**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**








(Mark
      one)





x
            Quarterly
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the quarterly period ended June 30, 2008,
                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 No. 000-52211


**ZAGG
      INCORPORATED**


(Exact
      name of registrant as specified in its charter)




**Nevada**
            
            **20-2559624**(State
                or other jurisdiction of incorporation or
                organization)
            
            (I.R.S.
                Employer Identification
                No.)




**3855
      South 500 West, Suite J**


**Salt
      Lake City, Utah 84115**


(Address
      of principal executive offices with zip code)





**(801)
      263-0699**


(Registrant's
      telephone number, including area code)





Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or for such shorter period that the registrant was required to file such
      reports), and (2) has been subject to such filing requirements for the past
      90
      days: **Yes xNo
o.**





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.


**o Large
      accelerated
      filer     o
      Accelerated filer     o Non-accelerated
      filer      x Smaller reporting
      company**





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-25 of the Exchange Act).


**Yes oNo
x**





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: **18,973,995
      common shares as of August 12, 2008.**










**ZAGG
      INCORPORATED AND SUBSIDIARY**


**FORM
      10-Q**








**TABLE
      OF CONTENTS**





**PART
      I - FINANCIAL INFORMATION**




**Page**Item
                  1.
              
              
              Financial
                  Statements (Unaudited)Condensed
                  Balance Sheets - As of June 30, 2008 and December 31, 2007
              
              
              3Condensed
                  Statements of Operations for the Three and Six Months Ended June
                  30, 2008
                  and 2007
              
              
              4Condensed
                  Statements of Cash Flows for the Six Months Ended June 30, 2008
                  and
                  2007
              
              
              5Notes
                  to Condensed Consolidated Financial Statements
              
              
              7Item
                  2.
              
              
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              
              13Item
                  3.
              
              
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              
              19Item
                  4T.
              
              
              Controls
                  and Procedures
              
              
              19**PART
                  II - OTHER INFORMATION**Item
                  1.
              
              
              Legal
                  Proceedings
              
              
              20Item
                  1A.
              
              
              Risk
                  Factors
              
              
              20Item
                  2.
              
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              
              20Item
                  3.
              
              
              Defaults
                  Upon Senior Securities
              
              
              21Item
                  4.
              
              
              Submission
                  of Matters to a Vote of Security Holders
              
              
              21Item
                  5.
              
              
              Other
                  Information
              
              
              21Item
                  6.
              
              
              Exhibits
              
              
              21
  2


**ZAGG
      INCORPORATED AND SUBSIDIARY**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Unaudited)**




**June
                  30,**
              
              **December
                  31,****2008**
              
              **2007****ASSETS****Current
                  assets**Cash
              
              $
              475,940
              
              $
              2,129,215Accounts
                  receivable, net
              
              
              821,161
              
              
              402,446Inventories
              
              
              680,509
              
              
              447,044Prepaid
                  advertising
              
              
              244,482
              
              
              204,976Prepaid
                  expenses and other current assets
              
              
              892,121
              
              
              122,107Deferred
                  income tax assets
              
              
              12,829
              
              
              12,829**Total
                  current assets**
              
              
              3,127,042
              
              
              3,318,617**Property
                  and equipment, net**
              
              
              447,253
              
              
              328,077**Deferred
                  income tax assets**
              
              
              407,188
              
              
              444,118**Deposits
                  and other assets**
              
              
              30,537
              
              
              30,547**Intangible
                  assets, net**
              
              
              46,535
              
              
              46,894**Total
                  assets**
              
              $
              4,058,555
              
              $
              4,168,253**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities**Notes
                  payable
              
              $
              29,655
              
              $
              42,090Accounts
                  payable
              
              
              236,693
              
              
              505,575Accrued
                  liabilities
              
              
              41,997
              
              
              35,814Accrued
                  wages and wage related expenses
              
              
              101,283
              
              
              95,537Deferred
                  licensing revenue
              
              
              71,703
              
              
              100,911Sales
                  returns liability
              
              
              66,658
              
              
              23,861**Total
                  current liabilities**
              
              
              547,989
              
              
              803,788**Total
                  liabilities**
              
              
              547,989
              
              
              803,788**Stockholders'
                  equity**Common
                  stock, $0.001 par value; 50,000,000 shares authorized;18,893,995
                  and 18,853,995 shares issued and outstanding, respectively
              
              
              18,895
              
              
              18,855Warrants
                  to purchase common stock
              
              
              750,476
              
              
              750,476Additional
                  paid-in capital
              
              
              3,422,169
              
              
              3,341,388Cumulative
                  translation adjustment
              
              
              882
              
              
              (3,866
              )Accumulated
                  deficit
              
              
              (681,856
              )
              
              (742,388
              )**Total
                  stockholders' equity**
              
              
              3,510,566
              
              
              3,364,465**Total
                  liabilities and stockholders' equity**
              
              $
              4,058,555
              
              $
              4,168,253






See
      accompanying notes to condensed consolidated financial statements.




