544
|
)
|
13,464
|
|||||||
Net
(loss) income
|
(733,428
|
)
|
15,556
|
(1,052,293
|
)
|
16,717
|
|||||||
Basic
and diluted net (loss) income per common share
|
$
|
(0.04
|
)
|
$
|
0.00
|
$
|
(0.07
|
)
|
$
|
0.00
|
|||
Weighted
average number of shares outstanding - basic and
diluted
|
17,631,495
|
10,000,000
|
16,131,123
|
10,033,333
|
Nine
Months Ended
|
Nine
Months Ended
|
||||||
September
30, 2007
|
September
30, 2006
|
||||||
Cash
flows from operating activities
|
|||||||
Net
(loss) income
|
$
|
(1,052,293
|
)
|
$
|
16,717
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Non-cash
expense related to issuance of stock to employees
|
800,000
|
-
|
|||||
Depreciation
and amortization
|
58,430
|
17,094
|
|||||
Deferred
income tax (benefit) expense
|
2,950
|
(46,847
|
)
|
||||
Currency
exchange (gain) loss
|
(54
|
)
|
-
|
||||
Changes
in assets and liabilities
|
|||||||
Accounts
receivable
|
(74,518
|
)
|
31,579
|
||||
Inventories
|
(226,403
|
)
|
(66,595
|
)
|
|||
Due
from employees
|
3,714
|
4,268
|
|||||
Prepaid
income taxes
|
3,318
|
-
|
|||||
Prepaid
advertising
|
(205,782
|
)
|
-
|
||||
Prepaid
expenses and other current assets
|
(111,805
|
)
|
51,491
|
||||
Other
assets
|
(18,593
|
)
|
-
|
||||
Accounts
payable
|
21,280
|
148,689
|
|||||
Accrued
liabilities
|
(1,288
|
)
|
60,636
|
||||
Accrued
wages and wage related expenses
|
(48,766
|
)
|
-
|
||||
Deferred
licensing revenues
|
8,152
|
-
|
|||||
Sales
return liability
|
(15,401
|
)
|
-
|
||||
Net
cash (used in) provided by operating activities
|
(857,059
|
)
|
217,032
|
||||
Cash
flows from investing activities
|
|||||||
Payments
for intangible assets
|
(48,764
|
)
|
-
|
||||
Purchase
of property and equipment
|
(114,356
|
)
|
(171,263
|
)
|
|||
Net
cash used in investing activities
|
(163,120
|
)
|
(171,263
|
)
|
|||
Cash
flows from financing activities
|
|||||||
Repayments
on equipment financing payable
|
-
|
(10,016
|
)
|
||||
Proceeds
from issuance of common stock and warrants
|
2,570,750
|
-
|
|||||
Payments
on debt
|
(250,000
|
)
|
-
|
||||
Proceeds
from notes payable
|
200,000
|
-
|
|||||
Payments
on convertible note payable - officer
|
(50,000
|
)
|
-
|
||||
Capital
contribution
|
-
|
25,000
|
|||||
Proceeds
from issuance of common stock
|
227,800
|
75,000
|
|||||
Net
cash provided by financing activities
|
2,698,550
|
89,984
|
|||||
Net
increase in cash and cash equivalents
|
1,678,371
|
135,753
|
|||||
Cash
and cash equivalents at beginning of the period
|
468,382
|
25,661
|
|||||
Cash
and cash equivalents at end of the period
|
$
|
2,146,753
|
$
|
161,414
|
|||
Supplemental
disclosure of cash flow information
|
|||||||
Cash
paid during the period for interest
|
$
|
16,736
|
$
|
-
|
|||
Cash
paid during the period for income taxes
|
$
|
-
|
$
|
35,247
|
|||
Non-cash
investing and financing activities
|
|||||||
Property
and equipment acquired for equipment financing payable
|
$
|
-
|
$
|
-
|
|
|
Net
Loss
|
|
Weighted
Average
Shares
|
|
Per Share
Amount
|
|
||||
Three
months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
||
Basic
EPS
|
|
$
|
(733,428)
|
17,631,495
|
|
|
$
|
(0.04)
|
|
||
Effect
of common stock equivalents
|
|
—
