**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-KSB**





þ
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the fiscal year ended December 31, 2006**




**OR**





o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the transition period from _______________** **** **to
      _______________**




**Commission
      file number: 000-52211**





**ZAGG
      INCORPORATED**


(Name
      of
      small business issuer in its charter)





**Nevada**
              (State
                or other jurisdiction of incorporation or organization)
            
            **20-2559624**
              (I.R.S.
                Employer Identification No.)3855
                South 500 West, Suite J, Salt Lake City, Utah
              (Address
                of principal executive offices)
            
            84115
              (Zip
                Code)





Issuer’s
      telephone number (801)263-0699




Securities
      registered pursuant to Section 12(b) of the Act: None


Securities
      registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par
      value per share





Title
                of each class
              Common
                Stock, $0.001 par value per share
            
            Name
                of each exchange on which registered
              None




Check
      whether the issuer is not required to file reports pursuant to Section 13
      or 15(d) of the Exchange Act. o




Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act during the past 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
o




Check
      if
      there is no disclosure of delinquent filings response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o




Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). Yes o No þ




The
      issuer’s revenues for the fiscal year ended December 31, 2006 were
      $2,777,036.




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days. (See definition of affiliate in
      Rule 12b-2 of the Exchange Act.) None.




Explanatory
      Note: There is no public market for Issuer’s common stock. Issuer’s common stock
      is not listed, traded or quoted on any national or regional stock exchange,
      market or quotation system as of the date hereof.




Number
      of
      Shares outstanding as of March 18, 2007 was 15,021,142




Documents
      Incorporated By Reference: None




Transitional
      Small Business Disclosure Format (Check one): Yes o No þ







**ZAGG
      INCORPORATED**




**Report
      on Form 10-KSB**


**For
      the Fiscal Year Ended December 31, 2006**




**TABLE
      OF CONTENTS**




**Item
                No.**
            
            **Page****PART
                I****ITEM
                1.**
            **DESCRIPTION
                OF BUSINESS**
            **1****ITEM
                2.**
            **DESCRIPTION
                OF PROPERTY**
            **6****ITEM
                3.**
            **LEGAL
                PROCEEDINGS**
            **6****ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS**
            **12****PART
                II****ITEM
                5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**
            **12****ITEM
                6.**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS AND PLAN OF OPERATION**
            **14****ITEM
                7.**
            **FINANCIAL
                STATEMENTS**
            **21****ITEM
                8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURES**
            **22****ITEM
                8A.**
            **CONTROLS
                AND PROCEDURES**
            **22****ITEM
                8B.**
            **OTHER
                INFORMATION**
            **23****PART
                III****ITEM
                9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(a) OF THE EXCHANGE ACT**
            **23****ITEM
                10.**
            **EXECUTIVE
                COMPENSATION**
            **25****ITEM
                11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT**
            **26****ITEM
                12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS**
            **28****ITEM
                13.**
            **EXHIBITS
                AND REPORTS ON FORM 8-K**
            **28****ITEM
                14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND SERVICES**
            **29**
































i




**PART
      I**




**ITEM
              1.**
            **DESCRIPTION
                OF BUSINESS**




This
      Report contains forward-looking statements. All forward-looking statements
      are
      inherently uncertain as they are based on current expectations and assumptions
      concerning future events or future performance of the Company. Readers are
      cautioned not to place undue reliance on these forward-looking statements,
      which
      are only predictions and speak only as of the date hereof. Forward-looking
      statements usually contain the words “estimate,” “anticipate,” “believe,”
“expect,” or similar expressions, and are subject to numerous known and unknown
      risks and uncertainties. In evaluating such statements, prospective investors
      should carefully review various risks and uncertainties identified in this
      Report, including the matters set forth under the captions “Risk Factors” and in
      the Company’s other SEC filings. These risks and uncertainties could cause the
      Company’s actual results to differ materially from those indicated in the
      forward-looking statements. The Company undertakes no obligation to update
      or
      publicly announce revisions to any forward-looking statements to reflect future
      events or developments.




Although
      forward-looking statements in this Annual Report on Form 10-KSB reflect the
      good
      faith judgment of our management, such statements can only be based on facts
      and
      factors currently known by us. Consequently, forward-looking statements are
      inherently subject to risks and uncertainties and actual results and outcomes
      may differ materially from the results and outcomes discussed in or anticipated
      by the forward-looking statements. Factors that could cause or contribute to
      such differences in results and outcomes include, without limitation, those
      specifically addressed under the heading “Risk Factors Related to Our Business”
below, as well as those discussed elsewhere in this Annual Report on Form
      10-KSB. Readers are urged not to place undue reliance on these forward-looking
      statements, which speak only as of the date of this Annual Report on Form
      10-KSB. We file reports with the Securities and Exchange Commission (“SEC”). You
      can read and copy any materials we file with the SEC at the SEC’s Public
      Reference Room, 100 F. Street, NE, Washington, D.C. 20549. You can obtain
      additional information about the operation of the Public Reference Room by
      calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
      site (www.sec.gov) that contains reports, proxy and information statements,
      and
      other information regarding issuers that file electronically with the SEC,
      including us.




*We
      undertake no obligation to revise or update any forward-looking statements
      in
      order to reflect any event or circumstance that may arise after the date of
      this
      Annual Report on Form 10-KSB. Readers are urged to carefully review and consider
      the various disclosures made throughout the entirety of this annual report,
      which attempt to advise interested parties of the risks and factors that may
      affect our business, financial condition, results of operations and
      prospects.*




Summary





*invisible* SHIELD
      material is highly reliable and durable since it was originally developed for
      use in a high friction, high velocity, aerospace context. The material provides
      long lasting protection for the surface of electronic devices subject to normal
      wear and tear. The material 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.





The *invisible* SHIELD
      has been deployed by the Company in over 700 designs to accommodate the specific
      size and shape of specific electronic devices. Current applications include:
      iPods®, laptops, cell phones (from dozens of manufacturers), PDAs, watch faces,
      gaming devices, digital cameras, and many more items. The product is “cut” to
      fit specific devices and packaged together with a moisture activating spray
      called “SHIELD *spray* ”TM
which
      makes the *invisible* SHIELD
      adhere to the surface of the device literally “like a second skin” virtually
      invisible to the eye. Unlike bulky or flashy sleeves or cases, the *invisible* SHIELD
      is
      not readily visible to the eye, and the feel of it is not intrusive to the
      touch. It does not hide the design or features of the device. Rather, it
      literally “coats” the device with a protective layer that is clear,
      touch-penetrable, and completely unobtrusive to the look and feel of the device.
      The *invisible* SHIELD
      is
      not ornamental, but rather provides a long lasting barrier to preserve the
      brand
      new look of the surface of an electronic device.








1





**Design
      and Packaging**





The
      Company designs and cuts the *invisible* SHIELD
      product for application on hundreds of specific electronic devices. The Company
      acquires raw materials from third party sources that are delivered to the
      Company’s facilities and assembled for packaging. In addition, the Company
      out-sources high volume precision-cutting of the materials, which the Company
      considers to be more cost effective. The Company then packages the configured
      materials together with an installation kit, consisting of SHIELD *sprayTM* ,
      a
      moisture adhesive-activating solution, a squeegee, and instructions for
      application on specific electronic devices. On average, the Company processes
      and ships over 15,000 finished packages per month.





The
      Company has a patent pending on the process of wrapping an entire gadget body
      in
      a transparent, durable and semi-permanent film. The Company also custom designs
      each cut-out for the film and currently has unique designs for nearly 700
      devices. The cut-out designs are developed internally and owned exclusively
      by
      the Company. The Company does not own the base materials, but believes that
      its
      relationship with the distributor of the material is on excellent terms and
      anticipates no interruption in the Company’s ability to acquire the materials
      and produce products.





**Market
      for Products**





The
      portable electronic device market, notably handheld devices, is continuing
      to
      see advancements in performance and functionality in existing models.
      Furthermore, the market is expanding as evidenced by new product developments
      in
      portable electronic devices. Correspondingly, the aesthetics of such devices
      is
      increasingly important to the extent that buyers are considering the look and
      feel of such devices, as much as performance, in making their purchasing
      decisions.





As
      a
      result, an industry and significant market has emerged in protecting portable
      electronic devices, notably the “high end” devices - both in terms of price, and
      design/functionality. Consumers are seeking ways to protect the device from
      wear
      and tear and damage, but not impede the look, feel, or functionality of the
      device.




The
      Company, directly and through its distributors and retail sellers, sells the *invisible* SHIELD
      to
      consumers of electronic household and hand-held devices. The Company sells
      a
      significant amount of product for use on Apple’s “iPod” devices. The *invisible* SHIELD
      covers and protects the iPod without detracting in any manner from the look
      and
      feel of the device or its functionality. The Company anticipates, but cannot
      assure, that its product will be equally popular for use with the pending
“iPhone” device - since that device also has a “touch-screen” interface and the *invisible* SHIELD
      permits touch sensitivity between the user and the device.





The
      Company, to date, has not partnered with any manufacturers of electronic devices
      to bundle the Company’s products with such devices on initial sale, or to
      include as part of the device, the application of the Company’s products. In the
      future, the Company may seek such an arrangement but has not entered into
      negotiations for such an arrangement as yet.





**Market
      Segments**





With
      over
      700 *invisible* SHIELD
      products/product configurations available, the Company has a protective covering
      for all major market segments of handheld electronic devices, including: iPods,
      other brand MP3 players, PDAs, cell phones, laptops, GPS devices, watch faces,
      and similar devices and surfaces. The Company intends to continue to configure
      the *invisible* SHIELD
      product for use in newly developed consumer devices. Unlike manufacturers of
      competing device cases that need months to design and manufacture customized
      accessories for new devices, the *invisible* SHIELD
      can be quickly configured and packaged for new devices as they enter the
      consumer marketplace, making the *invisible* SHIELD
      available for purchase ahead of competing accessories for new electronic
      devices.








2





One
      of
      the fastest growing market segments for the Company is the iPod consumer. Most
      often, iPod buyers are drawn to the device by its elegant design, as well as
      its
      easy-to-use functionality. However, everyday use often mars the iPod's finish,
      screen and other areas that receive wear and tear. Traditional protective
      products are bulky and detract from an iPod's elegance by covering it up. Other
      common protectors either do not offer enough protection -- such as leaving
      the
      iPod's function buttons uncovered -- or they are not durable enough to properly
      protect the device. However, an *invisible* SHIELD
      covering is exactly that-- invisible-- meaning it does not cover up the design,
      form or functionality of the iPod.





As
      sales
      of electronics continue to grow, sales of the Company’s complimentary products
      are anticipated to grow, as well. The four largest areas of the Company’ market
      opportunities relate to sales of iPods, cellular telephones, digital cameras
      and
      gaming systems. According to industry sources, over 39,500,000 iPods were sold
      in Apple Corporation’s most recent fiscal year, and over 21,000,000 were sold in
      the first quarter of its subsequent fiscal year. Over one billion cell phones
      were sold worldwide in 2006. Over 26,000,000 units of digital cameras were
      sold
      in 2005. Sony’s PSP sold over 20,000,000 units as of August 2006 and Nintendo’s
      DS Lite sold over 21,000,000 units during the same period. Zagg is positioned
      to
      serve all of these markets with its after-market *invisible* SHIELD
      products.





**Other
      Electronic Products and Accessories**





In
      addition to the *invisible* SHIELD,
      the Company also acts as a reseller of consumer electronics and related
      accessories which it believes its *invisible* SHIELD
      customers would purchase and vice versa. Such products include: cell phones,
      digital cameras, GPS devices, MP3 players, PDAs, satellite radios, heart rate
      monitors and other small, predominately held-held devices. The Company also
      sells accessories for many of these products. Such resale items are sold via
      the
      Company’s website and in retail locations.





In
      connection with the *invisible* SHIELD,
      the Company re-sells a product known as “Applesauce.” Applesauce is a buffing
      and polishing compound that can be used to remove scrapes or scratches and
      restore a “new” look to the surface of the iPod. After application, the *invisible* SHIELD
      can be applied to preserve the restoration of the finish.




**Marketing
      and Distribution**





The
      Company sells its products directly on its website, through distributors,
      through kiosk vendors in shopping malls and retail centers, and through
      electronics retailers. The Company’s products are available for sale world wide
      via the Company’s website. Currently the Company advertises its products on the
      internet and at point of sale at retail locations. The Company also advertises
      its products on television currently on local networks. The Company intends
      to
      expand its advertising by implementing a broader television advertising strategy
      over the course of 2007. The Company is also seeking to create strategic
      partnerships with makers of iPod and electronic accessories.





**Website
      Sales**





The
      Company sells its products worldwide directly to consumers on its website.
      For
      the year ended December 31, 2006, the Company sold approximately $1.8 million
      of
      product on its website, or approximately 63% of its overall sales for
      2006.








3





**Mall
      Vendors**





The
      Company sells its *invisible* SHIELD
      products to kiosk vendors in shopping malls and retail centers. The Company
      enters into agreements with such vendors who purchase the products and resell
      them to consumers. For the year ended December 31, 2006, the Company sold
      approximately $332,000 of product to kiosk vendors, or approximately 12% of
      its
      overall sales for 2006. The third party kiosk vendors are required to enter
      into
      a standard license and resale agreement with the Company.





**Electronics
      Retailers**





The
      Company sells its *invisible* SHIELD
      products to electronics retailers and out of its storefront maintained in its
      headquarters, predominately independently owned retailers of Apple products
      and
      accessories. We estimate there are over 300 such independent Apple resellers
      worldwide and we currently have agreements with approximately 70, predominately
      in the United States. The Company also sells its *invisible* SHIELD
      products to university bookstores and small independently owned consumer
      electronics stores. For the year ended December 31, 2006, the Company sold
      approximately $503,000 of product to specialty retailers, or approximately
      18%
      of its overall sales for 2006. The electronics retailers are required to enter
      into a standard reseller agreement with the Company.





The
      Company also generated revenue from shipping charges to customers. For the
      year
      ended December 31, 2006, the Company generated approximately $243,000 from
      shipping charges.





**Distributors**





The
      Company utilizes multiple distributors to market and place its products for
      sale
      in the United States and abroad. The Company has a distributorship agreement
      with ENVIOUS, a United Kingdom company, for the marketing, distribution and
      sale
      of the Company’s products throughout the United Kingdom. This agreement is not
      exclusive. The agreement was entered into in January 2007 and has a one year
      term.





The
      Company has an exclusive distribution agreement for the marketing and sale
      of
      its products in Japan with CareFit USA. The Agreement provides that CareFit
      will
      establish up to twenty retail sales locations in Japan. CareFit will be
      compensated based on actual revenues derived from retail locations established
      by CareFit. To date, no revenues have been generated from sales in Japan under
      this Agreement and no retail locations have been established in Japan. The
      Agreement was entered into on October 3, 2006 and has a six month renewable
      term.





The
      Company is continuously negotiating for new distribution relationships in the
      United States and abroad to increase the marketing and sale of its products
      in
      retail locations.





**Company
      Organization**





The
      Company’s operations are divided and organized as follows: marketing and sales,
      which includes the development and maintenance of the Company’s website,
      customer service, production, distribution and shipping, art and graphics,
      product design, and general and administration functions.





**Competitors**





The
      Company’s chief competitors are companies that develop, market and sell
      protective devices for consumer electronics. The market for sales to consumers
      for “after market” accessories for electronic devices is very competitive. The
      Company is not aware of any person who sells a product with specifications
      similar to the *invisible* SHIELD
      although there are competitors who attempt to mimic the Company’s products.
      There are numerous companies that sell protective devices for cell phones,
      iPods, MP3 players, laptop and computer screens and similar devices, none of
      which have specifications similar to the Company’s products. Rather such
      products tend to be larger, bulkier, heavier, ornamental and visually
      distracting and cover the design and features of the device, rather than enhance
      its design. While the Company competes with such persons for sales to consumers
      generally, the Company does not consider such other products per se to be
      competitive to the *invisible* SHIELD.








4





**Warranties**





The
      Company offers a lifetime guaranty of the durability of its *invisible* SHIELD
      products. If the *invisible* SHIELD
      is
      ever scratched or damaged (in the course of normal use), a customer simply
      needs
      to send back the old product and Zagg Incorporated will replace it for free.
      To
      date only a nominal amount of the Company’s *invisible* SHIELDS
      sold have been returned under the warranty program.




**Intellectual
      Property Rights**





**Patents**





The
      Company has filed a patent application for a Protective Covering for Electronic
      Device with the United States Patent and Trademark Office. The patent relates
      to
      the field of protective coverings and systems and methods for covering such
      devices with thin films. This includes both partial coverings and full
      coverings. The Patent Application will not be published until the Patent is
      issued.