3




**ZAGG
      INCORPORATED AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**




**Three
                  Months Ended**
              
              **Three
                  Months Ended**
              
              **Six
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30, 2008**
              
              **June
                  30, 2007**
              
              **June
                  30, 2008**
              
              **June
                  30, 2007****Net
                  sales**
              
              $
              2,739,176
              
              $
              804,458
              
              $
              5,584,597
              
              $
              1,597,306**Cost
                  of sales**
              
              
              712,214
              
              
              203,672
              
              
              1,490,006
              
              
              390,831**Gross
                  profit**
              
              
              2,026,962
              
              
              600,786
              
              
              4,094,591
              
              
              1,206,475**Operating
                  expenses:**Advertising
                  and marketing
              
              
              484,728
              
              
              79,188
              
              
              1,274,792
              
              
              254,231Selling,
                  general and administrative
              
              
              1,343,778
              
              
              554,037
              
              
              2,849,199
              
              
              1,246,785**Total
                  operating expenses**
              
              
              1,828,506
              
              
              633,225
              
              
              4,123,991
              
              
              1,501,016**Income
                  (loss) from operations**
              
              
              198,456
              
              
              (32,439
              )
              
              (29,400
              )
              
              (294,541
              )**Other
                  income (expense):**Interest
                  expense
              
              
              (972
              )
              
              (20,231
              )
              
              (2,674
              )
              
              (26,099
              )Interest
                  and other income
              
              
              81,149
              
              
              3,969
              
              
              129,536
              
              
              4,085**Total
                  other income (expense)**
              
              
              80,177
              
              
              (16,262
              )
              
              126,862
              
              
              (22,014
              )**Income
                  (loss) before benefit (provision) for income
                  taxes**
              
              
              278,633
              
              
              (48,701
              )
              
              97,462
              
              
              (316,555
              )**Income
                  tax benefit (provision)**
              
              
              (103,930
              )
              
              408
              
              
              (36,930
              )
              
              (2,310
              )**Net
                  income (loss)**
              
              $
              174,703
              
              $
              (48,293
              )
              $
              60,532
              
              $
              (318,865
              )**Basic
                  net income (loss) per common share**
              
              $
              0.01
              
              $
              (0.00
              )
              $
              0.00
              
              $
              (0.02
              )**Diluted
                  net income (loss) per common share**
              
              $
              0.01
              
              $
              (0.00
              )
              $
              0.00
              
              $
              (0.02
              )**Weighted
                  average number of shares outstanding - basic**
              
              
              18,884,105
              
              
              15,168,995
              
              
              18,884,050
              
              
              14,596,739**Weighted
                  average number of shares outstanding - diluted**
              
              
              18,936,055
              
              
              15,168,995
              
              
              18,976,547
              
              
              14,596,739






See
      accompanying notes to condensed consolidated financial statements.




4




**ZAGG
      INCORPORATED AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**




**For
                  the Six Months Ended****June
                  30, 2008**
              
              **June
                  30, 2007****Cash
                  flows from operating activities**Net
                  income (loss)
              
              $
              60,532
              
              $
              (318,865
              )Adjustments
                  to reconcile net income (loss) to net cashprovided
                  by (used in) operating activities:Non-cash
                  expense related to stock compensation
              
              
              80,821
              
              
              -Depreciation
                  and amortization
              
              
              69,961
              
              
              36,976Deferred
                  income tax (benefit) expense
              
              
              36,930
              
              
              2,946Bad
                  debt expense
              
              
              19,170
              
              
              -(Gains)
                  losses on asset disposals
              
              
              (12,215
              )
              
              -Currency
                  exchange gain
              
              
              4,748
              
              
              -Changes
                  in assets and liabilitiesAccounts
                  receivable
              
              
              (437,885
              )
              
              56,722Inventories
              
              
              (233,465
              )
              
              (50,400
              )Due
                  from employees
              
              
              -
              
              
              3,714Prepaid
                  advertising
              
              
              (39,506
              )
              
              (124,076
              )Prepaid
                  expenses and other current assets
              
              
              (307,799
              )
              
              (101,087
              )Other
                  assets
              
              
              10
              
              
              (25,000
              )Accounts
                  payable
              
              
              (268,882
              )
              
              (24,947
              )Accrued
                  liabilities
              
              
              6,183
              
              
              (8,716
              )Accrued
                  wages and wage related expenses
              
              
              5,746
              
              
              (53,456
              )Deferred
                  licensing revenues
              
              
              (29,208
              )
              
              12,499Sales
                  return liability
              
              
              42,797
              
              
              (16,517
              )Net
                  cash used in operating activities
              
              
              (1,002,062
              )
              
              (610,207
              )**Cash
                  flows from investing activities**Payments
                  for intangible assets
              
              
              (1,800
              )
              
              (47,714
              )Short-term
                  loans
              
              
              (450,000
              )
              
              -Proceeds
                  from disposal of equipment
              
              
              2,994
              
              
              -Purchase
                  of property and equipment
              
              
              (189,972
              )
              
              (42,131
              )Net
                  cash used in investing activities
              
              
              (638,778
              )
              
              (89,845
              )**Cash
                  flows from financing activities**Payments
                  on debt
              
              
              (12,435
              )
              
              -Proceeds
                  from advance on financing transaction
              
              
              -
              
              
              800,000Proceeds
                  from notes payable
              
              
              -
              
              
              200,000Proceeds
                  from issuance of common stock and warrants
              
              
              -
              
              
              275,050Payments
                  on convertible note payable - officer
              
              
              -
              
              
              (50,000
              )Net
                  cash (used in) provided by financing activities
              
              
              (12,435
              )
              
              1,225,050**Net
                  decrease in cash and cash equivalents**
              
              
              (1,653,275
              )
              
              524,998**Cash
                  and cash equivalents at beginning of the period**
              
              
              2,129,215
              
              
              468,382**Cash
                  and cash equivalents at end of the period**
              
              $
              475,940
              
              $
              993,380**Supplemental
                  disclosure of cash flow information**Cash
                  paid during the period for interest
              
              $
              2,674
              
              $
              12,605






See
        accompanying notes to condensed consolidated financial statements.
  5


**ZAGG
      INCORPORATED**


**CONDENSED
      STATEMENTS OF CASH FLOWS (Continued)**


**(Unaudited)**








**Supplemental
      schedule of noncash investing and financing activities**





**For
      the Six Months Ended June 30, 2008:**





None.





**For
      the Six Months Ended June 30, 2007:**





Issued
      714,286 shares of common stock in conversion of convertible note
      payable.





Issued
      147,853 shares of common stock in conversion of convertible note payable -
      officer and accrued interest.











