**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**








(Mark
      one)





x
            Quarterly
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the quarterly period ended September 30, 2007,
                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
      x No o.**





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-25 of the Exchange Act). **Yes
      o No x**





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: **18,793,995
      common shares as of November 9, 2007.**









**ZAGG
      INCORPORATED**


**FORM
      10-QSB**





**TABLE
      OF CONTENTS**





**PART
      I - FINANCIAL INFORMATION**


**Page**Item
                  1.
              Consolidated
                  Financial Statements (Unaudited)Condensed
                  Consolidated Balance Sheets - As of September 30, 2007 and December
                  31,
                  2006
              3Condensed
                  Consolidated Statements of Operations for the Three and Nine Months
                  Ended
                  September 30, 2007 and 2006
              4Condensed
                  Consolidated Statements of Cash Flows for the Nine Months Ended
                  September
                  30, 2007 and 2006
              5Notes
                  to Condensed Consolidated Financial Statements
              7Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              13Item
                  3.
              Controls
                  and Procedures
              20**PART
                  II - OTHER INFORMATION**Item
                  1.
              Legal
                  Proceedings
              21Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              21Item
                  3.
              Defaults
                  Upon Senior Securities
              23Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              23Item
                  5.
              Other
                  Information
              23Item
                  6.
              Exhibits
              23


2




**ZAGG
      INCORPORATED**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Unaudited)**




**September
                  30,**
              
              **December
                  31,****2007**
              
              **2006****ASSETS****Current
                  assets**Cash
              
              $
              2,146,753
              
              $
              468,382Accounts
                  receivable, net
              
              
              195,667
              
              
              121,149Inventories
              
              
              328,925
              
              
              102,522Prepaid
                  income taxes
              
              
              41,043
              
              
              44,361Prepaid
                  advertising
              
              
              205,782
              
              
              -Prepaid
                  expenses and other current assets
              
              
              183,910
              
              
              31,724Deferred
                  income tax assets
              
              
              16,796
              
              
              19,468Due
                  from employees
              
              
              -
              
              
              3,714**Total
                  current assets**
              
              
              3,118,876
              
              
              791,320**Property
                  and equipment, net**
              
              
              278,479
              
              
              221,474**Deposits
                  and other assets**
              
              
              30,712
              
              
              12,119**Intangible
                  assets, net**
              
              
              50,025
              
              
              2,340**Total
                  assets**
              
              $
              3,478,092
              
              $
              1,027,253**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities**Convertible
                  note payable
              
              $
              -
              
              $
              250,000Convertible
                  note payable - officer
              
              
              -
              
              
              100,000Accounts
                  payable
              
              
              316,659
              
              
              246,691Accrued
                  liabilities
              
              
              16,592
              
              
              33,573Accrued
                  wages and wage related expenses
              
              
              72,962
              
              
              121,728Deferred
                  licensing revenue
              
              
              94,953
              
              
              86,801Sales
                  returns liability
              
              
              16,599
              
              
              32,000**Total
                  current liabilities**
              
              
              517,765
              
              
              870,793**Long-term
                  liabilities**Non-current
                  deferred income tax liability, net
              
              
              12,365
              
              
              12,087**Total
                  liabilities**
              
              
              530,130
              
              
              882,880**Stockholders'
                  equity**Common
                  stock, $0.001 par value; 50,000,000 shares authorized; 18,793,995
                  and
                  10,175,000 shares issued and outstanding, respectively
              
              
              18,790
              
              
              10,175Additional
                  paid-in capital
              
              
              3,964,012
              
              
              117,075Cumulative
                  translation adjustment
              
              
              (54
              )
              
              -Retained
                  (deficit) earnings
              
              
              (1,034,786
              )
              
              17,123**Total
                  stockholders' equity**
              
              
              2,947,962
              
              
              144,373**Total
                  liabilities and stockholders' equity**
              
              $
              3,478,092
              
              $
              1,027,253





See
      accompanying notes to condensed consolidated financial statements.




3


**ZAGG
      INCORPORATED**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**


**Three
                  Months Ended**
              
              **Three
                  Months Ended**
              
              **Nine
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2007**
              
              **September
                  30, 2006**
              
              **September
                  30, 2007**
              
              **September
                  30, 2006****Net
                  sales**
              
              $
              1,437,408
              
              $
              816,022
              
              $
              3,034,714
              
              $
              1,978,533**Cost
                  of sales**
              
              
              299,027
              
              
              193,153
              
              
              689,858
              
              
              537,375**Gross
                  profit**
              
              
              1,138,381
              
              
              622,869
              
              
              2,344,856
              
              
              1,441,158**Operating
                  expenses:**Salaries
                  and related taxes
              
              
              451,076
              
              
              263,544
              
              
              1,105,519
              
              
              669,895Compensation
                  expense related to stock issuance
              
              
              800,000
              
              
              -
              
              
              800,000
              
              
              -Consulting
              
              
              -
              
              
              -
              
              
              38,500
              
              
              73,750Advertising
                  and marketing
              
              
              227,624
              
              
              108,388
              
              
              467,410
              
              
              269,689Legal
                  and accounting
              
              
              25,795
              
              
              30,050
              
              
              248,240
              
              
              34,937Other
                  selling, general and administrative
              
              
              383,851
              
              
              186,631
              
              
              729,693
              
              
              377,894**Total
                  operating expenses**
              
              
              1,888,346
              
              
              588,613
              
              
              3,389,362
              
              
              1,426,165**(Loss)
                  income from operations**
              
              
              (749,965
              )
              
              34,256
              
              
              (1,044,506
              )
              
              14,993**Other
                  (expense) income:**Interest
                  expense
              
              
              (4,132
              )
              
              (18,700
              )
              
              (30,231
              )
              
              (18,559
              )Interest
                  and other income
              
              
              20,903
              
              
              -
              
              
              24,988
              
              
              6,819**Total
                  other income (expense)**
              
              
              16,771
              
              
              (18,700
              )
              
              (5,243
              )
              
              (11,740
              )**(Loss)
                  income before benefit (provision) for income
                  taxes**
              
              
              (733,194
              )
              
              15,556
              
              
              (1,049,749
              )
              
              3,253**Income
                  tax (expense) benefit**
              
              
              (234
              )
              
              -
              
              
              (2,544
              )
              
              13,464**Net
                  (loss) income**
              
              
              (733,428
              )
              
              15,556
              
              
              (1,052,293
              )
              
              16,717**Basic
                  and diluted net (loss) income per common share**
              
              $
              (0.04
              )
              $
              0.00
              
              $
              (0.07
              )
              $
              0.00**Weighted
                  average number of shares outstanding - basic and
                  diluted**
              
              
              17,631,495
              
              
              10,000,000
              
              
              16,131,123
              
              
              10,033,333





See
      accompanying notes to condensed consolidated
      financial statements.





