Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Our Business

We are a fast-growth company in the consumer technology accessories business. We design, manufacture and distribute protective coverings for consumer electronic and hand-held devices under the brand name invisibleSHIELD™. The invisibleSHIELD is a protective, high-tech film covering, designed for iPods®, laptops, cell phones, digital cameras, PDAs, watch faces, GPS systems, gaming devices, and other items. The product is "cut" to fit specific devices and packaged together with a moisture activating spray called "SHIELDspray"™ which makes the invisibleSHIELD adhere to the surface of the device literally "like a second skin" virtually invisible to the eye. The patent-pending invisibleSHIELD is the first scratch protection solution of its kind on the market. The invisibleSHIELD is not ornamental, but rather provides a long lasting barrier to preserve the brand new look of the surface of an electronic device. Currently, ZAGG offers over 2,500 precision pre-cut designs with a lifetime replacement warranty through online channels, resellers, college bookstores, Mac stores, and mall kiosks. The company plans to increase its product lines to offer electronic accessories to its tech-savvy customer base, as well as an expanded array of invisibleSHIELD products for other industries. With over 1,000,000 invisibleSHIELDs sold to date by early adopters, we are poised to introduce the invisibleSHIELD product to mass market consumers worldwide.

Our key product, invisibleSHIELD, is made from a protective, film covering that was developed originally to protect the leading edges of rotary blades of military helicopters. We determined that this same film product could be configured to fit onto the surface of electronic devices and marketed to consumers for use in protecting such devices from everyday wear and tear including scratches, scrapes, debris and other surface blemishes. The film also permits touch sensitivity, meaning it can be used on devices that have a touch-screen interface. The invisibleSHIELD film material is highly reliable and durable since it was originally developed for use in a high friction, high velocity, aerospace context. The film provides long lasting protection for the surface of electronic devices subject to normal wear and tear. The film is a form of polyurethane substance, akin to a very thin, pliable, flexible and durable clear plastic that adheres to the surface and shape of the object it is applied to.

We also sell accessories for electronics devices including power cords, chargers and adapters.

We maintain our corporate offices and operational facility at 3855 South 500 West, Suites B, C, J and R, Salt Lake City, Utah, 84115. The telephone number of the Company is 801-263-0699. Our website addresses are www.invisibleshield.com and www.zagg.com.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Significant estimates include the allowance for doubtful accounts, inventory valuation allowances, sales returns and warranty liability, the useful life of property and equipment and the valuation allowance on deferred tax assets.

Recent Accounting Pronouncements

In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157 ("FSP FAS 157-2"). FSP 157-2 delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We will adopt FAS 157 for non-financial assets and non-financial liabilities on December 31, 2008, and we do not anticipate this adoption will have a material impact on our financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133," which will require increased disclosure about strategies and objectives for using derivative instruments; the location and amounts of derivative instruments in financial statements; how derivative instruments and related hedged items are accounted for under SFAS No 133, "Accounting for Derivative Instruments and Hedging Activities;" and how derivative instruments and related hedged items affect the financial position, financial performance, and cash flows. Certain disclosures will also be required with respect to derivative features that are credit-risk related. SFAS No 161 is effective for us beginning January 1, 2009 on a prospective basis. We do not expect this standard to have a material impact on our consolidated results of operations or financial condition.

Revenue recognition

We follow the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin 104 for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Our revenue is derived from sales of our products to retailers, resellers and end consumers and from the sale of distributor license fees. For sales of product, we record revenue when the product is shipped, net of estimated returns and discounts. For license fees, we recognize revenue on a prorated basis over the life of the distribution contract.

We follow the guidance of Emerging Issues Task Force (EITF) Issue 01-9 "Accounting for Consideration Given by a Vendor to a Customer" and (EITF) Issue 02-16 "Accounting by a Customer (Including a Reseller) for Certain Considerations Received from Vendors." Accordingly, any incentives received from vendors are recognized as a reduction of the cost of products. Promotional products given to customers or potential customers are recognized as a cost of sales. Cash incentives provided to our customers are recognized as a reduction of the related sale price, and, therefore, are a reduction in sales.

Reserve for Sales Returns and Warranty Liability

Our return policy generally allows our end users and retailers to return purchased products for refund or in exchange for new products within 30 days of end user purchase. We estimate a reserve for sales returns and record that reserve amount as a reduction of sales and as a sales return reserve liability.