See
      accompanying notes to condensed consolidated financial statements.




6




**ZAGG
        INCORPORATED AND SUBSIDIARY**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(Unaudited)**





**NOTE
      1** - **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





***Basis
      of Presentation*** - The
      accompanying unaudited condensed consolidated financial statements
      of ** ZAGG
      Incorporated (collectively, the “Company” or “ZAGG”) have been prepared by the
      Company pursuant to the rules and regulations of the Securities and Exchange
      Commission (the “SEC”). Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been
      condensed or omitted pursuant to such rules and regulations, although the
      Company believes that the following disclosures are adequate to make the
      information presented not misleading. The Company suggests that these condensed
      consolidated financial statements be read in conjunction with the consolidated
      financial statements and the notes thereto included in the Company’s 2007 Annual
      Report on Form 10-KSB.





These
      condensed financial statements reflect all adjustments (consisting only of
      normal recurring adjustments) that, in the opinion of management, are necessary
      to present fairly the financial position and results of operations of the
      Company for the periods presented.





Operating
      results for the six months ended June 30, 2008, are not necessarily indicative
      of the results that may be expected for the year ending December 31, 2008.





***Nature
      of Operations*** **-** ****** The
      Company was formed as a Nevada corporation on April 2, 2004, under the name
      Amerasia Khan Enterprises Ltd (“AKE”). On February 8, 2007, AKE executed an
      Agreement and Plan of Merger (the “Merger Agreement”) by and between AKE and its
      wholly owned subsidiary, SZC Acquisition, Inc., a Nevada corporation
      (“Subsidiary”) on the one hand, and ShieldZone Corporation, a Utah corporation
      (“ShieldZone”) 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.





The
      Company changed its name from ShieldZone Corporation to ZAGG Incorporated to
      better position it to become a large and encompassing enterprise in the
      electronics’ accessories industry through organic growth and through making
      targeted acquisitions. The ShieldZone name was very specific to the
      invisibleSHIELD product line and although the invisibleSHIELD is and will
      continue to be the Company’s core product, the name change will enable the
      Company the opportunity to easily add new products to its product offering.
      ZAGG
      will continue to search out other complimentary proven products and companies
      that fit the ZAGG lifestyle and strategy for fast growth.





The
      Company has developed and sells, through the Internet, retail and wholesale
      distribution channels, patent-pending protective shields under the name of
      the *invisible* SHIELDTM
      for electronic devices.





***Principles
      of Consolidation*** **-** ****** The
      condensed consolidated financial statements include the accounts of ZAGG
      Incorporated, and its wholly owned subsidiary ZAGG Europe Ltd. All significant
      intercompany transactions have been eliminated in consolidation ***.***





***Business
      Condition*** **** -
      For the
      three months ended June 30, 2008 and 2007, the Company generated revenues of
      $2,739,176 and $804,458, respectively, and earned net income of $174,703 and
      incurred a net loss of ($48,293), respectively. For the six months ended June
      30, 2008 and 2007, the Company generated revenues of $5,584,597 and $1,597,306,
      respectively, earned net income of $60,532 and incurred a net loss of
      ($318,865), respectively, and had negative cash flow from operating activities
      of ($1,002,062) and ($610,207), respectively. As of June 30, 2008, the Company
      had stockholders’ equity of $3,510,566, an accumulated deficit of ($681,856),
      positive working capital of $2,579,053, accounts payable of $236,693, deferred
      licensing revenue of $71,703, accrued wages of $101,283, sales returns liability
      of $66,658 and accrued liabilities of $41,997. Management believes that existing
      cash, along with cash generated from the collection of accounts receivable
      and
      the sale of products will be sufficient to meet the Company’s cash requirements
      during the next twelve months.




7


**ZAGG
        INCORPORATED AND SUBSIDIARY**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(Unaudited)**


***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.





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*** -
      The
      Company’s return
      policy generally allows its 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. The
      sales return liability was $66,658 at June 30, 2008 and $23,861 at December
      31,
      2007.





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 six months ended June 30, 2008 and 2007, 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
      $402,716 and $118,198 for the six months ended June 30, 2008 and 2007,
      respectively. Actual shipping and handling costs to ship products to customers
      are included in cost of sales and were $659,688 and $160,165 for the six months
      ended June 30, 2008 and 2007, respectively.





***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.





***Advertising
      -*** Advertising
      is expensed as incurred. Advertising expenses were $1,274,792 and $239,786
      for
      the six months ended June 30, 2008 and 2007, respectively ***.***





***Net
      Income (Loss) Per Common Share*** **** -
      Basic
      net income (loss) per share is computed by dividing net income (loss) by
      weighted average number of shares of common stock outstanding during each
      period. Diluted net income (loss) per share is computed by dividing net income
      (loss) by the weighted average number of shares of common stock, common stock
      equivalents and potentially dilutive securities outstanding during each period.





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**Three
                months ended June 30, 2008:Basic
                EPS
            
            $
            174,703
            
            
            18,884,105
            
            $
            0.01Effect
                of common stock equivalents
            
            
            —
            
            
            51,949Diluted
                EPS
            
            $
            (174,703
            )
            
            18,936,055
            
            $
            0.01Three
                months ended June 30, 2007:Basic
                EPS
            
            $
            (114,171
            )
            
            18,863,885
            
            $
            (0.01
            )Effect
                of common stock equivalents
            
            
            —
            
            
            —Diluted
                EPS
            
            $
            (114,171
            )
            
            18,863,885
            
            $
            (0.01
            )




**Net**
              **Income
                (Loss)**
            
            **Weighted
                Average**
              **Shares**
            
            **Per Share**
              **Amount**Six
                months ended June 30, 2008:Basic
                EPS
            
            $
            60,532
            
            
            18,884,050
            
            $
            0.00Effect
                of common stock equivalents
            
            
            —
            
            
            58,836Diluted
                EPS
            
            $
            60,532
            
            
            18,976,547
            
            $
            0.00Six
                months ended June 30, 2007:Basic
                EPS
            