4


**ZAGG
      INCORPORATED**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**


**Nine
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2007**
              
              **September
                  30, 2006****Cash
                  flows from operating activities**Net
                  (loss) income
              
              $
              (1,052,293
              )
              $
              16,717Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Non-cash
                  expense related to issuance of stock to employees
              
              
              800,000
              
              
              -Depreciation
                  and amortization
              
              
              58,430
              
              
              17,094Deferred
                  income tax (benefit) expense
              
              
              2,950
              
              
              (46,847
              )Currency
                  exchange (gain) loss
              
              
              (54
              )
              
              -Changes
                  in assets and liabilitiesAccounts
                  receivable
              
              
              (74,518
              )
              
              31,579Inventories
              
              
              (226,403
              )
              
              (66,595
              )Due
                  from employees
              
              
              3,714
              
              
              4,268Prepaid
                  income taxes
              
              
              3,318
              
              
              -Prepaid
                  advertising
              
              
              (205,782
              )
              
              -Prepaid
                  expenses and other current assets
              
              
              (111,805
              )
              
              51,491Other
                  assets
              
              
              (18,593
              )
              
              -Accounts
                  payable
              
              
              21,280
              
              
              148,689Accrued
                  liabilities
              
              
              (1,288
              )
              
              60,636Accrued
                  wages and wage related expenses
              
              
              (48,766
              )
              
              -Deferred
                  licensing revenues
              
              
              8,152
              
              
              -Sales
                  return liability
              
              
              (15,401
              )
              
              -Net
                  cash (used in) provided by operating activities
              
              
              (857,059
              )
              
              217,032**Cash
                  flows from investing activities**Payments
                  for intangible assets
              
              
              (48,764
              )
              
              -Purchase
                  of property and equipment
              
              
              (114,356
              )
              
              (171,263
              )Net
                  cash used in investing activities
              
              
              (163,120
              )
              
              (171,263
              )**Cash
                  flows from financing activities**Repayments
                  on equipment financing payable
              
              
              -
              
              
              (10,016
              )Proceeds
                  from issuance of common stock and warrants
              
              
              2,570,750
              
              
              -Payments
                  on debt
              
              
              (250,000
              )
              
              -Proceeds
                  from notes payable
              
              
              200,000
              
              
              -Payments
                  on convertible note payable - officer
              
              
              (50,000
              )
              
              -Capital
                  contribution
              
              
              -
              
              
              25,000Proceeds
                  from issuance of common stock
              
              
              227,800
              
              
              75,000Net
                  cash provided by financing activities
              
              
              2,698,550
              
              
              89,984**Net
                  increase in cash and cash equivalents**
              
              
              1,678,371
              
              
              135,753**Cash
                  and cash equivalents at beginning of the period**
              
              
              468,382
              
              
              25,661**Cash
                  and cash equivalents at end of the period**
              
              $
              2,146,753
              
              $
              161,414**Supplemental
                  disclosure of cash flow information**Cash
                  paid during the period for interest
              
              $
              16,736
              
              $
              -Cash
                  paid during the period for income taxes
              
              $
              -
              
              $
              35,247**Non-cash
                  investing and financing activities**Property
                  and equipment acquired for equipment financing payable
              
              $
              -
              
              $
              -





See
      accompanying notes to condensed consolidated
      financial statements.





5




**ZAGG
      INCORPORATED**


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


**(Unaudited)**







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





**For
      the Nine Months Ended September 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.





Issued
      800,000 shares of common stock to employees and consultants.





Issued
      warrants to purchase 100,000 shares of common stock in connection with note
      payable.





**For
      the Nine Months Ended September 30, 2006:**





Capital
      contribution of $25,000.





See
      accompanying notes to condensed consolidated
      financial statements.




6




**ZAGG
        INCORPORATED**
 **Notes
        to Condensed Consolidated Financial Statements**





**1.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





***Basis
      of Presentation*** - The
      accompanying unaudited condensed consolidated financial statements
      of ** ZAGG
      Incorporated (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 financial statements be read in
      conjunction with the financial statements and the notes thereto included in
      the
      Company’s 2006 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 nine months ended September 30, are not necessarily indicative
      of the results that may be expected for the year ending December 31, 2007.





***Nature
      of Operations*** **-** ****** ZAGG
      Incorporated 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 trade name.





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





***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 September 30, 2007 and 2006, the Company generated revenues
      of $1,437,408 and $816,022, respectively and incurred a net loss of ($733,428)
      and net income of $15,556, respectively. For the nine months ended September
      30,
      2007 and 2006, the Company generated revenues of $3,034,714 and $1,978,533,
      respectively and incurred net losses of ($1,052,293) and net income of $16,717,
      respectively, had negative cash flow from operating activities of ($857,059)
      for
      the nine months ended September 30, 2007 and positive cash flow from operating
      activities of $217,032 for the nine months ended September 30, 2006. As of
      September 30, 2007, the Company had stockholders’ equity of $2,947,962, an
      accumulated deficit of ($1,034,786), working capital of $2,601,111, accounts
      payable of $316,659, deferred licensing revenue of $94,953, accrued wages of
      $72,962, sales returns liability of $16,599 and accrued liabilities of $16,592.
      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.