|
|
—
|
|
|
|
|
|
||
Diluted
EPS
|
|
$
|
(733,428)
|
17,631,495
|
|
|
$
|
(0.04)
|
|
||
Three
months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
||
Basic
EPS
|
|
$
|
15,556
|
10,098,913
|
|
|
$
|
0.00
|
|
||
Effect
of common stock equivalents
|
|
—
|
|
—
|
|
|
|
|
|
||
Diluted
EPS
|
|
$
|
15,556
|
10,098,913
|
|
|
$
|
0.00
|
|
|
|
Net
Loss
|
|
Weighted
Average
Shares
|
|
Per Share
Amount
|
|
||||
Nine
months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
||
Basic
EPS
|
|
$
|
(1,052,293)
|
16,131,123
|
|
|
$
|
(0.07)
|
|
||
Effect
of common stock equivalents
|
|
—
|
|
—
|
|
|
|
|
|
||
Diluted
EPS
|
|
$
|
(1,052,293)
|
16,131,123
|
|
|
$
|
(0.07)
|
|
||
Nine
months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
||
Basic
EPS
|
|
$
|
16,717
|
10,033,000
|
|
|
$
|
0.00
|
|
||
Effect
of common stock equivalents
|
|
—
|
|
—
|
|
|
|
|
|
||
Diluted
EPS
|
|
$
|
16,717
|
10,033,000
|
|
|
$
|
0.00
|
|
September
30, 2007
|
December
31, 2006
|
||||||
Accounts
receivable
|
$
|
215,860
|
$
|
141,342
|
|||
Less:
Allowance for doubtful accounts
|
(20,193
|
)
|
(20,193
|
)
|
|||
Accounts
receivable, net
|
$
|
195,667
|
$
|
121,149
|
September
30, 2007
|
December
31, 2006
|
||||||
Finished
Goods
|
$
|
180,855
|
$
|
67,257
|
|||
Raw
Materials
|
148,070
|
35,265
|
|||||
$
|
328,925
|
$
|
102,522
|
Useful
Lives
|
September
30, 2007
|
December
31, 2006
|
||||||||
Computer
equipment and software
|
3
to 5 years
|
$
|
95,865
|
$
|
58,790
|
|||||
Office
equipment
|
3
to7 years
|
102,518
|
58,407
|
|||||||
Furniture
and fixtures
|
7
years
|
42,575
|
9,405
|
|||||||
Automobiles
|
5
years
|
47,063
|
47,063
|
|||||||
Leasehold
improvements
|
1
to 3.13 years
|
91,637
|
91,637
|
|||||||
379,658
|
265,302
|
|||||||||
Less
Accumulated depreciation
|
(101,179
|
)
|
(43,828
|
)
|
||||||
$
|
278,479
|
$
|
221,474
|
September
30, 2007
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||
Internet
addresses
|
$
|
43,169
|
$
|
(1,079
|
)
|
$
|
42,090
|
· |
For
the quarter ended September 30, 2007, we recognized $800,000 in expense
related to the issuance of restricted stock to employees and key
consultants of the Company. Exclusive of this non-cash charge, total
operating expenses were $1,088,346 and income from operations was
$50,035.
|
· |
For
the quarter ended September 30, 2007, salaries and related taxes
increased
by $187,532 to $451,076 from $263,544 for the quarter ended September
30,
2006 due to the hiring of some key management personnel and additional
staff to facilitate our continued grown and development of our overall
business plan and marketing strategy.
|
· |
For
the quarter ended September 30, 2007, marketing and advertising expenses
were $227,624, an increase of $119,236 as compared to $108,388 for
the
quarter ended September 30, 2006. As a percentage of sales, the increase
was only 2.6% from 13.3% of sales for the quarter ended September
30, 2006
to 15.8% of sales for the quarter ended September 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 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. We also
spent
approximately $51,000 on television advertising for the
invisible
SHIELD
product line.