            $
            (318,865
            )
            
            14,596,739
            
            $
            (0.02
            )Effect
                of common stock equivalents
            
            
            —
            
            
            —Diluted
                EPS
            
            $
            (318,865
            )
            
            14,596,739
            
            $
            (0.02
            )




8


**ZAGG
        INCORPORATED AND SUBSIDIARY**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(Unaudited)**


The
      calculation above for the three months ended excludes the exercise of the
      1,483,000 stock options and 4,096,953 of the outstanding warrants as of June
      30,
      2008 and the 152,500 outstanding warrants at June 30, 2007 as the exercise
      of
      these stock options and warrants would have an anti-dilutive effect on earnings
      per share.





**NOTE
      2 - RECAPITALIZATION**





On
      February 8, 2007 (the “recapitalization date”), the Company 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 common 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.





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.




9


**ZAGG
        INCORPORATED AND SUBSIDIARY**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(Unaudited)**


Accordingly
      the balance sheet 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 condensed consolidated financial
      statements have been retroactively changed to reflect the effect of the merger
      and recapitalization.





**NOTE
      3** **-** **ACCOUNTS RECEIVABLE, NET**





Accounts
      receivable at June 30, 2008 and December 31, 2007 was as follows:




**June
                30,****2008**
            
            **December
                31,****2007**Accounts
                receivable
            
            $
            907,327
            
            $
            436,839Less:
                Allowance for doubtful accounts
            
            
            (86,166
            )
            
            (34,393
            )Accounts
                receivable, net
            
            $
            821,161
            
            $
            402,446





Bad
      debt
      expense for the six months ended June 30, 2008 was $19,170.




**NOTE
      4** **-** **INVENTORIES**





At
      June
      30, 2008 and December 31, 2007 inventories consisted of the
      following:





**June
                30, 2008**
            
            **December
                31, 2007**Finished
                goods
            
            $
            376,971
            
            $
            230,937Raw
                materials
            
            
            303,538
            
            
            216,107$
            680,509
            
            $
            447,044




**NOTE
      5 - PROPERTY AND EQUIPMENT**





At
      June
      30, 2008 and December 31, 2007, property and equipment consisted of the
      following:




**Useful
                  Lives**
              
              **June
                  30, 2008**
              
              **December
                  31, 2007**Computer
                  equipment and software
              
              
              3
                  to 5 years
              
              $
              214,355
              
              $
              155,603Office
                  equipment
              
              
              3
                  to7 years
              
              
              222,048
              
              
              144,343Furniture
                  and fixtures
              
              
              7
                  years
              
              
              32,622
              
              
              15,209Automobiles
              
              
              5
                  years
              
              
              68,995
              
              
              47,063Leasehold
                  improvements
              
              
              1
                  to 3.13 years
              
              
              102,346
              
              
              91,637640,366
              
              
              453,855Less:
                  accumulated depreciation
              
              
              
              
              
              (193,113
              )
              
              (125,778
              )$
              447,253
              
              $
              328,077
  Depreciation
        expense was $67,802 and $36,976 for the six months ended June 30, 2008 and
        2007,
        respectively.





**NOTE
      6 - INTANGIBLE ASSETS**





At
      June
      30, 2008, intangible assets consist of legal fees paid in connection with the
      Company’s patent application and amounts paid to secure the Company’s Internet
      addresses. The costs relating to the definite-lived intangible assets are
      amortized over their estimated useful lives using straight-line amortization.
      The useful life for Internet addresses is 10 years. As of June 30, 2008, the
      patent had not been granted. Accordingly, the Company has 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.




10




**ZAGG
        INCORPORATED AND SUBSIDIARY**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(Unaudited)**


The
      Company has contractual rights customary in the industry to use its Internet
      addresses. However, the Company does not have and cannot acquire any property
      rights to the Internet addresses. The Company does not expect to lose its rights
      to use the Internet addresses; however, there can be no assurance in this regard
      and such loss could have a material adverse effect on the Company’s financial
      position and results of operations.





The
      Company’s definite-lived intangible assets are summarized in the table
      below:




**Useful
                Life**
            
            **June
                30, 2008**
            
            **December
                31, 2007**Internet
                addresses
            
            
            10
                years
            
            $
            44,969
            
            $
            43,169Less:
                accumulated amortization
            
            
            
            
            
            (6,369
            )
            
            (4,210
            )$
            38,600
            
            $
            38,959




Amortization
      expense was $2,159 for the six months ended June 30, 2008.





**NOTE
      7 - STOCKHOLDERS’ EQUITY**





During
      the six months ended June 30, 2008, the Company issued 40,000 shares of its
      common stock to employees valued at $29,400 and recorded as compensation expense
      in the accompanying financial statements.





On
      March
      6, 2008 the Company granted employee stock options for 507,000 common shares
      exercisable at $0.65 per share expiring in 5 years and vesting 33% at 12 months,
      33% at 24 months and 34% at 36 months. The options were valued at $163,652
      or
      $0.32 per option using a Black-Scholes option pricing method with the following
      assumptions: market price on grant date of $0.65, expected life of 5 years,
      volatility of 57% (using historical volatility since the Company’s options do
      not trade to provide an implied volatility) and a discount rate of 1.73%. On
      May
      12, 2008, the Company also granted stock options to a member of its board of
      directors for 1,000,000 common shares exercisable at $0.60 per share expiring
      in
      5 years and vesting 33% at 12 months, 33% at 24 months and 34% at 36 months.
      The
      options were valued at $290,687 or $0.29 per option using the Black-Scholes
      option pricing method with the following assumptions: market price on grant
      date
      of $0.60, expected life of 5 years, volatility of 55% (using historical
      volatility since the Company’s options do not trade to provide an implied
      volatility) and a discount rate of 1.70%. Based on vesting provisions, for
      the
      six months ended June 30, 2008, the Company expensed $51,420 as compensation
      expense related to these option grants.