***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.





7




***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. At
      September 30, 2007 the sales return liability was $16,599.





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 three and nine months ended September 30, 2007
      and
      2006, warranty expense and the reserve for warranty liability, respectively,
      was
      not material.





** ***Shipping
      and Handling Costs***





Amounts
      invoiced to customers for shipping and handling are included in sales and were
      $199,711 for the nine months ended September 30, 2007 and $170,175 for the
      nine
      months ended September 30, 2006. Actual shipping and handling costs to ship
      products to our customers are included in cost of sales and were $279,056 for
      the nine months ended September 30, 2007 and $269,372 for the nine months ended
      September 30, 2006.





***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 2007 or 2006, there was no
      financial effect to the Company upon implementation of SFAS No.
      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”).





***Advertising***





General
      advertising is expensed as incurred. Advertising expenses for the nine months
      ended September 30, 2007 were $462,371 and for the nine months ended September
      30, 2006 were $269,289. The Company capitalizes expenses related to its direct
      marketing campaign under the guidance of Statement of Position 93-7 *Reporting
      on Advertising Costs* (“SOP
      93-7”). The company has capitalized $190,787 as prepaid advertising related to
      the direct marketing campaign, these costs relate to the production of an
      infomercial spotlighting the *invisible* SHIELD
      product line. The Company did some testing of the campaign during the third
      quarter of 2007 and determined that further modifications needed to be made
      to
      the infomercial. At September 30, 2007 these changes were underway and the
      Company plans to begin the direct marketing campaign during the fourth quarter
      of 2007, at which time the Company will begin to amortize these prepaid
      advertising costs as prescribed by SOP 93-7.





***Reclassifications***





Certain
      amounts in the 2006 financial statements have been reclassified to conform
      to
      the 2007 presentation.





***Recent
      accounting pronouncements*** ****





In
      February, 2007, the FASB issued SFAS No. 159, *“The
      Fair Value Option for Financial Assets and Financial Liabilities”* (“SFAS
      No. 159”). This Statement provides companies with an option to report selected
      measurement attributes for different assets and liabilities that can create
      artificial volatility in earnings. The Statement’s objective is to reduce both
      complexity in accounting for financial instruments and the volatility in
      earnings caused by measuring related assets and liabilities differently. SFAS
      No. 159 is effective for the Company beginning January 1, 2009. The Company
      is
      currently evaluating the impact of this standard.





The
      Company has reviewed all other recently issued, but not yet adopted, accounting
      standards in order to determine their effects, if any, on its results of
      operation, financial position or cash flows. Based on that review, the Company
      believes that none of these pronouncements will have a significant material
      effect on its current or future earnings or operations.





8




***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 September
      30, 2007 and 2006, 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 for the three and nine months ended September 30, 2007
      and
      2006:




**Net**
              **Loss**
            
            **Weighted
                Average**
              **Shares**
            
            **Per Share**
              **Amount**Three
                months ended September 30, 2007:Basic
                EPS
            
            $
            (733,428)
            
            17,631,495
            
            
            $
            (0.04)Effect
                of common stock equivalents
            
            —
            
            —Diluted
                EPS
            
            $
            (733,428)
            
            17,631,495
            
            
            $
            (0.04)Three
                months ended September 30, 2006:Basic
                EPS
            
            $
            15,556
            
            10,098,913
            
            
            $
            0.00Effect
                of common stock equivalents
            
            —
            
            —Diluted
                EPS
            
            $
            15,556
            
            10,098,913
            
            
            $
            0.00




**Net**
              **Loss**
            
            **Weighted
                Average**
              **Shares**
            
            **Per Share**
              **Amount**Nine
                months ended September 30, 2007:Basic
                EPS
            
            $
            (1,052,293)
            
            16,131,123
            
            
            $
            (0.07)Effect
                of common stock equivalents
            
            —
            
            —Diluted
                EPS
            
            $
            (1,052,293)
            
            16,131,123
            
            
            $
            (0.07)Nine
                months ended September 30, 2006:Basic
                EPS
            
            $
            16,717
            
            10,033,000
            
            
            $
            0.00Effect
                of common stock equivalents
            
            —
            
            —Diluted
                EPS
            
            $
            16,717
            
            10,033,000
            
            
            $
            0.00





The
      calculation above for the three and nine months ended September 30, 2007,
      excludes the exercise of the 1,842,500 outstanding warrants as the exercise
      of
      these warrants would have an anti-dilutive effect on earnings per share. There
      were no anti-dilutive instruments outstanding for the three or nine months
      ended
      September 30, 2006.




9




**NOTE
      2 - RECAPITALIZATION**





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 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.





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.




10





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





Accounts
      Receivable at September 30, 2007 and December 31, 2006 was as
      follows:





**September
                30, 2007**
            
            **December
                31, 2006**Accounts
                receivable
            
            $
            215,860
            
            $
            141,342Less:
                Allowance for doubtful accounts
            
            
            (20,193
            )
            
            (20,193
            )Accounts
                receivable, net
            
            $
            195,667
            
            $
            121,149





Bad
      debt
      expense for the nine months ended September 30, 2007 and 2006 was $0 and $0,
      respectively.





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





At
      September 30, 2007 and December 31, 2006 inventories consisted of the
      following:





**September
                30, 2007**
            
            **December
                31, 2006**Finished
                Goods
            
            $
            180,855
            
            $
            67,257Raw
                Materials
            
            
            148,070
            
            
            35,265$
            328,925
            
            $
            102,522




**NOTE
      5 - PROPERTY AND EQUIPMENT**





At
      September 30, 2007 and December 31, 2006, property and equipment consisted
      of
      the following:




**Useful
                  Lives**
              
              **September
                  30, 2007**
              
              **December
                  31, 2006**Computer
                  equipment and software
              
              
              3
                  to 5 years
              
              $
              95,865
              
              $
              58,790Office
                  equipment
              
              
              3
                  to7 years
              
              
              102,518
              
              
              58,407Furniture
                  and fixtures
              
              
              7
                  years
              
              
              42,575
              
              
              9,405Automobiles
              
              
              5
                  years
              
              
              47,063
              
              
              47,063Leasehold
                  improvements
              
              
              1
                  to 3.13 years
              
              
              91,637
              
              
              91,637379,658
              
              
              265,302Less
                  Accumulated depreciation
              
              
              
              
              
              (101,179
              )
              
              (43,828
              )$
              278,479
              
              $
              221,474





Depreciation
      expense was $57,351 for the nine months ended September 30, 2007 and $17,094
      for
      the nine months ended September 30, 2006.




