Information included or incorporated by reference in this report, including Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements.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. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of ZAGG Inc and its subsidiaries (collectively “we”, “us”, “our”, “ZAGG”, or the Company.“Company”), and such forward-looking statements are covered by the safe-harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements may contain the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “strategy,” “plan,” “may,”“believes”, “project”, “expects”, “anticipates”, “estimates”, “forecasts”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will” “would,” be”, “will be,” “will continue,”continue”, “will likely result,”result”, and similar expressions, and are subject to numerous known and unknown risks and uncertainties. Additionally, statements relating to implementation of business strategy, future financial performance, acquisition strategies, capital raising transactions, performance of contractual obligations, and similar statements may contain forward-looking statements. In evaluating such statements, prospective investors and shareholders should carefully review various risks and uncertainties identified in this report, including the matters set forth under the captions “Risk Factors” and in the Company’sour other SECSecurities and Exchange Commission (“SEC”) filings. These risks and uncertainties could cause the Company’sour actual results to differ materially from those indicated in the forward-looking statements. The Company disclaimsWe disclaim any obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.

ZAGG® Inc and its subsidiaries (“we,” “us,” “our,” “ZAGG,” or the “Company”)We are global innovation leaders in accessories and technologies that empower mobile tech accessories for smartphones and tablets. The Company is committedlifestyles, with a commitment to enhance every aspect of performance, productivity, and durability in mobile devices with our creative product solutions. ZAGGOur business was initially created from the concept of applyingusing a clear film originally designed to protect military-helicopterthe blades of military helicopters in harsh desert conditions to protect consumers’ mobile devices. Since then, we have endeavored to continuously innovate and improve our products to meet changing customer needs, and now offer a wide array of innovative products in several product categories to protect, enhance, and create a better mobile device experience. Mobile devices are essential to modern living and ZAGG’sour mission is to ensure better performance inenable the real world.optimal mobile lifestyle through the use of our products.

The Company hasWe have established four corporate objectives and seven core values to act as a foundation for and guide ZAGGour Company daily:

The corporate objectives are intended to align the Company’sour functional teams’ goals and execution. Every ZAGG employeeone of our employees is trained to understand his or her role in executing to these objectives. Each core value acts as a key component in working toward ZAGG’sour corporate objectives of providing creative product solutions, executing targeted global distribution, achieving operational excellence, and being the preferred brand for itsour customers.

ZAGG hasWe have the leading market share in screen protection in the United States (“U.S.”), and hashave maintained that leading position by consistently delivering innovative InvisibleShield products to the market. We continue to innovate and expand our screen protection products to meet the evolution of new technological products and consumer needs in the market.

IFROGZ products are strategically designed and positioned to bring personal audio to the value space by providing a product assortment that represents outstanding performance, active lifestyles, and dual-purpose designs that are on trend with consumers’ needs. IFROGZ refines today’s newest audio technology to deliver the features consumers want, while eliminating those that needlessly increase costs, so that everyone can participate in our increasingly mobile world.

We continue to innovate and expand our headphone and earbud product lines under the IFROGZ namebrand to include offerings for all ages under both the EarPollution and IFROGZ brands. Sound Hub product lines.

We anticipate that combine impressivethe combination of high audio quality, clever functionality,ease of use, and eye-catching design. Insuperior features will enable us to develop the third quarterBRAVEN brand into one of 2016, we introduced a new family ofthe fastest growing wireless Bluetooth audio products designed to combine outstanding sound with a lightweight listening experience by alleviating bulky earbuds and heavy control modules.brands in the industry.

Products under the ZAGG brand are designed to empower people to live their lives unleashed. Mobility is changing how consumers do everything in their lives and ZAGG is drivingwe seek to drive the mobile lifestyle forward with products that are designed to allow consumers to be productive and connected at work, at play, and at rest. ZAGG products, which include keyboards cases, and social techcases, are designed to free consumers from the confines of the traditional workplace. We believe “getting away” shouldn’t mean being disconnected. We support the communicators, commuters, creators and closers who live a mobile lifestyle.

At ZAGG,The focus of our focusbusiness is to (1) design creative product solutions for users of mobile devices, (2) sell these products to consumers through targeted global distribution partners, retail partners, and online, (3) drive operational excellence across the organization, and (4) become the preferred brand through emphasizing innovation and product-quality, providing excellent customer service, and focusing on the end-users’ experience with our products. We focus our corporate, team, and individual goals to accomplish these overall corporate objectives.

We plan to continue to expand our product offerings, including enteringcompeting in new product categories and entering new domestic and global markets that we believe will be consistent with our overall corporate strategy. We believe that by innovating with existing product categories, entering new geographic markets, and competing in new product categories, we can achieve our stated objectives and meet our strategic goals.