**NOTE
      8 - NOTES RECEIVABLE**





On
      March
      11, 2008 ZAGG Incorporated entered into an agreement to fund a bridge loan
      (the
“Bridge Loan”) of up to $500,000 to Brighton Partners, LLC. The purpose of the
      secured loan is to fund the development of a superhero series created by Stan
      Lee and POW! Entertainment, Inc. in partnership with Brighton Partners, LLC,
      with the hope that ZAGG will benefit from the marketing exposure and any
      intellectual property created using ZAGG’s trademarks.





In
      consideration of the bridge loan, Brighton Partners, LLC executed a secured
      promissory note with a 3% origination fee and bearing 10% interest for the
      90
      day term of the note. As of June 30, 2008 the note had not yet been repaid
      and
      the Company had not declared Brighton Partners in default under the promissory
      note. The Company anticipates that the note will be repaid during Q3 2008.
      The
      loan is collateralized by 100% of the ownership of Brighton until the
      loan is repaid in full. As part of the transaction, ZAGG entered into a
      cross-license agreement with Brighton and Pow! Entertainment pursuant to which
      ZAGG agreed to license its trademarks in exchange for marketing and promotion
      rights to any property developed under the superhero series that bears ZAGG’s
      intellectual property. Further under the transaction, we acquired 10% of the
      membership interest in Brighton. ZAGG will share in the development of the
      superhero series as a partner of Brighton. At June 30, 2008, the Company had
      advanced $438,000 to Brighton under the promissory note and has included this
      amount in prepaid expenses and other current assets in the accompanying
      condensed consolidated financials. Accrued interest of $51,824 on the promissory
      note is included in prepaid expenses and other current assets in the
      accompanying condensed consolidated financial statements.




11




**ZAGG
        INCORPORATED AND SUBSIDIARY**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(Unaudited)**


**NOTE
      9 - COMMITMENTS AND CONTINGENCIES**





From
      time
      to time the Company 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.





**NOTE
      10 - SUBSEQUENT EVENTS**





On
      July
      30, 2008, the Company issued 80,000 shares of its common stock valued at $54,400
      for services to be rendered by a consultant. ****




12




**ITEM
      2.**  **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




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




**Our
      Business**





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





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





We
      also
      sell accessories for electronics devices including power cords, chargers and
      adapters. We have recently introduced the RockSticTM portable speaker system
      designed for Apple iPod and compatible with most digital media
      players.




13




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





***Critical
      Accounting Policies***





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





***Recent
      Accounting Pronouncements***





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





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





***Revenue
      recognition***





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





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





***Reserve
      for Sales Returns and Warranty Liability***





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




14




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





**Results
      of Operations**





**THREE
      MONTHS ENDED JUNE 30, 2008 AND 2007**





***Net
      sales***





Net
      sales
      for the quarter ended June 30, 2008 were $2,739,176 as compared to net sales
      of
      $804,458 for the quarter ended June 30, 2007, an increase of $1,934,718 or
      240%.





The
      significant increase in revenue is mainly attributed to continued strong sales
      of our *invisible* SHIELD
      product with approximately 57% of our product being sold through our website
      to
      retail customers, 12% being sold through mall carts and kiosks, 11% through
      retail outlets including the store at our corporate headquarters, 13% to
      wholesale distributors and 7% from shipping and handling charges.





***Cost
      of sales***





Cost
      of
      sales includes raw materials, packing materials and shipping costs. For the
      quarter ended June 30, 2008, cost of sales amounted to $712,214 or approximately
      26% of net sales as compared to cost of sales of $203,672 or 25% of net sales
      for quarter ended June 30, 2007. The increase in cost of sales as a percentage
      of net revenues for the quarter ended June 30, 2008 as compared to the quarter
      ended June 30, 2007 is attributable to overall increases in our packaging
      expenses.





***Gross
      profit***





Gross
      profit for the quarter ended June 30, 2008 was $2,026,962 or approximately
      74%
      of net sales as compared to $600,786 or approximately 75% of net sales for
      the
      quarter ended June 30, 2007. The decrease in gross profit percentage was
      attributable to increased packaging costs. There are no assurances that we
      will
      continue to recognize similar gross profit margins in the future.





***Operating
      expenses***





Total
      operating expenses for the quarter ended June 30, 2008 were $1,828,506, an
      increase of $1,195,281 from total operating expenses for the quarter ended
      June
      30, 2007 of $633,225. The increases are primarily attributable to the
      following:





·
            For
                the quarter ended June 30, 2008, salaries and related taxes increased
                by
                $310,036 to $656,071 from $346,035 for the quarter ended June 30,
                2008.
                The increase is due to the increase in our staff as we continue to
                build
                the people infrastructure to meet the demand for our product and
                non-cash
                expense related to equity based compensation of $59,913.





·
            For
                the quarter ended June 30, 2008, marketing, advertising and promotion
                expenses were $484,728, an increase of $405,540 as compared to $79,188
                for
                the quarter ended June 30, 2007. We continue to invest heavily in
                the
                development of the invisibleSHIELD brand through internet key word
                advertising and through traditional print media and radio advertising.
                We
                expect our marketing and advertising expenses to continue to be a
                significant expenditure as our revenues increase and expect to spend
                increased funds on adverting and promotion of our products as well
                as
                sales training. During fiscal 2008, we intend to continue to expand
                our
                marketing efforts related to our
                products.