11




**NOTE
      6 - INTANGIBLE ASSETS**





At
      September 30, 2007, intangible assets consist of legal fees paid in connection
      with the Company’s patent application of $7,935 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 September 30, 2007, 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.





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:





**September
                30, 2007**
            
            **Gross**
              **Carrying******
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
              **Carrying**
              **Amount**Internet
                addresses
            
            $
            43,169
            
            $
            (1,079
            )
            $
            42,090




**NOTE
      7 - STOCKHOLDERS’ EQUITY**





During
      the nine months ended September 30, 2007, the Company issued 785,856 shares
      of
      its common stock in a private placement wherein the Company received $275,050
      and paid fees of $47,250 and fee warrants to purchase 52,500 shares of the
      Company’s common stock at a strike price of $0.35; 714,286 shares of its common
      stock in conversion of a note payable with a face amount of $250,000; 147,853
      shares of its common stock in conversion of a notes payable in the amount of
      $50,000; warrants to purchase 100,000 shares of the Company’s common stock at a
      strike price of $0.50 in connection with short-term financing; 1,975,000 shares
      of its common stock and warrants to purchase 987,500 shares of its common stock
      at a strike price of $1.30 in a PIPE transaction wherein the Company received
      $1,975,000 and paid fees of $177,750 and fee warrants to purchase 197,500 shares
      of the Company’s common stock at a strike price of $1.30; 850,000 shares of its
      common stock and warrants to purchase 425,000 shares of its common stock at
      a
      strike price of $1.30 in a private placement wherein the Company received
      $850,000 and paid fees of $76,500 and fee warrants to purchase 85,000 shares
      of
      the Company’s common stock at a strike price of $1.30; and 800,000 shares to
      employees and consultants valued at $800,000 and recorded as compensation
      expense in the accompanying financial statements.





On
      November 13, 2007, the Board of Directors adopted the ZAGG Incorporated 2007
      Stock Incentive Plan wherein the Company may issue an aggregate of 2,000,000
      options to purchase shares of the Company’s common stock or shares of the
      Company’s common stock. There were no shares issued or options issued under the
      plan as of the date of this report.





**NOTE
      8 - 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 was convertible at the holder's option any time up to
      maturity at a conversion price equal to $0.35 per common share. The note was
      due
      on May 15, 2007, bore interest at 20% per year and was unsecured. The common
      shares underlying the note have piggy back registration rights. In March 2007,
      the Company repaid $50,000 of the principal balance of the note. In addition,
      the remaining $50,000 of principal plus accrued interest of $1,749 was converted
      into 147,853 shares of the Company’s common stock.





The
      note
      was 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
      9 - 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 an unrelated investor in
      the
      original principal amount of $250,000. The note was convertible at the holder's
      option any time up to maturity at a conversion price equal to $0.35 per common
      share. The note was due on March 1, 2007, bore interest at 4% per year, and
      was
      secured by substantially all of the assets of the Company. Interest was payable
      at maturity and was computed on the basis of a 360-day year. In February 2007,
      the note holder converted the principal balance of the note into 714,286 shares
      of the Company’s common stock.





The
      note
      was 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
      10 - NOTES PAYABLE**





On
      May 8,
      2007, the Company entered into a promissory note agreement with an unrelated
      third party in the amount of $200,000. The note bore interest at an annual
      percentage rate of 18% and was due and payable on August 15, 2007. The Company
      also issued 100,000 warrants with an exercise price of $0.50. The warrants
      expire on May 30, 2012 and are exercisable any time at the option of the warrant
      holder. The Company recorded a discount on the note payable of $15,031 as that
      was the value of the warrants as calculated using the Black-Scholes valuation
      model. The discount was amortized as additional interest expense in the
      accompanying statements. The note was paid in full on August 15,
      2007.





**NOTE
      11 - COMMITMENTS AND CONTINGENCIES**





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.





12


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




**Forward-Looking
      Statements**




***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*** .




**Overview**




**Recent
      Merger Transactions**





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.





**Our
      Business**





We
      custom-design, market and sell 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.





13




***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.





***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.





***Recently
      Issued Accounting Pronouncements***





In
      February, 2007, the FASB issued SFAS No. 159, *“The
      Fair Value Option for Financial Assets and Financial Liabilities”* (“SFAS
      No. 159”). This Statement provides companies with an option to report selected
      measurement attributes for different assets and liabilities that can create
      artificial volatility in earnings. The Statement’s objective is to reduce both
      complexity in accounting for financial instruments and the volatility in
      earnings caused by measuring related assets and liabilities differently. SFAS
      No. 159 is effective for us beginning January 1, 2009. We are currently
      evaluating the impact of this standard.





We
      have
      reviewed all other recently issued, but not yet adopted, accounting standards
      in
      order to determine their effects, if any, on our results of operation, financial
      position or cash flows. Based on that review, we believe that none of these
      pronouncements will have a significant material effect on our current or future
      earnings or operations.




14


**Results
      of Operations**





**THREE
      MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**





***Net
      sales***





Net
      sales
      for the quarter ended September 30, 2007 were $1,437,408 as compared to net
      sales of $816,022 for the quarter ended September 30, 2006, an increase of
      $621,386 or 76%.





The
      significant increase in product sales is mainly attributed to continued strong
      sales of our *invisible* SHIELD
      product line with approximately 68% of our product being sold through our
      website to retail customers, 16% being sold through mall carts, 10% to wholesale
      distributors and 6% from shipping and handling charges.