|
· |
For
the quarter ended September 30, 2007, other selling, general and
administrative expenses were $383,851 as compared to $186,631 for
the
quarter ended September 30, 2006, an increase of $197,220. The
increase
was attributable to the increase in operations as we continue to
implement
our business plan and is summarized
below:
|
Three
Months Ended
September
30, 2007
|
Three
Months Ended
September
30, 2006
|
||||||
Contract
labor
|
$
|
80,421
|
$
|
33,159
|
|||
Rent
|
59,547
|
9,211
|
|||||
Investor
relations
|
48,185
|
--
|
|||||
Credit
Card and bank fees
|
37,434
|
12,591
|
|||||
Travel
and entertainment
|
29,518
|
27,297
|
|||||
Insurance
|
24,327
|
14,380
|
|||||
Depreciation
and amortization
|
21,455
|
15,344
|
|||||
Telephone
and utilities
|
20,586
|
13,919
|
|||||
Office
supplies
|
17,636
|
7,699
|
|||||
Printing
expenses
|
12,068
|
6,566
|
|||||
Other
|
32,674
|
46,465
|
|||||
Total
|
$
|
383,851
|
$
|
186,631
|
· |
For
the nine months ended September 30, 2007, we recognized $800,000
in
expense related to the issuance of restricted stock to employees
and key
consultants of the Company. Exclusive of this non-cash charge, total
operating expenses were $2,589,362 and the loss from operations was
($244,506).
|
· |
For
the nine months ended September 30, 2007, salaries and related taxes
increased by $435,624 to $1,105,519 from $669,895 for the nine months
ended September 30, 2006 due to the hiring of key management personnel
and
additional staff to facilitate our continued grown and development
of our
overall business plan and marketing
strategy.
|
· |
For
the nine months ended September 30, 2007, consulting expense was
$38,500,
a decrease of $35,250 from the expense recognized for the nine months
ended September 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 nine months ended September 30,
2007 of
$24,000 and payments to a consulting firm for website optimization
of
$10,000.
|
· |
For
the nine months ended September 30, 2007, legal and accounting expenses
were $248,240, an increase of $213,303 as compared to $34,937 for
the nine
months ended September 30, 2006. The overall increase is attributable
to
the reverse merger that we effectuated in February
2007.
|
· |
For
the nine months ended September 30, 2007, marketing and advertising
expenses were $467,410, an increase of $197,721 as compared to $269,689
for the nine months ended September 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 $79,000 on television
advertising and $19,000 for the nine months ended September 30, 2007
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.
|
· |
For
the nine months ended September 30, 2007, other selling, general
and
administrative expenses were $729,963 as compared to $377,894 for
the nine
months ended September 30, 2006. The increase was attributable to
the
increase in operations as we implement our business plan and is summarized
below:
|
Nine
Months Ended
September
30, 2007
|
Nine
Months Ended
September
30, 2006
|
||||||
Contract
labor
|
$
|
120,650
|
$
|
40,960
|
|||
Rent
|
114,538
|
32,053
|
|||||
Credit
Card and bank fees
|
73,447
|
36,034
|
|||||
Travel
and entertainment
|
68,565
|
42,459
|
|||||
Depreciation
and amortization
|
58,430
|
17,094
|
|||||
Investor
relations
|
52,584
|
--
|
|||||
Insurance
|
52,536
|
24,673
|
|||||
Telephone
and utilities
|
44,893
|
30,011
|
|||||
Office
supplies
|
41,776
|
33,183
|
|||||
Printing
expenses
|
31,719
|
24,091
|
|||||
Other
|
70,555
|
97,336
|
|||||
Total
|
$
|
729,963
|
$
|
377,894
|
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
offer securities in the next 90 days and beyond in certain circumstances;
|
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 | |
10.1
|
ZAGG
Incorporated 2007 Stock Incentive Plan
|
|
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: November 14, 2007 | By: | /s/ ROBERT G. PEDERSEN II |
Robert G. Pedersen II, |
||
President and Chief Executive Officer |
|
|
|
Date: November 14, 2007 | By: | /s/ BRANDON T. O’BRIEN |
Brandon T. O’Brien, |
||
Chief Financial Officer | ||
(Principal Financial Officer) |
1.1.
|
TITLE.
The plan described herein shall be known as the ZAGG INCORPORATED
2007
Stock Incentive Plan (the "Plan").
|
1.2.
|
PURPOSE.