We design our InvisibleShield glassFilm and filmGlass products for application on thousands of specific electronic devices. Our logistics partners acquire precision-cut raw materials from exclusive third-party suppliers. These precision-cut InvisibleShield filmFilm and glassGlass products either use the EZ Apply tabs installation or are packaged with an installation kit consisting of a moisture adhesive-activating solution, a squeegee, and instructions for application on specific electronic devices. We have established relationships with package assembly, shipping, and logistics

We also customize each InvisibleShield filmFilm cut design for the specific electronic device and currently have thousands of unique designs. Each cut design is developed internally and is owned exclusively by us. We do not own the patent for the raw materials, which is held by our exclusive supplier. Our filmInvisibleShield Film supplier has contractually agreed to not sell the base materials to any of our competitors. We believe that our relationship with the manufacturer of the raw material is on excellent terms and anticipate no interruption in our ability to acquire adequate supplies of raw materials and produce products.

We manufacture our other mobile device accessories (InvisibleShield glass,Glass, keyboards, keyboard cases, audio products, cases, power cases, mobile power solutions, wireless charging solutions, and other accessories) using third party contract manufacturers located primarily in Asia. We have established relationships with third-party manufacturers, package assembly, warehousing, shipping, and logistics companies that allow us to expand our accessories production and shipping capacity as we continue to grow our current customer base and enter new markets.

For all our products, we design the exterior packaging to ensure it is consistent with the overall marketing strategy and is consistent with the desires of our major retailer partners. We have designed the hard plastic and cardboard box packaging to be informative and attractive for point-of-sale displays. We outsource the production of packaging to various independent third parties.

Portable electronic devices, notably handheld devices, continue to advance in performance and functionality. Furthermore, the market is expanding as evidenced by continued innovative new product releases, particularly in tabletssmartphones and smartphones.tablets. Correspondingly, the aesthetics of such devices are increasingly important as buyers typically consider the look and feel of such devices, as much as performance, in making their purchasing decisions.

As a result, a significant market has emerged for (1) protecting portable electronic devices, notably the “high end” tablet and smartphone devices, and (2) enhancing the consumer experience withby providing power, audio, and other accessories for mobile electronic devices.

With thousands of InvisibleShield products/product configurations available, we have a protective covering available for all major market segments of handheld electronic devices, including:including smartphones, tablets, MP3 players, notebook computers, laptops, gaming devices, GPS devices, watch faces,smartwatches, and similar devices and surfaces. We intend to continue to configure the InvisibleShield product for use in newly developed consumer devices. The InvisibleShield can be quickly configured, packaged, and shipped to customers for new devices as they enter the consumer marketplace, making theour InvisibleShield available for purchase at the time of or within days of the launch of new electronic devices. In addition,Equally important, ISOD, a patent pending systemour solution used to cut an InvisibleShield for virtually any mobile device in seconds, makes it possible for retailers to have an InvisibleShield available on the launch date for all device releases.

One of the strongest market segments currently is the smartphone segment. Along with the tablet market, buyers are drawn to these devices by their elegant design, as well as their easy-to-use functionality. However, everyday use often mars the finish of the devices’ screens and other areas that receive wear and tear. InvisibleShield protection products, andas well as ZAGG, mophie, and IFROGZGear4 branded cases, offer excellent device protection, while not impeding the style and the form or functionality of the smartphones and tablets and do not inhibit the touch sensitivity for smartphones and tablets with touch screen technology. Specifically, the recent addition of VisionGuard technology to our InvisibleShield products enables us to help device users protect their eyesight while using their mobile devices. Further, our ZAGG keyboard line provides a professional and innovative solution with stylish and lightweight design to interact with tablets and smartphones.smartphones that boasts ultimate productivity for the users. Our IFROGZ audio line enables technology-rich audio experiences from well-designed and intuitive products. Lastly, the mophie ecosystem provides both power and protection accessories for virtually any mobile device.

As sales of consumer electronics continue to grow, we anticipate that sales of our complementary accessory products will also continue to grow. TheOne of our largest areas of market opportunity relates to the sale of our market opportunities relate to salesproducts in conjunction with the release of new smartphones and tablets. Management believes that ZAGG iswe are positioned to serve

Domestically, we sell our products on our websites, to big box electronics retailers, wireless retailers, other product distributors and retailers, and franchisees that own and operate cellphone repair locations, kiosks, and ZAGG brandedZAGG-branded stores in shopping malls and retail centers. In addition, our products are available for sale worldwide viathrough our websites andas well as through retailers and distributors we have partnered with from our subsidiaries in Ireland, China and China.other international locations. Currently, we advertise our products primarily on the Internet,internet, on television through QVC spotlights, through print advertisements in conjunction with our retail partners, and through point of sale displays at retail locations. We intend to continue to strategically expand our advertising activities in 2018,2019, particularly through point of sales displays within retailers, and social media campaigns on the Internet.internet, and on QVC. We are also seeking to create and improve strategic partnerships with makers of smartphones and tablets, electronic accessories, and mobile content providers to enhance our product offerings.

