UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________

FORM 10-Q
(Mark one)
þ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2018,
March 31, 2019, or
¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______________ to _____________.

001-34528
(Commission
File Number)

ZAGG INC
(Exact name of registrant as specified in its charter)

Delaware20-2559624
(State or other jurisdiction of incorporation)
(I.R.S. Employer
Identification No.)

910 West Legacy Center Way, Suite 500 Midvale, Utah 84047

(Address of principal executive offices, including zip code)

(801) 263-0699

(Registrant'sRegistrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.




¨ Large Accelerated Filer
þ Accelerated Filer
¨ Non-accelerated Filer
¨ Smaller Reporting Company
¨ Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-25 of the Exchange Act). Yes ¨ No þ
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.001 par valueZAGGThe Nasdaq Stock Market, LLC
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 28,158,91829,066,925 common shares as of July 31, 2018.


May 7, 2019.


ZAGG INC AND SUBSIDIARIES
FORM 10-Q

TABLE OF CONTENTS
CONTENTSPAGE
PART I - FINANCIAL INFORMATION
1
1
2
3
4
5
6
1718
2423
2423
PART II - OTHER INFORMATION
2625
2625
2625
2625
2625
2725
2726
2827



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)



ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value)
(Unaudited)
March 31, 2019December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents$14,789 $15,793 
Accounts receivable, net of allowances of $700 and $88593,617 156,667 
Income tax receivable 2,149 375 
Inventories100,226 82,919 
Prepaid expenses and other current assets 4,371 5,473 
Total current assets215,152 261,227 
Property and equipment, net of accumulated depreciation of $12,326 and $11,84418,016 16,118 
Intangible assets, net of accumulated amortization of $83,046 and $78,627 75,189 52,054 
Deferred income tax assets14,302 19,403 
Goodwill 43,560 27,638 
Other assets10,574 1,571 
Total assets$376,793 $378,011 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$55,045 $80,908 
Sales returns liability 33,824 54,432 
Accrued wages and wage related expenses 6,183 6,624 
Accrued liabilities11,791 13,723 
Total current liabilities106,843 155,687 
Line of credit93,363 58,363 
Other long-term liabilities20,052 5,470 
Total liabilities220,258 219,520 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized; 36,117 and 34,457 shares issued36 34 
Treasury stock, 7,055 and 6,983 common shares at cost (50,455)(49,733)
Additional paid-in capital109,869 96,486 
Accumulated other comprehensive loss(1,566)(1,410)
Retained earnings98,651 113,114 
Total stockholders’ equity156,535 158,491 
Total liabilities and stockholders’ equity$376,793 $378,011 
June 30, 2018December 31, 2017
ASSETS 
Current assets: 
Cash and cash equivalents $18,582 $24,989 
Accounts receivable, net of allowances of $431 and $734 83,990 123,220 
Inventories 69,662 75,046 
Income tax receivable 1,285 — 
Prepaid expenses and other current assets 5,463 4,547 
Total current assets 178,982 227,802 
Property and equipment, net of accumulated depreciation of $14,212 and $12,540 12,532 13,444 
Goodwill 12,272 12,272 
Intangible assets, net of accumulated amortization of $72,253 and $66,639 33,630 39,244 
Deferred income tax assets 23,914 24,403 
Other assets 3,846 3,426 
Total assets $265,176 $320,591 
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities: 
Accounts payable $60,372 $96,472 
Income tax payable — 2,052 
Accrued liabilities 6,838 8,168 
Sales returns liability 34,620 34,536 
Accrued wages and wage related expenses 5,836 5,652 
Deferred revenue — 315 
Current portion of line of credit — 23,475 
Current portion of long-term debt, net of deferred loan costs of $0 and $141— 13,922 
Total current liabilities 107,666 184,592 
Non-current portion of line of credit20,000 — 
Total liabilities 127,666 184,592 
Stockholders' equity: 
Common stock, $0.001 par value; 100,000 shares authorized; 34,423 and 34,104 shares issued 34 34 
Additional paid-in capital94,977 96,145 
Accumulated other comprehensive loss (1,028)(348)
Treasury stock, 6,247 and 6,065 common shares at cost (40,643)(37,637)
Retained earnings 84,170 77,805 
Total stockholders' equity 137,510 135,999 
Total liabilities and stockholders' equity $265,176 $320,591 

See accompanying notes to condensed consolidated financial statements.
1

ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
March 31, 2019March 31, 2018
Net sales$78,750 $112,066 
Cost of sales54,928 74,474 
Gross profit23,822 37,592 
Operating expenses:
Advertising and marketing4,585 2,594 
Selling, general and administrative31,584 24,307 
Transaction costs247 — 
Amortization of intangible assets4,466 2,772 
Total operating expenses40,882 29,673 
(Loss) income from operations(17,060)7,919 
Other income (expense):
Interest expense(1,010)(500)
Other (expense) income(516)495 
Total other expense(1,526)(5)
(Loss) income before provision for income taxes(18,586)7,914 
Income tax benefit (provision)4,162 (885)
Net (loss) income$(14,424)$7,029 
(Loss) earnings per share attributable to stockholders:
Basic (loss) earnings per share$(0.50)$0.25 
Diluted (loss) earnings per share$(0.50)$0.24 

See accompanying notes to condensed consolidated financial statements.
2

ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
For the Three Months Ended
March 31, 2019March 31, 2018
Net (loss) income$(14,424)$7,029 
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain(156)289 
Total other comprehensive (loss) income(156)289 
Total comprehensive (loss) income$(14,580)$7,318 

See accompanying notes to condensed consolidated financial statements.
3

ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Amounts in thousands)
(Unaudited)
For the Three Months Ended March 31, 2019
Common Stock
SharesAmountAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders’
Equity
Balances, December 31, 201834,457 $34 $96,486 $(1,410)$(49,733)$113,114 $158,491 
Cumulative effect of accounting change— — — — — (39)(39)
Balance after cumulative effect of accounting change34,457 34 96,486 (1,410)(49,733)113,075 158,452 
Net loss— — — — — (14,424)(14,424)
Other comprehensive loss— — — (156)— — (156)
Treasury stock purchase— — — — (722)— (722)
Restricted stock release200 — — — — — — 
Employee stock purchase plan release2 — 13 — — — 13 
Stock-based compensation expense— — 1,185 — — — 1,185 
Payment of withholding taxes on restricted stock units— — (782)— — — (782)
Shares issued as consideration for acquisition1,458 2 12,967 — — — 12,969 
Balances, March 31, 201936,117 $36 $109,869 $(1,566)$(50,455)$98,651 $156,535 
For the Three Months Ended March 31, 2018
Common Stock
SharesAmountAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders’
Equity
Balances, December 31, 201734,104 $34 $96,145 $(348)$(37,637)$77,805 $135,999 
Cumulative effect of accounting change— — — — — (3,880)(3,880)
Balance after cumulative effect of accounting change34,104 34 96,145 (348)(37,637)73,925 132,119 
Net income— — — — — 7,029 7,029 
Other comprehensive loss— — — 289 — — 289 
Restricted stock release312 — — — — — — 
Employee stock purchase plan release1 — — — — — — 
Stock-based compensation expense— — 601 — — — 601 
Payment of withholding taxes on restricted stock units— — (2,612)— — — (2,612)
Balances, March 31, 201834,417 $34 $94,134 $(59)$(37,637)$80,954 $137,426 