**Trademarks**





The
      Company has filed the following Trademark Applications with the United States
      Patent and Trademark Office:





INVISIBLE
      SHIELD filed on February 1, 2007, Serial Number 77096911.





Invisible
      Shield (with stylized logo image) filed on June 9, 2006, Serial Number
      78905019.





The
      Company also claims common law trademark rights in the following marks:
“ShieldZone,” “Shieldspray,” “Pay Once Protect Forever,” “Invisible Invincible,”
“Protect Your Digital Life,” “Ultimate Scratch Protection” and
“Zagg.”





**Government
      Regulations**





Our
      operations are subject to various federal, state and local employee workplace
      protection regulations including OSHA. We believe that compliance with federal,
      state and local environmental protection regulations will not have a material
      adverse effect on our capital expenditures, earnings and competitive and
      financial position. Although we believe that our worker and employee safety
      procedures are adequate and in compliance with law, we cannot completely
      eliminate the risk of injury to our employees, or that we may occasionally,
      unintentionally, be out of compliance with application law. In such event we
      could be liable for damages or fines or both. ****





**Employees**





We
      have
      31 full-time employees and 4 part time employees including our management team.
      We have 7 employees in sales and marketing including our website, 5 in general
      and administration, 11 in production, 2 in technology support, 3 in graphic
      design, and 7 customer service agents. No employee is represented by a labor
      union, and we have never suffered an interruption of business caused by labor
      disputes.





**Corporate
      History**





The
      Company was incorporated on March 24, 2005. The Company was formed under the
      original name “Protective Solutions, Inc.” and subsequently changed its name to
“ShieldZone Corporation.” The Company maintains its corporate offices and
      operational facility at 3855 South 500 West, Suites B and J, Salt Lake City,
      Utah, 84115. The telephone number of the Company is 801-263-0699. The Company’s
      website addresses are www.ShieldZone.com , www.InvisibleShield.com and www.zagg.com .
      The
      Company changed its name to Zagg Incorporated in connection with the Merger
      (described below).








5





On
      February 8, 2007, Amerasia Khan Enterprises Ltd. a Nevada corporation(“AKE”), a
      publicly held entity, executed an Agreement and Plan of Merger (the “Merger
      Agreement”) by and between AKE and its wholly owned subsidiary, SZC Acquisition
      Corp., a Nevada corporation (“Subsidiary”) on the one hand and ShieldZone
      Corporation, a Utah corporation on the other hand. Pursuant to the Merger
      Agreement ShieldZone merged with the Subsidiary, with ShieldZone Corporation
      surviving the merger (the “Merger”). In consideration, the shareholders of
      ShieldZone received 10,175,000 shares of the common stock of AKE.





Following
      the Merger, ShieldZone was reincorporated in Nevada as a subsidiary of AKE.
      On
      March 7, 2007, ShieldZone was merged up and into AKE. At that time AKE changed
      its name to Zagg Incorporated, and the operations of the surviving entity are
      solely that of ShieldZone. As a result of these transactions, the historical
      financial statements of Zagg Incorporated are the historical financial
      statements of ShieldZone. The fiscal year end of the Company is December
      31.





**ITEM
              2.**
            **DESCRIPTION
                OF PROPERTY**





**Real
      Property**





Our
      principal executive offices and manufacturing facilities are currently located
      in a 8,300 square foot space located at 3855 South 500 West, Suites B and J,
      Salt Lake City, Utah 84115. We have a lease for Suite B with a term expiring
      on
      October 31, 2007 at a monthly rental rate of $2,076. We have a lease for Suite
      J
      with a term expiring on June 30, 2009 at a monthly rental rate of $1,992.The
      Company believes these facilities are adequate for the foreseeable future.





**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**





The
      Company is not presently party to any legal proceedings.





**Risk
      Factors**




*An
      investment in the common stock involves a high degree of risk. In addition
      to
      the other information in this report, the following risk factors should be
      considered carefully in evaluating the Company and its business. This Report
      contains forward-looking statements. All forward-looking statements are
      inherently uncertain as they are based on current expectations and assumptions
      concerning future events or future performance of the Company. Readers are
      cautioned not to place undue reliance on these forward-looking statements,
      which
      are only predictions and speak only as of the date hereof. Forward-looking
      statements usually contain the words “estimate,” “anticipate,” “believe,”
“plan,” “expect,” or similar expressions, and are subject to numerous known and
      unknown risks and uncertainties. In evaluating such statements, prospective
      investors should review carefully various risks and uncertainties identified
      in
      this report, including the matters set below and in the Company’s other SEC
      filings. These risks and uncertainties could cause the Company’s actual results
      to differ materially from those indicated in the forward-looking statements.
      The
      Company undertakes no obligation to update or publicly announce revisions to
      any
      forward-looking statements to reflect future events or
      developments.*







***RISKS
      OF THE BUSINESS***




**The
      markets for our products are subject to continuing change that may impair our
      ability to successfully sell our products.** The
      markets for our products are volatile and subject to continuing change. Consumer
      tastes and demands can be unpredictable. We must continuously adjust our
      marketing strategy to address the changing state of the markets for our
      products, we may not be able to anticipate changes in the market and, as a
      result, our product strategies may be unsuccessful.




**We
      are dependent on a third party source to acquire sufficient quantities of raw
      materials to produce our products.** We
      acquire substantially all of our raw materials that we use in our products
      from
      one distributor. While we believe our relationship with that distributor is
      excellent, and we foresee no interruption in our ability to obtain raw materials
      from such distributor, we might in the future need to find other sources or
      attempt to manufacture the raw materials, or a material substantially similar
      to
      them, ourselves. We believe we could obtain the raw materials from other
      sources, or obtain substantially similar raw materials, or even produce similar
      materials ourselves. We also keep an inventory of raw materials on hand which
      could support our operations even if our sources were interrupted. However
      any
      unexpected interruption in our acquisition of the raw materials and the
      production of our products could harm our results of operations and our
      revenues.







6





**We
      are dependent for our success on one key executive officer. Our inability to
      retain this officer would impede our business plan and growth strategies, which
      would have a negative impact on our business and the value of your
      investment.** Our
      success depends on the skills, experience and performance of key members of
      our
      management team including Mr. Robert G. Pedersen II. We do not have an
      employment agreement with Mr. Pedersen. We do not have employment agreements
      with any other members of our senior management team. Each of those individuals
      without long-term employment agreements may voluntarily terminate his employment
      with the Company at any time upon short notice. Were we to lose one or more
      of
      these key executive officers, we would be forced to expend significant time
      and
      money in the pursuit of a replacement, which would result in both a delay in
      the
      implementation of our business plan and the diversion of limited working
      capital. We can give you no assurance that we can find satisfactory replacements
      for these key executive officers at all, or on terms that are not unduly
      expensive or burdensome to our company. Although we intend to issue stock
      options or other equity-based compensation to attract and retain employees,
      such
      incentives may not be sufficient to attract and retain key
      personnel.




**We
      are also dependent for our success on our ability to attract and retain sales
      and marketing personnel and other skilled management.** Our
      success depends to a significant degree upon our ability to attract, retain
      and
      motivate skilled and qualified personnel. Failure to attract and retain
      necessary technical personnel, sales and marketing personnel and skilled
      management could adversely affect our business. If we fail to attract, train
      and
      retain sufficient numbers of these highly qualified people, our prospects,
      business, financial condition and results of operations will be materially
      and
      adversely affected.





**We
      experience seasonal and quarterly fluctuations in demand for our
      products.** Our
      quarterly results may fluctuate quarter to quarter as a result of market
      acceptance of our products, the mix, pricing and presentation of the products
      offered and sold, the hiring and training of additional personnel, the timing
      of
      inventory write downs, the cost of materials, the incurrence of other operating
      costs and factors beyond our control, such as general economic conditions and
      actions of competitors. We are also affected by seasonal buying cycles of
      consumers, such as the holiday season, and the introduction of popular consumer
      electronics, such as a new generation of the iPod. Accordingly, the results
      of
      operations in any quarter will not necessarily be indicative of the results
      that
      may be achieved for a full fiscal year or any future quarter.




**We
      do not own significant proprietary intellectual property rights to protect
      out
      products of business** .
      We do
      not own proprietary rights with respect to the film we use in our products.
      We
      have a patent pending with respect to the covering of electronic devices with
      thin films. In addition, we own and keep confidential the design configurations
      of the film and the process to cut the film which are our copyrights. We seek
      to
      protect our intellectual property rights through confidentiality agreements
      with
      our employees, consultants and partners. However, no assurance can be given
      that
      such measures will be sufficient to protect our intellectual property rights
      or
      that the intellectual property rights that we have are sufficient to protect
      other persons from creating and marketing substantially similar products. If
      we
      cannot protect our rights, we may lose our competitive advantage. Moreover,
      if
      it is determined that our products infringe on the intellectual property rights
      of third parties, we may be prevented from marketing our products.




**We
      have no committed source of additional capital.** For the
      foreseeable future, we intend to fund our operations and capital expenditures
      from operations and our cash on hand. If our capital resources are insufficient,
      we may need additional funds to continue our operations, pursue business
      opportunities (such as expansion, acquisitions of complementary businesses
      or
      the development of new products or services), to react to unforeseen
      difficulties or to respond to competitive pressures. We cannot assure you that
      at such time as we need funds that alternative financing arrangements will
      be
      available in amounts or on terms acceptable to us, if at all. If additional
      financing is not available when required or is not available on acceptable
      terms, we may be unable to fund our expansion, successfully promote our current
      products, license new products or enhance our products and services, take
      advantage of business opportunities, or respond to competitive pressures, any
      of
      which could have a material adverse effect on our business and the value of
      our
      common stock. If we choose to raise additional funds through the issuance of
      equity securities, this may cause significant dilution of our common stock,
      and
      holders of the additional equity securities may have rights senior to those
      of
      the holders of our common stock. If we obtain additional financing by issuing
      debt securities, the terms of these securities could restrict or prevent us
      from
      paying dividends and could limit our flexibility in making business
      decisions.







7





**We
      may incur debt in the future** .
      In
      order to fund operations, we may issue debt instruments which will have a senior
      claim on our assets in the event of a sale of assets. Future debt service may
      cause strain on cash flow and impair business operations.





**We
      may issue shares of common stock which would be dilutive to your holdings.** From
      time
      to time we may issue shares of common stock in connection with equity financing
      activities or as incentives to our officers and business partners. We may expand
      the number of shares available under stock incentive and option plans, or create
      new plans. All issuances of common stock would be dilutive to your holdings
      in
      the Company. If your holdings are diluted, the overall value of your shares
      may
      be diminished and your ability to influence shareholder voting will also be
      harmed.





**Our
      business could be harmed if we fail to maintain proper inventory
      levels.** We
      produce our products prior to the time we receive customers’ orders. We do this
      to minimize purchasing costs, the time necessary to fill customer orders and
      the
      risk of non-delivery. However, we may be unable to sell the products we have
      produced in advance. Inventory levels in excess of customer demand may result
      in
      inventory write-downs, and the sale of excess inventory at discounted prices
      could significantly impair our brand image and have a material adverse effect
      on
      our operating results and financial condition. Conversely, if we underestimate
      demand for our products or if we fail to produce the quality products that
      we
      require at the time we need them, we may experience inventory shortages.
      Inventory shortages might delay shipments to customers, negatively impact
      distributor relationships, and diminish brand loyalty.





**We
      face intense competition, including competition from companies with
      significantly greater resources than ours, and if we are unable to compete
      effectively with these companies, our market share may decline and our business
      could be harmed.** Our
      market is highly competitive with numerous competitors. Some of our competitors
      have greater financial, technological, manufacturing, marketing and distribution
      resources than we do. Their greater capabilities in these areas may enable
      them
      to compete more effectively on the basis of price and production and more
      quickly develop new products and technologies. They may also have more fully
      developed sales channels for consumer sales including large retail seller
      arrangements and international distribution capabilities. In addition, new
      companies may enter the markets in which we compete, further increasing
      competition in the laser industry. We may not be able to compete successfully
      in
      the future, and increased competition may result in price reductions, reduced
      profit margins, loss of market share and an inability to generate cash flows
      that are sufficient to maintain or expand our development and marketing of
      new
      products, which would adversely impact the trading price of our common
      shares.





**We
      may not be able to effectively manage our growth.** We
      intend to grow our business by expanding our sales, administrative and marketing
      organizations. Any growth in or expansion of our business is likely to continue
      to place a strain on our management and administrative resources, infrastructure
      and systems. As with other growing businesses, we expect that we will need
      to
      refine and expand our business development capabilities, our systems and
      processes and our access to financing sources. We also will need to hire, train,
      supervise and manage new employees. These processes are time consuming and
      expensive, will increase management responsibilities and will divert management
      attention. We cannot assure you that we will be able to:





o
            expand
                our systems effectively or efficiently or in a timely
                manner;


o
            allocate
                our human resources optimally;


o
            meet
                our capital needs;


o
            identify
                and hire qualified employees or retain valued employees;
                or o
            incorporate effectively the components of any business
              or
              product line that we may acquire in our effort to achieve
              growth.





8




Our
      inability or failure to manage our growth and expansion effectively could harm
      our business and materially and adversely affect our operating results and
      financial condition.





**If
      our competitors misappropriate our proprietary know-how and trade
      secrets,**  **it
      could have a material adverse affect on our business.** We
      depend heavily on the expertise of our production team. If any of our
      competitors copies or otherwise gains access to similar products independently,
      we might not be able to compete as effectively. The measures we take to protect
      our designs may not be adequate to prevent their unauthorized use. Further,
      the
      laws of foreign countries may provide inadequate protection of such intellectual
      property rights. We may need to bring legal claims to enforce or protect such
      intellectual property rights. Any litigation, whether successful or
      unsuccessful, could result in substantial costs and diversions of resources.
      In
      addition, notwithstanding the rights we have secured in our intellectual
      property, other persons may bring claims against us that we have infringed
      on
      their intellectual property rights or claims that our intellectual property
      right interests are not valid. Any claims against us, with or without merit,
      could be time consuming and costly to defend or litigate and therefore could
      have an adverse affect on our business.




**If
      our facilities were to experience catastrophic loss, our operations would be
      seriously harmed.** Our
      facilities could be subject to a catastrophic loss from fire, flood, earthquake
      or terrorist activity. All of our activities, including manufacturing, our
      corporate headquarters and other critical business operations are in one
      location. Any catastrophic loss at this facility could disrupt our operations,
      delay production, and revenue and result in large expenses to repair or replace
      the facility. While we have obtained insurance to cover most potential losses,
      we cannot assure you that our existing insurance coverage will be adequate
      against all other possible losses.




**New
      rules, including those contained in and issued under the Sarbanes-Oxley Act
      of
      2002, may make it difficult for us to retain or attract qualified officers
      and
      directors, which could adversely affect the management of our business and
      our
      ability to obtain or retain listing of our common stock.** We may
      be unable to attract and retain qualified officers, directors and members of
      board committees required to provide for our effective management as a result
      of
      the recent and currently proposed changes in the rules and regulations which
      govern publicly-held companies, including, but not limited to, certifications
      from executive officers and requirements for financial experts on the board
      of
      directors. The perceived increased personal risk associated with these recent
      changes may deter qualified individuals from accepting these roles. The
      enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of
      a
      series of new rules and regulations and the strengthening of existing rules
      and
      regulations by the SEC. Further, certain of these recent and proposed changes
      heighten the requirements for board or committee membership, particularly with
      respect to an individual’s independence from the corporation and level of
      experience in finance and accounting matters. We may have difficulty attracting
      and retaining directors with the requisite qualifications. If we are unable
      to
      attract and retain qualified officers and directors, the management of our
      business could be adversely affected.




**Our
      internal controls over financial reporting may not be effective, and our
      independent registered public accounting firm may not be able to certify as
      to
      their effectiveness, which could have a significant and adverse effect on our
      business.** We are
      subject to various regulatory requirements, including the Sarbanes-Oxley Act
      of
      2002. We, like all other public companies, must incur additional expenses and,
      to a lesser extent, diversion of our management’s time in our efforts to comply
      with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal
      controls over financial reporting. We have not evaluated our internal controls
      over financial reporting in order to allow management to report on, and our
      registered independent public accounting firm to attest to, our internal
      controls over financial reporting, as required by Section 404 of the
      Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, which
      we
      collectively refer to as Section 404. We have never performed the system
      and process evaluation and testing required in an effort to comply with the
      management assessment and auditor certification requirements of
      Section 404, which may initially apply to us as of December 31, 2007
      and December 31, 2008, respectively. Our lack of familiarity with Section 404
      may unduly divert management’s time and resources in executing the business
      plan. If, in the future, management identifies one or more material weaknesses,
      or our external auditors are unable to attest that our management’s report is
      fairly stated or to express an opinion on the effectiveness of our internal
      controls, this could result in a loss of investor confidence in our financial
      reports, have an adverse effect on our stock price and/or subject us to
      sanctions or investigation by regulatory authorities.







