ZAGG OverviewZAGG OverviewA Bad Business Affiliated with Numerous Sanctioned Individuals

• ZAGG designs and sells protective foils for hand held consumer devices– ZAGG is sold at 111 ZAGG branded kiosks, online and in several retailers

• ZAGG’s screen foil is virtually indistinguishable from the over 14,000+ phone shields sold by Amazon (1)Amazon 

– As of 12‐14‐10, ZAGG’s top selling shield is only ranked the 41st best selling foil on Amazon.com

• Formed by a reverse‐merger into Amerasia Khan, a penny stock with minimal operations

• Based in Salt Lake City, UTBased in Salt Lake City, UT

• Market Cap: $200M

• Average daily volume traded: 525,000 shares

• Questionable executive management and affiliated individuals• Questionable executive management and affiliated individuals  – Robert G. Pedersen II (CEO) – Affiliated with multiple penny stock promotions of now essentially worthless companies

– Brandon T. O’Brien (CFO) – Managed one allegedly fraudulent acquisition currently being investigated by SEC

– R.  Matthew Tullis – Banker sanctioned by the OCC

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– Scott B. Gordon – Broker banned by FINRA

– R. Cord Beatty – Banned from participating in penny stocks by the SEC

(1) http://www.amazon.com/s/ref=nb_sb_noss?url=node%3D2407781011&field‐keywords=&x=0&y=0

ZAGG Stock ChartZAGG Stock Chart

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Penny Stock Dream TeamPenny Stock Dream Team

Robert PendersenPage 5

ZAGGRobert Cord 

BeattyPage 9

R. Mathew TullisPage 14

Page 9

Brandon O’BrienPage 18

Hansen, Barnett and MaxwellPage 20

Scott B. GordonPage 11

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Robert G. Pedersen IIRobert G. Pedersen II• CEO and Chairman of the Board of ZAGG Inc. has a long history of involvement 

with penny stock promotionsp y p

• Multiple business partners have been sanctioned or sued by an assortment of regulatory agencies including FINRA, OCC and the SEC

• Arranged loans from ZAGG to different shell corporations that he owns whichArranged loans from ZAGG to different shell corporations that he owns which resulted in no economic benefit for ZAGG

• Graduated from University of Phoenix, online university, in 1996 with a degree in business administration

• Penny Stock Affiliations:– WSGF – Member of “Applicable Knowledge Group” 

– ZNOM – Member of “Applicable Knowledge Group”

High within 52 Weeks of Filing

Current Price

$3.75 $0.01

$3.20 $0.02pp g p

– DBTB  – Owned 100,000 shares

– XWND – Owned 50,000 shares 

– GNAU – Member of “Applicable Knowledge Group”

$ $

$7.00 $0.02

$5.35 $1.80

$1.35 $0.05

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– DFLY – Owned 466,471 shares $2.50 $0.00

Robert G. Pedersen IIRobert G. Pedersen II• WSGF – World Series of Golf, Inc. (Previously Innovative Consumer Products, Inc.)

– Robert G. Pedersen II listed as “Applicable Knowledge Group” (http://edgar.sec.gov/Archives/edgar/data/1084597/000125529410000616/mainbody.htm) 

• ZNOM – Znomics Inc (Previously Pacific Syndicated Resources, Inc.)

– Robert G. Pedersen II listed as “Applicable Knowledge Group” (http://edgar.sec.gov/Archives/edgar/data/1371473/000125529407000901/ex2_1.htm) 

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Robert G. Pedersen IIRobert G. Pedersen II• DBTB – Debut Broadcasting (Previously California News Tech)

– Robert G. Pedersen II listed as owner of 100,000 shares (http://edgar.sec.gov/Archives/edgar/data/1254371/000125529407000513/mainbody.htm) 

• XWND – Xzeres Wind Corp

– Suncreek, LLC controlled by Robert G. Pedersen II owns 50,000 shares of XWND (http://edgar.sec.gov/Archives/edgar/data/1084597/000125529410000616/mainbody.htm) 

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Robert G. Pedersen IIRobert G. Pedersen II• GNAU – General Automotive Supply, Inc.

