Zagg Inc Form 10-Q)

Section 1: 10-Q (ZAGG INC FORM 10-Q) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2012, or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______________ to _____________. Commission File No. 000-52211 ZAGG INC (Exact name of registrant as specified in its charter) Nevada 20-2559624 (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 3855 South 500 West, Suite J Salt Lake City, Utah 84115 (Address of principal executive offices with zip code) (801) 263-0699 (Registrant's telephone number, including area code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No[ ]. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. [ ] Large Accelerated Filer [X] Accelerated Filer [ ] Non-accelerated Filer (do not check if a smaller reporting company) [ ] Smaller Reporting Company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-25 of the Exchange Act). Yes [ ] No [X] State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 30,247,533 common shares as of May 7, 2012. 1 ZAGG INC AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets – As of March 31, 2012 and December 31, 2011 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011 4 Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011 5 Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2012 6 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 7 Notes to Condensed Consolidated Financial Statements 9 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk 35 Item 4. Controls and Procedures 35 PART II - OTHER INFORMATION Item 1. Legal Proceedings 36 Item 1A. Risk Factors 38 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38 Item 3. Defaults Upon Senior Securities 38 Item 4. Mine Safety Disclosures 38 Item 5. Other Information 38 Item 6. Exhibits 38 2 ZAGG INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) March 31, December 31, 2012 2011 ASSETS Current assets Cash and cash equivalents $ 16,856 $ 26,433 Accounts receivable, net of allowances of $2,166 in 2012 and $2,070 in 2011 36,374 45,450 Inventories 25,656 29,622 Prepaid expenses and other current assets 5,387 1,593 Deferred income tax assets 5,063 5,132 Total current assets 89,336 108,230 Investment in HzO 4,416 4,879 Property and equipment, net of accumulated depreciation at $2,101 in 2012 and $1,857 in 2011 4,423 4,162 Deferred income tax assets 82 82 Goodwill 6,925 6,925 Intangible assets, net of accumulated amortization at $6,425 in 2012 and $3,989 in 2011 71,255 73,691 Note receivable 1,099 1,349 Other assets 3,051 3,010 Total assets $ 180,587 $ 202,328 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 16,637 $ 16,013 Income taxes payable 2,223 4,294 Accrued liabilities 2,348 3,886 Accrued wages and wage related expenses 1,420 1,468 Deferred revenue 288 320 Current portion of note payable - 2,372 Sales returns liability 5,163 5,387 Total current liabilities 28,079 33,740 Revolving line of credit 1,627 23,332 Noncurrent portion of note payable 41,000 42,628 Total liabilities 70,706 99,700 Stockholders' equity Common stock, $0.001 par value; 100,000 shares authorized; 30,236 and 29,782 shares issued and outstanding, respectively 30 30 Additional paid-in capital 72,409 70,248 Accumulated other comprehensive income (53) (33) Note receivable collateralized by stock (566) (566) Retained earnings 38,061 32,949 Total stockholders' equity 109,881 102,628 Total liabilities and stockholders' equity $ 180,587 $ 202,328 See accompanying notes to condensed consolidated financial statements. 3 ZAGG INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share amounts) (Unaudited) Three Months Ended March 31, March 31, 2012 2011 Net sales $ 55,480 $ 26,976 Cost of sales 28,547 13,330 Gross profit 26,933 13,646 Operating expenses: Advertising and marketing 2,441 2,512 Selling, general and administrative 11,842 6,220 Amortization of definite-lived intangibles 2,422 50 Total operating expenses 16,705 8,782 Income from operations 10,228 4,864 Other income (expense): Interest expense (1,521) (11) Loss from equity method investment in HzO (463) - Other income and (expense) (147) - Total other expense (2,131) (11) Income before provision for income taxes 8,097 4,853 Income tax provision (2,985) (1,595) Net income 5,112 3,258 Net loss attributable to noncontrolling interest - 52 Net income attributable to stockholders $ 5,112 $ 3,310 Earnings per share attributable to stockholders: Basic earnings per share $ 0.17 $ 0.14 Diluted earnings per share $ 0.16 $ 0.13 See accompanying notes to condensed consolidated financial statements. 4 ZAGG INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (Unaudited) Three Months Ended March 31, March 31, 2012 2011 Net income $ 5,112 $ 3,258 Other comprehenseive income (loss), net of tax: Foreign currency translation loss (20) (25) Total other comprehensive loss (20) (25) Comprehensive income $ 5,092 $ 3,233 Comprehensive loss attributable to noncontrolling interest - 52 Comprehensive income attributable to stockholders $ 5,092 $ 3,285 See accompanying notes to condensed consolidated financial statements. 5 ZAGG INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (in thousands) (Unaudited) Accumulated Note Additional Receivable Other Total Common Stock Paid-in Collateralized Retained Comprehensive Stockholders' Shares Amount Capital By Stock Earnings Loss Equity Balances, December 31, 2011 29,782 $ 30 $ 70,248 $ (566) $ 32,949 $ (33) $ 102,628 Comprehensive income: Net income - - - - 5,112 - 5,112 Other comprehensive loss - - - - - (20) (20) Option exercises 179 - 309 - - - 309 Warrant exercises 167 - 199 - - - 199 Restricted stock release 108 - - - - - - Stock-based compensation - - 1,342 - - - 1,342 Excess tax benefits related to share-based payments - - 311 - - - 311 Balances, March 31, 2012 30,236 $ 30 $ 72,409 $ (566) $ 38,061 $ (53) $ 109,881 See accompanying notes to condensed consolidated financial statements. 6 ZAGG INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended March 31, March 31, 2012 2011 Cash flows from operating activities Net income $ 5,112 $ 3,258 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Stock-based compensation 1,031 304 Excess tax benefits related to share-based payments (311) (203) Depreciation and amortization 2,818 176 Loss from equity method investment in HzO 463 - Loss on disposal of equipment 220 - Deferred income taxes 69 (320) Amortization of deferred loan costs 286 - Expense related to issuance of warrants 311 377 Expense related to issuance of stock for consulting - 100 Changes in operating assets and liabilities Accounts receivable 9,142 1,466 Inventories 3,983 (3,246) Related party other asset - - Prepaid expenses and other current assets (3,438) 2,119 Other assets (76) (4) Accounts payable 592 (4,450) Income taxes payable (1,752) (5,036) Accrued liabilities (1,907) 462 Accrued wages and wage related expenses (48) 88 Deferred revenues (32) 43 Sales return liability (225) (205) Net cash provided by (used in) operating activities 16,238 (5,071) Cash flows from investing activities Deposits on and purchase of intangible assets - (167) Purchase of property and equipment (855) (176) Proceeds from disposal of equipment 2 - Net cash used in investing activities (853) (343) Cash flows from financing activities Proceeds from revolving credit facilities 1,295 4,135 Payments on revolving credit facilities (23,000) (3) Payments on term loan (4,000) - Proceeds from exercise of warrants and options 508 498 Excess tax benefits related to share-based payments 311 203 Net cash provided by (used in) financing activities (24,886) 4,833 Effect of foreign currency exchange rates on cash and cash equivalents (76) (25) Net decrease in cash and cash equivalents (9,577) (606) Cash and cash equivalents at beginning of the period 26,433 2,373 Cash and cash equivalents at end of the period $ 16,856 $ 1,767 Supplemental disclosure of cash flow information Cash paid during the period for interest 1,262 $ 11 Cash paid during the period for taxes 4,660 6,944 .

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