9





**Economic,
      political, military or other events in the United States could interfere with
      our success or operations and harm our business.** We
      market and sell our products and services in the United States and abroad.
      The
      September 11, 2001 terrorist attacks disrupted commerce throughout the
      United States and other parts of the world. The continued threat of similar
      attacks throughout the world and the military action, or possible military
      action, taken by the United States and other nations, in Iraq or other countries
      may cause significant disruption to commerce throughout the world. To the extent
      that such disruptions further slow the global economy or, more particularly,
      result in delays or cancellations of purchase orders for our products or extends
      the sales cycles with potential customers, our business and results of
      operations could be materially adversely affected. We are unable to predict
      whether the threat of new attacks or the responses thereto will result in any
      long-term commercial disruptions or if such activities or responses will have
      a
      long-term material adverse effect on our business, results of operations or
      financial condition.







***MARKET
      RISKS***




**Our
      common stock may be thinly traded, so you may be unable to sell at or near
      ask
      prices or at all if you need to sell your shares to raise money or otherwise
      desire to liquidate your shares.** Our
      shares do not trade on the OTCBB and we have no trading symbol. We have applied
      to have our securities quoted on the OTCBB, however we cannot guarantee that
      our
      securities will be quoted in the near term, if at all. As such, there is
      currently no public market for our securities and one may not develop. Absent
      a
      public market, you may be unable to sell your shares of common stock at as
      you
      need to, or at a price you desire.




The
      number of persons interested in purchasing our common stock at or near ask
      prices at any given time may be relatively small or non-existent. This situation
      may be attributable to a number of factors, including the fact that we are
      a
      small company which is relatively unknown to stock analysts, stock brokers,
      institutional investors and others in the investment community that generate
      or
      influence sales volume, and that even if we came to the attention of such
      persons, they tend to be risk-averse and would be reluctant to follow an
      unproven company such as ours or purchase or recommend the purchase of our
      shares until such time as we became more seasoned and viable. As a consequence,
      there may be periods of several days, weeks, months, or more when trading
      activity in our shares is minimal or non-existent, as compared to a seasoned
      issuer which has a large and steady volume of trading activity that will
      generally support continuous sales without an adverse effect on share price.
      We
      cannot give you any assurance that a broader or more active public trading
      market for our common stock will develop or be sustained. While we are trading
      on the OTC Bulletin Board, the trading volume we will develop may be limited
      by
      the fact that many major institutional investment funds, including mutual funds,
      as well as individual investors follow a policy of not investing in Bulletin
      Board stocks and certain major brokerage firms restrict their brokers from
      recommending Bulletin Board stocks because they are considered speculative,
      volatile and thinly traded.





**The
      application of the “penny stock” rules to our common stock could limit the
      trading and liquidity of the common stock, adversely affect the market price
      of
      our common stock and increase your transaction costs to sell those
      shares.** As long
      as the trading price of our common stock is below $5 per share, the open-market
      trading of our common stock will be subject to the “penny stock” rules, unless
      we otherwise qualify for an exemption from the “penny stock” definition. The
“penny stock” rules impose additional sales practice requirements on certain
      broker-dealers who sell securities to persons other than established customers
      and accredited investors (generally those with assets in excess of $1,000,000
      or
      annual income exceeding $200,000 or $300,000 together with their spouse). These
      regulations, if they apply, require the delivery, prior to any transaction
      involving a penny stock, of a disclosure schedule explaining the penny stock
      market and the associated risks. Under these regulations, certain brokers who
      recommend such securities to persons other than established customers or certain
      accredited investors must make a special written suitability determination
      regarding such a purchaser and receive such purchaser’s written agreement to a
      transaction prior to sale. These regulations may have the effect of limiting
      the
      trading activity of our common stock, reducing the liquidity of an investment
      in
      our common stock and increasing the transaction costs for sales and purchases
      of
      our common stock as compared to other securities.








10





**The
      market price for our common stock may be particularly volatile given our status
      as a relatively unknown company with a small and thinly traded public float
      and
      lack of history as a public company which could lead to wide fluctuations in
      our
      share price.** The
      market for our common stock may be characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price could
      continue to be more volatile than a seasoned issuer for the indefinite future.
      The potential volatility in our share price is attributable to a number of
      factors. First, as noted above, our shares of common stock may be sporadically
      and thinly traded. As a consequence of this lack of liquidity, the trading
      of
      relatively small quantities of shares by our stockholders may disproportionately
      influence the price of those shares in either direction. The price for our
      shares could, for example, decline precipitously in the event that a large
      number of our shares of common stock are sold on the market without commensurate
      demand, as compared to a seasoned issuer which could better absorb those sales
      without adverse impact on its share price. Many of these factors will be beyond
      our control and may decrease the market price of our common shares, regardless
      of our operating performance. We cannot make any predictions or projections
      as
      to what the prevailing market price for our common stock will be at any
      time.




In
      addition, the market price of our common stock could be subject to wide
      fluctuations in response to:




o
            quarterly
                variations in our revenues and operating
                expenses;


o
            announcements
                of new products or services by us;


o
            fluctuations
                in interest rates;


o
            significant
                sales of our common stock, including “short”
                sales;


o
            the
                operating and stock price performance of other companies that investors
                may deem comparable to us; and


o
            news
                reports relating to trends in our markets or general economic
                conditions.




The
      stock
      market, in general, and the market prices for penny stock companies in
      particular, have experienced volatility that often has been unrelated to the
      operating performance of such companies. These broad market and industry
      fluctuations may adversely affect the price of our stock, regardless of our
      operating performance.




Stockholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the volatility of our share price.




**Limitations
      on director and officer liability and indemnification of our officers and
      directors by us may discourage stockholders from bringing suit against a
      director.** Our
      articles of incorporation and bylaws provide, with certain exceptions as
      permitted by governing state law, that a director or officer shall not be
      personally liable to us or our stockholders for breach of fiduciary duty as
      a
      director, except for acts or omissions which involve intentional misconduct,
      fraud or knowing violation of law, or unlawful payments of dividends. These
      provisions may discourage stockholders from bringing suit against a director
      for
      breach of fiduciary duty and may reduce the likelihood of derivative litigation
      brought by stockholders on our behalf against a director. In addition, our
      articles of incorporation and bylaws may provide for mandatory indemnification
      of directors and officers to the fullest extent permitted by governing state
      law.







11





**We
      do not expect to pay dividends for the foreseeable future, and we may never
      pay
      dividends** .
      We
      currently intend to retain any future earnings to support the development and
      expansion of our business and do not anticipate paying cash dividends in the
      foreseeable future. Our payment of any future dividends will be at the
      discretion of our board of directors after taking into account various factors,
      including but not limited to our financial condition, operating results, cash
      needs, growth plans and the terms of any credit agreements that we may be a
      party to at the time. In addition, our ability to pay dividends on our common
      stock may be limited by state law. Accordingly, investors must rely on sales
      of
      their Common Stock after price appreciation, which may never occur, as the
      only
      way to realize their investment.




**Our
      Chief Executive Officer and Directors, and one other shareholder, own or control
      at least 51% of our outstanding common stock, which may limit your ability
      and
      the ability of our other stockholders, whether acting alone or together, to
      propose or direct the management or overall direction of our Company.
      Additionally, this concentration of ownership could discourage or prevent a
      potential takeover of our Company that might otherwise result in shareholders
      receiving a premium over the market price for our shares.** We
      estimate that approximately 51% of our outstanding shares of common stock is
      owned and controlled by our Chief Executive Officer and directors and one other
      stockholder. Such concentrated control of the Company may adversely affect
      the
      price of our common stock. Our principal stockholders may be able to control
      matters requiring approval by our stockholders, including the election of
      directors, mergers or other business combinations. Such concentrated control
      may
      also make it difficult for our stockholders to receive a premium for their
      shares of our common stock in the event we merge with a third party or enter
      into different transactions which require stockholder approval. These provisions
      could also limit the price that investors might be willing to pay in the future
      for shares of our common stock. Accordingly, the existing principal stockholders
      together with our directors and executive officers will have the power to
      control the election of our directors and the approval of actions for which
      the
      approval of our stockholders is required. If you acquire shares, you may have
      no
      effective voice in the management of the Company.




**Future
      sales of our equity securities could put downward selling pressure on our
      securities, and adversely affect the stock price. There is a risk that this
      downward pressure may make it impossible for an investor to sell his securities
      at any reasonable price, if at all.** Future
      sales of substantial amounts of our equity securities in the public market,
      or
      the perception that such sales could occur, could put downward selling pressure
      on our securities, and adversely affect the market price of our common
      stock.






**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**




The
      Company did not submit any matters to a vote of security holders during this
      reporting period.




**PART
      II**




**ITEM
              5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS**




**Market
      Information**




At
      this
      time there is no public trading market for our common stock. Our common stock
      is
      not listed or quoted on any national or regional stock market or quotation
      system. As of March 18, 2007, we have a total of 15,021,142 shares of our
      common stock outstanding. We have filed an application to have our common stock
      listed on the Over the Counter Bulletin Board, but the application has not
      yet
      been approved.




We
      have
      outstanding warrants that were issued as a fee in conjunction with a private
      offering of our common stock. These warrants, if exercised, would permit
      shareholders to purchase an additional 52,500 shares of our common stock. These
      warrants may be exercised until March 18, 2012, at which time they will expire
      if not exercised. The price for each share of common stock purchased in
      accordance with the warrants is $0.35.








12





The
      Company currently does not have any outstanding stock options, a stock option
      plan or an incentive plan; however, the Board of Directors has reserved 725,000
      shares of common stock for use in such a plan to be established after the filing
      of this Report.





**Transfer
      Agent**




Our
      transfer agent is Empire Stock Transfer Inc., 2470 St. Rose Pkwy, Suite 304,
      Henderson, Nevada, 89074. Telephone 702-818-5898.




**Holders**




We
      currently have 56 record holders of our common stock.




**Dividends**




We
      have
      not paid any cash dividends and we currently intend to retain any future
      earnings to fund the development and growth of our business. Any future
      determination to pay dividends on our common stock will depend upon our results
      of operations, financial condition and capital requirements, applicable
      restrictions under any credit facilities or other contractual arrangements,
      and
      such other factors deemed relevant by our Board of Directors.




**Securities
      Authorized for Issuance Under Equity Compensation Plans**




We
      have
      reserved 725,000 shares of our common stock for use under an equity compensation
      plan. However, no plan has been adopted or approved by the Board of Directors
      as
      of the date of this Report. However, we intend to adopt such a plan during
      fiscal 2007.




**Recent
      Sales of Unregistered Securities**




We
      have
      sold or issued the following securities not registered under the Securities
      Act
      by reason of the exemption afforded under Section 4(2) of the Securities
      Act of 1933 (the “Act”), during the last three years. Except as stated below, no
      underwriting discounts or commissions were payable with respect to any of the
      following transactions. The offer and sale of the following securities was
      exempt from the registration requirements of the Securities Act under
      Rule 506 insofar as (1) except as stated below, each of the investors
      was accredited within the meaning of Rule 501(a); (2) the transfer of
      the securities were restricted by the company in accordance with
      Rule 502(d); (3) there were no more than 35 non-accredited investors
      in any transaction within the meaning of Rule 506(b), after taking into
      consideration all prior investors under Section 4(2) of the Securities Act
      within the twelve months preceding the transaction; and (4) none of the
      offers and sales were effected through any general solicitation or general
      advertising within the meaning of Rule 502(c).




On
      July
      7, 2006, ShieldZone issued and sold 39,604 shares of common stock to an
      accredited investor, for $75,000. The shares of common stock were subject to
      various stock splits after the issuance, and immediately prior to the Merger
      Agreement represented 100,000 shares of common stock of ShieldZone. The shares
      were issued pursuant to an exemption from registration provided by Rule 506
      of
      Regulation D, as they were issued without any form of general solicitation
      or
      general advertising and the purchaser qualified as an accredited investor and
      accepted the shares for his personal account and not with a view towards
      distribution.





In
      November 2006, the Company issued a Convertible Note (the “Note”), with an
      affiliate of the Company’s Chief Executive Officer in the original principal
      amount of $100,000. The Note is convertible at the holder's option any time
      up
      to maturity at a conversion price equal to $0.35 per common share. The Note
      is
      due on May 15, 2007, bears interest at 20% per year and is unsecured. Such
      interest is payable at maturity. The common shares underlying the Note have
      piggy back registration rights. The Note was issued pursuant to an exemption
      from registration provided by Rule 506 of Regulation D, as it was issued without
      any form of general solicitation or general advertising and the purchaser
      qualified as an accredited investor and accepted the Note and underlying shares
      for its personal account and not with a view towards distribution.








13





On
      December 27, 2006, ShieldZone issued a Secured Convertible Promissory Note
      in
      the principal amount of $250,000 to an accredited investor. The Note is
      convertible into shares of the Company’s common stock at a conversion price per
      share of $0.35. The Note was issued pursuant to an exemption from registration
      provided by Rule 506 of Regulation D, as it was issued without any form of
      general solicitation or general advertising and the purchaser qualified as
      an
      accredited investor and accepted the Note and underlying shares for its personal
      account and not with a view towards distribution. The holders of the note
      converted the outstanding principal balance into 714,286 shares of the Company’s
      common stock on February 8, 2007.





On
      February 8, 2007, the Company issued and sold 785,856 shares of Common Stock
      to
      accredited investors. The shares were sold at a price per share of $0.35. These
      shares have piggy back registration rights. The shares were issued pursuant
      to
      an exemption form registration provided by Rule 506 of Regulation D, as they
      were issued without any form of general solicitation or general advertising
      and
      the purchases qualified as accredited investors and accepted the shares for
      their personal accounts and not with a view towards distribution.





On
      February 8, 2007, the Company and Amerasia Khan Enterprises Ltd. a Nevada
      corporation (“AKE”) (nka Zagg Incorporated), a publicly held entity, executed an
      Agreement and Plan of Merger (the “Merger Agreement”) by and between AKE and its
      wholly owned subsidiary, SZC Acquisition Corp., a Nevada corporation
      (“Subsidiary”) on the one hand and ShieldZone Corporation, a Utah corporation on
      the other hand. Pursuant to the Merger Agreement ShieldZone merged with the
      Subsidiary, with ShieldZone Corporation surviving the merger (the “Merger”). In
      consideration, the shareholders of ShieldZone were issued 10,175,000 shares
      of
      the common stock of AKE. The issuance of the shares in connection with the
      Merger was made pursuant to an exemption form registration provided by Rule
      506
      of Regulation D, as they were issued without any form of general solicitation
      or
      general advertising and the purchasers qualified as accredited investors and
      accepted the shares for their personal accounts and not with a view towards
      distribution.






**ITEM
              6.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS AND PLAN OF
                OPERATION**




*Statements
      included in this management’s discussion and analysis of financial condition and
      results of operations, and in future filings by the company with the securities
      and exchange commission, in the company’s press releases and in oral statements
      made with the approval of an authorized executive officer which are not
      historical or current facts are “forward-looking statements” and are subject to
      certain risks and uncertainties that could cause actual results to differ
      materially from historical earnings and those presently anticipated or
      projected. You are cautioned not to place undue reliance on any such
      forward-looking statements, which speak only as of the date made. The following
      important factors, among others, in some cases have affected and in the future
      could affect the company’s actual results and could cause the company’s actual
      financial performance to differ materially from that expressed in any
      forward-looking statement: (i) the extremely competitive conditions that
      currently exist in the market for companies similar to the company and
      (ii) lack or resources to maintain the company’s good standing status and
      requisite filings with the securities and exchange commission. The foregoing
      list should not be construed as exhaustive and the company disclaims any
      obligation subsequently to revise any forward-looking statements to reflect
      events or circumstances after the date of such statements or to reflect the
      occurrence of anticipated or unanticipated events. The following discussion
      should be read in conjunction with our financial statements and their
      explanatory notes included as part of this annual report.*







**Overview**




The
      following discussion of the financial condition and results of operation of
      Zagg
      Incorporated should
      be read in conjunction with the financial statements and the notes to those
      statements included in this Annual Report on Form 10-KSB. This discussion
      includes forward-looking statements that involve risk and uncertainties. As
      a
      result of many factors, such as those set forth under “Risk Factors”, actual
      results may differ materially from those anticipated in the forward-looking
      statements.