See accompanying notes to condensed consolidated financial statements.
4

ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the Three Months Ended
March 31, 2019March 31, 2018
Cash flows from operating activities:
Net (loss) income$(14,424)$7,029 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Stock-based compensation expense1,185 601 
Depreciation and amortization5,989 5,030 
Deferred income tax (benefit) expense(1,076)322 
Gain (loss) on disposal of property and equipment(2)10 
Amortization of deferred loan costs50 71 
Amortization of right of use assets, net of acquisitions499 — 
Changes in operating assets and liabilities:
Accounts receivable, net65,302 50,036 
Inventories(14,229)(3,367)
Prepaid expenses and other current assets2,327 1,279 
Other assets(138)(385)
Accounts payable(28,717)(41,394)
Income tax (payable) receivable(2,192)200 
Sales returns liability(23,287)(6,555)
Accrued wages and wage related expenses(1,563)(497)
Accrued liabilities(1,941)(1,805)
Other long-term liabilities(132)— 
Other212 (847)
Net cash (used in) provided by operating activities(12,137)9,728 
Cash flows from investing activities:
Purchase of property and equipment(2,628)(1,933)
Proceeds from disposal of equipment2 26 
Purchase of HALO, net of cash acquired(20,368)— 
Net cash used in investing activities(22,994)(1,907)
Cash flows from financing activities:
Proceeds from revolving credit facility125,932 138,899 
Payments on revolving credit facility(90,932)(152,711)
Payments on term loan facility— (1,563)
Purchase of treasury stock(722)— 
Proceeds from issuance of stock under employee stock purchase plan13 — 
Net cash provided by (used in) financing activities34,291 (15,375)
Effect of foreign currency exchange rates on cash equivalents(164)310 
Net decrease in cash and cash equivalents(1,004)(7,244)
Cash and cash equivalents at beginning of the period15,793 24,989 
Cash and cash equivalents at end of the period$14,789 $17,745 

See accompanying notes to condensed consolidated financial statements.
5

ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
For the Three Months Ended
March 31, 2019March 31, 2018
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$923 $478 
Cash (refunded) paid during the period for income taxes, net(811)324 
Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment financed through accounts payable$696 $178 
Withholding tax on restricted stock units recorded in accrued wages and wage related expenses782 2,610 
Purchase of HALO through amounts due to seller, contingent payments and common stock16,985 — 


See accompanying notes to condensed consolidated financial statements.
16
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months EndedSix Months Ended
June 30, 2018June 30, 2017June 30, 2018June 30, 2017
Net sales $118,565 $115,227 $230,631 $208,173 
Cost of sales 80,908 79,403 155,381 143,743 
Gross profit 37,657 35,824 75,250 64,430 
Operating expenses: 
Advertising and marketing 2,638 2,070 5,233 5,076 
Selling, general and administrative 27,035 24,952 51,342 52,006 
Transaction costs 18 300 18 515 
Impairment of intangible asset — — — 1,959 
Amortization of intangible assets 2,773 3,005 5,545 6,026 
Total operating expenses 32,464 30,327 62,138 65,582 
Income (loss) from operations 5,193 5,497 13,112 (1,152)
Other income (expense): 
Interest expense (346)(619)(846)(1,110)
Other (expense) income (681)67 (186)48 
Total other expense (1,027)(552)(1,032)(1,062)
Income (loss) before provision for income taxes 4,166 4,945 12,080 (2,214)
Income tax provision (951)(1,542)(1,835)(521)
Net income (loss) $3,215 $3,403 $10,245 $(2,735)
Earnings (loss) per share attributable to stockholders: 
Basic earnings (loss) per share $0.11 $0.12 $0.36 $(0.10)
Diluted earnings (loss) per share $0.11 $0.12 $0.36 $(0.10)


See accompanying notes to condensed consolidated financial statements.
2
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
Three Months EndedSix Months Ended
June 30, 2018June 30, 2017June 30, 2018June 30, 2017
Net income (loss) $3,215 $3,403 $10,245 $(2,735)
Other comprehensive (loss) gain, net of tax 
Foreign currency translation (loss) gain (970)556 (680)844 
Total other comprehensive (loss) income (970)556 (680)844 
Total comprehensive income (loss) $2,245 $3,959 $9,565 $(1,891)


See accompanying notes to condensed consolidated financial statements.
3
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30, 2018June 30, 2017
Cash flows from operating activities:
Net income (loss)  $10,245 $(2,735)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
Stock-based compensation1,408 1,636 
Depreciation and amortization9,230 11,022 
Deferred income tax expense481 1,040 
Loss on disposal of property and equipment9 13 
Loss on deferred loan costs with debt modification243 — 
Amortization of deferred loan costs106 120 
Impairment of intangible asset— 1,959 
Changes in operating assets and liabilities:
Accounts receivable, net37,318 11,350 
Inventories5,080 8,130 
Prepaid expenses and other current assets503 (298)
Other assets(563)912 
Accounts payable(34,480)(23,116)
Income tax (payable) receivable (3,512)1,622 
Accrued liabilities(1,404)1,073 
Sales returns liability(5,092)(625)
Accrued wages and wage related expenses153 (1,083)
Deferred revenue— (64)
Other 232 — 
Net cash provided by operating activities 19,957 10,956 
Cash flows from investing activities:
Purchase of property and equipment(2,701)(3,065)
Proceeds from disposal of equipment 26 31 
Net cash used in investing activities (2,675)(3,034)
Cash flows from financing activities:
Payment of deferred loan costs(294)— 
Proceeds from revolving credit facility198,761 205,897 
Payments on revolving credit facility(214,215)(206,521)
Payments on term loan facility(2,084)(3,125)
Purchase of treasury stock(3,006)(1,492)
Payment of withholdings on restricted stock units(2,610)(240)
Proceeds from issuance of stock under employee stock purchase plan 55 29 
Net cash used in financing activities (23,393)(5,452)
Effect of foreign currency exchange rates on cash equivalents(296)256 
Net (decrease) increase in cash and cash equivalents (6,407)2,726 
Cash and cash equivalents at beginning of the period24,989 11,604 
Cash and cash equivalents at end of the period$18,582 $14,330 