·
            For
                the quarter ended June 30, 2008, other selling, general and administrative
                expenses, net of salaries and related taxes described above, were
                $687,707
                as compared to $208,002 for the quarter ended June 30, 2007. The
                increase
                was attributable to the increase in operations as we implement our
                business plan and is summarized
                below:




15




**Three
                Months Ended****June
                30, 2008**
            
            **Three
                Months Ended****June
                30, 2007**Professional
                fees
            
            $
            21,079
            
            $
            14,669Contract
                labor
            
            
            61,202
            
            
            19,372Insurance
            
            
            62,300
            
            
            15,188Depreciation
                and amortization
            
            
            37,181
            
            
            19,010Rent
            
            
            99,241
            
            
            33,871Travel
                and entertainment
            
            
            35,994
            
            
            26,689Telephone
                and utilities
            
            
            28,461
            
            
            10,468Printing
                expenses
            
            
            7,112
            
            
            9,952Office
                supplies
            
            
            14,075
            
            
            10,122Credit
                card and bank fees
            
            
            72,401
            
            
            20,123Investor
                relations
            
            
            95,605
            
            
            --Commissions
            
            
            40,239
            
            
            2,866Consulting
            
            
            31,000
            
            
            2,000Other
            
            
            81,817
            
            
            23,630Total
            
            $
            687,707
            
            $
            207,960





***Income
      (loss) from operations***





We
      reported income from operations of $198,456 for the quarter ended June 30,
      2008
      as compared to loss from operations of ($32,439) for the quarter ended June
      30,
      2007, an increase of $230,895. The increased income from operations for the
      quarter ended June 30, 2008 as compared to the quarter ended June 30, 2007
      is
      primarily attributable to our overall increased revenue growth due to increased
      market penetration.





***Other
      income (expense)***





For
      the
      quarter ended June 30, 2008, total other income was $80,177 compared to other
      expense of ($16,262) for the quarter ended June 30, 2007. The increase is
      primarily attributed to interest income related to short-term loans, gains
      recognized on disposition of assets and interest earned on our cash balance
      of
      $81,149.





***Net
      income (loss)***





As
      a
      result of these factors, we reported net income of $174,703 or $0.01 per share
      for the quarter ended June 30, 2008 as compared to a net loss of ($48,293)
      or
      ($0.00) per share for the quarter ended June 30, 2007.





**SIX
      MONTHS ENDED JUNE 30, 2008 AND 2007**





***Net
      sales***





Net
      sales
      for the six months ended June 30, 2008 were $5,584,597 as compared to net sales
      of $1,597,306 for the six months ended June 30, 2007, an increase of $3,987,291
      or 250%.





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, 11% being sold through mall carts and kiosks, 10% through
      retail outlets including the store at our corporate headquarters, 8% to
      wholesale distributors, 7% from shipping and handling charges and 1% from cart
      licensing revenue.




16




***Cost
      of sales***





Cost
      of
      sales includes raw materials, packing materials and shipping costs. For the
      six
      months ended June 30, 2008, cost of sales amounted to $1,490,006 or
      approximately 27% of net sales as compared to cost of sales of $390,831 or
      24%
      of net sales for the six months ended June 30, 2007. The increase in cost of
      sales as a percentage of net revenues for the six months ended June 30, 2008
      as
      compared to the six months ended June 30, 2007 is primarily attributable to
      overall increases in our packaging expenses.





***Gross
      profit***





Gross
      profit for the six months ended June 30, 2008 was $4,094,591 or approximately
      73% of net sales as compared to $1,206,475 or approximately 76% of net sales
      for
      the six months ended June 30, 2007. The decrease in gross profit percentage
      was
      primarily attributable to increased packaging costs. There are no assurances
      that we will continue to recognize similar gross profit margins in the
      future.





***Operating
      expenses***





Total
      operating expenses for the six months ended June 30, 2008 were $4,123,991,
      an
      increase of $2,622,975 from total operating expenses for the six months ended
      June 30, 2007 of $1,501,016. The increases are primarily attributable to the
      following:




·
            For
                the six months ended June 30, 2008, salaries and related taxes increased
                by $715,677 to $1,370,120 from $654,443 for the six months ended
                June 30,
                2007. The increase is due to the increase in our management and production
                staff as we continue to build the people infrastructure to meet the
                demand
                for our product, the payment of a discretionary bonus of $155,000
                during
                the first quarter to our employees and non-cash expense related to
                equity
                based compensation of $80,821.





·
              For
                  the six months ended June 30, 2008, marketing, advertising and
                  promotion
                  expenses were $1,274,792, an increase of $1,020,561 as compared
                  to
                  $254,231 for the six months ended June 30, 2007. We continue to
                  invest
                  heavily in the development of the invisibleSHIELD brand through
                  internet
                  key word advertising and through traditional print media and radio
                  advertising. During the six months ended June 30, 2008, we have
                  also
                  printed coupons and handed them out at various trade shows wherein
                  customers logged onto our website through a specific link and were
                  able to
                  redeem the coupon. These coupons ran for specific time frames with
                  expiration dates and the redemption of the coupons of $405,268
                  was
                  recognized as marketing and advertising expense. We expect our
                  marketing
                  and advertising expenses to continue to be a significant expenditure
                  as
                  our revenues increase and expect to spend increased funds on adverting
                  and
                  promotion of our products as well as sales training. During fiscal
                  2008,
                  we intend to continue to expand our marketing efforts related to
                  our
                  products.