– Robert G. Pedersen II listed as “Applicable Knowledge Group” (http://edgar.sec.gov/Archives/edgar/data/1376668/000125529408000225/ex2_1.htm) 

• DFLY – Dreamfly Productions Corp (Previously CLTC Ventures Corp)

– Robert G. Pedersen II owned 466,471 shares (http://edgar.sec.gov/Archives/edgar/data/1424623/000142462308000004/formtensb.txt) 

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R. Cord BeattyR. Cord Beatty• Brighton Partners LLC 

Shell entity run by R Cord Beatty that ZAGG loaned $500 000 to fund a superhero series (1)– Shell entity run by R. Cord Beatty that ZAGG loaned $500,000 to fund a superhero series (1)

– ZAGG is owed over $700K in principal and back interest collateralized by the worthless shell (2)

9(1) http://www.sec.gov/Archives/edgar/data/1296205/000114420408015833/v107231_ex10‐5.htm(2) http://www.sec.gov/Archives/edgar/data/1296205/000114420409042534/v157545_10q.htm

R. Cord BeattyR. Cord Beatty• Prior to receiving the 

loan from ZAGG, Robert d b dCord Beatty was barred 

from participating in any penny stock offering (1)

• Robert Cord Beatty was issued a permanent injunction by the SEC in 1995 for allegedly diverting $2M of investor money for personal uses (2)

• Why would ZAGG loan y$700K to a known and banned penny stock promoter?

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(1) http://www.sec.gov/litigation/aljdec/618bpm.htm (2) http://www.sec.gov/news/digest/1995/dig111595.pdf

HZO and Scott B. GordonHZO and Scott B. Gordon• ZAGG loaned HZO over $3M to acquire the “Golden shellback” technology from Northeast 

Maritime Institute (1)

– ZAGG does not currently offer any products using this technology and has converted its loan to 6.6M shares of HZO stock

• Who owns HZO? (2)

– Robert G. Pedersen II (CEO)

– Brandon O’Brien (CFO) 

– Ed Ekstrom (Board Member)

– ZAGG (per the company converting its loan to stock)

Wh t HZO?• Who set up HZO? – Originally set up by Scott B. Gordon as ZH2O, LLC (3)

– Converted to HZO,  LLC and moved to Deleware

• Scott B. Gordon: Fired from Lincoln Financial for fraud (4)

– Lincoln Financial was fined over $4M by FINRA for not detecting the fraud (5)

• Does Scott B. Gordon work for ZAGG? – He is listed as a speaker from ZAGG at the 2010 Utah Business Week (6)

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(1) http://www.sec.gov/Archives/edgar/data/1296205/000101376210002808/form8k.htm(2) http://www.sec.gov/Archives/edgar/data/1296205/000125529409000696/mainbody.htm(3) https://secure.utah.gov/bes/action/details?entity=7273434‐0160(4) http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/ Search for Scott Burtenshaw Gordon (2852211)(5) http://online.wsj.com/article/BT‐CO‐20101006‐713739.html(6) http://www.utahbusinessweek.org/content/?page=14

HZO and Scott B. GordonHZO and Scott B. Gordon

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HZO and Scott B. GordonHZO and Scott B. Gordon• Why did ZAGG loan 

$3M to an entity that is ll d bcontrolled by its CEO, 

CFO and a broker banned by FINRA?

• Why did ZAGG loan over $3M to HZO to buy a technology they don’t use?

• Why are these not yprominently disclosed as ZAGG related party transactions?

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R. Matthew TullisR. Matthew Tullis• R. Matthew Tullis worked for Zion’s for several years until he was removed 

by the OCC (1)by the OCC

• WillowCreek Ventures– Pedersen’s sole partner is R. Matthew Tullis (2)

• Medical Payment Technologies LLC– Pedersen’s sole partner is R. Matthew Tullis (3)

– Medical Payment Technologies LLC was the owner of PayTeck (4)y g y

• Robert G. Pedersen’s biography on the company website prominently states that he sold PayTeck to Zion’s Bank (5)

• Successor entity to Payteck (Modern Payment Inc ) is currently a defendant in a• Successor entity to Payteck (Modern Payment Inc.) is currently a defendant in a RICO anti‐racketeering lawsuit involving alleged fraud by telemarketers (6)