The purpose of this Plan is to promote long-term growth and profitability
of ZAGG INCORPORATED (the "Company") and its Subsidiaries by (i)
compensating certain directors, officers, employees of and certain
other
persons who perform services for the Company and its Subsidiaries
for
services rendered by such persons after the date of adoption of
this Plan
to the Company or any Subsidiary; (ii) providing certain directors,
officers and employees of the Company and its Subsidiaries with
significant additional incentive to promote the financial success
of the
Company; and (iii) providing an incentive which may be used to
induce able
persons to serve or remain on the Board of Directors of the Company
or to
enter into or remain in the employment of the Company or any Subsidiary.
Grants of Incentive or Non-qualified Stock Options, Restricted
Stock or a
combination of the foregoing may be made under the Plan.
|
1.3.
|
EFFECTIVE
DATE. The Plan became effective upon its approval by the Board
of
Directors and the stockholders of the Company (the "Effective Date").
|
1.4.
|
DEFINED
TERMS. Certain capitalized terms used herein have the meanings
as set
forth in Section 12.1 of the Plan.
|
2.1.
|
INITIAL
ADMINISTRATION. This Plan shall initially be administered by the
Board of
Directors. The Board of Directors shall delegate the administration
of the
Plan to a Compensation Committee (the "Committee") in the event
that such
a committee is established by the Board of Directors and is comprised
of
persons appointed by the Board of Directors of the Company in accordance
with the provisions of Section 2.3. The Board shall exercise full
power
and authority regarding the administration of the Plan until such
administration is delegated to the Committee. Unless the context
otherwise
requires, references herein to the Committee shall be deemed to
refer to
the Board of Directors until the administration of the Plan has
been
delegated to the Committee.
|
2.2.
|
COMMITTEE'S
POWERS. The Committee shall have full power and authority to prescribe,
amend and rescind rules and procedures governing administration
of this
Plan. The Committee shall have full power and authority (i) to
interpret
the terms of this Plan, the terms of the Grants and the rules and
procedures established by the Committee and (ii) to determine the
meaning
of or requirements imposed by or rights of any person under this
Plan, any
Grant or any rule or procedure established by the Committee. Each
action
of the Committee which is within the scope of the authority delegated
to
the Committee by this Plan or by the Board shall be binding on
all
persons.
|
2.3.
|
COMMITTEE
MEMBERSHIP. The Committee shall be composed of one or more members
of the
Board. The Board shall have the power to determine the number of
members
which the Committee shall have and to change
the
number of membership positions on the Committee from time to time.
The
Board shall appoint all members of the Committee. The Board may
from time
to time appoint members to the Committee in substitution for, or
in
addition to, members previously appointed and may fill vacancies,
however
caused, on the Committee. Any member of the Committee may be removed
from
the Committee by the Board at any time with or without cause.
|
2.4.
|
COMMITTEE
PROCEDURES. The Committee shall hold its meetings at such times
and places
as it may determine. The Committee may make such rules and regulations
for
the conduct of its business as it shall deem advisable. Unless
the Board
or the Committee expressly decides to the contrary, a majority
of the
members of the Committee shall constitute a quorum and any action
taken by
a majority of the Committee members in attendance at a meeting
at which a
quorum of Committee members are present shall be deemed an act
of the
Committee.
|
2.5.
|
INDEMNIFICATION.
No member of the Committee shall be liable, in the absence of bad
faith,
for any act or omission with respect to his or her service on the
Committee under this Plan. Service on the Committee shall constitute
service as a director of the Company so that the members of the
Committee
shall be entitled to indemnification and reimbursement as directors
of the
Company for any action or any failure to act in connection with
service on
the Committee to the full extent provided for at any time in the
Company's
Certificate of Incorporation and By Laws, or in any insurance policy
or
other agreement intended for the benefit of the Company's directors.
|
4.1.
|
POWER
TO GRANT COMMON STOCK. The Committee shall have the right and the
power to
grant at any time to any Grantee Options, Restricted Stock or a
combination thereof (each a "Grant"), in such quantity, at such
price, on
such terms and subject to such conditions consistent with the provisions
of this Plan as may be established by the Committee on or prior
to the
Granting Date for such Grant. In addition, the Board may approve
a total
amount of Shares for grant and then specifically authorize the
Committee
or senior management of the Company to make grants of the approved
Shares
to Grantees.
|
4.2.