We sell our products through indirect channels, including big box retailers, wireless retailers, domestic and international distributors, independent Apple retailers, university bookstores, and small independently owned consumer electronics stores. For the year ended December 31, 2017,2018, we sold $463,366$473,923 of product, or approximately 89%88% of our overall net sales through this channel. We requireenter into reseller agreements with many of our indirect channel partners to enter into a reseller agreement with us.partners.

We continue to sell directly to retailers or through distributors to market and place our products for sale in the United StatesU.S. and non-U.S. markets. We have entered into distribution agreements with partners throughout the world for the marketing, distribution and sale of our products.

For the year ended December 31, 2017,2018, we sold $16,468$21,623 of product, or approximately 3%4% of our overall net sales, through franchisees and our corporate owned store.

WeAll our products purchased by consumers through authorized retailers have varying levels of warranty coverage. For InvisibleShield branded products, we offer a limited lifetime warranty of the durability of our InvisibleShield products.warranty. If the InvisibleShield product is ever scratched or damaged in the course of normal use, a customer may return the old product and we will replace it at no cost to the customer other than a minimal handling fee. The productsdevices to which the InvisibleShield product is applied typically have relatively short lives, which helps to limit our exposure for warranty claims. Should products cease to function properly, we also offer manufacturer's warranties for our products. For ZAGG, IFROGZ, and iFrogz-brandedBRAVEN branded products, we offer a one-year manufacturer's warranty and for mophie-brandedmophie branded products, we offer a two-year manufacturer's warranty. For Gear4 branded products, we offer a limited lifetime warranty. HALO does not offer an extended manufacturer's warranty.

We do not directly manufacture any of our products, rather we employ various third-party manufacturing partners in the United StatesU.S. and Asia to perform these services on our behalf. The services employed by these third parties include the selection of sub-suppliers that provide raw materials and other components used in the manufacturing process. We have endeavored to use common components and readily available raw materials in the design of our products that can be sourced from multiple sub-suppliers. However, raw film used in our InvisibleShield filmFilm and ISOD products has been produced by a single supplier for the last nine10 years. Our filmInvisibleShield Film supplier has contractually agreed to not sell the raw materials to any of our competitors.

Below is a high-level summary by product category of the manufacturing sources used by the Company:us:

During the years ended December 31, 2018, 2017, 2016, and 2015,2016, no other customers accounted for 10% or greater than 10% of net sales.

Although we have contracts in place governing our relationships with customers, the contracts are not long-term and all of our retailers generally purchase from us on a purchase order basis. As a result, these retailers generally may, with little or no notice or penalty, cease ordering and selling our products, or materially reduce their orders. If any of these retailers cease selling our products, slow their rate of purchase of our products, or decrease the number of products they purchase, our results of operations could be adversely affected.

If the Company loseswe lose one or more of itsour significant customers, it would have a material adverse effect on the Company’sour financial condition, results of operations, and cash flows.

Some of our retailers and distributors have experienced financial difficulties in the past. A retailer or distributor experiencing such difficulties will generally not purchase and sell as many of our products as it would under normal circumstances and may cancel orders. In addition, a retailer or distributor experiencing financial difficulties generally increases our exposure to uncollectible receivables. We extend credit to our retailers and distributors based on our assessment of their financial condition, without requiring collateral. While such credit losses have historically been within our estimated reserves for allowances for bad debts, we cannot assure that this will continue to be the case. Financial difficulties on the part of our retailers or distributors could have a material adverse effect on our results of operations and financial condition.

AtAs of December 31, 2018 and 2017, the balance of accounts receivable from two separate customers exceeded 10%: Superior and Best Buy. At December 31, 2016, the balanceThe amount of accounts receivable from three separatefor each of these customers exceeded 10%: Superior, Best Buy, and GENCO.is was as follows:

No other customer account balances were more than 10% of accounts receivable atas of December 31, 20172018 or 2016.2017. If one or more of the Company’sour significant customers were to become insolvent or were otherwise unable to pay for the products provided, it would have a material adverse effect on the Company’sour financial condition and results of operations.

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

Some of our products may contain undetected defects due to imperfections in the underlying base materials used in production or manufacturing defects. The occurrence of defects or malfunctions could result in financial losses for our customers and in turn increase warranty claims from our customers and diversion of our resources. Any of these occurrences could also result in the loss of or delay in market acceptance of our products due to damaged brand reputation and may result in the loss of sales.