14





On
      February 8, 2007, Amerasia Khan Enterprises Ltd. (“AKE”) a Nevada
      corporation (the “Registrant”) (nka Zagg Incorporated) executed an Agreement and
      Plan of Merger (the “Merger Agreement”) by and between the Registrant and its
      wholly owned subsidiary, SZC Acquisition, Inc., a Nevada corporation
      (“Subsidiary”) on the one hand and ShieldZone Corporation, a Utah corporation
      (“ShieldZone” or “Target”) on the other hand. Pursuant to the Merger Agreement,
      ShieldZone merged with Subsidiary, with ShieldZone surviving the merger and
      Subsidiary ceasing to exist (the “Merger”).




Following
      the Merger, ShieldZone was reincorporated in Nevada as a subsidiary of AKE.
      On
      March 7, 2007, ShieldZone was merged up and into AKE. At that time AKE changed
      its name to Zagg Incorporated, and the operations of the surviving entity (Zagg
      Incorporated) are solely that of ShieldZone. As a result of these transactions,
      the historical financial statements of Zagg Incorporated are the historical
      financial statements of ShieldZone. The fiscal year end of the Company is
      December 31.





For
      purposes of the following discussion and analysis, references to ‘‘we’’,
‘‘our’’, ‘‘us’’ refers to Zagg
      Incorporated.





Zagg
      Incorporated custom-designs, markets and sells a form of protective covering
      for
      consumer electronic and hand held devices. Our key product “ *invisible* SHIELD”TM
      is made from a protective, film-like 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 *invisible* SHIELD
      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.





**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.





***Accounts
      receivable***




We
      sell
      our products to end-users through retailers and other resellers who are extended
      credit terms after an analysis of their financial condition and credit
      worthiness.





We
      also
      accept orders from our website store and corporate owned kiosk stores and
      receives credit card payments through our merchant bank.








15





Credit
      terms to retailers and resellers, when extended, are based on evaluation of
      the
      customers' financial condition and, generally, collateral is not required.
      We
      maintain allowances for doubtful accounts for estimated losses resulting from
      the inability of customers to make required payments. Management regularly
      evaluates the allowance for doubtful accounts considering a number of factors.
      Accounts receivable are generally due within thirty days of the invoice date
      and
      considered past due after thirty days. Estimated losses are based on the aging
      of accounts receivable balances, a review of significant past due accounts,
      and
      our historical write-off experience, net of recoveries. If the financial
      condition of our customers were to deteriorate, whether due to deteriorating
      economic conditions generally, in the industry, or otherwise, resulting in
      an
      impairment of their ability to make payments, additional allowances would be
      required.





Accounts
      receivable from merchant banks are due to the clearing time the merchant banks
      take to post the transactions to our bank account. There is typically a two
      to
      five day lag between the charge date and the posting date.





We
      establish an allowance and charge bad debt expense on accounts receivable when
      they become doubtful of collection, and payments subsequently received on such
      receivables are credited to the bad debt expense in the period of
      recovery.





***Inventories***





Inventories,
      consisting primarily of finished goods and raw materials, are valued at the
      lower of cost or market and are accounted for on the first-in, first-out basis.
      Management performs periodic assessments to determine the existence of obsolete,
      slow moving and non-saleable inventories, and records necessary provisions
      to
      reduce such inventories to net realizable value. We recognize all inventory
      reserves as a component of cost of sales.





***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.





The
      Company follows 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.








16





**Results
      of Operations**





***Year
      ended December 31, 2006 as compared to the period from March 24, 2005
      (inception) to December 31, 2005***





**Net
      sales**




Net
      sales
      for the year ended December 31, 2006 were $2,777,036 as compared to net sales
      of
      $728,786 for the period from March 24, 2005 (inception) to December 31, 2005,
      an
      increase of $2,048,243 or 281%.





The
      significant increase in product sales is mainly attributed to continued strong
      sales of our *invisible* SHIELD
      product with approximately 63% of our product being sold through our website
      to
      retail customers.





**Cost
      of sales**




Cost
      of
      sales includes raw materials, packing materials and shipping costs. For the
      year
      ended December 31, 2006, cost of sales amounted to $727,434 or approximately
      26%
      of net sales as compared to cost of sales of $119,410 or 16% of net sales for
      the period from March 24, 2005 (inception) to December 31, 2005. The increase
      in
      cost of sales as a percentage of net revenues for the year ended December 31,
      2006 as compared to the period ended December 31, 2005 is attributable to an
      overall increase in shipping costs and packaging costs.





**Gross
      profit**




Gross
      profit for the year ended December 31, 2006 was $2,049,602 or approximately
      74%
      of net sales as compared to $609,376 or approximately 84% of net sales for
      the
      period from March 24, 2005 (inception) to December 31, 2005. The decrease in
      gross profit percentage was attributable to an increase in shipping and
      packaging costs and changes in sales mix from website sales to retail and
      wholesale sales. There are no assurances that we will continue to recognize
      similar gross profit margin in the future.





**Operating
      expenses**




Total
      operating expenses for the year ended December 31, 2006 were $2,274,220, an
      increase of $1,907,125 from total operating expenses for the period from March
      24, 2005 (inception) to December 31, 2005 of $367,095. The increases are
      primarily attributable to the following:





·
            For
                the year ended December 31, 2006, salaries and related taxes increased
                by
                $694,831 to $858,869 for the year ended December 31, 2006 from $164,038
                for the period from March 24, 2005 (inception) to December 31, 2005
                due to
                the hiring of staff to implement our business
                plan.


·
            For
                the year ended December 31, 2006, consulting expense increased to
                $73,750
                as compared to $0 from March 24, 2005 (inception) to December 31,
                2005
                primarily due to approximately $63,000 paid to a consultant who then
                became our president.


·
            For
                the year ended December 31, 2006, we incurred settlement expenses
                due to
                the termination of a consulting contract of $62,500 and the termination
                of
                an exclusive distribution agreement of $39,250. We did not incur
                any
                settlement expenses for the period ended December 31,
                2005.


·
            For
                the year ended December 31, 2006, advertising and marketing expenses
                were
                $370,043 as compared to $22,626 for the period from March 24, 2005
                (inception) to December 31, 2005, an increase of $347,417. This increase
                is attributable to an increase in our marketing efforts as we roll
                out
                product and implement our business plan. 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. During fiscal 2007, we intend to significantly
                expand
                our marketing efforts related to our
                products.








17





·
            For
                the year ended December 31, 2006, other selling, general and
                administrative expenses amounts to $872,115 as compared to $157,931
                for
                the period from March 24, 2005 (inception) to December 31, 2005.
                The
                increase was attributable to the increase in operations as we implement
                our business plan and is summarized below:





2006
            
            2005Professional
                fees
            
            $
            188,985
            
            $
            19,568Contract
                labor
            
            
            45,466
            
            
            26,628Insurance
            
            
            24,847
            
            
            3,454Depreciation
            
            
            41,503
            
            
            2,440Rent
            
            
            57,664
            
            
            5,918Travel
                and entertainment
            
            
            64,359
            
            
            4,380Telephone
                and utilities
            
            
            33,707
            
            
            5,292Printing
                expenses
            
            
            39,016
            
            
            12,653Office
                supplies
            
            
            36,968
            
            
            15,479Events/shows
            
            
            45,547
            
            
            5,113Credit
                card and bank fees
            
            
            42,101
            
            
            11,928Other
            
            
            251,952
            
            
            45,078Total
            
            $
            872,115
            
            $
            157,931





**(Loss)
      income from operations**





We
      reported loss from operations of ($224,618) for the year ended December 31,
      2006
      as compared to income from operations of $242,281 for the period from March
      24,
      2005 (inception) to December 31, 2005, a decrease of $466,899. The decrease
      in
      income from operations in 2005 to a loss from operations in 2006 is attributable
      to overall cost increases associated with executing our business plan, including
      certain settlement costs, and professional fees incurred as a result of the
      recapitalization.




**Other
      income (expense)**




For
      the
      year ended December 31, 2006, total other income was $3,947 compared to other
      expense of $900 for the period from March 24, 2005 (inception) to December
      31,
      2005. The increase is primarily attributed to interest and other income $6,760
      partially offset by interest expense of $2,813 compared to interest expense
      of
      $900.




**Income
      taxes**





During
      the year ended December 31, 2006, we had no current income tax expense and
      recorded a deferred income tax benefit of $79,418. We computed and filed our
      Federal income tax return on a cash basis for 2005 and will file our federal
      income tax return on the accrual basis in 2006 and thereafter.





**Net
      (loss) income**





As
      a
      result of these factors, we reported a net loss of ($141,253) or ($0.01) per
      share for the year ended December 31, 2006 as compared to net income of $158,376
      or $0.02 per share for the period from March 24, 2005 (inception) to December
      31, 2005.





18





***Results
      of operations for the period from March 24, 2005 (inception) to December 31,
      2005 ("fiscal 2005”)***





**Net
      sales**





Net
      sales
      for fiscal 2005 were $728,786 and related to strong sales of our *invisible* SHIELD
      product.




**Cost
      of sales**




Cost
      of
      sales includes raw materials, packing materials, shipping and manufacturing
      costs. In fiscal 2005, cost of sales amounted to $119,410 or 16% of net
      sales.




**Gross
      profit**




Gross
      profit for fiscal 2005 was $609,376 or 84% of net sales.





**Operating
      expenses**




Total
      operating expenses for fiscal 2005 were $367,095 and included the
      following:





·
            During
                fiscal 2005, salaries and related taxes were $164,038 and related
                to the
                hiring of staff to implement our business
                plan.


·
            During
                fiscal 2005, we recorded bad debt expense of $22,500 in established
                an
                allowance for doubtful accounts on our accounts receivable balance.


·
            During
                fiscal 2005, marketing and advertising expenses were
                $22,626.


·
            During
                fiscal 2005, other selling, general and administrative expenses were
                $157,931 and included the
                following:





Professional
                fees
            
            $
            19,568Contract
                labor
            
            
            26,628Insurance
            
            
            3,454Depreciation
            
            
            2,440Rent
            
            
            5,918Travel
                and entertainment
            
            
            4,380Telephone
                and utilities
            
            
            5,292Printing
                expenses
            
            
            12,653Office
                supplies
            
            
            15,479Events/shows
            
            
            5,113Credit
                card and bank fees
            
            
            11,928Other
            
            
            45,078Total
            
            $
            157,931





**Income
      from operations**





We
      reported income from operations of $242,281 for fiscal 2005.








19





**Other
      income (expense)**




For
      fiscal 2005, we incurred interest expense of $900.





**Income
      taxes**




During
      fiscal 2005, we incurred current and deferred income tax expense of $83,005.
      We
      computed and filed our Federal income tax return on a cash basis for
      2005.





**Net
      income**




As
      a
      result of these factors, we reported net income of $158,376 or $0.02 per common
      share for fiscal 2005.





**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
      December 31, 2006, we had a cash balance of $468,382.





Our
      working capital position decreased by $155,224 to a working capital deficit
      of
      ($79,473) at December 31, 2006 from $75,751 at December 31, 2005. This decrease
      in working capital is primarily attributable to overall increases in current
      liabilities including increased current notes payable of $350,000, an increase
      in accounts payable of $203,326 and increased accrued wages payable and wage
      related expenses of $121,728, partially offset by an increased cash balance
      of
      $442,722 and increased inventories of $92,050.





In
      November 2006, we entered into a Convertible Note (the “Convertible Note”), with
      an affiliate of the Company’s Chief Executive Officer in the original principal
      amount of $100,000. The note is convertible at the holder's option any time
      up
      to maturity at a conversion price equal to $0.35 per common share. The note
      is
      due on May 15, 2007, bears interest at 20% per year and is unsecured. Such
      interest is payable at maturity. The common shares underlying the Note shall
      have piggy back registration rights.





On
      December 27, 2006, we entered into a Secured Convertible Note Purchase Agreement
      (the “Convertible Note Agreement”). Pursuant to the Convertible Note Agreement,
      we issued a convertible note to the Investor in the original principal amount
      of
      $250,000. The note was convertible at a conversion price equal to $0.35 per
      common share. The note was converted by the note holders into 714,286 shares
      of
      our common stock on February 8, 2007.





Net
      cash
      provided by operating activities for the year ended December 31, 2006 was
      $189,281 as compared to $96,194 for the period from March 24, 2005 (inception)
      to December 31, 2005. For the year ended December 31, 2006, net cash provided
      by
      operating activities was attributable primarily to increases in our accounts
      payable balance of $203,326, increased accrued wages and wage related expenses
      of $121,728, increased deferred licensing revenue of $86,801, non-cash
      depreciation expense of $41,503, decreased prepaid assets of $39,074, non-cash
      expense related to issuance of common stock for contract settlement of $26,250,
      increased sales return liabilities accrual of $25,320, increased accrued
      liabilities of $11,799 and decreased receivables from related parties of $6,364,
      partially offset by our net loss of $141,253, increased inventory of $92,050,
      deferred income tax benefit of $79,418, increased prepaid taxes of $44,361
      and
      decreased other assets of $7,603.





Net
      cash
      used in investing activities for the year ended December 31, 2006 was $186,543
      attributable to the purchase of property and equipment of $189,543, partially
      offset by proceeds from the sale of fixed assets of $3,000.








20





Net
      cash
      provided by financing activities was $439,983 for the year ended December 31,
      2006 was attributable to proceeds from convertible notes payable of $250,000,
      proceeds from convertible notes payable - officer of $100,000, proceeds from
      the
      sale of our common stock of $75,000 and capital contributions of $25,000,
      partially offset by repayments on equipment financing payable of
      $10,017.





We
      reported a net increase in cash for the year ended December 31, 2006 of $442,721
      as compared to a net increase in cash of $25,661 for the period from March
      24,
      2005 (inception) to December 31, 2005.





We
      currently have no material commitments for capital expenditures. Other than
      working capital and loans, we presently have no other alternative source of
      working capital. We want to build an additional manufacturing line and upgrade
      our manufacturing facilities and technologies, in order to expand our products.
      We do not have sufficient working capital to fund the additional line and
      upgrade our manufacturing facilities and technologies as well as providing
      working capital necessary for our ongoing operations and obligations. We will
      need to raise additional working capital to complete this project. We may seek
      to raise additional capital through the sale of equity securities. No assurances
      can be given that we will be successful in obtaining additional capital, or
      that
      such capital will be available in terms acceptable to our company.




**ITEM
                7.**
            **FINANCIAL
                STATEMENTS**




The
      financial statements are listed in the Index to Financial Statements on page
      F-1.








































21
 **ZAGG
          INCORPORATED**
 **(fka
          SHIELDZONE CORPORATION)**
 **INDEX
          TO FINANCIAL STATEMENTS**
 
 
 **CONTENTS**
 
 **Page**Report
                    of Independent Registered Public Accounting Firm
                
                F-2Financial
                    Statements:Balance
                    Sheet - As of December 31, 2006
                
                F-3Statements
                    of Operations for the year ended December 31, 2006 and for the
                    period from
                    March 24, 2005 (inception) to December 31, 2005
                
                F-4Statements
                    of changes in Stockholders’ Equity for the Year Ended December 31, 2006
                    and for the period from March 24, 2005 (inception) to December
                    31,
                    2005
                
                F-5Statements
                    of Cash Flows for the Year Ended December 31, 2006 and for the
                    period from
                    March 24, 2005 (inception) to December 31, 2005
                
                F-6Notes
                    to Financial Statements
                
                F-7
                    - F- 18
 
 
 
 
 
 
 
 
 
 
 
 
  F-1
  
 **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 To
          the
          Board of Directors and Shareholders’ of
 Zagg
          Incorporated (fka ShieldZone Corporation)
 
 
 We
          have
          audited the accompanying balance sheet of Zagg Incorporated (fka ShieldZone
          Corporation) as of December 31, 2006 and the related statements of operations,
          changes in stockholders' equity and cash flows for the year ended December
          31,
          2006 and for the period from March 24, 2005 (inception) to December 31,
          2005.
          These financial statements are the responsibility of the Company's management.
          Our responsibility is to express an opinion on these financial statements
          based
          on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          financial statements are free of material misstatement. An audit includes
          examining, on a test basis, evidence supporting the amount and disclosures
          in
          the financial statements. An audit also includes assessing the accounting
          principles used and significant estimates made by management, as well as
          evaluating the overall financial statement presentation. We believe that
          our
          audits provide a reasonable basis for our opinion.
 
 In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the financial position of Zagg Incorporated (fka ShieldZone
          Corporation) as of December 31, 2006, and the results of its operations
          and its
          cash flows for the year ended December 31, 2006 and for the period from
          March
          24, 2005 (inception) to December 31, 2005, in conformity with accounting
          principles generally accepted in the United States of America.
 
 
 /s/
          Salberg & Company, P.A.
 