|
GRANTING
DATE. A Grant shall be deemed to have been made under this Plan
on the
date (the "Granting Date") which the Committee designates as the
Granting
Date at the time it approves such Grant, provided that the Committee
may
not designate a Granting Date with respect to any Grant which is
earlier
than the date on which the granting of such Grant is approved by
the
Committee.
|
5.2
|
INCENTIVE
STOCK OPTIONS. It is the Company's intent that Non-qualified Stock
Options
granted under the Plan not be classified as Incentive Stock Options,
that
Incentive Stock Options be consistent with and contain or be deemed
to
contain all provisions required under Section 422 of the Code and
any
successor thereto, and that any ambiguities in construction be
interpreted
in order to effectuate such intent. If an Incentive Stock Option
granted
under the Plan does not qualify as such for any reason, then to
the extent
of such non-qualification, the stock option represented thereby
shall be
regarded as a Non-qualified Stock Option duly granted under the
Plan,
provided that such stock option otherwise meets the Plan's requirements
for Non-qualified Stock Options.
|
5.3.
|
TERM
LIMITATION. No Incentive Stock Option may be granted under this
Plan which
is exercisable more than ten years after its Granting Date. This
Section
5.3 shall not be deemed to limit the term which the Committee may
specify
for any Non-qualified Options granted under the Plan.
|
5.4.
|
$200,000
PER YEAR LIMIT ON INCENTIVE STOCK OPTIONS. No Grantee may be granted
Incentive Stock Options if the value of the Shares subject to those
options which first become exercisable in any given calendar year
(and the
value of the Shares subject to any other Incentive Stock Options
issued to
the Grantee under the Plan or any other plan of the Company or
its
Subsidiaries which first become exercisable in such year) exceeds
$200,000. For this purpose, the value of Shares shall be determined
on the
Granting Date. Any Incentive Stock Options issued in excess of
the
$200,000 limit shall be treated as Non-qualified Options. Incentive
Stock
Options shall be taken into account in the order in which they
were
granted.
|
6.1
|
RESTRICTED
STOCK TERMS WHICH THE COMMITTEE MAY DETERMINE. The Committee may
at any
time and from time to time grant Shares of Restricted Stock under
the Plan
to such Grantees and in such amounts as it determines. Each grant
of
Restricted Stock shall specify the applicable restrictions on such
Shares
(including, for example, time, performance, price and milestone
based
vesting restrictions), the duration of such restrictions and the
time or
times at which such restrictions shall lapse with respect to all
or a
specified number of Shares that are part of the grant.
|
6.2
|
REQUIRED
PAYMENT UPON GRANT. The Grantee will be required to pay the Company
the
aggregate par value of any Shares of Restricted Stock within ten
days of
the date of grant, unless such Shares of Restricted Stock are treasury
shares.
|
6.3
|
ESCROW
OF RESTRICTED STOCK AND STOCKHOLDER RIGHTS. Unless otherwise determined
by
the Committee, certificates representing Shares of Restricted Stock
granted under the
Plan
will be held in escrow by the Company on the Grantee's behalf during
any
period of restriction thereon and will bear an appropriate legend
specifying the applicable restrictions thereon, and the Grantee
will be
required to execute a blank stock power therefore. Except as otherwise
provided by the Committee, during such period of restriction the
Grantee
shall have all of the rights of a holder of Common Stock, including
but
not limited to the rights to receive dividends and to vote, and
any stock
or other securities received as a distribution with respect to
such
Grantee's Restricted Stock shall be subject to the same restrictions
as
then in effect for the Restricted Stock.
|
6.4
|
FORFEITURE.
Except as otherwise provided by the Committee, at such time as
a Grantee
ceases to be a director, officer or employee of, or otherwise performing
services for, the Company or its Subsidiaries for any other reason,
all
Shares of Restricted Stock granted to such participant on which
the
restrictions have not lapsed shall be immediately forfeited to
the
Company.
|
7.1.
|
AGREEMENT.
