Zagg's Golden Shell Game

| About: ZAGG Inc (ZAGG)

ZAGG made an interesting disclosure in their 10Q that came out Tuesday. They claim that they gave hZo an additional $2.020 million bridge loan ($1.8 of that funded during the current quarter). hZo is a company that was created to buy the exclusive worldwide marketing rights to the Golden Shellback waterproofing venture, ZAGG originally funded $1.151 million through a bridge loan. Sounds harmless enough, right? $3.171 mm to be the only company able to waterproof electronics and own a new space sounds like a cheap price for the opportunity, right? The problem, as I proved in my article (here), is that the Golden Shellback is a non-proprietary process that has been around for years called parylene coating. ZAGG could have got into this business by purchasing $20k worth of equipment. Which begs the question: Did ZAGG really pay over $3mm for exclusive rights to a non-proprietary technology, or did the money go someplace else?

ZAGG claims in the 10Q that hZo immediately paid the money to Northeast Maritime Institute (NMI). A Google search for NMI leads you to a very impressive looking website (here). Upon further digging, I started to become concerned about NMI. Nobody answers the phones. There is no voicemail. Also of concern is that although NMI had a flurry of news releases during 2008 and 2009 it appears that the company has gone dark.

I even tried to track down some of NMI’s few employees that are listed on the page and found that they had moved on even though they are still listed on NMI’s website (find a link to Captain Martin Legg’s linkedin profile here).

I did manage to find an interesting comment from the supposed owner of Northeast Maritime Institute responding to a question about whatever happened to the Golden Shellback (find the link here).

Thanks for the concern all . . . As this was not remotely close to our core business, maritime education and training, we decided to sell the IP to a company who simply defaulted on their payments.

We have decided to make a go of it on our own and begin selling a line of consumer electronics that the public wants the most. We are pretty excited and hope that we will get the support needed to really create something that the public both wants and needs.

Keep your eyes out soon as we will be selling products on Ebay starting Monday, 24, May 2010. We will also be launching a new website within weeks from that.

Thanks again . . . Eric R. Dawicki

I also spoke with a person that developed the awesome website for NMI and he told me that he was no longer in touch with NMI’s owner Eric Dawicki and that he didn’t know what happened to NMI. He told me that he didn’t know exactly what had happened to the Golden Shellback licensing deal but that he had heard that it fell through.

So we have ZAGG funding over $3mm into hZo which was in turn supposed to go to NMI, but now it appears that hZo defaulted on its agreement and/or NMI no longer exists. Where did that money really go? The Golden Shellback sounds like The Golden Shell Game.

Disclosure: Short ZAGG

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