We generally provide the ultimate consumer a warranty with each product and accrue warranty expense at the time of the sale based on our prior claims history. Actual warranty costs incurred are charged against the accrual when paid.

Results of Operations

THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

Net sales

Net sales for the quarter ended September 30, 2008 were $6,854,916 as compared to net sales of $1,437,408 for the quarter ended September 30, 2007, an increase of $5,417,508 or 377%.

The significant increase in revenue is mainly attributed to continued strong sales of our invisibleSHIELD product with approximately 50% of our product being sold through our website to retail customers, 7% being sold through mall carts and kiosks, 38% through wholesale channels and 5% from shipping and handling charges.

Cost of sales

Cost of sales includes raw materials, packing materials and shipping costs. For the quarter ended September 30, 2008, cost of sales amounted to $2,416,988 or approximately 35% of net sales as compared to cost of sales of $299,027 or 21% of net sales for quarter ended September 30, 2007. The increase in cost of sales as a percentage of net revenues for the quarter ended September 30, 2008 as compared to the quarter ended September 30, 2007 is attributable to the overall sales mix shift to wholesale customers which have a lower average selling price than our internet sales which have historically represented a larger percentage of the total sales.

Gross profit

Gross profit for the quarter ended September 30, 2008 was $4,437,928 or approximately 65% of net sales as compared to $1,138,381 or approximately 79% of net sales for the quarter ended September 30, 2007. The decrease in gross profit percentage was again due to the sales mix shift from internet sales to wholesale customers which have a lower average selling price. There are no assurances that we will continue to recognize similar gross profit margins in the future.

Operating expenses

Total operating expenses for the quarter ended September 30, 2008 were $3,067,222, an increase of $1,178,876 from total operating expenses for the quarter ended September 30, 2007 of $1,888,346. The increases are primarily attributable to the following:

· For the quarter ended September 30, 2008, salaries and related taxes decreased by $484,484 to $766,592 from $1,251,076 for the quarter ended September 30, 2008. The decrease is due to the non-cash expense recognized in 2007 for stock-based compensation when we issued 800,000 shares of our common stock to employees and consultants of $800,000 partially offset by increased wage expenses incurred due to the addition of staff as we continue to build the people infrastructure to meet the demand for our product and non-cash expense related to equity based compensation of $80,821.

· For the quarter ended September 30, 2008, marketing, advertising and promotion expenses were $1,169,073, an increase of $941,449 as compared to $227,624 for the quarter ended September 30, 2007. We continue to invest heavily in the development of the invisibleSHIELD brand through internet key word advertising, traditional print media and radio advertising and through the use of coupons. We expect our marketing and advertising expenses to continue to be a significant expenditure as our revenues increase and expect to spend increased funds on adverting and promotion of our products as well as sales training. During fiscal 2008, we intend to continue to expand our marketing efforts related to our products.

· For the quarter ended September 30, 2008, other selling, general and administrative expenses, net of salaries and related taxes described above, were $1,131,557 as compared to $409,646 for the quarter ended September 30, 2007. The increase was attributable to the increase in operations as we implement our business plan and is summarized below:

                                                       Three Months
                                                      Ended September    Three Months Ended
                                                         30, 2008        September 30, 2007
Professional fees                                    $          42,441   $           25,795
Contract labor                                                 183,805               80,421
Insurance                                                       34,468               24,327
Depreciation and amortization                                   42,069               21,455
Rent                                                            97,028               59,547
Travel and entertainment                                        46,493               29,518
Telephone and utilities                                         33,393               20,586
Printing expenses                                               34,845               12,068
Office supplies                                                 18,536               17,636
Credit card and bank fees                                      113,063               37,434
Investor relations                                             103,521               48,185
Commissions                                                    157,676                2,533
Consulting                                                      30,000                   --
Other                                                          194,219               30,141
Total                                                $       1,131,557   $          409,646

Income (loss) from operations

We reported income from operations of $1,370,706 for the quarter ended September 30, 2008 as compared to loss from operations of ($749,965) for the quarter ended September 30, 2007, an increase of $2,120,671. The increased income from operations for the quarter ended September 30, 2008 as compared to the quarter ended September 30, 2007 is primarily attributable to our overall increased revenue growth due to increased market penetration and the continued expansion of our distribution channels to include additional retail outlets.