Our quarterly results may fluctuate quarter to quarter as a result of market acceptance of our products, the sales mix, changes in pricing, the timing of inventory write downs, changes in the cost of materials, the use of airfreight to transport products, and incurring other operating costs and factors beyond our control, such as general economic conditions and actions of competitors. We are also affected by seasonal buying cycles of consumers, such as the holiday season, and the introduction of popular consumer electronics, such as a new introduction of products from Apple, Samsung, Microsoft, HTC, Blackberry,Google, and others. Accordingly, the results of operations in any quarter will not necessarily be indicative of the results that may be achieved for a full fiscal year or any future quarter.

We do not own proprietary rights with respect to the film we use in our InvisibleShield products. However, we have protected key proprietary design and utility elements of other products through patents. In addition, we own and keep confidential the design configurations of the film and the product cut designs which are our copyrights. We seek to protect our IP rights through confidentiality agreements with our employees, consultants and partners, and domestic and foreign patent prosecution and similar means. However, no assurance can be given that such measures will be sufficient to protect our IP rights or that the IP rights that we have are sufficient to protect other persons from creating and marketing substantially similar products. If we cannot protect our rights, we may lose our competitive advantage. Moreover, if it is determined that our products infringe on the IP rights of third parties, we may be prevented from marketing our products.

Claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result in costly litigation, divert management’s attention and resources, or require us to either enter into royalty or license agreements which are not advantageous to us or pay material amounts of damages. In addition, parties making these claims may be able to obtain an injunction, which could prevent us from selling our products.

Consumer spending patterns, especially discretionary spending for products such as mobile, consumer, and accessory electronics, are affected by, among other things, prevailing economic conditions, energy costs, raw material costs, wage rates, inflation, interest rates, consumer debt, consumer confidence, and consumer perception of economic conditions. A general slowdown in the U.S. and certain international economies, or an uncertain economic outlook or market volatility could have a material adverse effect on our sales and operating results.

The disruptions in the national and international economies due to market volatility and uncertainty could depress consumer confidence and spending. If such conditions persist, consumer spending will likely decline further and this would have an adverse effect on our business and our results of operations.

We intend to grow our business through strategic acquisitions and organically by expanding our sales and product development organizations. Any growth in or expansion of our business is likely to place a strain on our management and administrative resources, infrastructure, and information systems. As with other growing businesses, we expect that we will need to refine and expand our business development capabilities, our systems and processes, and our access to financing sources. We also will need to hire, train, supervise, and manage new employees. These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. We provide no assurance that we will be able to:

We depend heavily on the expertise of our product development team. If any of our competitors copy or otherwise gains access to similar products independently, we might not be able to compete as effectively. The measures we take to protect our designs may not be adequate to prevent their unauthorized use. Further, the laws of foreign countries may provide inadequate protection of such IP rights. We have brought and in the future may need to bring legal claims to enforce or protect such IP rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources.

Our facilities could be subject to a catastrophic loss from fire, flood, earthquake, or terrorist activity. Our corporate activities, including sales and marketing, customer service, finance, and other critical business operations are in twoa limited number of primary locations. Our manufacturing and logistics activities are conducted at other facilities separate from our corporate headquarters. Any catastrophic loss at these facilities could disrupt our operations, delay production and revenue, and result in large expenses to repair or replace the facility.facilities. While we have obtainedmaintain insurance to cover most potential losses, we cannot provide assurance that our existing insurance coverage will be adequate against all other possible losses.

We are required to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with United StatesU.S. generally accepted accounting principles (“U.S. GAAP”). We are likewise required, on an annual basis, to evaluate the effectiveness of our internal controls and to disclose on a quarterly basis any material changes in those internal controls.

Any failure to maintain and continue to improve our internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations or may lose confidence in our reported financial information. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and Thethe Nasdaq Global Market, we could face severe consequences from those authorities. In either case, it could result in a material adverse effect on our business or have a negative effect on the trading price of our common stock.

Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. Our sales to customers outside the United StatesU.S. accounted for approximately 16% of our net sales in fiscal 2017.2018. Accordingly, our future results could be harmed by a variety of factors, including:

Our international operations are affected by global economic and political conditions, only some of which are described above. Changes in economic or political conditions in any of the countries in which we operate could result in exchange rate movement, new currency or exchange controls or other restrictions being imposed on our operations. We cannot provide assurance that such changes will not have an adverse effect on our foreign operations and our financial results.

In 2018,2019, management intends to expandcontinue expanding our advertising with moreadditional interactive displays within retailers, continue ourfurther marketing efforts relating to existing products and potential new product introductions, and increase ourincreased social media marketing campaigns. However, there can be no guarantee that such increased advertising or marketing efforts and strategies will result in increased sales.