See accompanying notes to condensed consolidated financial statements.
4
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
(Unaudited)
Six Months Ended
June 30, 2018June 30, 2017
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$926 $953 
Cash paid (refunded) during the period for taxes, net$4,683 $(2,322)
Supplemental disclosure of non-cash investing and financing activities:
Purchase of fixed assets financed through accounts payable$541 $560 
Withholdings tax on restricted stock units recorded in accrued wages and wage related expenses$21 $— 
Modification of debt that resulted in payment of existing term loan balance$11,991 $— 


See accompanying notes to condensed consolidated financial statements.
5
ZAGG INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars, units, & shares in thousands, except per share data)
(Unaudited)
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
ZAGG Inc and its subsidiaries (“we,” “us,” “our,” “ZAGG,” or the(the “Company”) are innovation leaders in mobile tech accessories for smartphones and tablets. For over 10 years, ZAGGthe Company has developed creative product solutions that enhance and protect mobile devices for consumers around the world. The Company has an award-winning product portfolio that includes screen protection, power cases, power management, wireless charging, personal audio, mobile keyboards, protective cases, and cases,other mobile accessories sold under the ZAGG®ZAGG®, InvisibleShield®InvisibleShield®, mophie®mophie®, IFROGZ®, BRAVEN®, Gear4®, and IFROGZ®HALO® brands.
The accompanying unaudited condensed consolidated financial statements 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 (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated 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, the results of operations, and cash flows of the Company for the periods presented. The Company suggests that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s 2017 Annual Report on Form 10-K.10-K for the year ended December 31, 2018 (the “2018 Form 10-K”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.periods, with related disclosures of these amounts in the notes to the financial statements. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1 to the Company’s Annual Report onconsolidated financial statements included in Form 10-K for the year ended December 31, 2017.2018. Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements.
Adoption of ASCAccounting Standards Codification (“ASC”) Topic 606, "Revenue from Contracts with Customers"842, “Leases” (In thousands, except lease terms and discount rates)
The Company adopted ASC Topic 606, "Revenue from Contracts with Customers" ("842,“Leases” (“Topic 606"842”) with a date of initial application of January 1, 2018.2019. As a result of this adoption, the Company has changed its accounting policy for revenue recognitionleases as detailed below.
The Company applied Topic 606842 on January 1, 2018,2019, using the modified retrospective approach, withapproach. The adoption of Topic 842 includes the cumulative effect of adopting the new standard being recognized in retained earnings at January 1, 2018.2019, which allows for the application of the standard solely to the transition period in 2019 but does not require application to prior fiscal comparative periods presented. Therefore, the prior period comparative information has not been adjusted and continues to be reported under the previous ASC Topic 605. 840, “Leases” (“Topic 840”) standard. The Company elected the package of available practical expedients allowable under Topic 842 guidelines in its adoption approach.
The adoption of Topic 606842 resulted in an increase in accounts receivablelong-term lease liabilities of $115;$10,684 which was included in other long-term liabilities; an increase in prepaid expenses and other currentshort-term lease liabilities of $2,362 which was included in accrued liabilities; an initial recognition of right of use (“ROU”) assets of $1,255 for the recognition$8,842 which was included in other assets; a derecognition of the right of return assets; an increase in accrued liabilities of $314; an increase in sales return liability of $5,250 for the recognition of the sales return liability on a gross basis and for the change in estimating refund$3,346 related to lease liabilities under Topic 606;840 which was included in accrued liabilities; a decrease in deferred revenuerent of $314;$819 which was included in accrued liabilities; and a decrease of $3,880$39 in retained earnings as a cumulative effect of adoption. The
As the Company did not have any finance leases upon adoption of Topic 842 at January 1, 2019, the largest driver of changes for the adoption of Topic 606842 was the change in estimate for price concessions offeredaddition of the Company’s operating leases to end customers.the condensed consolidated balance sheet, creating ROU assets and lease liabilities on the condensed consolidated balance sheet as of March 31, 2019. Under Topic 605, price concessions to end customers840, leases were recognized when such incentives were explicitly offered tonot included on the end customer,condensed consolidated balance sheets, whereas under Topic 606 such incentives842, ROU assets and lease liabilities are estimatedcalculated and recorded aton the time of the sale of products tolease commencement date. The standard had a material impact in the Company’s customers.consolidated balance sheets, but did not have a significant impact in its condensed consolidated statements of operations. In addition, the adoption of Topic 842 had no impact to cash provided by or used in operating, financing, or investing on the condensed consolidated statements of cash flows.
6

The accounts that changed under Topic 606 for the condensed consolidated balance sheet as of June 30, 2018 have been outlined as follows:
Reported as of June 30, 2018Adjustments as of June 30, 2018Balances Without Adoption of Topic 606 as of June 30, 2018
Condensed consolidated balance sheet changes:
Accounts receivable, net of allowances $83,990 $(384)$83,606 
Prepaid expenses and other current assets 5,463 (1,140)4,323 
Accrued liabilities 6,838 (164)6,674 
Sales returns liability 34,620 (3,748)30,872 
Deferred revenue — 164 164 
Retained earnings 84,170 2,224 86,394 
The accounts that changed under Topic 606 for the condensed consolidated statement of operations for the three months ended June 30, 2018 have been outlined as follows:
Reported for the Three Months Ended June 30, 2018Adjustments for the Three Months Ended June 30, 2018Amounts Without Adoption of Topic 606 for the Three Months Ended June 30, 2018
Condensed consolidated statements of operations changes:
Net sales $118,565 $661 $119,226 
Cost of sales 80,908 (114)80,794 
The accounts that changed under Topic 606 for the condensed consolidated statement of operations for the six months ended June 30, 2018 have been outlined as follows:
Reported for the Six Months Ended June 30, 2018Adjustments for the Six Months Ended June 30, 2018Amounts Without Adoption of Topic 606 for the Six Months Ended June 30, 2018
Condensed consolidated statements of operations changes:
Net sales $230,631 $2,050 $232,681 
Cost of sales 155,381 (174)155,207 
Revenue recognitionLease accounting policy
The Company’s revenueCompany determines if an arrangement is derived from (1) salesa lease at contract inception and then determines if such qualifying lease is classified as an operating lease or a finance lease. As of our products through our indirect channel, including retailers and distributors; (2) sales of our products through our direct channel, including www.ZAGG.com and www.mophie.com (The URLs are included here as inactive textual references and information contained on, or accessible through, our websites is not a part of, and is not incorporated by reference into, this report) and our corporate-owned ZAGG-branded store; and (3) from franchise fees derived fromMarch 31, 2019, the on-boarding of new franchisees andCompany only has operating leases. For operating leases, the sales of our products to franchisees. The Company’s revenue is measuredCompany measures lease liabilities based on the amountpresent value of consideration we expect to receive, reduced by estimates for sales returns, discounts, and other credits. The observable standalone selling pricesthe future minimum lease payments over the lease term at commencement date. As most of products sold areits leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the prices charged to customers andinformation available at commencement date in determining the present value of future payments. ROU assets are mutually agreed upon by both parties before any orders are authorized.
7