***Cost
      of sales***





Cost
      of
      sales includes raw materials, packing materials and shipping costs. For the
      quarter ended September 30, 2007, cost of sales amounted to $299,027 or
      approximately 21% of net sales as compared to cost of sales of $193,153 or
      23%
      of net sales for quarter ended September 30, 2006. The decrease in cost of
      sales
      as a percentage of net revenues for the quarter ended September 30, 2007 as
      compared to the quarter ended September 30, 2006 is attributable to better
      overall pricing on raw materials purchases, decreased shipping rates and
      decreased packaging costs.





***Gross
      profit***





Gross
      profit for the quarter ended September 30, 2007 was $1,138,381 or approximately
      79% of net sales as compared to $622,869 or approximately 76% of net sales
      for
      the quarter ended September 30, 2006. The increase in gross profit percentage
      was attributable to decreased costs associated with raw materials, packaging
      and
      shipping and changes in sales mix from distributor sales to internet and cart
      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 quarter ended September 30, 2007 were $1,888,346,
      an
      increase of $1,299,733 from total operating expenses for the quarter ended
      September 30, 2006 of $588,613. The increases are primarily attributable to
      the
      following:


·
            For
                the quarter ended September 30, 2007, we recognized $800,000 in expense
                related to the issuance of restricted stock to employees and key
                consultants of the Company. Exclusive of this non-cash charge, total
                operating expenses were $1,088,346 and income from operations was
                $50,035. 
 ·
            For
                the quarter ended September 30, 2007, salaries and related taxes
                increased
                by $187,532 to $451,076 from $263,544 for the quarter ended September
                30,
                2006 due to the hiring of some key management personnel and additional
                staff to facilitate our continued grown and development of our overall
                business plan and marketing strategy. 
 ·
            For
                the quarter ended September 30, 2007, marketing and advertising expenses
                were $227,624, an increase of $119,236 as compared to $108,388 for
                the
                quarter ended September 30, 2006. As a percentage of sales, the increase
                was only 2.6% from 13.3% of sales for the quarter ended September
                30, 2006
                to 15.8% of sales for the quarter ended September 30, 2007. This
                increase
                is attributable to an increase in our marketing efforts as we roll
                out
                product and implement our business plan. The primary marketing
                expenditures continue to be in web advertising and search engine
                optimization. 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. We also
                spent
                approximately $51,000 on television advertising for the*invisible*SHIELD
                product line.


15
 ·
              For
                  the quarter ended September 30, 2007, other selling, general and
                  administrative expenses were $383,851 as compared to $186,631 for
                  the
                  quarter ended September 30, 2006, an increase of $197,220. The
                  increase
                  was attributable to the increase in operations as we continue to
                  implement
                  our business plan and is summarized
                  below:


**Three
                Months Ended****September
                30, 2007**
            
            **Three
                Months Ended****September
                30, 2006**Contract
                labor
            
            $
            80,421
            
            $
            33,159Rent
            
            
            59,547
            
            
            9,211Investor
                relations
            
            
            48,185
            
            
            --Credit
                Card and bank fees
            
            
            37,434
            
            
            12,591Travel
                and entertainment
            
            
            29,518
            
            
            27,297Insurance
            
            
            24,327
            
            
            14,380Depreciation
                and amortization
            
            
            21,455
            
            
            15,344Telephone
                and utilities
            
            
            20,586
            
            
            13,919Office
                supplies
            
            
            17,636
            
            
            7,699Printing
                expenses
            
            
            12,068
            
            
            6,566Other
            
            
            32,674
            
            
            46,465Total
            
            $
            383,851
            
            $
            186,631





***(Loss)
      income from operations***





We
      reported loss from operations of ($749,965) for the quarter ended September
      30,
      2007 as compared to income from operations of $34,256 for the quarter ended
      September 30, 2006, a decrease of $784,221. Net of the non-cash charge related
      to the issuance of stock to employees and key consultants of $800,000, we had
      income from operations of $50,035. The loss from operations for the quarter
      ended September 30, 2007 as compared to income from operations the quarter
      ended
      September 30, 2006 is primarily attributable to $800,000 in expenses related
      to
      the issuance of restricted stock to employees and key consultants of the Company
      and, in addition, overall cost increases associated with executing our business
      plan including increased salaries and related taxes of $187,532, increased
      advertising and marketing expenditures of $119,236, increased contract labor
      expense of $47,262, investor relations related expenses of $48,185, increased
      insurance expenses of $9,947, increased office supplies expenses of $9,937,
      increased telephone and utilities expenses of $6,667increased rent expense
      of
      $50,336 and increased travel and entertainment expense of $2,221.





***Other
      income (expense)***





For
      the
      quarter ended September 30, 2007, total other income was $16,771 compared to
      other expense of ($18,700) for the quarter ended September 30, 2006. The
      increase is primarily attributed to interest income of $20,903 related to
      interest earned on cash balances in our depository accounts and a decrease
      in
      other expense of $14,568 in the quarter ended September 30, 2006, partially
      offset by interest expense of ($4,132).





***Net
      (loss) income***





As
      a
      result of these factors, we reported a net loss of ($733,428) or ($0.04) per
      share for the quarter ended September 30, 2007 as compared to net income of
      $15,556 or $0.00 per share for the quarter ended September 30, 2006.





16


**NINE
      MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**





***Net
      sales***





Net
      sales
      for the nine months ended September 30, 2007 were $3,034,714 as compared to
      net
      sales of $1,978,533 for the nine months ended September 30, 2006, an increase
      of
      $1,056,181 or 53%.





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, 19% being sold through mall carts, 12% to wholesale
      distributors and 6% from shipping and handling charges.





***Cost
      of sales***





Cost
      of
      sales includes raw materials, packing materials and shipping costs. For the
      nine
      months ended September 30, 2007, cost of sales amounted to $689,858 or
      approximately 23% of net sales as compared to cost of sales of $537,375 or
      27%
      of net sales for nine months ended September 30, 2006. The decrease in cost
      of
      sales as a percentage of net revenues for the quarter ended September 30, 2007
      as compared to the quarter ended September 30, 2006 is attributable to better
      overall pricing on shipping and raw materials purchases and decreased packaging
      costs.