 SALBERG
          & COMPANY, P.A.
 Boca
          Raton, Florida
 March
          5,
          2007
 
 
  F-2
  **ZAGG
          INCORPORATED**
 **(fka
          SHIELDZONE CORPORATION)**
 **BALANCE
          SHEET**
 **December
          31, 2006**
 
 
 **ASSETS****Current
                    assets**Cash
                
                $
                468,382Accounts
                    receivable, net
                
                
                121,149Inventories
                
                
                102,522Prepaid
                    income taxes
                
                
                44,361Prepaid
                    expenses and other current assets
                
                
                31,724Deferred
                    income tax assets
                
                
                19,468Due
                    from employees
                
                
                3,714**Total
                    current assets**
                
                
                791,320**Property
                    and equipment, net**
                
                
                221,474**Deposits
                    and other assets**
                
                
                12,119**Intangible
                    assets**
                
                
                2,340**Total
                    assets**
                
                $
                1,027,253**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****Current
                    liabilities**Convertible
                    note payable
                
                $
                250,000Convertible
                    note payable - officer
                
                
                100,000Accounts
                    payable
                
                
                246,691Accrued
                    liabilities
                
                
                33,573Accrued
                    wages and wage related expenses
                
                
                121,728Deferred
                    licensing revenue
                
                
                86,801Sales
                    returns liability
                
                
                32,000**Total
                    current liabilities**
                
                
                870,793**Long-term
                    liabilities**Non-current
                    deferred income tax liablility, net
                
                
                12,087**Total
                    liabilities**
                
                
                882,880**Stockholders'
                    equity**Common
                    stock, $0.001 par value; 50,000,000 shares authorized; 10,175,000
                    shares
                    issued and outstanding
                
                
                10,175Additional
                    paid-in capital
                
                
                117,075Retained
                    earnings
                
                
                17,123**Total
                    stockholders' equity**
                
                
                144,373**Total
                    liabilities and stockholders' equity**
                
                $
                1,027,253
 
   See
          accompanying notes to financial statements.
 
  F-3
  **ZAGG
          INCORPORATED**
 **(fka
          SHIELDZONE CORPORATION)**
 **STATEMENTS
          OF OPERATIONS**
 
 **Year
                    Ended**
                  **Dec
                    31, 2006**
                
                **For
                    the Period**
                  **From
                    Mar 24, 2005**
                  **(inception)
                    to**
                  **Dec
                    31, 2005****Net
                    sales**
                
                $
                2,777,036
                
                $
                728,786**Cost
                    of sales**
                
                
                727,434
                
                
                119,410**Gross
                    profit**
                
                
                2,049,602
                
                
                609,376**Operating
                    expenses:**Salaries
                    and related taxes
                
                
                858,869
                
                
                164,038Consulting
                
                
                73,750
                
                
                -Settlement
                    fees
                
                
                101,750
                
                
                -Advertising
                    and marketing
                
                
                370,043
                
                
                22,626Bad
                    debt (recovery) expense
                
                
                (2,307
                )
                
                22,500Other
                    selling, general and administrative
                
                
                872,115
                
                
                157,931**Total
                    operating expenses**
                
                
                2,274,220
                
                
                367,095**(Loss)
                    income from operations**
                
                
                (224,618
                )
                
                242,281**Other
                    income (expense):**Interest
                    expense
                
                
                (2,813
                )
                
                (900
                )Interest
                    and other income
                
                
                6,760
                
                
                -**Total
                    other income (expense)**
                
                
                3,947
                
                
                (900
                )**Income
                    before provision for income taxes**
                
                
                (220,671
                )
                
                241,381**Income
                    tax benefit (expense)**
                
                
                79,418
                
                
                (83,005
                )**Net
                    (loss) income**
                
                
                (141,253
                )
                
                158,376**Basic
                    and diluted net (loss) earnings per common share**
                
                $
                (0.01
                )
                $
                0.02**Weighted
                    average number of shares outstanding - basic and
                    diluted**
                
                
                10,052,808
                
                
                10,000,000
 
           See
          accompanying notes to financial statements.
 
  F-4
  **ZAGG
          INCORPORATED**
 (fka
          SHIELDZONE CORPORATION)
 STATEMENT
          OF CHANGES IN STOCKHOLDERS' EQUITY
 For
          the
          Year Ended December 31, 2006 and for the Period from March 24, 2005 (Inception)
          to December 31, 2005
 
 **Additional**
                
                
                
                **Total****Common
                    Stock**
                
                **Paid-in**
                
                **Retained**
                
                **Stockholders'****Shares**
                
                **Amount**
                
                **Capital**
                
                **Earnings**
                
                **Equity**Balance,
                    March 24, 2005 (Inception)
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Common
                    stock issued to founder at inception
                
                
                10,000,000
                
                
                10,000
                
                
                (9,000
                )
                
                -
                
                
                1,000Net
                    income for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                158,376
                
                
                158,376Balance,
                    December 31, 2005
                
                
                10,000,000
                
                
                10,000
                
                
                (9,000
                )
                
                158,376
                
                
                159,376Capital
                    Contribution
                
                
                -
                
                
                -
                
                
                25,000
                
                
                -
                
                
                25,000Sale
                    of common stock
                
                
                100,000
                
                
                100
                
                
                74,900
                
                
                -
                
                
                75,000Common
                    stock issued in settlement of contract
                
                
                75,000
                
                
                75
                
                
                26,175
                
                
                -
                
                
                26,250Net
                    loss for the year
                
                
                -
                
                
                -
                
                
                -
                
                
                (141,253
                )
                
                (141,253
                )Balance,
                    December 31, 2006
                
                
                10,175,000
                
                $
                10,175
                
                $
                117,075
                
                $
                17,123
                
                $
                144,373
 
            See
          accompanying notes to financial statements.
 
  F-5
 **ZAGG
          INCORPORATED**
 **(fka
          SHIELDZONE CORPORATION)**
 **STATEMENTS
          OF CASH FLOWS**
 **Year
                    Ended**
                
                **For
                    the Period From**
                  **Mar
                    24, 2005 to****Dec
                    31, 2006**
                
                **Dec
                    31, 2005****Cash
                    flows from operating activities**Net
                    (loss) income
                
                $
                (141,253
                )
                $
                158,376Adjustments
                    to reconcile net (loss) income to net cash used in operating
                    activities:Depreciation
                
                
                41,503
                
                
                2,440Loss
                    on disposal of fixed assets
                
                
                335
                
                
                -Bad
                    debt (recovery) expense
                
                
                (2,307
                )
                
                22,500Deferred
                    income tax (benefit ) expense
                
                
                (79,418
                )
                
                72,037Expense
                    related to issuance of common stock for contract
                    settlement
                
                
                26,250
                
                
                -Changes
                    in assets and liabilitiesAccounts
                    receivable
                
                
                955
                
                
                (142,297
                )Inventory
                
                
                (92,050
                )
                
                (10,472
                )Due
                    from employees
                
                
                (3,714
                )
                
                -Prepaid
                    income taxes
                
                
                (44,361
                )
                
                -Prepaid
                    expenses and other current assets
                
                
                39,074
                
                
                (70,798
                )Due
                    from related parties
                
                
                6,364
                
                
                (6,364
                )Deposits
                
                
                -
                
                
                (4,516
                )Other
                    assets
                
                
                (7,603
                )
                
                -Accounts
                    payable
                
                
                203,326
                
                
                43,365Income
                    taxes payable
                
                
                (3,468
                )
                
                3,468Accrued
                    liabilities
                
                
                11,799
                
                
                -Accrued
                    wages and wage related expenses
                
                
                121,728
                
                
                -Deferred
                    licensing revenues
                
                
                86,801
                
                
                -Sales
                    return liability
                
                
                25,320
                
                
                -Accrued
                    interest payable
                
                
                -
                
                
                28,455Net
                    cash provided by operating activities
                
                
                189,281
                
                
                96,194**Cash
                    flows from investing activities**Payments
                    for intangible assets
                
                
                -
                
                
                (2,340
                )Proceeds
                    from disposal of equipment
                
                
                3,000
                
                
                -Purchase
                    of property and equipment
                
                
                (189,543
                )
                
                (54,204
                )Net
                    cash used in investing activities
                
                
                (186,543
                )
                
                (56,544
                )**Cash
                    flows from financing activities**Repayments
                    on equipment financing payable
                
                
                (10,017
                )
                
                (14,989
                )Loan
                    proceeds
                
                
                -
                
                
                4,500Proceeds
                    from convertible note payable
                
                
                250,000
                
                
                -Proceeds
                    from convertible note payable - officer
                
                
                100,000
                
                
                -Loan
                    repayments
                
                
                -
                
                
                (4,500
                )Capital
                    contribution
                
                
                25,000
                
                
                -Proceeds
                    from sale of common stock
                
                
                75,000
                
                
                1,000Net
                    cash provided by (used in) financing activities
                
                
                439,983
                
                
                (13,989
                )**Net
                    increase in cash and cash equivalents**
                
                
                442,721
                
                
                25,661**Cash
                    and cash equivalents at beginning of year**
                
                
                25,661
                
                
                -**Cash
                    and cash equivalents at end of year**
                
                $
                468,382
                
                $
                25,661**Supplemental
                    disclosure of cash flow information**Cash
                    paid during the period for interest
                
                $
                1,814
                
                $
                900Cash
                    paid during the period for income taxes
                
                $
                1,000
                
                $
                7,500**Non-cash
                    investing and financing activities**Property
                    and equipment acquired for equipment financing payable
                
                $
                -
                
                $
                25,005
 
 See
          accompanying notes to financial statements.
 F-6
  **ZAGG
          INCORPORATED**
 **(fka
          SHIELDZONE CORPORATION)**
 **Notes
          to Financial Statements**
 **Years
          Ended December 31, 2006 and 2005**
 
 **NOTE** **1** - **ORGANIZATION
          AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 ***The
          Company***
 
 Zagg
          Incorporated (fka ShieldZone Corporation) (the “Company”, “we”, “us”, or “our”)
          was incorporated in the State of Utah on March 24, 2005 as Protective Solutions,
          Inc.  On January 30, 2006, the Company amended its articles of
          incorporation and changed its name to ShieldZone Corporation.  On February
          8, 2007 we were acquired by an inactive publicly held company, Amerasia
          Khan
          Enterprises Ltd. in a transaction accounted for as a recapitalization of
          the
          Company.  On March 1, 2007, we redomesticated our operating subsidiary by
          reincorporating it in the State of Nevada and on that same date we merged
          that
          subsidiary into Amerasia Khan Enterprises Ltd, the parent, who was the
          surviving
          entity.  In connection with the merger we changed the name of Amerasia Khan
          Enterprises Ltd. to Zagg Incorporated.  The Company continues to operate
          the historical business of ShieldZone Corporation and may use the ShieldZone
          name as a tradename (see Note 15).
 
 The
          Company has developed and sells, through the Internet and wholesale distribution
          channels, patent-pending protective shields under the name of the
          invisibleSHIELDTM for electronic devices.
 
 ***Ability
          to Continue as a Going Concern***
  At
          December 31, 2006, the Company had a working capital deficit of $79,473.
           In 2006, the Company had a net loss of $141,253 and a positive cash flow
          from operations of $189,281.  This loss is primarily the result of
          significant costs associated with the reverse merger/recapitalization completed
          in February 2007 that were incurred in 2006 and included in the statements
          of
          operations for 2006.
 
 The
          Company views the merger as an opportunity for additional exposure to the
          public
          markets, and gives the Company an additional source of capital to draw
          from to
          support the anticipated expansion and revenue growth. The Company experienced
          revenue increases from 2005 to 2006 and management anticipates continued
          growth
          through additional marketing and sales programs currently under development.
          In
          addition, $250,000 of convertible notes at December 31, 2006 were converted
          to
          common stock in February 2007.
 
 Based
          on
          the existing cash, positive cash flow from operations, projected revenue
          growth
          and the additional capital sources upon which the Company has to draw based
          on
          its status as a publicly held company, management does not believe that
          substantial doubt exists about the Company’s ability to continue as a going
          concern .
 
 ***Use
          of estimates***
 
 The
          preparation of financial statements in conformity with generally accepted
          accounting principles requires management to make estimates and assumptions
          that
          affect the reported amounts of assets and liabilities and disclosure of
          contingent assets and liabilities at the date of the financial statements
          and
          the reported amounts of revenue and expenses during the reporting period.
          Actual
          results could differ from those estimates. Significant estimates in 2006
          and
          2005 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.
 
 ***Cash
          and cash equivalents***
 
 For
          purposes of the statements of cash flows, the Company considers all highly
          liquid instruments purchased with a maturity of three months or less and
          money
          market accounts to be cash equivalents.
 
  F-7
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 ***Fair
          value of financial instruments***
 
 Statement
          of Financial Accounting Standards No. 107, *“Disclosures
          about Fair Value of Financial Instruments,”* requires
          disclosures of information about the fair value of certain financial instruments
          for which it is practicable to estimate the value. For purpose of this
          disclosure, the fair value of a financial instrument is the amount at which
          the
          instrument could be exchanged in a current transaction between willing
          parties,
          other than in a forced sale or liquidation.
 
 The
          Company’s financial instruments consist mainly of accounts receivable and
          short-term obligations. The Company believes that the carrying amounts
          approximate their fair values due to the short term maturities of these
          instruments. The estimated fair values have been determined using appropriate
          market information and valuation methodologies.
 
 ***Accounts
          Receivable***
 
 The
          Company sells its products to end-users through retailers and other resellers
          who are extended credit terms after an analysis of their financial condition
          and
          credit worthiness.
 
 The
          Company also accepts orders from its website store and corporate owned
          kiosk
          stores and receives credit card payments through its merchant bank.
 
 Credit
          terms to retailers and resellers, when extended, are based on evaluation
          of the
          customers' financial condition and, generally, collateral is not required.
          The
          Company maintains allowances for doubtful accounts for estimated losses
          resulting from the inability of customers to make required payments. Management
          regularly evaluates the allowance for doubtful accounts considering a number
          of
          factors. Accounts receivable are generally due within thirty days of the
          invoice
          date and considered past due after thirty days. Estimated losses are based
          on
          the aging of accounts receivable balances, a review of significant past
          due
          accounts, and our historical write-off experience, net of recoveries. If
          the
          financial condition of our customers were to deteriorate, whether due to
          deteriorating economic conditions generally, in the industry, or otherwise,
          resulting in an impairment of their ability to make payments, additional
          allowances would be required.
 
 Accounts
          receivable from merchant banks are due to the clearing time the merchant
          banks
          take to post the transactions to the Company’s bank account. There is typically
          a two to five day lag between the charge date and the posting date.
 
 The
          Company establishes an allowance and charges bad debt expense on accounts
          receivable when they become doubtful of collection, and payments subsequently
          received on such receivables are credited to the bad debt expense in the
          period
          of recovery.
 
 ***Inventories***
 
 Inventories,
          consisting primarily of finished goods and raw materials, are valued at
          the
          lower of cost or market and are accounted for on the first-in, first-out
          basis.
          Management performs periodic assessments to determine the existence of obsolete,
          slow moving and non-saleable inventories, and records necessary provisions
          to
          reduce such inventories to net realizable value. We recognize all inventory
          reserves as a component of cost of sales.
 
 ***Property
          and equipment***
 
 Property
          and equipment are stated at cost and depreciated using the straight-line
          method
          over their estimated useful lives. Leasehold improvements are amortized
          over the
          lesser of the useful life of the asset or the term of the lease. The useful
          lives are as follows:
 
 **Useful
                    Lives**Office,
                    computer and other equipment
                3
                    to 7 yearsAutomobiles
                5
                    yearsLeasehold
                    improvements
                1
                    to 3.13 years
 
  F-8
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 Major
          additions and improvements are capitalized, while costs for minor replacements,
          maintenance and repairs that do not increase the useful life of an asset
          are
          expensed as incurred. Upon retirement or other disposition of property
          and
          equipment, the cost and related accumulated depreciation or amortization
          are
          removed from the accounts. The resulting gain or loss is reflected in other
          selling, general and administrative expense.
 
 ***Intangibles
          and other long-lived assets***
 
 In
          accordance with Statement of Financial Accounting Standards (SFAS) No.
          144,
          "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company
          reviews the carrying value of intangibles and other long-lived assets for
          impairment at least annually or whenever events or changes in circumstances
          indicate that the carrying amount of an asset may not be recoverable.
          Recoverability of long-lived assets is measured by comparison of its carrying
          amount to the undiscounted cash flows that the asset or asset group is
          expected
          to generate. If such assets are considered to be impaired, the impairment
          to be
          recognized is measured by the amount by which the carrying amount of the
          property, if any, exceeds its fair market value.
 