For substantially all of our sales, revenue is recognized at a point in time when controlmeasured as the sum of the goodsamount of the initial measurement of the lease liability, plus any prepaid lease payments made minus any lease incentives received, and any initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is transferred toreasonably certain that the customer, which generally occurs upon delivery to the carrier or the customer. For franchise fees, revenueCompany will exercise that option. Lease expense for operating leases is derived from the sale of licenses, training, equipment and marketing, among other items. We recognize revenue for performance obligationsrecognized on a straight-line basis over the franchiselease term.
Taxes assessed by a governmental authority that are both imposed onThe Company has lease agreements with lease and concurrent with a specific revenue-producing transaction, that are collected bynon-lease components under the definition of Topic 842. Upon adoption of Topic 842, the Company fromelected a customer, are excluded from revenue.practical expedient not to separate the lease and non-lease components for its leases for physical space and equipment and accounts for them as a single lease component.
Sales returns, discounts and other creditsLease information
The natureCompany has operating leases for offices, retail stores, and warehouse space that expire through 2027. The Company’s leases have remaining lease terms of our contracts gives rise10 months to several types9 years, some of variable consideration, including sales returns, discounts, and other credits. Certain customers receive credit-based incentives or credits, which are accounted for as variable consideration ininclude options to extend the form of credit memos off future purchases from the Company. We estimate these amounts based on the expected amountleases up to be provided to customers and reduce revenue accordingly on the invoice date.
We estimate a reserve for sales returns, discounts, and other credits, and record the respective estimated reserve amounts, including a right to return asset when a product is expected to be returned and resold. Historical experience, actual claims, and customer return rights are the key factors used in determining the estimated sales returns, discounts, and other credits.
Contract balances
10 years. The following table provides information about receivables, right of returnoperating lease ROU assets, contract liabilities, refundcurrent lease liabilities, and warrantynon-current lease liabilities from contracts with customers as of June 30, 2018:March 31, 2019:
June 30, 2018March 31, 2019
Receivables, which comprises the balanceRight of use assets, included in accounts receivable, net of allowancesother assets$83,9909,091 
Right of return assets, which are included in prepaid expenses and other current assets1,140 
ContractOperating lease liabilities, which are included in accrued liabilities1642,193 
RefundOperating lease liabilities, which are included in sales return liabilityother long-term liabilities30,633 
Warranty liabilities, which are included in sales return liability3,98712,163 
The current balancefollowing summarizes the activities in the Company’s ROU assets and lease liabilities for the three months ended March 31, 2019:
Beginning Balance as of January 1, 2019Adoption of Topic 842AdditionsAmortizationEnding Balance as of March 31, 2019
ROU assets$— $8,842 $748 $(499)$9,091 
Lease liabilities— 13,046 1,775 (465)14,356 
For the three months ended March 31, 2019, and 2018, the rent expense was $853 and $782, respectively. Rent expense was recognized on a basis which approximates straight-line over the lease term and was recorded as a component of the right of return assets is the estimated amount of inventory to be returned that is expected to be resold. The current balance of contract liabilities primarily relates to the advance consideration received from customers for products for which transfer of control has not yet occurred, and therefore recognition of revenue is deferred until the transfer of control. The current balance of refund liabilities is the expected amount of sales returns, discounts and other credits from sales that have occurred.
Practical expedients and policy elections
The Company applies the following practical expedients in its application of Topic 606:
• The Company does not adjust the transaction price for significant financing components for periods less than one year.
• The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses.expense on the condensed consolidated statement of operations. As of March 31, 2019, the Company had a weighted-average remaining lease term of 5.6 years and a weighted-average discount rate used to calculate the lease liability of 4.43%.
• The
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Future maturities of lease liabilities as of March 31, 2019 were as follows:

Remaining 2019$2,509 
20203,044 
20212,677 
20222,737 
20232,202 
Thereafter3,141 
Total lease payments$16,310 
Less: imputed interest(1,954)
Lease liabilities$14,356 
No other leases have been entered into under which the Company recognizeshas significant rights and obligations as the cost for shipping and handling as a fulfillment activity after control over products have transferred to the customer. For product sales, our standard shipping terms are FOB shipping point, and we record revenue when the product is shipped, net of estimated returns and discounts. Shipping and handling costs are included in cost of sales.lessee except those noted above.
• The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
(2) REVENUE
Disaggregation of revenue from contracts with customers
In the following tables, revenue from contracts with customers are disaggregated by key product lines, key distribution channels, and key geographic regions. These are disclosed below.
The percentage of net sales related to the Company’s key product lines for the three months ended March 31, 2019, and 2018, was approximately as follows:
For the Three Months Ended
March 31, 2019March 31, 2018
Protection (screen protection and cases)59%  50%  
Power (power management and power cases)29%  39%  
Audio5%  5%  
Productivity (keyboards and other)7%  6%  
The percentage of net sales related to the Company’s key distribution channels for the three months ended March 31, 2019, and 2018, was approximately as follows:
For the Three Months Ended
March 31, 2019March 31, 2018
Indirect channel79%  88%  
Website14%  8%  
Franchisees7%  4%  

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The percentage of net sales related to our key product lines for the three and six months ended June 30, 2018 and 2017, was approximately as follows:
Three Months EndedSix Months Ended
June 30, 2018June 30, 2017June 30, 2018June 30, 2017
Screen Protection54 %51 %52 %49 %
Power Management27 %17 %30 %17 %
Power Cases7 %19 %6 %21 %
Keyboards7 %5 %6 %6 %
Audio4 %7 %5 %6 %
Other1 %1 %1 %1 %