On December 22, 2017, the U.S. President signed into law a sweeping tax reform bill known as the Tax Cuts and Jobs Act of 2017 (the "Tax Act"“Tax Act”). The Tax Act makes changes tochanged the corporate tax rate, business-related deductions and taxation of foreign earnings, among others,other things, that willwere generally be effective for taxable years beginning after December 31, 2017. These changes did have a material adverse impact on the value of our U.S. deferred tax assets, resulting in a significant one-time charge in the current taxable year. We are continuing to evaluate the Tax Act and its requirements, as well as its application to our business and its impact on our effective tax rate. At this stage, it is unclear how many U.S. states will incorporate these federal law changes, or portions thereof, into their tax codes.

The price for shares of our common stock has exhibited high levels of volatility with significant volume and price fluctuations, which may make our common stock unsuitable for some investors. For example, for the two years ended December 31, 2017,2018, the closing price of our common stock ranged from a high of $23.70 to a low of $4.71$5.90 per share. At times, the fluctuations in the price of our common stock may be unrelated to our operating performance. The price of our common stock may also be influenced by:

Based on the above, our stock price may continue to experience volatility. Therefore, we cannot guarantee that our investors will be able to resell our common stock at or above the price at which they purchased it.

Although we have no immediate plans to raise additional capital, we may at some time in the future do so. Any such issuance would likely dilute shareholders’ ownership interest in our company and may have an adverse impact on the price of our common stock. In addition, from time to time we may issue shares of common stock in connection with equity financing activities or as incentives to our employees and business partners. We may expand the number of shares available under stock incentive and option plans, or create new plans. All issuances of common stock would be dilutive to an existing investor’s holdings in the Company.us. If an investor’s holdings are diluted, the overall value of the shares may be diminished and the ability to influence shareholder voting will also be harmed.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, investors must rely on sales of their common stock after price appreciation, which may not occur in the future, as the only way to realize their investment.

Our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully integrate businesses we may acquire in the future. We may not realize these benefits, as rapidly as, or to the extent, anticipated by our management. There can be no assurance that we will be able to successfully integrate any acquired businesses, products or technologies without substantial expenses, delays or other operational or financial problems. Acquisitions involve a number of risks, some or all which could have a material adverse effect on any acquired businesses, products or technologies. Furthermore, there can be no assurance that any acquired business, product, or technology will be profitable or achieve anticipated revenues and income. Our failure to manage our acquisition strategy successfully could have a material adverse effect on our business, results of operations and financial condition. The process of integrating an acquired business involves risks, including but not limited to:

Failure to successfully integrate any acquired businesses in the future may result in reduced levels of anticipated revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such businesses.

In addition, any future acquisitions could result in the incurrence ofincurring additional debt and related interest expense, contingent liabilities, and amortization expenses related to intangible assets, which could have a material adverse effect on our financial condition, operating results, and cash flow.flows.

Short selling is the practice of selling securities that the seller does not own, but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that

In the past several years, our securities have been the subject of short selling. Reports and information have been published about ZAGGus which the Company believeswe believe are mischaracterized or incorrect, and which have occasionally been followed by a decline in our stock price.

Certain of the legal proceedings in which we are involved are discussed in Note 12, "Commitments13, “Commitments and Contingencies,"Contingencies”, to our Consolidated Financial Statementsconsolidated financial statements in this report, and are hereby incorporated by reference.

Our common stock is currently quoted on The NASDAQthe Nasdaq Global Market of The NASDAQthe Nasdaq Stock Market under the symbol ZAGG. The following table sets forth, for each full quarterly period within the two most recent fiscal years, the high and low sales prices (in dollars per share) of our common stock as reported or quoted on The NASDAQthe Nasdaq Capital Market. On February 28, 2018,March 12, 2019, the closing price of our common stock was $15.05.$10.83.

On February 28, 2018,March 12, 2019, there were approximately 2041 registered holders or persons otherwise entitled to hold our common shares pursuant to a shareholders’ list provided by our transfer agent, Empire Stock Transfer. The number of registered shareholders excludes any estimate by us of the number of beneficial owners of common shares held in street name.

There are no restrictions inNeither our articlescertificate of incorporation ornor our bylaws that restrict us from declaring dividends. The Delaware General Corporation Law and applicable case law, however, does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

We have not declared or paid cash dividends on our common stock since our inception, and our board of directors currently intends to not declare or issue cash dividends for the foreseeable future. Any future payment of dividends to holders of common stock will depend upon our results of operations, financial condition, cash requirements, and other factors deemed relevant by our board of directors.