***Gross
      profit***





Gross
      profit for the nine months ended September 30, 2007 was $2,344,856 or
      approximately 77% of net sales as compared to $1,441,158 or approximately 73%
      of
      net sales for the nine months ended September 30, 2006. The increase in gross
      profit percentage was attributable to decreased costs associated with shipping,
      raw materials and packaging and changes in sales mix from distributor sales
      to
      retail and cart 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 nine months ended September 30, 2007 were $3,389,362,
      an increase of $1,963,197 from total operating expenses for the nine months
      ended September 30, 2006 of $1,426,165. The increases are primarily attributable
      to the following:


·
            For
                the nine months ended September 30, 2007, we recognized $800,000
                in
                expense related to the issuance of restricted stock to employees
                and key
                consultants of the Company. Exclusive of this non-cash charge, total
                operating expenses were $2,589,362 and the loss from operations was
                ($244,506). 
 ·
            For
                the nine months ended September 30, 2007, salaries and related taxes
                increased by $435,624 to $1,105,519 from $669,895 for the nine months
                ended September 30, 2006 due to the hiring of key management personnel
                and
                additional staff to facilitate our continued grown and development
                of our
                overall business plan and marketing
                strategy. 
 ·
            For
                the nine months ended September 30, 2007, consulting expense was
                $38,500,
                a decrease of $35,250 from the expense recognized for the nine months
                ended September 30, 2006 of $73,750. The decrease is primarily due
                to
                approximately $63,000 that was paid to a consultant who then became
                our
                president in 2006, partially offset by expenses incurred related
                to the
                hiring of key personnel during the nine months ended September 30,
                2007 of
                $24,000 and payments to a consulting firm for website optimization
                of
                $10,000. 
 ·
            For
                the nine months ended September 30, 2007, legal and accounting expenses
                were $248,240, an increase of $213,303 as compared to $34,937 for
                the nine
                months ended September 30, 2006. The overall increase is attributable
                to
                the reverse merger that we effectuated in February
                2007.  17
  ·
            For
                the nine months ended September 30, 2007, marketing and advertising
                expenses were $467,410, an increase of $197,721 as compared to $269,689
                for the nine months ended September 30, 2006. This increase is
                attributable to an increase in our marketing efforts as we roll out
                product and implement our business plan. The primary marketing
                expenditures continue to be in web advertising and search engine
                optimization. We also spent approximately $79,000 on television
                advertising and $19,000 for the nine months ended September 30, 2007
                to
                redesign our consumer packaging. 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. 
 ·
            For
                the nine months ended September 30, 2007, other selling, general
                and
                administrative expenses were $729,963 as compared to $377,894 for
                the nine
                months ended September 30, 2006. The increase was attributable to
                the
                increase in operations as we implement our business plan and is summarized
                below:


**Nine
                  Months Ended****September
                  30, 2007**
              
              **Nine
                  Months Ended****September
                  30, 2006**Contract
                  labor
              
              $
              120,650
              
              $
              40,960Rent
              
              
              114,538
              
              
              32,053Credit
                  Card and bank fees
              
              
              73,447
              
              
              36,034Travel
                  and entertainment
              
              
              68,565
              
              
              42,459Depreciation
                  and amortization
              
              
              58,430
              
              
              17,094Investor
                  relations
              
              
              52,584
              
              
              --Insurance
              
              
              52,536
              
              
              24,673Telephone
                  and utilities
              
              
              44,893
              
              
              30,011Office
                  supplies
              
              
              41,776
              
              
              33,183Printing
                  expenses
              
              
              31,719
              
              
              24,091Other
              
              
              70,555
              
              
              97,336Total
              
              $
              729,963
              
              $
              377,894





***(Loss)
      income from operations***





We
      reported loss from operations of ($1,044,506) for the nine months ended
      September 30, 2007 as compared to income from operations of $14,993 for the
      nine
      months ended September 30, 2006, a decrease of $1,059,499. Net of the non-cash
      charge related to the issuance of stock to employees and key consultants of
      $800,000, we had an operating loss of ($244,506). The loss from operations
      for
      the nine months ended September 30, 2007 as compared to income from operations
      the nine months ended September 30, 2006 is primarily attributable to $800,000
      in expenses related to the issuance of restricted stock to employees and key
      consultants of the Company and increased salaries and related expenses of
      $435,624, increased legal and accounting fees of $213,303 due to the
      recapitalization transaction, increased advertising and marketing expenses
      of
      $197,721, increased rent expense of $82,485, increased credit card and bank
      fees
      of $37,413, increased travel and entertainment expense of $26,106, increased
      depreciation and amortization expense of $41,336, investor relations related
      expenses of $52,584, increased insurance expenses of $27,863 and increased
      telephone and utilities expenses of $14,882.





***Other
      income (expense)***





For
      the
      nine months ended September 30, 2007, total other expense was ($5,243) compared
      to other expense of ($11,740) for the nine months ended September 30, 2006.
      The
      decrease is primarily attributed to interest income of $24,988 for the nine
      months ended September 30, 2007 compared to interest in come of $6,819 for
      the
      nine months ended September 30, 2006 due to increased cash balances in our
      depository accounts. These decreases were partially offset by interest expense
      of ($30,231) for the nine months ended September 30, 2007 compared to other
      expense of ($18,559) for the nine months ended September 30, 2006 due to
      interest expense related to short-term borrowings during the first and second
      quarters of 2007.





18




***Net
      (loss) income***





As
      a
      result of these factors, we reported a net loss of ($1,052,293) or ($0.07)
      per
      share for the nine months ended September 30, 2007 as compared to a net income
      of $16,717 or $0.00 per share for the nine months ended September 30, 2006.