The percentage of net sales related to our key distribution channels for the three and six months ended June 30, 2018 and 2017, was approximately as follows:
Three Months EndedSix Months Ended
June 30, 2018June 30, 2017June 30, 2018June 30, 2017
Indirect channel88 %89 %88 %88 %
Website8 %7 %8 %9 %
Franchisees4 %4 %4 %3 %
The percentage of net sales related to ourCompany’s key geographic regions for the three and six months ended June 30,March 31, 2019, and 2018, and 2017, waswas approximately as follows:
Three Months EndedSix Months EndedFor the Three Months Ended
June 30, 2018June 30, 2017June 30, 2018June 30, 2017March 31, 2019March 31, 2018
United StatesUnited States85 %87 %83 %86 %United States71%  82%  
EuropeEurope10 %8 %10 %8 %Europe12%  9%  
OtherOther5 %5 %7 %6 %Other17%  9%  
Recent Accounting Pronouncements Contract Balances
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),”which requires lesseesTiming of revenue recognition may differ from timing of invoicing to recognize most leases, including operating leases, on-balance sheet via acustomers or timing of consideration received. The following table provides information about receivables, right of use assetreturn assets, contract liabilities, refund liabilities, and lease liability. Lessees are allowed to account for short-term leases (i.e., leaseswarranty liabilities from the Company’s contracts with a termcustomers as of 12 months or less) off-balance sheet, consistent withMarch 31, 2019, and December 31, 2018:
March 31, 2019December 31, 2018
Receivables, which comprises the balance in accounts receivable, net of allowances$93,617 $156,667 
Right of return assets, which are included in prepaid expenses and other current assets785 999 
Refund liabilities, which are included in sales return liability29,966 49,786 
Warranty liabilities, which are included in sales return liability3,858 4,646 
Contract liabilities, which are included in accrued liabilities85 96 
The current operating lease accounting. A number of other significant changes to lease accounting have been effected through the issuance of this standard. The requirementsbalance of the new standardright of return assets is the estimated amount of inventory to be returned that is expected to be resold. The current balance of refund liabilities is the expected amount of estimated sales returns, discounts and other credits from sales that have occurred. The current balance of warranty liabilities is the expected amount of warranty claim returns from sales that have occurred. The current balance of contract liabilities primarily relates to the advance consideration received from customers for leases shallproducts for which transfer of control has not yet occurred and therefore, revenue is deferred and will be recognized when the transfer of control has been completed.
During the three months ended March 31, 2019, revenue recognized that was included in the contract liability balance as of December 31, 2018, was $11.
The following summarizes the activities in the Company’s warranty liabilities for the three months ended March 31, 2019:
Balance as of December 31, 2018$4,646 
Additions2,253 
Warranty claims charged(3,041)
Balance as of March 31, 2019$3,858 

(3) ACQUISITIONS
Acquisition of HALO
On January 3, 2019, (the “HALO Acquisition Date”), ZAGG Hampton LLC, a Delaware limited liability company and measured at the beginningwholly owned subsidiary of the earliest comparative period presented. When adopted, the Company, will be requiredentered into a membership interest purchase agreement (the “Purchase Agreement”) with Halo2Cloud, LLC (“HALO”) and its equity owners to adjust equity at the beginningacquire all of the earliest comparative period presented,outstanding equity interests of HALO (the “HALO Acquisition”). HALO is a leading direct-to-consumer mobile accessories company with an extensive intellectual property portfolio that specializes in wireless charging, car and thewall chargers, portable power, and other comparative amounts disclosed for each prior period presented in the financial statements, as if the requirements of the new standard had always been applied. The new standard also contains practical expedients which the Company may elect to follow. The new standard is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.accessories. The Company is currently evaluating the impact this ASU will have onacquired HALO to expand its consolidated financial statements, including whetherproduct portfolio and to elect the practical expedients outlined in theenter into new standard.

distribution channels.
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ReclassificationThe total purchase consideration for the HALO Acquisition was $23,943 in cash, 1,458 shares of Prior Year Presentationthe Company’s common stock valued at $12,968, and contingent consideration estimated at $1,593 (the “HALO Earnout Consideration”). The initial purchase price was subject to adjustment within 90 days of the HALO Acquisition Date based upon the final determination of HALO’s (i) working capital, (ii) indebtedness, and (iii) transaction expenses as set forth in the Purchase Agreement.
Certain priorAs agreed in the Purchase Agreement, the Company retained $2,424 from the cash due to the sellers and will hold this amount for 18 months following the HALO Acquisition Date security for HALO’s indemnification obligations. The $2,424 retained by the Company that is due HALO is recorded in other long-term liabilities in the condensed consolidated balance sheets.
HALO is also entitled to the HALO Earnout Consideration from the Company if HALO achieves the target Adjusted EBITDA set forth in the Purchase Agreement for the year amounts haveending December 31, 2019. If, however, HALO’s actual Adjusted EBITDA is less than the target Adjusted EBITDA for the year ending December 31, 2019, the HALO Earnout Consideration will be reduced by the difference between the actual Adjusted EBITDA and the target Adjusted EBITDA.
The following summarizes the components of the purchase consideration for HALO:

Cash consideration$23,943 
Company common stock12,968 
Contingent consideration1,593 
Total purchase price$38,504 
The total purchase price of $38,504 has been reclassified for consistency withallocated to identifiable assets acquired and liabilities assumed based on their preliminary fair values. The excess of the purchase price over the preliminary fair value of the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill.
The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed as of the HALO Acquisition Date. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are based on estimates and assumptions and are subject to revisions, which may result in adjustments to the preliminary values presented below, when management’s estimates are finalized:

Cash$1,151 
Accounts receivable2,436 
Inventory2,889 
Inventory step up494 
Prepaid expenses and other assets1,310 
Property and equipment627 
Amortizable identifiable intangible assets27,554 
Goodwill15,922 
Other assets546 
Accounts payable(2,867)
Income tax payable(501)
Accrued expenses(217)
Accrued wages and wage related expenses(324)
Sales return liability(2,728)
Deferred tax liability(6,177)
Other long-term liabilities(1,611)
Total$38,504 