17
  ·
                For
                    the quarter ended June 30, 2008, other selling, general and administrative
                    expenses net of salaries and related taxes described above, were
                    $1,479,079 as compared to $592,342 for the six months ended June
                    30, 2007.
                    The increase was attributable to the increase in operations as
                    we
                    implement our business plan and is summarized
                    below:


**Six
                Months Ended****June
                30, 2008**
            
            **Six
                Months Ended****June
                30, 2007**Professional
                fees
            
            $
            70,612
            
            $
            222,445Contract
                labor
            
            
            296,637
            
            
            40,230Insurance
            
            
            114,182
            
            
            28,162Depreciation
                and amortization
            
            
            69,345
            
            
            36,975Rent
            
            
            180,546
            
            
            54,992Travel
                and entertainment
            
            
            92,901
            
            
            39,048Telephone
                and utilities
            
            
            62,076
            
            
            23,267Printing
                expenses
            
            
            19,312
            
            
            19,651Office
                supplies
            
            
            34,486
            
            
            24,140Credit
                card and bank fees
            
            
            154,129
            
            
            36,013Investor
                relations
            
            
            132,187
            
            
            --Commissions
            
            
            46,587
            
            
            2,866Consulting
            
            
            41,500
            
            
            2,000Other
            
            
            164,579
            
            
            62,553Total
            
            $
            1,479,079
            
            $
            592,342





***Loss
      from operations***





We
      reported a loss from operations of ($29,400) for the six months ended June
      30,
      2008 as compared to loss from operations of ($294,541) for the six months ended
      June 30, 2007, an increase of $265,141. The increased income from operations
      for
      the six months ended June 30, 2008 as compared to the six months ended June
      30,
      2007 is primarily attributable the overall increase in sales due to deeper
      market penetration combined with the decrease in professional fees that were
      attributable to our reverse merger transaction in 2007.





***Other
      income (expense)***





For
      the
      six months ended June 30, 2008, total other income was $126,862 compared to
      other expense of ($22,014) for the six months ended June 30, 2007. The increase
      is primarily attributed to interest income related to short-term loans, gains
      recognized on disposition of assets and interest earned on our cash balance
      of
      $129,536 partially offset by a decrease in interest expense of
      $23,425.





***Net
      income (loss)***





As
      a
      result of these factors, we reported net income of $60,532 or $0.00 per share
      for the six months ended June 30, 2008 as compared to a net loss of ($318,865)
      or ($0.02) per share for the quarter ended June 30, 2007.





**Liquidity
      and Capital Resources**





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





At
      June
      30, 2008, we had a cash balance of $475,940.




18




Our
      working capital position increased by $64,224 to working capital of $2,579,053
      at June 30, 2008 from working capital of $2,514,829 at December 31, 2007. This
      increase in working capital is primarily attributable to the overall decrease
      in
      current liabilities including decreased accounts payable of $268,882, decreased
      deferred licensing revenue of $29,208, increased prepaid and other assets of
      $770,014, increased accounts receivable of $418,715, increased inventories
      of
      $233,465 and increased prepaid advertising of $39,506, partially offset by
      decreased cash of $1,653,275, increased sales returns liability of $42,797,
      increased accrued liabilities of $6,183 and increased accrued wages and wage
      related expenses of $5,746.





Net
      cash
      used in operating activities for the six months ended June 30, 2008 was
      ($1,002,062) as compared to cash used in operating activities of ($610,207)
      for
      the six months ended June 30, 2007. For the six months ended June 30, 2008,
      net
      cash used in operating activities was attributable primarily to increased
      accounts receivable of $437,885, increased prepaid expenses and other current
      assets of $307,799, decreased accounts payable of $268,882, increased
      inventories of $233,465, increased prepaid advertising of $39,506, decreased
      deferred licensing revenues of $29,208 and the gain on disposal of fixed assets
      of $12,215, partially offset by non-cash expense related to stock compensation
      of $80,821, depreciation and amortization of $69,691, net income of $60,532,
      increased sales returns liability of $42,797, deferred income tax expense of
      $36,930, bad debt expense of $19,170, increased accrued liabilities of $6,183,
      increased accrued wages and wage related expenses of $5,746 and foreign currency
      exchange gain of $4,748.





Net
      cash
      used in investing activities for the six months ended June 30, 2008 was
      ($638,778) attributable to short-term loans made of $450,000, the purchase
      of
      property and equipment of $189,972 and payments for intangible assets of $1,800,
      partially offset by proceeds from the sale of fixed assets of
      $2,994.





Net
      cash
      used in financing activities for the six months ended June 30, 2008 was
      ($12,435) attributable to payments on equipment financing of
      $12,435.





We
      reported a net decrease in cash for the six months ended June 30, 2008 of
      $1,653,275.





For
      the
      six months ended June 30, 2008 and 2007, we generated revenues of $5,584,597
      and
      $1,597,306, respectively and reported net income of $60,532 and incurred a
      net
      loss of ($318,865), respectively. For the six months ended June 30, 2008, we
      had
      negative cash flow from operating activities of ($1,002,062), negative cash
      flow
      from investing activities of ($638,778) and negative cash flows from financing
      activities of ($12,435). As of June 30, 2008, we had stockholders’ equity of
      $3,510,566, an accumulated deficit of ($681,856), working capital of $2,579,053,
      accounts payable of $236,693, deferred licensing revenue of $71,703, accrued
      wages and wage related expenses of $101,283, notes payable related to equipment
      financing of $29,655, accrued liabilities of $41,997 and sales returns liability
      of $66,658. Management believes that existing cash, along with cash generated
      from the collection of accounts receivable, short term loans and the sale of
      products will be sufficient to meet the Company’s cash requirements during the
      next twelve months.





**Off
      Balance Sheet Arrangements**





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





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





A
      smaller
      reporting company is not required to provide the information required by this
      Item.