 ***Accounting
          for Derivatives***
 
 The
          Company evaluates its convertible debt, options, warrants or other contracts
          to
          determine if those contracts or embedded components of those contracts
          qualify
          as derivatives to be separately accounted for under Statement of Financial
          Accounting Standards 133 “Accounting for Derivative Instruments and Hedging
          Activities” and related interpretations including EITF 00-19 “Accounting for
          Derivative Financial Instruments Indexed to, and Potentially Settled in,
          a
          Company’s Own Stock”.
 
 The
          result of this accounting treatment is that the fair value of the embedded
          derivative is marked-to-market each balance sheet date and recorded as
          a
          liability. In the event that the fair value is recorded as a liability,
          the
          change in fair value is recorded in the consolidated statement of operations
          as
          an other income or expense. Upon conversion or exercise of a derivative
          instrument, the instrument is marked to fair value at the conversion date
          and
          then that fair value is reclassified to equity. Equity instruments that
          are
          initially classified as equity that become subject to reclassification
          under
          SFAS 133 are reclassified to liability at the fair value of the instrument
          on
          the reclassification date.
 
 ***Contingencies***
 
 Certain
          conditions may exist as of the date financial statements are issued, which
          may
          result in a loss to the Company, but which will only be resolved when one
          or
          more future events occur or fail to occur. The Company's management and
          its
          legal counsel assess such contingent liabilities, and such assessment inherently
          involves an exercise of judgment. In assessing loss contingencies related
          to
          legal proceedings that are pending against the Company or unasserted claims
          that
          may result in such proceedings, the Company's legal counsel evaluates the
          perceived merits of any legal proceedings or unasserted claims as well
          as the
          perceived merits of the amount of relief sought or expected to be sought
          therein. If the assessment of a contingency indicates that it is probable
          that a
          material loss has been incurred and the amount of the liability can be
          estimated, then the estimated liability would be accrued in the Company's
          financial statements. If the assessment indicates that a potentially material
          loss contingency is not probable but is reasonably possible, or is probable
          but
          cannot be estimated, then the nature of the contingent liability, together
          with
          an estimate of the range of possible loss if determinable and material,
          would be
          disclosed.
 
 ***Revenue
          recognition***
 
 The
          Company follows the guidance of the Securities and Exchange Commission’s Staff
          Accounting Bulletin 104 for revenue recognition.  In general, the Company
          records 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.  The Company’s revenue
          is derived from sales of its products to retailers, resellers and end consumers
          and from the sale of distributor license fees. For sales of product, the
          Company
          records revenue when the product is shipped, net of estimated returns and
          discounts. For license fees, the Company recognizes revenue on a prorated
          basis
          over the life of the distribution contract.
 
  F-9
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 The
          Company follows 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. The Company estimates a reserve for sales returns and records
          that
          reserve amount as a reduction of sales and as a sales return reserve liability.
          During the year ended December 31, 2006 and the period ended December 31,
          2005 ,
          actual
          and estimated sales returns totaled $5,882 and $7,507, respectively. At
          December
          31, 2006 the sales return liability was $32,000.
 
 The
          Company generally provides the ultimate consumer a warranty with each product
          and accrues warranty expense at the time of the sale based on the Company’s
          prior claims history. Actual warranty costs incurred are charged against
          the
          accrual when paid. During the year ended December 31, 2006 and for the
          period
          ended December 31, 2005, warranty expense and the reserve for warranty
          liability, respectively, was not material.
 
 ** ***Shipping
          and Handling Costs***
 
 Amounts
          invoiced to customers for shipping and handlings are included in sales
          and were
          $243,267 for the year ended December 31, 2006 and $60,060 for the period
          ended
          December 31, 2005. Actual shipping and handling costs to ship products
          to our
          customers are included in cost of sales and were $310,584 for the year
          ended
          December 31, 2006 and $59,757 for the period ended December 31,
          2005.
 
 ***Income
          taxes***
 
 The
          Company recognizes deferred income tax assets or liabilities for expected
          future
          tax consequences of events that have been recognized in the financial statements
          or tax returns. Under this method, deferred income tax assets or liabilities
          are
          determined based upon the difference between the financial statement and
          income
          tax bases of assets and liabilities using enacted tax rates expected to
          apply
          when differences are expected to be settled or realized. Deferred income
          tax
          assets are reviewed for recoverability and valuation allowances are provided
          when it is more likely than not that a deferred tax asset is not realizable
          in
          the future. The effect on deferred tax assets and liabilities of a change
          in tax
          rates is recognized in income in the period that includes the enactment
          date.
 
 ***Stock-based
          compensation***
 
 Effective
          January 1, 2006, the Company adopted Statement of Financial Accounting
          Standards
          No. 123 (revised 2004), *Share
          Based Payment* (“SFAS
          No. 123R”). SFAS No. 123R establishes the financial accounting and reporting
          standards for stock-based compensation plans. As required by SFAS No. 123R,
          the
          Company recognizes the cost resulting from all stock-based payment transactions
          including shares issued under its stock option plans in the financial statements
          based upon the fair value of such equity instruments granted.  As there
          were no common stock options granted or outstanding in 2006 or 2005, there
          was
          no financial effect to the Company upon implementation of SFAS 123R.
 
 Prior
          to
          January 1, 2006, the Company accounted for stock-based employee compensation
          plans (including shares issued under its stock option plans) in accordance
          with
          APB Opinion No. 25 and followed the pro forma net income, pro forma income
          per
          share, and stock-based compensation plan disclosure requirements set forth
          in
          the Statement of Financial Accounting Standards No. 123, *Accounting
          for Stock-Based Compensation* (“SFAS
          No. 123”).
  F-10
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 ***Research
          and development***
 
 Research
          and development costs, if any, are expensed as incurred. For the year ended
          December 31, 2006 and for period ended December 31, 2005, research and
          development costs were not material and included in the accompanying statements
          of operations in other selling, general and administrative
          expenses.
 
 ***Advertising***
 
 Advertising
          is expensed as incurred. Advertising expenses for the year ended December
          31,
          2006 were $370,043 and for period ended December 31, 2005 were not
          material.
 
 ***Reclassifications***
 
 Certain
          amounts in the 2005 financial statements have been reclassified to conform
          to
          the 2006 presentation.
 
 ***Recent
          accounting pronouncements*** ****
 
 In
          July
          2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
          (FIN) No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation
          of
          FASB Statement No. 109." This interpretation provides guidance for recognizing
          and measuring uncertain tax positions, as defined in SFAS No. 109, "Accounting
          for Income Taxes." FIN No. 48 prescribes a threshold condition that a tax
          position must meet for any of the benefit of an uncertain tax position
          to be
          recognized in the financial statements. Guidance is also provided regarding
          de-recognition, classification, and disclosure of uncertain tax positions.
          FIN
          No. 48 is effective for fiscal years beginning after December 15, 2006.
          The
          Company does not expect that this interpretation will have a material impact
          on
          its financial position, results of operations, or cash flows.
 
 In
          September 2006, the FASB issued Statement of Financial Accounting Standards
          No.
          157, “Fair Value Measurements” (“FAS 157”). This Statement defines fair value as
          used in numerous accounting pronouncements, establishes a framework for
          measuring fair value in generally accepted accounting principles and expands
          disclosure related to the use of fair value measures in financial statements.
          The Statement is to be effective for the Company’s financial statements issued
          in 2008; however, earlier application is encouraged. The Company is currently
          evaluating the timing of adoption and the impact that adoption might have
          on its
          financial position or results of operations.
 
 Effective
          December 31, 2006 we adopted the recognition and disclosure provisions of
          SFAS No. 158, “Employers Accounting for Defined Benefit Pension and
          Other Postretirement Plans — an amendment of FASB Statements No. 87,
          88, 106, and 132(R),” (FAS 158). These provisions did not materially impact
          our consolidated financial statements. FAS 158 requires an employer to
          recognize the over-funded or under-funded status of a defined benefit pension
          and other postretirement plan (other than a multiemployer plan) as an asset
          or
          liability in its statement of financial position and to recognize changes
          in
          that funded status in the year in which the changes occur through comprehensive
          income of a business entity. This statement also requires plan assets and
          obligations to be measured as of the employer’s balance sheet date. The
          measurement provision of this statement will be effective for years beginning
          after December 15, 2008 with early adoption encouraged. We have not yet
          adopted the measurement date provisions of this statement.
 
 In
          2006,
          we adopted Staff Accounting Bulletin No. 108, “Considering the Effects
          of Prior Year Misstatements When Quantifying Misstatements in Current Year
          Financial Statements” (SAB 108), which provides interpretive guidance on
          how the effects of the carryover or reversal of prior year misstatements
          should
          be considered in quantifying a current year misstatement. The adoption
          of
          SAB 108 did not impact our financial statements.
 
 Other
          accounting standards that have been issued or proposed by the FASB or other
          standards-setting bodies that do not require adoption until a future date
          are
          not expected to have a material impact on the financial statements upon
          adoption.
 
  F-11
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 ***Net
          (Loss) Income Per Common Share*** ****
 
 Basic
          net
          (loss) income per share is computed by dividing net (loss) income by weighted
          average number of shares of common stock outstanding during each period.
          Diluted
          net (loss) income per share is computed by dividing net (loss) income by
          the
          weighted average number of shares of common stock, common stock equivalents
          and
          potentially dilutive securities outstanding during each period. As of December
          31, 2006 and 2005, the Company did not have any dilutive
          securities.
 
 The
          following is a reconciliation of the numerator and denominator used to
          calculate
          Basic and Diluted EPS:
 ****
                  
                  **Net**
                    **Income**
                    **(Loss)******
                  
                  **Weighted**
                    **Average**
                    **Shares******
                  
                  **Per**
                    **Share**
                    **Amount**Period
                      from March 24, 2005 (Inception) to December 31, 2005:Basic
                      EPS
                  
                  $
                  158,376
                  
                  
                  10,000,000
                  
                  $
                  0.02Effect
                      of common stock equivalents
                  
                  
                  —
                  
                  
                  —Diluted
                      EPS
                  
                  $
                  158,376
                  
                  
                  10,000,000
                  
                  $
                  0.02Year
                      Ended December 31, 2006:Basic
                      EPS
                  
                  $
                  (141,253
                  )
                  
                  10,052,808
                  
                  $
                  (0.01
                  )Effect
                      of common stock equivalents
                  
                  
                  ——Diluted
                      EPS
                  
                  $
                  (141,253
                  )
                  
                  10,052,808
                  
                  $
                  (0.01
                  )
   **NOTE
          2** **-** **ACCOUNTS RECEIVABLE, NET**
 
 Accounts
          Receivable at December 31, 2006 was as follows:
 
 Accounts
                    receivable
                
                $
                141,342Less:
                    Allowance for doubtful accounts
                
                
                (20,193
                )Accounts
                    Receivable, net
                
                $
                121,149
 
 Bad
          debt
          expense (recovery) for the year ended December 31, 2006 was ($2,307) and
          for
          period ended December 31, 2005 was $22,500.
 
 **NOTE
          3** **-** **INVENTORIES**
 
 At
          December 31, 2006 inventories consisted of the following:
 
 Finished
                    Goods
                
                $
                67,257Raw
                    Materials
                
                
                35,265$
                $
                    102,522
 
  F-12
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 **NOTE
          4 - PROPERTY AND EQUIPMENT**
 
 At
          December 31, 2006, property and equipment consisted of the
          following:
 
 **Useful
                    Lives**Computer
                    Equipment and Software
                
                3
                    to 5 years
                
                $
                58,790Office
                    Equipment
                
                3
                    to7 years
                
                
                58,407Furniture
                    and Fixtures
                
                7
                    years
                
                
                9,405Automobiles
                
                5
                    years
                
                
                47,063Leasehold
                    improvements
                
                1
                    to 3.13 years
                
                
                91,637265,302Less
                    Accumulated Depreciation
                
                
                
                
                
                (43,828
                )$
                221,474
 
 Depreciation
          expense was $41,503 for the year ended December 31, 2006 and $2,440 for
          the
          period ended December 31, 2005. During 2006, the Company purchased an asset
          for
          $3,450 and recorded accumulated depreciation on that asset of $115 before
          selling the asset for proceeds of $3,000. A loss of $335 was recognized
          on the
          sale of the asset in the accompanying financial statements.
 
 **NOTE
          5 - INTANGIBLE ASSETS**
 
 At
          December 31, 2006, intangible assets consist of legal fees paid in connection
          with the Company’s patent application. As of December 31, 2006, the patent had
          not been granted. Accordingly, the Company had not begun to amortize the
          patent
          costs and will begin amortizing the patent over the legal life of the patent,
          when the patent is granted.
 
 **NOTE
          6 - EQUIPMENT FINANCING PAYABLE**
 
 During
          September and October 2005, the Company entered in two equipment financing
          arrangements totaling $25,004 in connection with the acquisition of office
          equipment. Under the financing arrangements, the Company was to make five
          equal
          payments, without interest, of approximately $5,000 each through December
          2006.
          At December 31, 2005, amounts due under equipment financing arrangements
          amounted to $10,016. At December 31, 2006, the amount had been paid in
          full.
 
 **NOTE
          7 - INCOME TAXES**
 
 The
          following table shows the Company’s deferred and current income tax (benefit)
          expense for the year ended December 31, 2006 and the period ended December
          31,
          2005, as follows:
 
 2006
                
                2005Deferred
                    income tax (benefit) expense
                
                $
                (79,418
                )
                $
                72,037Current
                    income tax (benefit) expense
                
                
                --
                
                
                10,968$
                (79,418
                )
                $
                83,005
 
 The
          Company’s income tax (benefit) expense differs from the “expected” income tax
          (benefit) expense for Federal and State income tax purposes for the years
          ended
          December 31, 2006 and 2005, (computed by applying the blended United States
          Federal and the State Corporate tax rate of 37.3% and 40%, respectively
          to
          (loss) income before taxes), as follows:
 
  F-13
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 2006
                
                2005Computed
                    “expected” tax(benefit)
                    expense
                
                $
                (82,311
                )
                $
                96,552Meals
                    and entertainment
                
                
                1,572
                
                
                990Other
                
                
                1,321
                
                
                --Current
                    income taxes, tax rate difference
                
                
                --
                
                
                (14,537
                )$
                (79,418
                )
                $
                83,005
 
 The
          Company filed its 2005 tax return using the cash basis of accounting.
          Accordingly, there were significant deferred tax assets and liabilities
          at
          December 31, 2005. The Company converted to an accrual basis for tax purposes
          in
          2006 and thereafter.
 
 The
          tax
          effects of temporary differences that gave rise to significant portions
          of
          deferred tax assets and liabilities at December 31, 2006 are as
          follows:
 
 2006Deferred
                    tax assets:Net
                    operating loss carryforward
                
                $
                4,422Allowance
                    for doubtful accounts
                
                
                7,532Sales
                    returns accrual
                
                
                11,936Total
                    gross deferred tax assets
                
                
                23,890Less
                    valuation allowance
                
                
                --Net
                    deferred tax assets
                
                $
                23,890Deferred
                    tax liabilities:Property
                    and equipment
                
                $
                16,509Total
                    gross deferred tax liabilities
                
                
                16,509Net
                    deferred tax assets
                
                $
                7,381
  Deferred
                    tax assets, net-
                    current
                
                $
                19,468Deferred
                    tax liabilities, net - non-current
                
                
                (12,087
                )Net
                    deferred tax assets
                
                $
                7,381
 
 There
          was
          no valuation allowance at December 31, 2006 as management believes it is
          more
          likely than not that it can realize its deferred tax assets.
 
 At
          December 31, 2006, the Company had a net operating loss carryforward of
          approximately $11,900 available to offset future taxable income through
          2026.
 
 **NOTE
          8 - STOCKHOLDER’S EQUITY**
 
 *Change
          in Authorized Shares*
 
 On
          January 30, 2006, the Company amended its articles of incorporation and
          increased the numbers of authorized shares of the Company to 10,000,000,
          of
          which 4,000,000 shares, no par value, shall be common stock and 6,000,000
          shares
          of no par value shall be preferred stock with such designations, rights
          and
          preferences as may be determined from time to time by the Board of Directors.
          In
          November 2006, the Company amended its articles of incorporation to cancel
          the
          preferred shares previously authorized and increase the number of authorized
          common shares to 10,500,000. In February 2007 the Company recapitalized
          with a
          public shell and authorized shares became 50,000,000 at $0.001 par value
          (See
          Note 15). The new authorized shares are reflected retroactively in the
          accompanying balance sheet.
 
  F-14
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 *Forward
          Stock Splits*
 
 In
          January 2006, the Company authorized a 2 for 1 forward stock split and
          then a
          1980.198 for 1 forward stock split on the outstanding common stock.
          Additionally, in November 2006, the Company authorized a 2.525 for 1 forward
          stock split on the common stock. All share and per share data in the
          accompanying financial statements has been retroactively adjusted to account
          for
          these forward stock splits.
 