In January 2013, the Company’sour board of directors adopted and in June 2013, the Company’sour shareholders approved the ZAGG Inc 2013 Equity Incentive Award Plan (the “2013 Plan”), a new equity incentive plan intended to replace the 2007 Plan.. In April 2017, the compensation committee of the Company’sour board of directors adopted, and in June 2017, the Company’sour shareholders approved an amendment and restatement of the 2013 Plan (the “Amended Plan”). The Amended Plan is an “omnibus plan” under which stock options, stock appreciation rights, performance share awards, restricted stock, and restricted stock units can be awarded. The Amended Plan’s initial share reservation is 5,000 shares. The term of the plan is for 10 years from the date of original adoption of the 2013 Plan. As of December 31, 2017,2018, there were approximately 2,4982,361 shares available for grant under the Amended Plan.

We did not issue anyExcept as set forth on our Current Report on 8-K filed on December 4, 2018 there were no other unregistered sales of securities during the yearsyear ended December 31, 2017 and 2016.2018.

The graph below compares the cumulative 5-Year total return provided shareholders on the Company'sour common stock relative to the cumulative total returns of the Russell 2000 index, Russell MicrocapMicroCap and a customized peer group of teneight companies, whose individual companies are listed in footnote 1 below. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock, in each index and in each of the peer groups on December 31, 20122013, and its relative performance is tracked through December 31, 2017.

In 2016, the Companywe determined to change the comparison peer group from a self-selected group based on market capitalization to the Russell MicrocapMicroCap index. We believe a change to the Russell MicrocapMicroCap index will provide a better comparison to the Companyus because it is a broader base of companies with similar market cap rather than teneight selected in the peer group. Furthermore, the companies we would consider peers within the industry are not public companies and would therefore not have information available to calculate a comparative five-year return.

The selected historical financial data presented below are derived from our consolidated financial statements. The selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations”, and our consolidated financial statements and the notes thereto included elsewhere in this report.

At ZAGG,The focus of our focusbusiness is to (1) provide creative product solutions, (2) execute targeted global distribution, (3) achieve operational excellence, and (4) be the preferred brand for our customers. We focus our corporate, team, and individual goals to accomplish this overall corporate strategy.

We believe that hand-heldmobile devices and gadgets can be best enjoyed with the right mix of (1) protection from scratches and damage, and (2) accessories that enhance the consumers’ electronic and mobile device experience. We believe that our full product offering,portfolio, which includes screen protection, keyboard, audio accessories, mobile power solutions,cases, power management, wireless charging, andaudio, mobile keyboards, protective cases, and other mobile accessories, provides consumers with unparalleled device protection and enhanced enjoyment of their mobile electronic device.

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with 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 disclosuredisclosures of contingent assets and liabilities.these amounts in the notes to the financial statements. 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 items subject to such estimates include inventory realizability, variable consideration included as part of our revenue recognition accounting policy, and sales returns liability.the fair value of assets acquired and liabilities assumed in our business combinations.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. Management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Inventories, consisting primarily of finished goods and raw materials, are valued at the lower of cost, determined on a first in, first out basis, or net realizable value. Management performs periodic assessments to determine the existence and estimated net realizable value of obsolete, slow moving, and non-saleableunsaleable inventories, and records necessary write-downs in cost of sales to reduce such inventories to estimated net realizable value. Once established, the original cost of the inventory less the related inventory write down represents the new cost basis of such products.

In assessing the realizationrealizability of inventories, we are required to make judgments as to future sales prices, which are impacted by our estimates of  demand requirements and to compare these with current inventory levels. Our inventory requirements may change based on our projected customer demand, market conditions, technological and product life cycle changes, longer or shorter than expected usage periods, and other factors that could affect the valuation of our inventories.

The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated (amountsindicated:

Net sales for the year ended December 31, 2017 was $519,495 compared to net sales of $401,857 for the year ended December 31, 2016, an increase of $117,638 or 29%. The year-over-year change is due primarily to (1) the increase in sales of our power management products, particularly accessories supporting the wireless charging ecosystem, (2) increased sales of screen protection products in key wireless and retail accounts, particularly in international markets, and (3) the inclusion of 12 months of mophie sales during 2017 versus only 10 months in 2016. These increases were partially offset by a decrease in sales of keyboards.

The percentage of net sales related to our key product categories for the years ended December 31, 2017 and 2016, was approximately:

The percentage of net sales related to our key distribution channels for the years ended December 31, 2017 and 2016, was approximately:

The percentage of net sales by geographic region for the years ended December 31, 2017 and 2016, was approximately:

Gross profit for the year ended December 31, 2017 was $168,998 or approximately 33% of net sales, compared to $127,602 or approximately 32% of net sales for the year ended December 31, 2016. The increase in gross profit margin was primarily due to improvements in margins of mophie-branded product and a $2,586 charge incurred during 2016 related to the impact of the fair value write-up of mophie inventory that did not recur in 2017. This increase was partially offset by an increase in freight costs and a shift in the product mix whereby 2017 screen protection sales were a smaller percentage of overall sales compared to the prior year (although overall screen protection sales increased by $33,628 or 16%).