No Grantee shall have any rights under any Grant unless and until
the
Company and the Grantee have executed and delivered an agreement
expressly
making the Grant to such Grantee and containing provisions setting
forth
the terms of the Grant (either an "Option Agreement" or a "Restricted
Stock Agreement", as the case may be). Unless otherwise provided
by the
Committee, the form of Stock Option Agreement, attached to this
Plan as
Exhibit A, or the form of Restricted Stock Agreement, attached
to this
Plan as Exhibit B, shall be used by the Committee in making Grants
under
the Plan.
|
7.2.
|
LIMITATION
ON SHARES ISSUABLE TO ANY GRANTEE. The aggregate number of Shares
that may
relate to Options made to a Grantee during any calendar year (including
those Options already exercised by the Grantee) shall not exceed
300,000
shares, as adjusted pursuant to Article 10 of this Plan.
|
7.3.
|
PLAN
PROVISIONS CONTROL TERMS. The terms of this Plan shall govern all
Grants.
In the event any provision of any Option Agreement or Restricted
Stock
Agreement conflicts with any term in this Plan as constituted on
the
Granting Date of such Grant, the term in this Plan as constituted
on the
Granting Date of the Grant shall control. Except as provided in
Article
10, the terms of any Grant may not be changed after the Granting
Date of
such Grant without the express approval of the Company and the
Grantee.
|
7.4.
|
TRANSFER
OF GRANTS. A Grant made pursuant to this Plan may be transferable
as
provided in the Option Agreement or Restricted Stock Agreement,
as
applicable. It shall be a condition precedent to any transfer of
any Grant
that the transferee executes and delivers an agreement acknowledging
that
such Grant has been acquired for investment and not for distribution
and
is and shall remain subject to this Plan and the applicable Option
Agreement or Restricted Stock Agreement. The "Grantee" of any Grant
shall
mean (i) the initial grantee of such Grant or (ii) any permitted
transferee.
|
7.5.
|
NO
RIGHT TO EMPLOYMENT CONFERRED. Nothing in this Plan or (in the
absence of
an express provision to the contrary) in any Option Agreement or
Restricted Stock Agreement (i) confers any right or obligation
on any
person to continue in the employ of the Company or any Subsidiary
or (ii)
affects or shall affect in any way any person's right or the right
of the
Company or any Subsidiary to terminate such person's employment
with the
Company or any Subsidiary at any time, for any reason, with or
without
cause.
|
8.1.
|
TAXES.
The Company or any Subsidiary shall be entitled, if the Committee
deems it
necessary or desirable, to withhold from a Grantee's salary or
other
compensation (or to secure payment from the Grantee in lieu of
withholding) all or any portion of any withholding or other tax
due from
the Company or any Subsidiary with respect to any Shares deliverable
under
such Grantee's Grant.
|
8.2.
|
SECURITIES
LAW COMPLIANCE. Each Grant shall be subject to the condition that
an
Option may not be exercised and the restrictions on Shares Restricted
Stock may not lapse if and to the extent the Committee determines
that the
sale of securities upon exercise of the Option or lapse of the
restrictions may violate the Securities Act or any other law or
requirement of any governmental authority. The Company shall not
be deemed
by any reason of the making of any Grant to have any obligation
to
register the Shares subject to such Grant under the Securities
Act or to
maintain in effect any registration of such Shares which may be
made at
any time under the Securities Act. An Option shall not be exercisable
and
the restrictions shall not lapse if the Committee or the Board
determines
there is non-public information material to the decision of the
Grantee to
exercise such Option or trade such Restricted Stock which the Company
cannot for any reason communicate to such Grantee.
|
11.1.
|
AMENDMENT.
Except as provided in the following two sentences, the Board shall
have
complete power and authority to amend this Plan at any time, and
no
approval by the Company's stockholders or by any other person,
committee
or other entity of any kind shall be required to make any amendment
approved by the Board effective. The Board shall not, without the
affirmative approval of the Company's stockholders, amend the Plan
in any
manner which would cause any outstanding Incentive Stock Options
to no
longer qualify as Incentive Stock Options. No termination or amendment
of
this Plan may, without the consent of the Grantee prior to termination
or
the adoption of such amendment, materially and adversely affect
the rights
of such Grantee under such Grant.
|
11.2.
|
TERMINATION.