 *Common
          Stock*
 
 At
          March
          24, 2005 (inception), the Company issued 10,000,000 shares of common stock
          to
          its founder for $1,000.
 
 On
          January 13, 2006, under an agreement between the then sole shareholder
          of the
          Company (the “Shareholder”) and a then third party, the shareholder sold 50% of
          his equity holdings consisting of common shares in the Company, to the
          current
          Chief Executive Officer who was not an officer or related party at the
          time of
          the sale (see Note 10). At the agreement date the third party was appointed
          as
          an officer and director. The sale price was $25,000 cash ($.005 per share).
          The
          selling shareholder simultaneously contributed the $25,000 consideration
          back to
          the Company which amount was recorded as $25,000 of contributed
          capital.
 
 In
          July
          2006, the Company sold 100,000 common shares for $75,000 or $0.75 per
          share.
 
 On
          September 22, 2006, as amended on December 15, 2006, the Company entered
          into a
          one-year investor relations agreement, whereby the consultants agreed to
          assist
          the Company in structuring a transaction in order to attract investment
          capital
          and prospective public merger candidates. As compensation to the consultants,
          the Company agreed to pay the consultants 15% of the Company’s common stock, on
          a fully-diluted basis, to be retained as of the date of closing of any
          transaction principally involving closing of a funding and reverse merger
          transaction following which the Company’s existing stockholders shall become
          stockholders of a public company. No shares were earned or paid as of December
          31, 2006.
 
 On
          September 12, 2006, the Company entered into an Exclusive Finder’s Agreement
          (the “Finders Agreement”) with a third party consultant, whereby the consultant
          will act as the Company’s exclusive finder with respect to sales by the Company
          in a private placement transaction of up to an aggregate $6,000,000 in
          equity,
          or equity-related debt or bridge note securities of the Company to investors
          during the term of the Finders Agreement. In consideration for the services
          rendered, the Company shall pay to the consultant cash compensation equal
          to 9%
          of the gross offering funds received in the offering. Additionally, the
          consultant shall receive 10% warrant compensation (for every $10 raised,
          the
          consultant shall received 1 warrant). The warrant strike price shall equal
          the
          strike, expiration and registration rights of any warrants sold under the
          offering. No cash or warrants were earned or paid as of December 31,
          2006.
 
 The
          Company entered into a distribution agreement with a distributor (the
“Distributor”) in March 2006. On December 12, 2006, under a settlement type
          purchase agreement the Company agreed to issue to the Distributor 75,000
          of its
          common shares, $13,000 cash plus portion of payment due from a customer
          for
          which the Distributor was the Company’s distributor in order to early cancel the
          distribution agreement. The shares were valued and expensed at $26,250
          or $0.35
          per share which was a contemporaneous sale price in a private transaction
          where
          a former officer sold a portion of his common shares of the
          Company.
 
 The
          Company currently does not have any outstanding stock options, a stock
          option
          plan or an incentive plan. The Board of Directors has reserved 725,000
          shares of
          common stock for use in such a plan to be established in 2007.
 
  F-15
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 **NOTE
          9 - CONVERTIBLE NOTE PAYABLE - OFFICER**
 
 In
          November 2006, the Company entered into a Convertible Note with an affiliate
          of
          the Company’s Chief Executive Officer in the original principal amount of
          $100,000. The note is convertible at the holder's option any time up to
          maturity
          at a conversion price equal to $0.35 per common share. The note is due
          on May
          15, 2007, bears interest at 20% per year and is unsecured. Such interest
          is
          payable at maturity. The common shares underlying the Note shall have piggy
          back
          registration rights.
 
 The
          note
          is a conventional convertible instrument and the Company evaluated the
          conversion feature and determined that there was not a separate derivative
          instrument associated with the note and no derivative liability was recognized.
          The Company determined that there was no beneficial conversion feature
          associated with the note as the conversion price was equal to the deemed
          market
          value on the date of grant.
 
 **NOTE
          10 - CONVERTIBLE NOTE PAYABLE**
 
 On
          December 27, 2006, the Company entered into a Secured Convertible Note
          Purchase
          Agreement (the “Convertible Note Agreement”). Pursuant to the Convertible Note
          Agreement, the Company issued a convertible note to the Investor in the
          original
          principal amount of $250,000. The note is convertible at the holder's option
          any
          time up to maturity at a conversion price equal to $0.35 per common share.
          The
          note is due on March 1, 2007, bears interest at 4% per year, and is secured
          by
          substantially all of the assets of the Company. Such interest is payable
          at
          maturity and shall be computed on the basis of a 360-day year. The note
          shall
          automatically convert at any time prior to maturity upon the sooner of
          (i) a
          merger of the Company with and into a publicly listed or traded entity,
          or (ii)
          the Company consummates the issuance and sale of an aggregate of $500,000
          of
          common stock. The common shares underlying the Note shall have piggy back
          registration rights. In February 2007, the note converted into 714,286
          shares of
          common stock.
 
 The
          note
          is a conventional convertible instrument and the Company evaluated the
          conversion feature and determined that there was not a separate derivative
          instrument associated with the note and no derivative liability was recognized.
          The Company determined that there was no beneficial conversion feature
          associated with the note as the conversion price was equal to the deemed
          market
          value on the date of grant.
 
 The
          weighted average interest rate for the two notes discussed above was
          8.57%.
 
 **NOTE
          11 - COMMITMENTS AND CONTINGENCIES**
 
 *Operating
          Leases*
 
 The
          Company leases office and warehouse space under operating leases that expire
          through June 2009. The office lease agreements have certain escalation
          clauses
          and renewal options. Future minimum rental payments required under the
          operating
          lease are as follows:
 
 2007
                
                $
                44,0882008
                
                
                24,0302009
                
                
                12,192Total
                
                $
                80,310
 
 Rent
          expense was $56,264 for the year ended December 31, 2006 and $5,918 for
          the
          period ended December 31, 2005.
 
 From
          time
          to time we may become subject to proceedings, lawsuits and other claims
          in the
          ordinary course of business, including proceedings related to environmental
          and
          other matters. Such matters are subject to many uncertainties, and outcomes
          are
          not predictable with assurance.
 
  F-16
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 **NOTE
          12 - RELATED PARTY TRANSACTIONS**
 
 In
          October 2005 the Company executed a 9 month consulting agreement with a
          then
          third party entity where the third party will provide corporate management
          services. The compensation was $85,000 cash which was paid in December
          2005. As
          of December 31, 2005, $63,750 of the $85,000 was reflected as a prepaid
          asset.
          In January 2006 the sole owner of the third party entity became a related
          party
          by purchasing a 50% interest in the equity of the Company and being appointed
          Chief Executive Officer and Director of the Company.
 
 **NOTE
          13 - CONCENTRATIONS**
 
 *Concentration* *of
          c* *redit
          risk*
 
 Financial
          instruments which potentially subject the Company to concentrations of
          credit
          risk consist principally of cash and accounts receivable. The Company places
          its
          cash with high credit quality financial institutions. The Company maintains
          its
          cash in bank deposit accounts, which, at times, exceed federally insured
          limits.
          The Company has not experienced any losses in such accounts
          through December 31, 2006.
 
 *Concentration
          of supplier*
 
 The
          Company purchases its raw materials primarily from one source. Management
          is
          aware of similar raw materials that would be available from other sources
          if
          required and has current plans to immediately engage such resources if
          necessary.
 
 *Concentration
          of accounts receivable*
 
 At
          December 31, 2006, approximately 36% of the balance of accounts receivable
          was
          due from one merchant bank for credit card sales.
 
 **NOTE
          14 - SEGMENTS**
 
 For
          the
          year ended December 31, 2006 and the period ended December 31, 2005, the
          Company
          operated in one segment. The percentage of sales by geographic region for
          the
          year ended December 31, 2006 and the period ended December 31, 2005 were
          approximately:
  **2006**
                
                **2005**United
                    States
                86%
                
                85%Europe
                5%
                
                13%Other
                9%
                
                2%
 
 No
          single
          customer accounted for more than 10% of the Company’s sales for the year ended
          December 31, 2006 or for the period ended December 31, 2005.
 
 **NOTE
          15 - SUBSEQUENT EVENTS**
 
 On
          February 8, 2007 (the “recapitalization date”), we executed an Agreement and
          Plan of Merger (the “Merger Agreement”) by and between Amerasia Khan Enterprises
          Ltd. (a public shell), now known as Zagg Incorporated, and its wholly-owned
          subsidiary, SZC Acquisition Inc., a Nevada corporation (“Subsidiary”) on the one
          hand and ShieldZone Corporation, (“ShieldZone”) a Utah corporation, on the other
          hand. Pursuant to the Merger Agreement, Subsidiary was merged into ShieldZone
          with ShieldZone surviving the merger. In consideration, the stockholders
          of
          ShieldZone received 10,175,000 shares of Amerasia Khan Enterprises Ltd.,
          now
          known as Zagg Incorporated, common stock which was approximately 69% of
          the
          total common shares outstanding just subsequent to the merger but before
          the
          simultaneous sale of 785,856 common shares for $275,000 ($0.35 per share)
          and
          conversion of a $250,000 convertible promissory note for 714,286 shares.
          The
          Company also issued warrants in conjunction with the sale of the 785,856
          common
          shares and the raise and conversion of the $250,000 convertible promissory
          note.
          The Company issued warrants as a fee to purchase 52,500 shares of our common
          stock at an exercise price of $0.35. These warrants may be exercised until
          March
          18, 2012, at which time they will expire if not exercised. The warrant
          holders
          also have piggyback registration rights. In connection with the
          merger/recapitalization, the Company is deemed to have issued 4,600,000
          common
          shares to the original stockholders’ of Amerasia Khan Enterprises Ltd.
          Subsequent to the merger/recapitalization, 1,254,000 shares owned by certain
          original shareholders of Amerasia Khan Enterprises Ltd. were cancelled.
 
  F-17
  **ZAGG
            INCORPORATED**
 **(fka
            SHIELDZONE CORPORATION)**
 **Notes
            to Financial Statements**
 **Years
            Ended December 31, 2006 and 2005**
 The
          merger was accounted for as a recapitalization of ShieldZone, a Utah corporation
          because on a post-merger basis, the former stockholders of ShieldZone
          Corporation held a majority of the outstanding common stock on a voting
          and
          fully-diluted basis and had Board and management control. As a result,
          ShieldZone is deemed to be the acquirer for accounting purposes. In March
          2007,
          ShieldZone Corporation was merged into its parent, Amerasia Khan Enterprises
          Ltd., now known as Zagg Incorporated, and the name of the surviving entity,
          Amerasia Khan Enterprises Ltd., was changed to Zagg Incorporated.
 
 Accordingly
          the balance sheets just subsequent to the recapitalization date consists
          of the
          balance sheets of both companies at historical cost and the statement of
          operations consists of the historical operations of ShieldZone and the
          operations of Amerasia Khan Enterprises Ltd., now known as Zagg Incorporated,
          from the recapitalization date.
 
 All
          share
          and per share data in the accompanying financial statements have been
          retroactively changed to reflect the effect of the merger and
          recapitalization.
                          F-18


**ITEM
                8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURES**





LBB
&
      Associates Ltd., LLP, the independent accountant who had been engaged by
      Amerasia Khan Enterprises Ltd. as the principal accountant to audit its
      financial statements, was dismissed effective March 16, 2007. On March 16,
      2007,
      the Board of Directors of the Company approved the engagement of Salberg &
Company, P.A. as the new independent registered public accounting
      firm.





The
      decision to change the Company’s independent registered public accounting firm
      from LBB & Associates Ltd., LLP, ****** to
      Salberg & Company, P.A. was approved by the Board of Directors of the
      Company.





The
      report of LBB & Associates Ltd., LLP, on the financial statements of
      Amerasia Khan Enterprises Ltd. as of and for the years ended March 31, 2005
      and
      2006 did not contain an adverse opinion, or a disclaimer of opinion, except
      that
      there was an explanatory paragraph raising substantial doubt about the Company’s
      ability to continue as a going concern. During the periods ended March 31,
      2005
      and 2006 and the interim period from April 1, 2006 through the date of
      dismissal, the Company did not have any disagreements with LBB & Associates
      Ltd., LLP, on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure, which disagreements,
      if
      not resolved to the satisfaction of ****** LBB
&
      Associates Ltd., LLP, would have caused it to make a reference to the subject
      matter of the disagreements in connection with its reports.





Prior
      to
      engaging Salberg & Company, P.A. the Company had not consulted Salberg &
Company, P.A., regarding the application of accounting principles to a specified
      transaction, completed or proposed, or the type of audit opinion that might
      be
      rendered on the financial statements of the combined companies.







**ITEM
              8A.**
            **CONTROLS
                AND PROCEDURES**




(a) Evaluation
      of Disclosure Controls and Procedures .
      Regulations under the Securities Exchange Act of 1934 require public companies
      to maintain “disclosure controls and procedures,” which are defined to mean a
      company’s controls and other procedures that are designed to ensure that
      information required to be disclosed in the reports that it files or submits
      under the Securities Exchange Act of 1934 is recorded, processed, summarized
      and
      reported, within the time periods specified in the Commission’s rules and forms.
      Our Chief Executive Officer (“CEO”), President, and Chief Financial Officer
      (“CFO”) carried out an evaluation of the effectiveness of our disclosure
      controls and procedures as of the end of the period covered by this report.
      Based on those evaluations, as of the Evaluation Date, our CEO, President,
      and
      CFO believe:


(i) that
        our disclosure controls and procedures are designed to ensure that information
        required to be disclosed by us in the reports we file under the Securities
        Exchange Act of 1934 is recorded, processed, summarized and reported within
        the
        time periods specified in the SEC’s rules and forms and that such information is
        accumulated and communicated to our management, including the CEO and CFO,
        as
        appropriate to allow timely decisions regarding required disclosure;
        and
  (ii) that
        our disclosure controls and procedures are effective.
  (b) Changes
        in Internal Controls . There
        were no significant changes in our internal controls or, to our knowledge,
        in
        other factors that could significantly affect our internal controls subsequent
        to the evaluation date.







22




**ITEM
              8B.**
            **OTHER
                INFORMATION**




The
      Company was incorporated on March 24, 2005. The Company was formed under the
      original name “Protective Solutions, Inc.” and subsequently changed its name to
“ShieldZone Corporation.” The Company maintains its corporate offices and
      operational facility at 3855 South 500 West, Suites B and J, Salt Lake City,
      Utah, 84115. The telephone number of the Company is 801-263-0699. The Company’s
      website addresses are www.ShieldZone.com , www.InvisibleShield.com and www.zagg.com .
      The
      Company changed its name to Zagg Incorporated in connection with the Merger
      (described below).





On
      February 8, 2007, Amerasia Khan Enterprises Ltd. a Nevada corporation (“AKE”)
      (nka Zagg Incorporated), a publicly held entity, executed an Agreement and
      Plan
      of Merger (the “Merger Agreement”) by and between AKE and its wholly owned
      subsidiary, SZC Acquisition Corp., a Nevada corporation (“Subsidiary”) on the
      one hand and ShieldZone Corporation (now Zagg Incorporated), a Utah corporation
      on the other hand. Pursuant to the Merger Agreement ShieldZone merged with
      the
      Subsidiary, with ShieldZone Corporation surviving the merger (the “Merger”). In
      consideration, the shareholders of ShieldZone received 10,175,000 shares of
      the
      common stock of AKE.





Following
      the Merger, ShieldZone was reincorporated in Nevada as a subsidiary of AKE.
      On
      March 7, 2007, ShieldZone was merged up and into AKE. At that time AKE changed
      its name to Zagg Incorporated. The operations of the surviving entity (Zagg
      Incorporated) are solely that of ShieldZone. As a result of these transactions,
      the historical financial statements of Zagg Incorporated are the historical
      financial statements of ShieldZone. The fiscal year end of Company is December
      31.




**PART
      III**




**ITEM
                9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(a) OF****THE
                EXCHANGE ACT**




The
      following tables summarize the Company's current executive officers and
      directors of the Company:




**Name**
            
            **Age**
            
            **Position**Robert
                G. Pedersen II
            
            40
            
            Chief
                Executive Officer, DirectorBrandon
                T. O’Brien
            
            36
            
            Chief
                Financial Officer




The
        directors named above will serve until the next annual meeting of our
        stockholders or until their successors are duly elected and have qualified.
        Directors will be elected for one-year terms at the annual stockholders meeting.
        Officers will hold their positions at the pleasure of the board of directors,
        absent any employment agreement. There is no arrangement or understanding
        between any of our directors or officers and any other person pursuant to
        which
        any director or officer was or is to be selected as a director or officer,
        and
        there is no arrangement, plan or understanding as to whether non-management
        stockholders will exercise their voting rights to continue to elect the current
        board of directors. There are also no arrangements, agreements or understandings
        between non-management stockholders that may directly or indirectly participate
        in or influence the management of our affairs.