Other income (expense)

For the quarter ended September 30, 2008, total other income was $48,343 compared to other income of $16,771 for the quarter ended September 30, 2007. The increase is primarily attributed to interest income related to short-term loans and interest earned on our bank balances of $48,648.

Net income (loss)

As a result of these factors, we reported net income of $889,743 or $0.05 per share for the quarter ended September 30, 2008 as compared to a net loss of ($733,428) or ($0.04) per share for the quarter ended September 30, 2007.

NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

Net sales

Net sales for the nine months ended September 30, 2008 were $12,460,812 as compared to net sales of $3,034,714 for the nine months ended September 30, 2007, an increase of $9,426,098 or 311%.

The significant increase in product sales is mainly attributed to continued strong sales of our invisibleSHIELD product with approximately 56% of our product being sold through our website to retail customers, 9% being sold through mall carts and kiosks, 29% through wholesale channels and 6% from shipping and handling charges.

Cost of sales

Cost of sales includes raw materials, packing materials and shipping costs. For the nine months ended September 30, 2008, cost of sales amounted to $3,920,003 or approximately 31% of net sales as compared to cost of sales of $689,858 or 23% of net sales for the nine months ended September 30, 2007. The increase in cost of sales as a percentage of net revenues for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 is primarily attributable the overall sales mix shift to wholesale customers which have a lower average selling price than our internet sales which have historically represented a larger percentage of the total sales and overall increases in our packaging expenses.

Gross profit

Gross profit for the nine months ended September 30, 2008 was $8,540,809 or approximately 69% of net sales as compared to $2,344,856 or approximately 77% of net sales for the nine months ended September 30, 2007. The decrease in gross profit percentage was primarily attributable to the overall sales mix shift to more wholesale customers and overall increased packaging costs. There are no assurances that we will continue to recognize similar gross profit margins in the future.

Operating expenses

Total operating expenses for the nine months ended September 30, 2008 were $7,198,894, an increase of $3,809,532 from total operating expenses for the nine months ended September 30, 2007 of $3,389,362. The increases are primarily attributable to the following:

· For the nine months ended September 30, 2008, salaries and related taxes increased by $231,193 to $2,136,712 from $1,905,519 for the nine months ended September 30, 2007. The increase is due to the increase in our management and production staff as we continue to build the people infrastructure to meet the demand for our product, the payment of a discretionary bonus of $155,000 during the first quarter to our employees and non-cash expense related to equity based compensation of $157,110, partially offset by the non-cash expense recognized for the nine months ended September 30, 2007 of $800,000 related to the 800,000 shares of our common stock issued to employees and consultants.

· For the nine months ended September 30, 2008, marketing, advertising and promotion expenses were $2,483,356, an increase of $2,015,946 as compared to $467,410 for the nine months ended September 30, 2007. We continue to invest heavily in the development of the invisibleSHIELD brand through internet key word advertising and through traditional print media and radio advertising. During the nine months ended September 30, 2008, we have also printed coupons and handed them out at various trade shows and events wherein customers logged onto our website through a specific link and were able to redeem the coupon. These coupons ran for specific time frames with expiration dates and the redemption of the coupons of $915,113 was recognized as marketing and advertising expense. We expect our marketing and advertising expenses to continue to be a significant expenditure as our revenues increase and expect to spend increased funds on adverting and promotion of our products as well as sales training. During fiscal 2008, we intend to continue to expand our marketing efforts related to our products.

· For the nine months ended September 30, 2008, other selling, general and administrative expenses net of salaries and related taxes described above, were $2,578,826 as compared to $978,203 for the nine months ended September 30, 2007. The increase was attributable to the increase in operations as we implement our business plan and is summarized below:

                                                     Nine Months Ended   Nine Months Ended
                                                       September 30,       September 30,
                                                           2008                2007
Professional fees                                    $         113,053   $         248,240
Contract labor                                                 480,443             120,650
Insurance                                                      148,650              52,536
Depreciation and amortization                                  111,413              58,430
Rent                                                           277,574             114,538
Travel and entertainment                                       139,394              68,565
Telephone and utilities                                         95,469              44,893
Printing expenses                                               54,157              31,719
Office supplies                                                 53,023              41,776
Credit card and bank fees                                      267,192              73,447
Investor relations                                             235,708              52,584
Commissions                                                    204,263               5,399
Consulting                                                      71,500              38,500
Other                                                          326,987              65,156
Total                                                $       2,578,826   $       1,016,433