The Board shall have the right and the power to terminate this
Plan at any
time, provided that no Incentive Stock Options may be granted after
the
tenth anniversary of the adoption of this Plan. No Grant shall
be made
under this Plan after the termination of this Plan, but the termination
of
this Plan shall not have any other effect. Any Option outstanding
at the
time of the termination of this Plan may be exercised, and the
restrictions on any Restricted Stock may lapse, after termination
of this
Plan at any time prior to the Expiration Date of such Grant to
the same
extent such
Option would have been exercisable and such restriction would have
lapsed
had this Plan not terminated.
|
12.1.
|
DEFINITIONS.
Each term defined in this Section 12.1 has the meaning indicated
in this
Section 12.1 whenever such term is used in this Plan:
|
12.2.
|
HEADINGS.
Section headings used in this Plan are for convenience only, do
not
constitute a part of this Plan and shall not be deemed to limit,
characterize or affect in any way any provisions of this Plan.
All
provisions in this Plan shall be construed as if no headings had
been used
in this Plan.
|
12.4.
|
NO
STRICT CONSTRUCTION. No rule of strict construction shall be applied
against the Company, the Committee or any other person in the
interpretation of any of the terms of this Plan, any Grant or any
rule or
procedure established by the Committee.
|
12.5.
|
CHOICE
OF LAW. This Plan and all documents contemplated hereby, and all
remedies
in connection therewith and all questions or transactions relating
thereto, shall be construed in accordance with and governed by
the
internal laws of the State of Nevada.
|
12.6.
|
TAX
CONSEQUENCES. Tax consequences from the purchase and sale of Shares
may
differ among Grantees under the Plan. Each Grantee should discuss
specific
tax questions regarding participation in the Plan with his or her
own tax
advisor.
|
1. |
I
have reviewed this quarterly report on Form 10-QSB of Zagg
Incorporated;
|
2. |
Based
on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
annual report;
|
3. |
Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of
the
registrant as of, and for, the periods presented in this annual
report;
|
4. |
The
registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
|
a) |
designed
such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
|
b) |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
as of a date within 90 days prior to the filing date of this annual
report (the “Evaluation Date”); and
|
c) |
presented
in this annual report our conclusions about the effectiveness of
the
disclosure controls and procedures based on our evaluation as of
the
Evaluation Date;
|
5. |
The
registrant’s other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the
equivalent function):
|
a) |
all
significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant’s ability to record, process,
summarize and report financial data and have identified for the
registrant’s auditors any material weaknesses in internal controls;
and
|
b) |
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal
controls; and
|
6. |
The
registrant’s other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal
controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|
|
|
|
Date: November 14, 2007 | By: | /s/ ROBERT G. PEDERSEN II |
Robert
G. Pedersen II,
Chief Executive Officer |
||
1. |
I
have reviewed this quarterly report on Form 10-QSB Zagg
Incorporated.
|
2. |
Based
on my knowledge, this annual report does not contain any untrue
statement
of a material fact or omit to state a material fact necessary to
make the
statements made, in light of the circumstances under which such
statements
were made, not misleading with respect to the period covered by
this
annual report;
|
3. |
Based
on my knowledge, the financial statements, and other financial
information
included in this annual report, fairly present in all material
respects
the financial condition, results of operations and cash flows of
the
registrant as of, and for, the periods presented in this annual
report;
|
4. |
The
registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
|
a) |
designed
such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
|
b) |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
as of a date within 90 days prior to the filing date of this
quarterly report (the “Evaluation Date”);
and
|
c) |
presented
in this annual report our conclusions about the effectiveness of
the
disclosure controls and procedures based on our evaluation as of
the
Evaluation Date;
|
5. |
The
registrant’s other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the
equivalent function):
|
a) |
all
significant deficiencies in the design or operation of internal
controls
which could adversely affect the registrant’s ability to record, process,
summarize and report financial data and have identified for the
registrant’s auditors any material weaknesses in internal controls;
and
|
b) |
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal
controls; and
|
6. |
The
registrant’s other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal
controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any
corrective actions with regard to significant deficiencies and
material
weaknesses.
|
|
|
|
Date: November 14, 2007 | By: | /s/ BRANDON T. O’BRIEN |
Brandon
T. O’Brien,
Chief Financial Officer |
||
|
|
|
|
|
/s/
ROBERT
G. PEDERSEN II
|
|
|
Robert
G. Pedersen II
|
|
|
Chief
Executive Officer
|
|
|
November
14, 2007
|