23




**Biographical
      Information**





***Robert
      G. Pedersen II.***Mr.
      Pedersen provides the overall vision and strategy of Zagg Incorporated. Mr.
      Pedersen has more than 20 years' experience in executive management, sales
      and
      marketing, communications, as well as owning and managing several start-up
      businesses and enterprises. Since 1998, Mr. Pedersen was a co-owner and
      executive manager for Del Sol, LC, a Utah-based specialty retailer of apparel
      and accessories. In 2002, he created and was the director of DelSol.com, the
      Del
      Sol, LC’s Internet presence. In September 2002 Mr. Pedersen founded PayTeck,
      Inc., a Utah provider of Internet-based payment processing services, which
      was
      later sold to Zion's Bank, a public company, in 2005. Mr. Pedersen joined Zagg
      Incorporated in January 2006 in a full time capacity and has served as its
      Chief
      Executive Officer since that time. Robert earned a Masters Degree (MBA) from
      Brigham Young University in Business Administration with an emphasis in
      marketing, finance and organizational communications in 2000, and earned a
      degree in business administration (BSBA) from the University of Phoenix which
      was granted in 1996. Mr. Pedersen and his wife and six children reside in
      Holladay, Utah.





***Brandon
      T. O’Brien.*** Mr.
      O’Brien became our Chief Financial Officer on February 12, 2007. Prior to
      assuming his position as the Chief Financial Officer for the Company, Mr.
      O’Brien, served as the Vice President of Finance at Fonix Corporation, a speech
      recognition software company, from January 2003 to January 2007, and as an
      independent financial consultant from September 2001 to January 2003. Mr.
      O’Brien is also a licensed Certified Public Accountant and has attained the
      Certified Management Accountant and Certified Financial Manager
      designations.




**Family
      Relationships**




There
      are
      no family relationships among the directors and executive officers.




**Involvement
      in Certain Legal Proceedings**




None
      of
      the directors or executive officers has, during the past five
      years:




(a) Had
      any bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of the bankruptcy
      or within two years prior to that time;




(b) Been
      convicted in a criminal proceeding or subject to a pending criminal
      proceeding;




(c) Been
      subject to any order, judgment, or decree, not subsequently reversed, suspended
      or vacated, of any court of competent jurisdiction, permanently or temporarily
      enjoining, barring, suspending or otherwise limiting his involvement in any
      type
      of business, securities, futures, commodities or banking activities;
      and




(d) Been
      found by a court of competent jurisdiction (in a civil action), the Securities
      and Exchange Commission or the Commodity Futures Trading Commission to have
      violated a federal or state securities or commodities law, and the judgment
      has
      not been reversed, suspended, or vacated.




**Compliance
      with Section 16(a) of The Exchange Act**




Section 16(a)
      of the Securities Exchange Act of 1934 requires our executive officers and
      directors, and persons who own more than ten percent of our common stock to
      file
      reports of ownership and change in ownership with the Securities and Exchange
      Commission and the exchange on which the common stock is listed for trading.
      Executive officers, directors and more than ten percent stockholders are
      required by regulations promulgated under the Exchange Act to furnish us with
      copies of all Section 16(a) reports filed. To the Company’s knowledge, based
      solely on review of the copies of such reports furnished to the Company and
      written representation that no other reports were required, the Company’s
      officers, directors and greater than ten percent (10%) shareholders complied
      with all applicable Section 16(a) filing requirements.







24




**Code
      of Ethics**




The
      Company adopted a Code of Business Conduct and Ethics as of March 16, 2007,
      which applies to all employees, including the Company’s directors, principal
      executive officer, principal financial officer, principal accounting officer
      or
      controller, or persons performing similar functions.




**ITEM
              10.**
            **EXECUTIVE
                COMPENSATION**





None
      of
      our executive officers of the Company prior to the Merger received compensation
      in excess of $100,000 for the fiscal years ended December 31, 2006, 2005 or
      2004, respectively.





**SUMMARY
      COMPENSATION TABLE**





The
      table
      below summarizes all compensation awarded to, earned by, or paid to our former
      or current executive officers for the fiscal years ended 2006, 2005 and
      2004.





**SUMMARY
      COMPENSATION TABLE**


Name
                and principal
              Position
            
            Year
            
            Salary($)
            
            Bonus
              ($)
            
            Stock
              Awards
              ($)
            
            Option
              Awards
              ($)
            
            Non-Equity
              Incentive
                Plan
              Compensation
              ($)
            
            Nonqualified
              Deferred
              Compensation
              Earnings
                ($)
            
            All
                Other
              Compensation
              ($)
            
            Total
              ($)Robert
                G. Pedersen II
              CEO
                & President
            
            2004
              2005
              2006
            
            -
              -
              40,000
            
            -
              -
              10,000
            
            -
              -
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              85,000
                (3)
              -
            
            -
              85,000
              50,000Phillip
                Chipping(1)
            
            2004
              2005
              2006
            
            -
              54,614
              98,500
            
            -
              -
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              54,614
              98,500David
                Ho
              Former
                CFO (4)
            
            2004
              2005
              2006
            
            -
              -
              -
            
            -
              -
              -
            
            -
              9,600
                (2)
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              -
              -
            
            -
              9,600
              -







(1) Effective
      December 15, 2006, Mr. Chipping resigned his position as an officer and director
      of the Company.





(2) We
      issued
      400,000 shares of common stock to Mr. David Ho at $0.001 per share on June
      10,
      2005 in settlement of $400 of debt. The conversion rate of $0.001 for these
      issuances was the price determined by considering both the stock price at the
      time and the great deal of time and effort our officers and directors expended
      in developing our business plan and establishing the contacts necessary to
      progress the company thus far. We recorded a non cash charge of $9,600 to Mr.
      Ho
      for management compensation to reflect the fair value of the common stock issued
      to Mr. Ho. These issuances were made by Amerasia Khan Enterprises Ltd. prior
      to
      the merger transaction with the Company.





(3) Represents
      a consulting fee paid to a company owned by Mr. Pedersen for services rendered
      through July 2006, but paid in fiscal 2005. In
      January 2006, Mr. Pedersen purchased a 50% interest in the equity of the Company
      through an affiliated entity and was appointed Chief Executive Officer and
      Director of the Company.








25





(4) Mr.
      Ho
      resigned has an officer and director of the Company prior to the date of this
      Report. Mr.
      Ho, a
      former officer and director, did not receive compensation for his position
      as an
      officer of the Company.







**LONG-TERM
      INCENTIVE PLAN AWARDS**




We
      do not
      currently have any long term incentive plans.




**COMPENSATION
      OF DIRECTORS**





Directors
      do not generally receive cash compensation for their services as directors,
      but
      may be reimbursed for expenses incurred in  attending
      board meetings. During the year ended December 31, 2006, the directors of the
      Company did not receive any compensation for services as directors.





We
      intend
      to adopt a director compensation policy for directors which will include
      compensation on a per meeting basis or upon appointment which will likely be
      a
      combination of cash compensation and stock options.





**Stock
      Option Grants**





No
      stock
      options were granted to any of the Company’s directors and officers during the
      Company’s most recent fiscal year ended December 31, 2006.





**Exercise
      of Stock Options and Year-End Option Values**




No
      share
      purchase options were exercised by the Company’s officers, directors and
      employees during the fiscal year ended December 31, 2006.





**Outstanding
      Stock Options**





The
      Company currently does not have any outstanding stock options, a stock option
      plan or an incentive plan; however, the Board of Directors has reserved 725,000
      shares of common stock for use in such a plan to be established after the filing
      of the Form 8-K.




**EMPLOYMENT
      AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
      ARRANGEMENTS**




Neither
      our Chief Executive Officer, nor our Chief Financial Officer has an employment
      agreement with the Company. There are no termination or change of control
      agreements with our executive officers.






**ITEM
              11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT**




The
      following table sets forth, as of March 18, 2007, certain information regarding
      the ownership of the Company’s capital stock by the following persons on such
      date: each of the directors and executive officers, each person who is known
      to
      be a beneficial owner of more than 5% of any class of our voting stock, and
      all
      of our officers and directors as a group. Unless otherwise indicated below,
      to
      our knowledge, all persons listed below had sole voting and investing power
      with
      respect to their shares of capital stock, except to the extent authority was
      shared by spouses under applicable community property laws.








26





Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission and generally includes voting or investment power with
      respect to securities. Shares of our common stock subject to options, warrants
      or convertible securities exercisable or convertible within 60 days of March
      18,
      2007 were deemed outstanding for computing the percentage of the person or
      entity holding such options, warrants or convertible securities but are not
      deemed outstanding for computing the percentage of any other person, and was
      based upon the number of shares of the Common Stock issued and outstanding,
      as
      of March 18, 2007 which was 15,021,142 shares.




Title
                of
              Class
            
            Name
                and Address
              Of
              Beneficial
                Owners (1)
            
            Amount
                and Nature
              Of
                Beneficial Ownership
            
            Percent
              Of
              Class
                (2)Common
                Stock
            
            Robert
                G. Pedersen II, President and Chief Executive Officer (3)
            
            6,785,714
            
            44.35%Common
                Stock
            
            Brandon
                T. O’Brien
              Chief
                Financial Officer
            
            0
            
            --Common
                Stock
            
            Andrew
                C. Park
              201
                Post Street, 11th Floor
              San
                Francisco, CA 94108
            
            1,058,235
            
            7.04%Common
                Stock
            
            SunCreek,
                LLC (4)
              2873
                Tolcate Lane
              Holladay,
                Utah 84121
            
            5,285,714
            
            34.53%Common
                Stock
            
            Joseph
                W. and Patricia G. Abrams Family Trust (5)
            
            820,042
            
            5.46%All
                officers, directors and director nominees as a group
                (2)
            
            6,785,714
            
            44.339%




(1)
            Unless
                otherwise noted, the address for each of the named beneficial owners
                is:
                3855 South 500 West, Suite J, Salt Lake City, Utah, 84115. Unless
                otherwise indicated, beneficial ownership is determined in accordance
                with
                Rule 13d-3 promulgated under the Exchange Act and generally includes
                voting and/or investment power with respect to securities. Shares
                of
                common stock subject to options or warrants that are currently exercisable
                or exercisable within sixty days of March 18, 2007, are deemed to
                be
                beneficially owned by the person holding such options or warrants
                for the
                purpose of computing the percentage of ownership set forth in the
                above
                table, unless otherwise indicated.





(2)
            The
                calculations of percentage of beneficial ownership are based on 15,021,142
                shares of common stock outstanding as of March 18,
                2007.





(3)
            Includes
                1,500,000 shares of Common Stock held directly by Mr. Pedersen and
                5,000,000 shares of Common Stock held by SunCreek, LLC, an entity
                wholly
                owned by Mr. Pedersen. Mr. Pedersen exercises sole voting and investment
                control over the shares held by SunCreek, LLC. Also includes 285,714
                shares subject to issuance upon the conversion of a convertible promissory
                note in the principal amount of $100,000 owned by SunCreek, LLC.
                The
                conversion rate per share under the note is $0.35. The note is due
                May 15,
                2007, if not sooner paid or
                converted.





(4)
            Also
                includes 285,714 shares subject to issuance upon the conversion of
                a
                convertible promissory note in the principal amount of $100,000 owned
                by
                SunCreek, LLC. The conversion rate per share under the note is $0.35.
                The
                note is due May 15, 2007, if not sooner paid or converted. SunCreek,
                LLC
                is an entity wholly owned by Mr. Pedersen. Mr. Pedersen exercises
                sole
                voting and investment control over the shares held by SunCreek, LLC.
                See
                note 3, above.







27




**ITEM
              12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS**





In
      October 2005, the Company executed a nine month consulting agreement with
      SunCreek, LLC, an entity wholly owned by Robert G. Pedersen II who subsequently
      became the Company’s Chief Executive Officer. Compensation in the amount of
      $85,000 was paid under the Agreement as of December 2005. No further
      compensation is due under the Agreement. The Agreement also provided for the
      sale by Phillip J. Chipping, the then sole owner of the Company, of 50% of
      the
      equity securities of the Company to SunCreek, LLC for the amount of $25,000.





In
      November 2006, the Company issued a Convertible Note (the “Note”), with an
      affiliate of the Company’s Chief Executive Officer in the original principal
      amount of $100,000. The Note is convertible at the holder's option any time
      up
      to maturity at a conversion price equal to $0.35 per common share. The Note
      is
      due on May 15, 2007, bears interest at 20% per year and is unsecured. Such
      interest is payable at maturity. The common shares underlying the Note have
      piggy back registration rights.






**ITEM
              13.**
            **EXHIBITS
                AND REPORTS ON FORM
                8-K**





**Exhibit**


**Number**
            **Description**





2.1(2)
            Agreement
                and Plan of Merger Dated February 8,
                2007


2.2
                (2)
            Sale,
                Assignment, Assumption and Indemnification Agreement dated February
                8,
                2007


3.1(1)
            Articles
                of Incorporation of Registrant as filed with the State of
                Nevada


3.2
                (1)
            Bylaws
                of Registrant


10.1
                (1)
            Management
                Services Agreement dated May 1,
                2005


10.2
                (1)
            Extension
                ofManagement
                Services Agreement dated May 1,
                2005


10.3
                (1)
            Suspension
                of Management Services Agreement Dated May 1,
                2005


10.4
                (1)
            Academic
                Regalia Purchase and Rental Agreement Dated June 15,
                2005


10.5
                (2)
            Form
                of Reseller Agreement


10.6
                (2)
            Form
                of License Agreement


10.7
                (2)
            Form
                of Distributorship Agreement


10.8
                (2)
            Distribution
                Agreement with CareFit USA dated October 3, 2006


10.9
                (2)
            Distribution
                Agreement with ENVIOUS dated January 24, 2006


14
            Code
                of Ethics


16
                (3)
            Letter
                on Change in Certifying Accountants


31.1
            Certification
                of Chief Executive Officer Pursuant To Section 302 Of The
                Sarbanes-Oxley Act Of 2002 31.2
            Certification
                of Chief Financial Officer 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


99.1(2)
            Director’s
                and Officer’s Letter of Resignation by Mr. Johnny Lee and Officer’s Letter
                of Resignation and Conditional Director’s Resignation from Mr. David Ho to
                the Board of Directors of Registrant





(1)
            Incorporated
                by Reference from Registrant’s Registration Statement on Form SB-2 filed
                December 2, 2005, as amended.


(2)
            Incorporated
                by Reference from Registrant’s Current Report on Form 8-K filed on
                February 9, 2007. (3)
              Incorporated
                    by Reference from Registrant’s Current Report on Form 8-K, as amended,
                    filed on March 22,
                    2007.






All
      other
      exhibits are filed herewith.




28




**ITEM
              14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**




The
      following table sets forth fees billed to us by our auditors during the fiscal
      years ended December 31, 2006 and December 31, 2005 for:
      (i) services rendered for the audit of our annual financial statements and
      the review of our quarterly financial statements, (ii) services by our
      auditor that are reasonably related to the performance of the audit or review
      of
      our financial statements and that are not reported as Audit Fees,
      (iii) services rendered in connection with tax compliance, tax advice and
      tax planning, and (iv) all other fees for services rendered.







December
                31, 2006
            
            December
                31, 2005(i)Audit
                Fees
            
            $
            64,000
            
            $
            68,000(ii)Audit
                Related Fees
            
            
            —
            
            
            —(iii)Tax
                Fees
            
            
            —
            
            
            —(iv)All
                Other Fees
            
            
            —
            
            
            —Total
                fees
            
            $
            64,000
            
            $
            68,000




Audit
      Fees. Consists
      of fees billed for professional services rendered for the audit of the financial
      statements of our company for each such fiscal year and reviews of our interim
      financial statements.




Audit-Related
      Fees. Consists
      of fees billed for items such as registration statement reviews, acquisition
      audits or audit related consulting.




Tax
      Fees. Consists
      of fees billed for professional services for tax compliance, tax advice and
      tax
      planning.




All
      Other Fees. Consist
      of fees for products and services other than the services reported
      above.






**SIGNATURES**




Pursuant
      to the requirements of section 13 or 15 (d) of the Securities Exchange Act
      of 1934, the Registrant has duly caused this Report to be signed on its behalf
      by the undersigned, thereunto duly authorized.







**ZAGG
                INCORPORATED**Dated:
                March 27, 2007
            By:
            **/s/****ROBERT
                G. PEDERSEN II**
              Robert
                G. Pedersen II, President, Chief Executive Officer  and
                DirectorDated:
                March 27, 2007
            By:
            **/s/****BRANDON
                T. O’BRIEN**
              Brandon
                T. O’Brien, Chief Financial Officer




















29