ZAGG Overview

ZAGG Overview
A 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, UT
Based 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
– 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
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ZAGG Stock Chart
ZAGG Stock Chart

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 Penny Stock Dream Team
Penny Stock Dream Team
Robert 
Pendersen
Page 5

Robert Cord 
R. Mathew Tullis
Page 14 ZAGG Beatty
Page 9
Page 9

Hansen, Barnett 
Brandon O’Brien Scott B. Gordon
and Maxwell
Page 18 Page 11
Page 20

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 Robert G. Pedersen II
Robert G. Pedersen II
• CEO and Chairman of the Board of ZAGG Inc. has a long history of involvement 
p y p
with penny stock promotions
• 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 which 
Arranged 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
High within 52 Weeks of  Current Price
• Penny Stock Affiliations: Filing

– WSGF – Member of “Applicable Knowledge Group”  $3.75 $0.01

– ZNOM – Member of “Applicable Knowledge Group”
pp g p $3.20
$ $0.02
$

– DBTB  – Owned 100,000 shares $7.00 $0.02

– XWND – Owned 50,000 shares  $5.35 $1.80
– GNAU – Member of “Applicable Knowledge Group” $1.35 $0.05
– DFLY – Owned 466,471 shares $2.50 $0.00

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 Robert G. Pedersen II
Robert 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 II
Robert 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 II
Robert 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 Beatty
R. 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 
– ZAGG is owed over $700K in principal and back interest collateralized by the worthless shell (2)

(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
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 R. Cord Beatty
R. Cord Beatty
• Prior to receiving the 
loan from ZAGG, Robert 
Cord Beatty was barred 
d b d
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
y loan 
$700K to a known and 
banned penny stock 
promoter?

(1) http://www.sec.gov/litigation/aljdec/618bpm.htm 
(2) http://www.sec.gov/news/digest/1995/dig111595.pdf
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 HZO and Scott B. Gordon
HZO 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
Who set up HZO? 
t 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)

(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
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(6) http://www.utahbusinessweek.org/content/?page=14
HZO and Scott B. Gordon
HZO and Scott B. Gordon

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 HZO and Scott B. Gordon
HZO and Scott B. Gordon
• Why did ZAGG loan 
$3M to an entity that is 
controlled by its CEO, 
ll d b
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 
y
prominently disclosed 
as ZAGG related party 
transactions?

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 R. Matthew Tullis
R. 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
y g y (4)

• Robert G. Pedersen’s biography on the company website prominently states that 
he sold PayTeck to Zion’s Bank (5)
• Successor entity to Payteck
Successor entity to Payteck (Modern Payment Inc.) is currently a defendant in a 
(Modern Payment Inc ) is currently a defendant in a
RICO anti‐racketeering lawsuit involving alleged fraud by telemarketers (6)

(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
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(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 Tullis
R. Matthew Tullis

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R. Matthew Tullis
R. Matthew Tullis

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R. Matthew Tullis
R. Matthew Tullis

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 Brandon O’Brien,
Brandon O Brien, CFO
CFO
• Prior to becoming CFO of ZAGG’s predecessor company (ShieldZone), Mr. 
O’Brien
O Brien was Vice President of Finance of Fonix
was Vice President of Finance of Fonix Corporation from 2003 to 
Corporation from 2003 to
2007 (1)
• At Fonix he managed the due diligence of “the successful acquisition  of a 
$33 illi i lt l i ti id ” (2)
$33 million regional telecommunications provider.” 
• 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)

(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 18
 ZAGG CFO’ss “Successful”
ZAGG CFO Successful  Acquisition
Acquisition
• In October of 2010, the SEC filed a complaint against Stephen Hicks and his 
g Funds (1)
Southridge
• 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
Stephen Hicks orchestrated the acquisition of a LecStar
h Hi k h t t d th i iti f L St for $33 million in Fonix
f $33 illi i F i securities 
iti
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?

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

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 Hansen, Barnett & Maxwell
,
• Hansen, Barnett & Maxwell 
(HBM) currently audits ZAGG 
and 29 other public companies
and 29 other public companies,
according to Bloomberg data
• HBM had serious audit 
deficiencies at a firm wide
level (1)
• HBM has audited a series of 
public companies over the 
years that have ended up 
h h d d
going bankrupt or being 
delisted
• The vast majority of these
The vast majority of these
penny stock promotions
had huge run ups in stock
price prior to their collapse

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

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 HBM Current Audit Clients
HBM 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 Clients
HBM 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 Protectors
Commoditized 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
p 4 priced at $0.90 
p $ (1)

• 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 41 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)

(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 23
 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 11,580
Gross 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 3,859
Net 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
Free Cash
C h Fl
Flow (405) (248) (319) (17) (445) (747) 430 186 (260) 256 (616) 1 746
1,746 138 514 (1 136)
(1,136)

Inventory 115 153 329 447 685 681 848 1,913 3,129 4,179 3,488 3,696 4,449 6,204 10,390
Inventory 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 14,144
Days 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

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

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