Income (loss) from operations

We reported income from operations of $1,341,915 for the nine months ended September 30, 2008 as compared to a loss from operations of ($1,044,506) for the nine months ended September 30, 2007, an increase of $2,386,421. The increased income from operations for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 is primarily attributable the overall increase in sales due to deeper market penetration and continued expansion of the distribution channel for our products combined with the decrease in professional fees that were attributable to our reverse merger transaction in 2007.

Other income (expense)

For the nine months ended September 30, 2008, total other income was $174,599 compared to other expense of ($5,243) for the nine months ended September 30, 2007. The increase is primarily attributed to interest income related to short-term loans, gains recognized on disposition of assets and interest earned on our cash balance of $178,461 and a decrease in interest expense of $26,761.

Net income (loss)

As a result of these factors, we reported net income of $950,278 or $0.05 per share for the nine months ended September 30, 2008 as compared to a net loss of ($1,052,293) or ($0.07) per share for the nine months ended September 30, 2007.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its liabilities and otherwise operate on an ongoing basis.

At September 30, 2008, we had a cash balance of $949,833.

Our working capital position increased by $1,511,786 to working capital of $4,026,615 at September 30, 2008 from working capital of $2,514,829 at December 31, 2007. This increase in working capital is primarily attributable to the overall increase in accounts receivable of $2,354,376, increased prepaid expenses and other assets of $938,070, increased inventories of $400,665 and decreased accrued liabilities of $26,015, partially offset by decreased cash balances of $1,179,382, increased accounts payable of $642,407, increased sales returns liability of $206,174, increased accrued wages and wage related expenses of $9,445 and increased deferred licensing revenue of $7,598.

Net cash used in operating activities for the nine months ended September 30, 2008 was ($514,499) as compared to cash used in operating activities of ($857,059) for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, net cash used in operating activities was attributable primarily to increased accounts receivable of $2,410,546, increased prepaid expenses and other current assets of $475,855, increased inventories of $400,655, increased other assets of $27,787, decreased accrued liabilities of $26,015, and the gain on disposal of fixed assets of $12,215 partially offset by net income of $950,278, increased accounts payable of $642,404, deferred income tax expense of $566,235, non-cash expense related to stock compensation of $211,510, increased sales return liability of $206,174, depreciation and amortization of $112,162, decreased prepaid advertising of $58,247, bad debt expense of $56,170, foreign currency exchange loss of $18,361, increased accrued wages and wage related expenses of $9,445 and increased deferred licensing revenues of $7,598.

Net cash used in investing activities for the nine months ended September 30, 2008 was ($696,853) attributable to short-term loans made of $450,000, the purchase of property and equipment of $248,047 and payments for intangible assets of $1,800, partially offset by proceeds from the sale of fixed assets of $2,994.

Net cash provided by financing activities for the nine months ended September 30, 2008 was $31,970 attributable to proceeds from the exercise of warrants of $50,000, partially offset by payments on equipment financing of $18,030.

We reported a net decrease in cash for the nine months ended September 30, 2008 of $1,179,382.

For the nine months ended September 30, 2008 and 2007, we generated revenues of $12,460,812 and $3,034,714, respectively and reported net income of $950,278 and incurred a net loss of ($1,052,293), respectively. For the nine months ended September 30, 2008, we had negative cash flow from operating activities of ($514,499), negative cash flow from investing activities of ($696,853) and cash provided by financing activities of $31,970. As of September 30, 2008, we had stockholders' equity of $4,594,611, retained earnings of $207,887, working capital of $4,026,615, accounts payable of $1,147,982, deferred licensing revenue of $108,509, accrued wages and wage related expenses of $104,982, notes payable related to equipment financing of $24,060, accrued liabilities of $9,799 and sales returns liability of $230,035. Management believes that existing cash, along with cash generated from the collection of accounts receivable, short term loans and the sale of products will be sufficient to meet the Company's cash requirements during the next twelve months.

Off Balance Sheet Arrangements

As of September 30, 2008, there were no off balance sheet arrangements.