Total operating expenses for the year ended December 31, 2017, was $124,263, compared to operating expenses of $148,962 the year ended December 31, 2016, a decrease of $24,699 or 17%. The decrease in operating expenses was primarily attributable to (1) the $24,317 loss on disputed mophie purchase price in 2016 that did not recur in 2017, (2) a $6,967 gain recorded during the fourth quarter related to the settlement of litigation related to the disputed mophie purchase price, (3) synergies from cost reduction initiatives, (4) lower transaction-related costs, (5) a reduction in advertising and marketing spend, and (6) an overall reduction in amortization expense. These decreases were partially offset by the following increases in operating expense: (1) the inclusion of 12 months of mophie-related expenses for 2017 compared with 10 months in 2016, (2) the $1,959 impairment of an intangible asset in 2017, and (3) an increase in operating expense related to the launch of certain wireless charging accessories.

We reported income from operations of $44,735 for the year ended December 31, 2017 compared to a loss from operations of ($21,360)$21,360 for the year ended December 31, 2016, an increase of $66,095. The increase in income from operations was primarily attributable to increases in net sales and gross profit, and a decrease in operating expenses primarily due to a $24,317 loss on disputed mophie purchase price in 2016 and the $6,967 gain recorded in 2017 related to the settlement of litigation related to the disputed mophie purchase price.

We recognized an income tax expense of $28,252 for the year ended December 31, 2017, compared to income tax benefit of $7,972 for the year ended December 31, 2016. From 2016 to 2017, our effective tax rate increased from 33.8% to 65.2%. During the fourth quarter of 2017, the United StatesU.S. Government passed the Tax Act, which enacted significant changes to the United States’U.S. federal tax code, including a reduction in the federal income tax rate for corporations from 35% to 21%. As a result of the Tax Act, we recorded a one-time charge of $12,353, substantially all of which was non-cash, to income tax expense primarily to reflect (1) the re-measurementremeasurement of deferred tax assets utilizing the lower federal income tax rate and (2) the tax on mandatory deemed repatriation of foreign earnings.

As a result of these factors, we reported net income of $15,100 or $0.53 per share on a fully diluted basis for the year ended December 31, 2017 compared to net loss of $(15,587)$15,587 or $(0.56)$0.56 per share on a fully diluted basis for the year ended December 31, 2016.

As of December 31, 2015 (in thousands, except per share data)

Accounts receivable, net of allowances, increased to $156,667 on December 31, 2018, from $123,220 on December 31, 2017, an increase of $33,447. The increase in accounts receivable is largely due to higher sales from the month ended December 31, 2016 was $401,8572018 compared to net sales of $269,311 for the yearmonth ended December 31, 2015,2017.

Inventories increased to $82,919 on December 31, 2018, from $75,046 on December 31, 2017, an increase of $132,546 or 49%.$7,873. The increase in revenue from 2015 to 2016 was primarily relateddue to the following factors: (1) ten months of mophie sales totaling $113,749an increase in inventory from the March 3, 2016 acquisition date, (2) expanded product penetration with existing customers, (3)acquisitions of BRAVEN and Gear4.

As of December 31, 2018, working capital was $105,540 compared to ZAGG-segment gross profit$43,210 as of 40%. The lower margin for mophie was primarily driven by in-channel promotions and excess inventory write-offs in the current year.

During the third quarter of 2015, our board of directors approved a loss from operationsstock repurchase program with no expiration date. As of ($21,360) for the year ended December 31, 2016, compared to income from operations2018, we have $5,462 remaining under this program. On March 11, 2019, our board of $25,864 fordirectors authorized the year ended December 31, 2015, a decrease of $47,224 or 183%. The decrease in income from operations was due primarily to (1) the mophie loss from operations of $31,177 and (2) a loss recorded on the disputed mophie purchase price (includes the final working capital adjustment and the impact of claims against the mophie shareholders for breaches of representations and warranties that directly impacted current assets and current liabilities) in the current period of $24,317. Since the date of acquisition, we continue to implement processes and procedures to optimize the mophie supply chain and improve operating results. These decreases were partially offset by improved profit margins from the ZAGG segment.

At December 31, 2017, our principal sources of liquidity were cash generated by operations and cash on-hand. Our principal uses of cash have been to fund working capital requirements, make payments on outstanding debt, and purchase tooling for new products.