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Due to the fact that the HALO Acquisition occurred in the current interim period and in light of the magnitude of the transaction, the Company is still waiting to receive the 2018 audited financial statements for HALO as well as the finalization of the fair value measurements of the assets acquired and liabilities assumed. As a result, the Company’s fair value estimates for the purchase price, assets acquired, and liabilities assumed are preliminary and may change during the allowable measurement period. The allowable measurement period continues to the date the Company obtains and analyzes all relevant information that existed as of the HALO Acquisition Date necessary to determine the fair values of the assets acquired and liabilities assumed, but in no case is to exceed more than one year presentation. These reclassifications had no effectfrom the HALO Acquisition Date. The Company is analyzing information to verify assets acquired and liabilities assumed.
Identifiable Intangible Assets
Classes of acquired intangible assets include trade names, customer relationships, and technology. The fair value of the identifiable intangible assets was determined using the income valuation method. For assets valued under the income approach, the estimate of the present value of expected future cash flows for each identifiable asset was based on reporteddiscount rates which incorporate a risk premium to take into account the risks inherent in those expected cash flows. The expected cash flows were estimated using available historical data adjusted based on the Company’s historical experience and the expectations of market participants. The preliminary amounts assigned to each class of intangible asset and the related weighted average amortization periods are as follows:
Intangible Asset ClassWeighted Average Amortization Period
Technologies$14,187 8.9 years
Trade names4,409 10.0 years
Customer relationships8,958 8.0 years
Total27,554 
Goodwill
Goodwill represents the excess of the HALO purchase price over the preliminary fair value of the assets acquired and liabilities assumed. The Company believes that the primary factors supporting the amount of the goodwill recognized are the significant growth opportunities and expected synergies of the combined entity.
Results of Operations
The results of operations. A reclassification hasoperations of HALO were included in the Company’s results of operations beginning on January 4, 2019. For HALO’s results of operations from January 4, 2019, through March 31, 2019, HALO generated net sales of $1,273 and had a net loss before tax of $1,646.
Pro Forma Results of Operations
The following pro-forma results of operations for the three months ended March 31, 2019, and 2018, give pro forma effect as if the acquisition of HALO had occurred on January 1, 2018, after giving effect to certain adjustments including the amortization of intangible assets, tax adjustments, specific transaction related expenses incurred prior to the execution date, and assumes the purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date of purchase.
For the Three Months Ended March, 31
20192018
Net sales$78,750 $110,922 
Net (loss) income$(13,946)$2,314 
Basic (loss) earnings per share$(0.48)$0.08 
Diluted (loss) earnings per share$(0.48)$0.08 

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The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been made withconsummated as of January 1, 2018. Furthermore, such pro forma information is not necessarily indicative of future operating results of the combined companies, due to changes in operating activities following the purchase, and should not be construed as representative of the operating results of the combined companies for any future dates or periods.
For the three months ended March 31, 2019, pro forma net loss includes pro forma amortization expense of $30 and excludes non-recurring items including acquisition-related costs of $247 and the expensing of the fair value adjustment to inventory of $343. For the three months ended March 31, 2018, pro forma net income includes pro forma amortization expense of $784, acquisition-related costs of $247 and amortization related to the fair value adjustment to inventory of $343.
The pro forma results do not reflect events that either have occurred or may occur after the HALO Acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods.
As part of the HALO Acquisition, the Company incurred legal, accounting, and other due diligence fees that were expensed when incurred. Total fees incurred related to the HALO Acquisition for the three months ended March 31, 2019, was $247 which was included as a $2,347 reduction to accrued liabilitiescomponent of operating expenses on the consolidated statements of operations.
Acquisition of Gear4
On November 30, 2018, Patriot Corporation Unlimited Company, an entity registered and incorporated in Ireland and a $2,347 increasewholly-owned subsidiary of the Company, entered into a share purchase agreement with STRAX Holding GmbH, an entity registered and incorporated in Germany (“STRAX”), and Gear4 HK Limited, an entity registered and incorporated in Hong Kong and a wholly-owned subsidiary of STRAX (“Gear4”), to sales returns liability.acquire from STRAX all of the issued and outstanding equity securities of Gear4 (the “Gear4 Acquisition”).
Pro Forma Results of Operations
The following pro-forma results of operations for the three months ended March 31, 2018, give pro forma effect as if the acquisition of Gear4 and the related borrowings used to finance the acquisition had occurred at the beginning of the periods presented, after giving effect to certain adjustments including the amortization of intangible assets, interest expense, tax adjustments, specific transaction related expenses incurred prior to the execution date, and assumes the purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date of purchase.
For the Three Months Ended
March 31, 2018
Net sales$117,272 
Net income$5,360 
Basic earnings per share$0.19 
Diluted earnings per share$0.19 
The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2017. Furthermore, such pro forma information is not necessarily indicative of future operating results of the combined companies, due to changes in operating activities following the purchase, and should not be construed as representative of the operating results of the combined companies for any future dates or periods.
For the three months ended March 31, 2018, pro forma net income includes pro forma amortization expense of $883 and interest from the amended credit facility and amortization of debt issuance costs of $433.
The pro forma results do not reflect events that either have occurred or may occur after the Gear4 Acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods.
(2)
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(4) INVENTORIES
At June 30, 2018Inventories consisted of the following as of March 31, 2019, and December 31, 2017, inventories consisted of the following:2018:
June 30, 2018December 31, 2017March 31, 2019December 31, 2018
Finished goodsFinished goods$69,410 $74,734 Finished goods$99,237 $81,397 
Raw materialsRaw materials252 312 Raw materials989 1,522 
Total inventoriesTotal inventories$69,662 $75,046 Total inventories$100,226 $82,919 
Included in prepaid expenses and other current assets were inventory deposits with third-party manufacturers at June 30, 2018of $453 and $382 as of March 31, 2019, and December 31, 2017, of $1,783 and $1,906,2018, respectively.
(3)(5) GOODWILL AND INTANGIBLE ASSETS
There were no additions to and no impairments of intangible assets for the three and six months ended June 30, 2018. There were also no additions to intangible assets for the three and six months ended June 30, 2017. Additionally, there were no impairments to intangible assets forDuring the three months ended June 30, 2017.March 31, 2019, goodwill increased in connection with the HALO Acquisition. The following table summarizes the impairments of gross intangible assets forchanges in goodwill during the sixthree months ended June 30, 2017:March 31, 2019:
Balance as of December 31, 20162018$108,65927,638 
Impairment loss on patentIncrease in connection with HALO Acquisition(2,777)15,922 
June 30, 2017Balance as of March 31, 2019$105,88243,560 
On April 11, 2017,There was no change in goodwill during the Company received a final court order stating that the claims of one of its patents were either not patentable or canceled. Accordingly, management determined that the patent’s carrying value was not recoverable through future cash flows and was impaired as ofthree months ended March 31, 2017. Consequently,2018.
In connection with the HALO Acquisition, intangible assets increased $27,554 for patents and technology, trade names, customer relationships and unfavorable lease for the sixthree months ended June 30, 2017, the Company recorded an impairment lossMarch 31, 2019. There were no additions to intangible assets consistingfor the three months ended March 31, 2018. Additionally, there were no impairments of a reduction of gross carrying amount of $2,777, accumulated amortization of $818,intangible assets for the three months ended March 31, 2019, and net carrying value of $1,959 to reduce the net carrying value of the canceled patent to $0.2018.
Intangible assets, net of accumulated amortization as of June 30, 2018March 31, 2019, and December 31, 2017,2018, were as follows:
June 30, 2018December 31, 2017March 31, 2019December 31, 2018
Customer relationships$6,921 $9,259 
Trade namesTrade names16,256 17,854 Trade names$29,946 $26,988 
Patents and technologyPatents and technology9,486 10,981 Patents and technology21,652 8,723 
Customer relationshipsCustomer relationships22,894 15,560 
Non-compete agreementsNon-compete agreements958 1,137 Non-compete agreements692 778 
OtherOther9 13 Other5 5 
Total intangible assets, net of accumulated amortizationTotal intangible assets, net of accumulated amortization$33,630 $39,244 Total intangible assets, net of accumulated amortization$75,189 $52,054 
The total weighted average useful lives of intangible assets as of June 30, 2018March 31, 2019, and December 31, 2017,2018, was 8.18.3 years and 8.28.3 years, respectively.