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(1) http://www.occ.gov/static/news‐issuances/news‐releases/2002/nr‐occ‐2002‐11.pdf(2) https://secure.utah.gov/bes/action/details?entity=5073402‐0160 (View Management Team)(3) https://secure.utah.gov/bes/action/details?entity=5071932‐0160 (View Management Team)(4) https://secure.utah.gov/bes/action/details?entity=5077699‐0151 (View Management Team)(5) http://www.zagg.com/company/executives.php(6) https://ecf.paed.uscourts.gov/cgi‐bin/DktRpt.pl?494759780233943‐L_452_0‐1 or http://www.courthousenews.com/2010/01/29/TelemarketPhilly.pdf

R. Matthew TullisR. Matthew Tullis

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R. Matthew TullisR. Matthew Tullis

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R. Matthew TullisR. Matthew Tullis

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Brandon O’Brien, CFOBrandon O Brien, CFO• Prior to becoming CFO of ZAGG’s predecessor company (ShieldZone), Mr. 

O’Brien was Vice President of Finance of Fonix Corporation from 2003 toO Brien was Vice President of Finance of Fonix Corporation from 2003 to 2007 (1)

• At Fonix he managed the due diligence of “the successful acquisition  of a $33 illi i l t l i ti id ” (2)$33 million regional telecommunications provider.” (2)

• The acquisition in question has become the focus of an SEC securities fraud prosecution (3)

• Fonix Corporation was sued by investors (4) and now has zero equity value (last stock trade at $0.00013 on 12‐7‐10)

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(1) http://www.sec.gov/Archives/edgar/data/1296205/000125529409000271/mainbody.htm(2) http://www.sec.gov/Archives/edgar/data/1296205/000125529407000129/mainbody.htm(3) http://www.sec.gov/litigation/complaints/2010/comp21709.pdf(4) http://www.lawyersandsettlements.com/settlements/09165/payment‐breach.html

ZAGG CFO’s “Successful” AcquisitionZAGG CFO s  Successful  Acquisition• In October of 2010, the SEC filed a complaint against Stephen Hicks and his 

Southridge Funds (1)g

• The complaint detailed the allegedly fraudulent acquisition managed by Brandon T’ O’Brien

• According to the SEC• According to the SEC:

– Mr. Hicks was the controlling shareholder in Fonix Corporation and a worthless telecommunications company called LecStar

St h Hi k h t t d th i iti f L St f $33 illi i F i iti– Stephen Hicks orchestrated the acquisition of a LecStar for $33 million in Fonix securities in order to defraud investors in his Southridge Funds

– Fonix acquired LecStar for $33 million despite Stephen Hick’s having foreclosed on LecStar for $769,000 in promissory notes just 15 months prior to the transaction$ , p y j p

• Was Brandon O’Brien complicit or was his good faith due diligence useless?

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(1) http://www.sec.gov/litigation/complaints/2010/comp21709.pdf

Hansen, Barnett & Maxwell,• Hansen, Barnett & Maxwell 

(HBM) currently audits ZAGG and 29 other public companiesand 29 other public companies,according to Bloomberg data

• HBM had serious audit deficiencies at a firm widelevel (1)

• HBM has audited a series of public companies over the 

h h d dyears that have ended up going bankrupt or being delisted

• The vast majority of theseThe vast majority of thesepenny stock promotionshad huge run ups in stockprice prior to their collapse

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(1) http://pcaobus.org/Inspections/Reports/Documents/2008_Hansen_Barnett_Maxwell.pdf

HBM Current Audit ClientsHBM Current Audit Clients• SCRA – SecureAlert Inc. (formerly RemoteMDX Inc.) 