**Liquidity
      and Capital Resources**





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





At
      September 30, 2007, we had a cash balance of $2,146,753.





Our
      working capital position increased by $2,680,584 to working capital of
      $2,601,111 at September 30, 2007 from a working capital deficit of ($79,473)
      at
      December 31, 2006. This increase in working capital is primarily attributable
      to
      the overall increased current assets including cash of $1,678,371, prepaid
      expenses of $152,186, increased prepaid advertising of $205,782, increased
      inventories of $226,403, increased accounts receivable of $74,518 and decreased
      convertible notes payable of $350,000, decreased accrued liabilities of $16,981
      and decreased deferred sales return liability of $15,401, partially offset
      by
      increased accounts payable of $69,968 and increased deferred revenues of
      $8,152.





Net
      cash
      used in operating activities for the nine months ended September 30, 2007 was
      ($857,059) as compared to cash provided by operating activities of $217,032
      for
      the nine months ended September 30, 2006. For the nine months ended September
      30, 2007, net cash used in operating activities was attributable primarily
      to
      our net loss of ($1,052,293), increased inventories of $226,403. increased
      prepaid advertising of $205,782, increased prepaid expenses and other current
      assets of $111,805, increased accounts receivable of $74,518, decreased accrued
      wages and wage related expenses of $48,766, increased other assets of $18,593,
      decreased sales returns liability of $15,401 and decreased accrued liabilities
      of $1,288, partially offset by non-cash expense related to issuance of stock
      to
      employees of $800,000, depreciation and amortization of $58,430, increased
      accounts payable of $21,280 and increased deferred licensing revenues of $8,152.





Net
      cash
      used in investing activities for the nine months ended September 30, 2007 was
      ($163,120) attributable to the purchase of property and equipment of $114,356
      and payments for intangible assets of $48,764.





Net
      cash
      provided by financing activities was $2,698,550 for the nine months ended
      September 30, 2007. Net cash provided by financing activities for the nine
      months ended September 30, 2007 was attributable to the net proceeds received
      from financing transactions of $2,570,750, net proceeds from the sale of common
      stock of $227,800 and proceeds from notes payable of $200,000, partially offset
      by repayments of convertible debt - officer of $50,000 and repayment of notes
      payable of $250,000.





We
      reported a net increase in cash for the nine months ended September 30, 2007
      of
      $1,678,371.





On
      July
      10, 2007, we completed a private placement offering wherein we raised $1,975,000
      less fees of $177,750. We issued 1,975,000 shares of our common stock and
      987,500 warrants to purchase our common stock at an exercise price of $1.30
      per
      share. These warrants are exercisable at the warrant holder’s option any time up
      through July 10, 2012. On August 7, 2007, we completed a private placement
      offering wherein we raised $850,000 less fees of $76,500. We issued 850,000
      shares of our common stock and 425,000 warrants to purchase our common stock
      at
      an exercise price of $1.30 per share. These warrants are exercisable at the
      warrant holder’s option at any time up through August 7, 2012.





For
      the
      three months ended September 30, 2007 and 2006, we generated revenues of
      $1,437,408 and $816,022, respectively and incurred a net to loss of ($733,428)
      and net income of $15,556, respectively. For the nine months ended September
      30,
      2007 and 2006, we generated revenues of $3,034,714 and $1,978,533, respectively,
      and incurred a net loss of ($1,052,293) and net income of $16,717, respectively,
      had negative cash flow from operating activities of ($859,059) for the nine
      months ended September 30, 2007 and positive cash flow from operating activities
      of $217,032 for the nine months ended September 30, 2006. As of September 30,
      2007, we had stockholders’ equity of $2,947,962, an accumulated deficit of
      ($1,034,786), working capital of $2,601,111, accounts payable of $316,659,
      deferred licensing revenue of $94,953, accrued wages and wage related expenses
      of $72,962, sales returns liability of $16,599 and accrued liabilities of
      $16,592. 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.





19




**Off
      Balance Sheet Arrangements**





As
      of
      September 30, 2007, there were no off balance sheet arrangements.





**Item
      3.**  **Controls and Procedures**





We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of September 30, 2007. This evaluation was carried
      out under the supervision and with the participation of our Chief Executive
      Officer, Mr. Robert G. Pedersen II, and Chief Financial Officer, Mr. Brandon
      T.
      O’Brien. Based upon that evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that, as of September 30, 2007, our disclosure
      controls and procedures are effective. There have been no changes in our
      internal controls over financial reporting during the quarter ended September
      30, 2007.





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are recorded, processed, summarized and
      reported, within the time periods specified in the SEC's rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed in
      our
      reports filed under the Exchange Act is accumulated and communicated to
      management, including our Chief Executive Officer and Chief Financial Officer,
      to allow timely decisions regarding required disclosure.





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. Our disclosure controls and procedures are designed to provide
      reasonable assurance of achieving our objectives and our Chief Executive Officer
      and Chief Financial Officer concluded that our disclosure controls and
      procedures are effective at that reasonable assurance level. 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.





20




**PART
      II - OTHER INFORMATION**





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





The
      Company is 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
      2.**   **Unregistered
      Sales of Equity Securities and Use of Proceeds**





**Unregistered
      Sales of Equity 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).





At
      March
      24, 2005 (inception), ShieldZone issued 10,000,000 shares of common stock to
      its
      founder for $1,000.





ShieldZone
      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.





In
      July
      2006, ShieldZone sold 100,000 common shares for $75,000 or $0.75 per share.
      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.





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. These shares have piggyback registration
      rights.





Empire
      Financial Group (“Empire”) acted as placement agent with respect to the offering
      and Empire or its designees will receive a cash fee equal to $47,250 and
      warrants to purchase 52,500 shares of the Company’s common stock at an exercise
      price of $0.35 per share. The warrant shares are subject to equitable adjustment
      for stock splits, stock dividends and similar events, and have “piggyback”
registration rights.





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.





21




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. Shareholders holding 3,941,765 of these shares claim
      to
      have piggyback registration rights in 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.