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(4)(6) INCOME TAXES
For interim periods, the tax provision is determined utilizing an estimate of the Company’s annual effective tax rate adjusted for discrete items, if any. The Company's effective tax rate for the three and six months ended June 30, 2018 was 23% and 15%, respectively. The Company’s effective tax rate was 22% and 11% for the three and six months ended June 30, 2017 was 31%March 31, 2019, and (24)%,2018, respectively. The changeincrease in the effective tax rate for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 was due to several factors including but not limited to a changedifference in the federal statutory rate from 35%amount of the discrete item with respect to 21% and an increase to income in foreign jurisdictions.the restricted stock unit awards. The changemajority of the Company’s restricted stock unit awards vest in the effective tax rate for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was due to several factors including but not limited to a change in the federal statutory rate from 35% to 21%, a change to book income in the second quarter of 2018 compared to a book loss in the second quarter of 2017, and an increase to income from foreign jurisdictions.first quarter. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items including amounts disallowed under §162(m) of the Internal Revenue Code, the Company’s global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.
(5) DEBT AND LINE OF CREDIT
Long-term debt, net as of June 30, 2018 and December 31, 2017, was as follows:
June 30, 2018December 31, 2017
Line of credit $20,000 $23,475 
Long-term debt, net of deferred loan costs of $0 and $141— 13,922 
Total debt outstanding20,000 37,397 
Current portion of total debt outstanding, net of deferred loan costs of $0 and $141 — 37,397 
Total long-term debt outstanding$20,000 $— 
On April 12, 2018, the Company entered into an Amended and Restated Credit and Security Agreement (the “New Credit Agreement”) with KeyBank National Association, as Administrative Agent, Swing Line Lender and Issuing Lender, KeyBanc Capital Markets Inc., as Sole Lead Arranger and Sole Book Runner, and other members of the lender group.
The New Credit Agreement consists of an $85,000 secured revolving credit facility (the “Revolver”), which is not subject to borrowing base limitations. In addition, at the Company’s option, up to $40,000 of the Revolver may be made available for the issuance of letters of credit. Proceeds from the Revolver were used to fully retire the term loan and thus the Revolver is the only credit instrument effective April 12, 2018. The Company had a loss of $243 of deferred loan costs that were written off as of the New Credit Agreement effective date, and the Company carried over $522 of previously capitalized deferred loan costs with the modification of the existing debt. The Company capitalized $294 in additional debt issuance costs, for a new beginning balance of $815 of deferred loan costs, with $780 remaining to be amortized which is included in other assets in the condensed consolidated balance sheet.
The Revolver initially bears interest at an annual rate, at the Company’s option, of (i) the Base Rate (as defined in the Credit Agreement) plus a margin of 0.25% to 1.375% based on the prior quarter-end Leverage Ratio or (ii) the Eurodollar Rate (as defined in the Credit Agreement) plus a margin of 1.25% to 2.375% based on the prior quarter-end Leverage Ratio. The Revolver matures April 11, 2023, subject to early termination in the event of default.
In addition, the Company is required to pay a monthly Applicable Commitment Fee Rate (as defined in the New Credit Agreement) that can fluctuate between 0.175% and 0.275% based on the Leverage Ratio (as defined in the New Credit Agreement). The commitment fee is calculated monthly using the Maximum Revolving Amount (as defined in the New Credit Agreement) at the end of each calendar month, minus the Revolving Credit Exposure (exclusive of the Swing Line Exposure) (each as defined in the New Credit Agreement) at the end of such day, multiplied by the 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.