Cash and cash equivalents on-hand increased to $24,989 on December 31, 2017, from $11,604 on December 31, 2016, an increase of $13,385. The increase in cash is largely the net result of $34,074 in cash provided by operating activities, which was offset by $14,083 used in payment of outstanding debt, $5,766 in purchases of property and equipment, and $1,492 paid for the purchase of treasury stock. Of the $24,989 cash balance on December 31, 2017, cash from foreign entities totaled $14,844, which constitutes 59% of the total cash and cash equivalents balance.

Accounts receivable, net of allowances, increased to $123,220 on December 31, 2017, from $83,835 on December 31, 2016, an increase of $39,385. The increase in accounts receivable is largely due to the year-over-year increase in fourth quarter sales from $114,929 in the fourth quarter of 2016 to $176,924 in the fourth quarter of 2017, an increase of $61,995 or 54%.

Inventories increased to $75,046 on December 31, 2017, from $72,769 on December 31, 2016, an increase of $2,277. The increase was primarily due to the launch of wireless charging accessories during the fourth quarter of 2017. This increase was partially offset by improvements in planning, forecasting, and purchasing processes.

Accounts payable increased to $96,472 on December 31, 2017, from $85,022 on December 31, 2016, an increase of $11,450. The increase is largely driven by the overall increase in sales and business operations compared to the prior year.

At December 31, 2017, working capital was $43,210 compared to $(9,408) as of December 31, 2016. The improvement in working capital is largely due to increased sales and profitability at the Company. Further, it should be noted that the KeyBank Line of Credit2016 Revolver is classified as a current liability due to the existence of a lockbox agreement as required by current U.S. GAAP, although the outstanding balance is not due to be repaid until 2021.If2021. If the Line of Credit2016 Revolver were excluded from current liabilities, the working capital would be $66,685 on December 31, 2017, versus $21,899 on December 31, 2016.

The 2018 Credit and Security Agreement originally providedconsists of an $85,000$125,000 secured revolving credit commitment (“facility (the “2018 Revolver”). Borrowings, which is not subject to borrowing base limitations. In addition, at our option, (i) up to $40,000 of the 2018 Revolver may be made available for the issuance of letters of credit, and repayments(ii) we may obtain a term loan or increase the Maximum Revolver Amount of the 2018 Revolver by another $25,000 within a specified period defined in the 2018 Credit and Security Agreement. Proceeds from the 2018 Revolver were used to fully retire the 2016 term loan under the 2016 Credit and Security Agreement and thus, the 2018 Revolver may occur from time to time inis the Company’s ordinary courseonly credit instrument effective April 12, 2018. As of business through the maturity dateDecember 31, 2018, no letters of March 2, 2021, at which time any amounts outstanding arecredit were issued and $40,000 was available to be paid in full (60-month term). All borrowings under theissued for letters of credit.

The 2018 Revolver are subject to a borrowing base limit, which is calculated from outstanding accounts receivable and inventory, and reported to the administrative agent monthly. Interest on the Revolver will accrueinitially bears interest at an annual rate, at our option, of (i) the base rate (as defined in the 2018 Credit and Security Agreement) plus 0.5%a margin of 0.250% to 1.375% based on the prior quarter-end Leverage Ratio or LIBOR(ii) the Eurodollar Rate (as defined in the 2018 Credit and Security Agreement) plus 1.5%a margin of 1.250% to 2.375% based on the prior quarter-end Leverage Ratio. The 2018 Revolver matures April 11, 2023, subject to early termination in the event of default.

In addition, we are required to pay a monthly Applicable Commitment Fee Rate (as defined in the 2018 Credit and Security Agreement) that can fluctuate between 0.175% and 0.275% based on the Leverage Ratio (as defined in the 2018 Credit and Security Agreement). The Revolvercommitment fee is subject to an unused line fee calculated monthly using the Maximum Revolving Amount (as defined in the 2018 Credit and Security Agreement) at the end of each calendar month, minus the Revolving Credit Exposure (exclusive of the Swing Line Exposure) (each as 0.2%defined in the 2018 Credit and Security Agreement) at the end of such day, multiplied by the average unused amount of the Revolver.Applicable Commitment Fee Rate in effect on such day divided by three hundred sixty (360). The monthly commitment fee is payable quarterly in arrears, commencing on July 1, 2018, and continuing on each regularly scheduled payment date thereafter.

The 2018 Credit and Security Agreement contains customary representations and warranties and restrictive covenants. The 2018 Credit and Security Agreement also provides a $25,000 term loan commitment (“Term Loan”). Payments oncontains affirmative and negative covenants requiring, among other things, us to meet certain financial ratio tests and to provide certain information to the Term Loan are to be made in consecutive monthly installments commencing on April 1, 2016 and continuing until the Term Loan is paid in full on March 2, 2020 (48-month term). Interest on the Term Loan will accrue at the base rate plus 1.0% or at a rate of LIBOR plus 2.0%.