During
      the quarter ended March 31, 2007, the Company repaid $50,000 of the principal
      balance of a $100,000 note issued in November 2006 to an affiliate of the
      Company’s Chief Executive Officer, and the remaining $50,000 of principal plus
      accrued interest of $1,749 was converted into 147,853 shares of Common Stock.
      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
      July
      10, 2007, the Company sold (i) 1,975,000 shares of our common stock, and (ii)
      five-year warrants to purchase 987,500 shares of common stock at an exercise
      price of $1.30 per share, pursuant to a Securities Purchase Agreement among
      our
      company and certain institutional investors (the “Purchasers”) signatory
      thereto. We received aggregate gross proceeds of approximately $1,975,000 from
      the sale of the common stock and warrants. The common stock and warrants were
      offered solely to “accredited investors” in reliance on the exemption from
      registration afforded by Section 4(2) of the Securities Act of 1933, as amended,
      and/or Rule 506 of Regulation D promulgated thereunder.





Under
      the
      applicable agreements, the Purchasers are entitled to certain contractual
      benefits, which are summarized as follows:





1.
            The
                right to participate in any subsequent financing of the Company in
                the
                next twelve months;




2.
            Except
                for certain exempt issuances, restrictions on the Company’s ability to
                offer securities in the next 90 days and beyond in certain circumstances;





3.
            For
                as long as any Purchaser holds Company securities, restrictions on
                the
                Company’s ability to issue securities that are convertible into common
                stock at some future or variable price;





4.
            For
                twelve months, restrictions on the Company’s ability to undertake a
                reverse or forward stock split of its common stock;





5.
            For
                two years and except for certain exempt issuances, the right to certain
                anti-dilution provisions;





6.
            The
                right to rescind in the event the Company fails to meet certain deadlines.





Empire
      Financial Group (“Empire”) acted as placement agent with respect to the offering
      and received a cash fee equal to $177,750 and warrants to purchase 197,500
      shares of the Company’s common stock at an exercise price of $1.30 per share.




Pursuant
      to a Registration Rights Agreement, the Company agreed to file an initial
      registration statement covering the resale of the common stock and the shares
      of
      common stock underlying the warrants no later than 30 days from the closing
      of
      the offering and to have such registration statement declared effective no
      later
      than 120 days from the closing of the offering. If the Company does not timely
      file the registration statement or cause it to be declared effective by the
      required dates, then each investor in the offering shall be entitled to
      liquidated damages equal to 2% of the aggregate purchase price paid by such
      investor for the securities, and an additional 2% for each month that the
      Company does not file the registration statement or cause it to be declared
      effective. The Company is also subject to the same penalties for failure to
      perform the following acts in their respective timeframes:




1.
            File
                with the Securities and Exchange Commission (the “Commission”) a
                pre-effective amendment within ten trading days after the receipt
                of
                comments from the Commission;




2.
            File
                with the Commission a request for acceleration with five trading
                days of
                the date the Commission notifies the Company orally or in writing
                that the
                registration statement will not be reviewed or subject to further
                review;




3.
            Fail
                to notify the Purchasers within one trading day of when the Company
                requests effectiveness of the registration statement;




4.
            Fail
                to file a final prospectus within one trading day after effectiveness;




5.
            Fail
                to maintain an effective registration statement for more than ten
                consecutive calendar days or more than an aggregate of fifteen calendar
                days in a twelve month period; and




6.
            Fail
                to register all of the common stock and the shares of common stock
                underlying the warrants pursuant to one or more registration statements
                on
                or before December 28, 2007.




On
      July
      24, 2005, the Company issued 800,000 shares of common stock to employees and
      affiliates under its Stock Option and Stock Grant plan.




On
      August
      7, 2007, the Company (i) 850,000 shares of our common stock, and (ii) five-year
      warrants to purchase 425,000 shares of common stock at an exercise price of
      $1.30 per share, pursuant to a Securities Purchase Agreement among our company
      and certain institutional investors (the “Purchasers”) signatory thereto. We
      received aggregate gross proceeds of approximately $850,000 from the sale of
      the
      common stock and warrants. The common stock and warrants were offered solely
      to
“accredited investors” in reliance on the exemption from registration afforded
      by Section 4(2) of the Securities Act of 1933, as amended, and/or Rule 506
      of
      Regulation D promulgated thereunder .




Empire
      Financial Group (“Empire”) acted as placement agent with respect to the offering
      and received a cash fee equal to $76,500 and warrants to purchase 85,000 shares
      of the Company’s common stock at an exercise price of $1.30 per share.




22




**Use
      of Proceeds**




On
      August
      30, 2007, the registration statement filed on Form SB -2 (Commission file number
      333-145299) was declared effective by the SEC. This offering has commenced
      and
      is ongoing. This registration statement registered 3,998,356 shares of our
      common stock on behalf of certain selling shareholders of the Company. We will
      not receive any proceeds from this offering and have not made any arrangements
      for the sale of these securities.




On
      October 16, 2007, the registration statement filed on Form SB-2 (Commission
      file
      number 333-146320) was declared effective by the SEC. This offering has
      commenced and is ongoing. This registration statement registered 6,263,904
      shares of our common stock on behalf of certain selling shareholders of the
      Company. We will not receive any proceeds from this offering and have not made
      any arrangements for the sale of these securities.




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





None.





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





No
      matters have been submitted to our security holders for a vote, through the
      solicitation of proxies or otherwise, during the nine months ended September
      30,
      2007.





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





None.





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





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




Exhibit
                  No.
              
              Description
                of Exhibit10.1
              
              ZAGG
                  Incorporated 2007 Stock Incentive Plan31.1
              
              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.




23




**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:
              November 14, 2007
            By:
            **/s/
              ROBERT
              G. PEDERSEN II**Robert
              G. Pedersen II,President
              and
              Chief Executive Officer Date:
              November 14, 2007
            By:
            **/s/
              BRANDON T. O’BRIEN**Brandon
              T. O’Brien,Chief
              Financial Officer(Principal Financial
              Officer)


24