(http://www.sec.gov/Archives/edgar/data/1045942/000109690608000069/remote10ksb093007.htm) 

• CPEU Chapeau Inc• CPEU – Chapeau Inc. (http://www.sec.gov/Archives/edgar/data/783211/000109690607001328/chapeau10ksb063007.htm)

• CPEU – Chapeau Inc.p

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HBM Current Audit ClientsHBM Current Audit Clients• SUTR – Sutor Technology Group

(http://www.sec.gov/Archives/edgar/data/1041177/000114420410051099/v197494_10k.htm)

• CPHI – China Pharma Holdings(http://www.sec.gov/Archives/edgar/data/1106644/000101054910000119/cph10k123109.htm)

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Commoditized Surface ProtectorsCommoditized Surface Protectors• On 12‐14‐10, Amazon has over 14,400 different cell surface and screen protector 

SKUs with one front and back protector for the iPhone 4 priced at $0.90 (1)p p $

• ZAGG has 1,496 different cell phone protectors on Amazon with its front and back protector for the iPhone 4 priced at $15.32 (2)

• ZAGG’s most popular product is only the 41st best seller on Amazon and has an• ZAGG’s most popular product is only the 41st best seller on Amazon and has an average customer review rating of 2.6 out of 5.0 stars (with 40% giving it the lowest rating possible)

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(1) http://www.amazon.com/s/ref=nb_sb_noss?url=node%3D2407781011&field‐keywords=&x=0&y=0(2) http://www.amazon.com/gp/search/ref=sr_nr_scat_2407781011_ln?rh=n:2407781011,k:zagg&keywords=zagg&ie=UTF8&qid=1292348461&scn=2407781011&h=def969ef5648d6

ee8678240666ac4f876f7b2de7

Financial Red Flags ($ in 000s)Financial Red Flags ($ in 000s)• Since 2007 ZAGG has produced $11.3M of net income, but negative free cash flow 

of ‐$0.9M$

• Gross margins and inventory turnover are declining, while days receivable is increasing

FQ1 2007 FQ2 2007 FQ3 2007 FQ4 2007 FQ1 2008 FQ2 2008 FQ3 2008 FQ4 2008 FQ1 2009 FQ2 2009 FQ3 2009 FQ4 2009 FQ1 2010 FQ2 2010 FQ3 2010

Sales $793 $805 $1,437 $2,101 $2,845 $2,739 $6,855 $7,352 $8,091 $9,215 $9,729 $11,398 $8,776 $15,059 $23,056

COGS (187) (204) (299) (651) (778) (712) (2,417) (2,687) (2,895) (3,700) (4,522) (5,253) (3,832) (7,540) (11,476)

Gross Profit 606 601 1,138 1,450 2,068 2,027 4,438 4,665 5,196 5,516 5,207 6,145 4,944 7,519 11,580Gross Margin 76.4% 74.7% 79.2% 69.0% 72.7% 74.0% 64.7% 63.5% 64.2% 59.9% 53.5% 53.9% 56.3% 49.9% 50.2%

Net Income (271) (48) (733) 293 (114) 175 890 1,149 1,028 1,194 908 251 791 1,911 3,859Net Income Margin (34.1%) (6.0%) (51.0%) 13.9% (4.0%) 6.4% 13.0% 15.6% 12.7% 13.0% 9.3% 2.2% 9.0% 12.7% 16.7%

Operating Cash Flow (388) (222) (247) 15 (347) (655) 488 318 (123) 365 (435) 1,894 199 650 (925)Capex (16) (26) (72) (32) (98) (92) (58) (132) (137) (109) (181) (148) (60) (135) (210)

F C h Fl (405) (248) (319) (17) (445) (747) 430 186 (260) 256 (616) 1 746 138 514 (1 136)Free Cash Flow (405) (248) (319) (17) (445) (747) 430 186 (260) 256 (616) 1,746 138 514 (1,136)

Inventory 115 153 329 447 685 681 848 1,913 3,129 4,179 3,488 3,696 4,449 6,204 10,390Inventory Turnover 6.9x 5.3x 4.4x 4.7x 4.2x 4.0x 8.1x 3.8x 2.6x 2.2x 2.8x 3.1x 2.0x 2.4x 2.2x

Accounts Receivable 65 64 196 402 335 821 2,757 3,594 4,268 5,088 5,878 5,451 4,615 9,221 14,144Days Receivable 7.4x 7.3x 12.5x 17.6x 10.7x 27.3x 37.0x 45.0x 47.5x 50.2x 55.6x 44.0x 47.3x 55.7x 56.4x

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ZAGG SEC Filings: http://www.sec.gov/cgi‐bin/browse‐edgar?action=getcompany&CIK=0001296205&type=&dateb=&owner=exclude&start=0&count=40