**Item
      4T.**  **Controls and Procedures**





As
      of the
      date of this report, our Chief Executive Officer and Chief Financial Officer
      evaluated the effectiveness of the design and operation of our disclosure
      controls and procedures pursuant to Rule 13a-15b under the Securities
      Exchange Act of 1934.  Based on his review of our disclosure controls and
      procedures, they have concluded that our disclosure controls and procedures
      are
      effective in timely alerting them to material information relating to us that
      is
      required to be included in our periodic SEC filings. Further, there were no
      significant changes in the internal controls or in other factors that could
      significantly affect these disclosure controls after the evaluation date and
      the
      date of this report. Nor were there any significant deficiencies or material
      weaknesses in such disclosure controls and procedures requiring corrective
      actions. As a result, no corrective actions were taken.  We have made no
      changes in our internal controls over financial reporting in the most recent
      quarterly reporting period that have materially affected, or are reasonably
      likely to affect, our internal controls over financial reporting.




19




Limitations
      on the Effectiveness of Internal Controls





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. An internal control system, no matter how well conceived and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are met. Further, the design of a control
      system must reflect the fact that there are resource constraints, and the
      benefits of controls must be considered relative to their costs. Because of
      the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, within the Company have been detected. These inherent limitations include
      the realities that judgments in decision-making can be faulty, and that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the internal control. The design
      of
      any system of controls also is based in part upon certain assumptions about
      the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, control may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may
      deteriorate.





**PART
      II - OTHER INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





We
      are
      not presently party to any legal proceedings. We are not aware of any pending
      legal proceeding to which any of our officers, directors, or any beneficial
      holders of 5% or more of our voting securities are adverse to us or have a
      material interest adverse to us.





**Item
      1A: Risk Factors**





A
      smaller
      reporting company is not required to provide the information required by this
      Item.





**Item
      2.**   **Unregistered
      Sales of Equity Securities and Use of Proceeds**





The
      information set forth below relates to our issuances of securities without
      registration under the Securities Act during the reporting period which were
      not
      previously included in a Current Report on Form 8-K.





During
      the six months ended June 30, 2007, we issued 714,286 shares of our common
      stock
      as a result of a conversion of a convertible note payable to a third party.
      These shares were issued pursuant to Section 4(2) of the Securities Act. The
      lenders represented their intention to acquire the securities for investment
      only and not with a view towards distribution. The lenders were given adequate
      information about us to make an informed investment decision. We did not engage
      in any general solicitation or advertising.





During
      the six months ended June 30, 2007, we issued 147,853 shares of our common
      stock
      as a result of a conversion of a convertible note payable to an officer of
      our
      company. These shares were issued pursuant to Section 4(2) of the Securities
      Act. The lenders represented their intention to acquire the securities for
      investment only and not with a view towards distribution. The lenders were
      given
      adequate information about us to make an informed investment decision. We did
      not engage in any general solicitation or advertising.





During
      the three months ended June 30, 2008, we issued 20,000 shares of our common
      stock to employees valued at $29,400. These shares were issued pursuant to
      Section 4(2) of the Securities Act. The lenders represented their intention
      to
      acquire the securities for investment only and not with a view towards
      distribution. The lenders were given adequate information about us to make
      an
      informed investment decision. We did not engage in any general solicitation
      or
      advertising.





On
      July
      30, 2008, we issued 80,000 shares of our common stock valued at $54,400 for
      services to be rendered by a consultant. These shares were issued pursuant
      to
      Section 4(2) of the Securities Act. The lenders represented their intention
      to
      acquire the securities for investment only and not with a view towards
      distribution. The lenders were given adequate information about us to make
      an
      informed investment decision. We did not engage in any general solicitation
      or
      advertising.




20




**Item
      3.**  **Defaults
      Upon Senior Securities**





None.





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**





On
      June
      18, 2008, we held the annual meeting of our security holders. The meeting was
      called for the purpose of electing two directors, approving the adoption of
      the
      ZAGG Incorporated 2007 Stock Incentive Plan, confirming the appointment of
      HANSEN, BARNETT & MAXWELL, P.C. as the Company’s independent certified
      public accountants for the fiscal year ended December 31, 2008, and transacting
      any other items of business that may properly come before the meeting. The
      total
      number of shares of common stock outstanding at the record date, May 21, 2008,
      was 18,873,995 shares. The number of votes represented at this meeting was
      8,285,109 shares, or 43.9% of shares eligible to vote.





The
      results for the election of directors were as follows:





*Director*
            *Votes
                Cast For*
            *Votes
                Cast Against*
            *Abstentions*Robert
                G. Pedersen II
            7,926,364
            33,160
            548Larry
                Harmer
            7,954,814
            4,710
            548




The
      security holders approved the ZAGG Incorporated 2007 Stock Incentive Plan and
      the results were as follows:





*Votes
                Cast For*
            *Votes
                Cast Against*
            *Abstentions*7,954,814
            43,953
            500





The
      security holders confirmed the appointment of HANSEN, BARNETT & MAXWELL,
      P.C. as the Company’s independent certified public accountants for the fiscal
      year ended December 31, 2008 and the results were as follows:





*Votes
                Cast For*
            *Votes
                Cast Against*
            *Abstentions*7,928,756
            27,500
            3,816





No
      other
      matters were acted upon by our security holders at our annual meeting.





**Item
      5.**  **Other
      Information**





None.





**Item
      6.**  **Exhibits**





a.
            Exhibits:
                The following Exhibits are filed with this Form 10-Q pursuant to
                Item
                601(a) of Regulation S-K:




Exhibit
                  No.
              
              Description of Exhibit31.1
              
              Certification
                  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant toSection
                  302 of the Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant toSection
                  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 toSection
                  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 toSection
                  906 of the Sarbanes-Oxley Act of
                  2002.




21




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned hereunto
      duly authorized.




**ZAGG
                INCORPORATED**Date: August 14, 2008
            
            **/s/
              ROBERT
              G. PEDERSEN II**Robert
              G. Pedersen II,President and Chief Executive
              Officer


Date: August 14, 2008
              
              **/s/
                BRANDON T. O’BRIEN**Brandon
                T. O’Brien,Chief
                  Financial Officer
                (Principal
                  financial officer)
  22