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The New Credit Agreement contains customary representations and warranties and restrictive covenants. The New Credit Agreement also contains affirmative and negative covenants requiring, among other things, the Company to meet certain financial ratio tests and to provide certain information to the lenders. The New Credit Agreement also includes financial maintenance covenants that require compliance with a Leverage Ratio and a Fixed Charge Coverage Ratio (each as defined in the New Credit Agreement), tested at the end of each fiscal quarter commencing with the three months ended June 30, 2018.
The New Credit Agreement also contains customary events of default. If an event of default occurs, the lenders under the Credit Agreement would be entitled to take various actions, including the acceleration of amounts due thereunder and all other actions permitted to be taken by a secured creditor.
As part of the New Credit Agreement, the lockbox arrangement requirement in the prior agreement was terminated and thus the Company now has full dominion of cash upon receipt from customers. Because of the lockbox arrangement in the prior agreement, amounts outstanding under the Revolver were classified as a current liability because cash receipts were required to be automatically swept against the Revolver. Because the New Credit Agreement does not have a lockbox arrangement and the Revolver does not mature until 2023, the Revolver is classified as a non-current liability.
(6)(7) STOCK-BASED COMPENSATION
During the three and six months ended June 30, 2018, the Company granted 197 and 278The grant of restricted stock units respectively. During the three and six months ended June 30, 2017, the Company granted 123 and 434 restricted stock units, respectively. During the three and six months ended June 30, 2018, the restricted stock units granted were estimated to have awith respective weighted-average fair value per share of $11.65 and $12.48, respectively. Duringfor the three and six months ended June 30, 2017, the restricted stock units granted were estimated to have a weighted-average fair value per share of $6.35March 31, 2019, and $6.57, respectively. 2018, is summarized as follows:
For the Three Months Ended
March 31, 2019March 31, 2018
Granted643 81 
Weighted average fair value per share$9.82 $14.50 
The fair value of the restricted stock units granted is based on the closing share price of the Company’s common stock on the date of grant. The restricted stock units vest annually on a straight-line basis over a nine-month (annual board of directors’ grant) to a three-year vesting term, depending on the terms of the individual grant.
As part of the 278 and 434643 restricted stock units granted during the sixthree months ended June 30, 2018 and 2017,March 31, 2019, the Company granted 167 and 372287 restricted stock units respectively, to certain executives and employees of the Company where vesting is linked to specific performance criterion. These performance-based restricted stock units only vest upon the (1) Company’s achievement of specified thresholds of net sales, Adjusted EBITDA, or specific goals for the individual executive, and (2) continued employment through the applicable vesting date. No restricted stock units granted during the three months ended March 31, 2018 were linked to any performance criterion.
The estimated fair value of the restricted stock units is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the award. During the three and six months ended June 30, 2018, the Company recordedThe following are stock-based compensation expenseexpenses related to restricted stock units of $807 and $1,408, respectively. Duringrecorded for the three and six months ended June 30, 2017, the Company recorded stock-based compensation expense related to restricted stock units of $966March 31, 2019, and $1,636, respectively. Stock-based compensation expense related to restricted stock is2018, which are included as a component of selling, general, and administrative expense on the condensed consolidated statement of operations.operations:
For the Three Months Ended
March 31, 2019March 31, 2018
Stock-based compensation expense related to restricted stock units$1,185 $601 
During the sixthree months ended June 30,March 31, 2019, and 2018, and 2017, certain ZAGGCompany employees elected to receive a net amount of shares upon the vesting of restricted stock unit grants in exchange for the Company paying up to the maximum statutory withholding amount of the employees’ tax liabilities for the fair value of the award on the vesting date. This resulted in the Company recording $2,631$782 and $240$2,612 reflected as a reduction of additional paid-in capital, respectively. Of the $2,631$782 and $2,612 recorded as a reduction of additional paid-in capital,$21 $782 and $2,610 was included in accrued wages and wage related expenses as of June 30, 2018.March 31, 2019, and 2018, respectively.
(7)(8) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share excludes dilution and is computed by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share reflects the potential dilution that could occur if stock options and restricted stock, or other common stock equivalents were exercised or converted into common stock. The dilutive effect of stock options or other common stock equivalents is calculated using the treasury stock method.

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The following is a reconciliation of the numerator and denominator used to calculate basic earnings (loss) per common share and diluted earnings (loss) per common share for the three and six months ended June 30, 2018March 31, 2019, and 2017:2018:
Three Months EndedSix Months EndedFor the Three Months Ended
June 30, 2018June 30, 2017June 30, 2018June 30, 2017March 31, 2019March 31, 2018
Net income (loss)$3,215 $3,403 $10,245 $(2,735)
Net (loss) incomeNet (loss) income$(14,424)$7,029 
Weighted average shares outstanding:Weighted average shares outstanding:Weighted average shares outstanding:
BasicBasic28,299 27,963 28,254 28,010 Basic28,883 28,209 
Dilutive effect of restricted stock unitsDilutive effect of restricted stock units367 250 425 — Dilutive effect of restricted stock units— 484 
DilutedDiluted28,666 28,213 28,679 28,010 Diluted28,883 28,693 
Earnings (loss) per share:
(Loss) earnings per share:(Loss) earnings per share:
BasicBasic$0.11 $0.12 $0.36 $(0.10)Basic$(0.50)$0.25 
DilutedDiluted$0.11 $0.12 $0.36 $(0.10)Diluted$(0.50)$0.24 
For the three and six months ended June 30,March 31, 2019, 1,187 restricted stock units were not considered in calculating diluted loss per share because the Company was in a loss position, and therefore, the effect would have been anti-dilutive.
For the three months ended March 31, 2018, 114 restricted stock units were used to purchase shares of common stock that were not considered in calculating diluted earnings per share respectively, as their effect would have been anti-dilutive. For the three and six months ended June 30, 2017, 0 and 980 restricted stock units were used to purchase shares of common stock that were not considered in calculating diluted earnings (loss) per share, respectively, as their effect would have been anti-dilutive.
(8)(9) TREASURY STOCK
During the fourth quarter of 2015, the Company’s board of directors authorized the repurchase of up to $20,000 of the Company’s outstanding common stock with no expiration date. On March 11, 2019, our board of directors authorized the cancellation of the 2015 stock repurchase program, and authorized a new stock repurchase program of up to $20,000 of our outstanding common stock.
As of June 30, 2018March 31, 2019, and December 31, 2017,2018, a total of $14,552$20,000 and $17,558$5,462 remained authorized under the stock repurchase program, respectively.
For the three and six months ended June 30, 2018, theThe Company repurchased 182 shares of the Company's common stock. Cash consideration paid for the noted share repurchases was $3,006, which included commissions paid to brokers of $7. For the three and six months ended June 30, 2018, the weighted average price per share repurchased was $16.49. The consideration paid has been recorded within stockholders’ equity in the condensed consolidated balance sheet.
For the three months ended June 30, 2017, no share repurchases occurred.March 31, 2019, and 2018, as follows:
For the six months ended June 30, 2017, the Company repurchased 234 shares of the Company's common stock. Cash consideration paid for the noted share repurchases was $1,492, which included commissions paid to brokers of $9. For the six months ended June 30, 2017, the weighted average price per share was $6.35.
For the Three Months Ended
March 31, 2019March 31, 2018
Shares repurchased72 — 
Cash consideration paid$722 $— 
Commissions to brokers included in cash consideration paid$2 $— 
Weighted average price per share repurchased$10.00 $— 
The consideration paid has been recorded within stockholders’ equity in the condensed consolidated balance sheet.

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(9) COMMITMENTS AND(10) CONTINGENCIES
Operating Leases
The Company leases office and warehouse space, office equipment, and a retail store location under operating leases that expire through 2025. Future minimum rental payments required under the operating leases at June 30, 2018, were as follows:
Remaining 2018$1,075 
20192,880 
20202,744 
20212,448 
20222,508 
Thereafter4,053 
Total operating lease commitments$15,708 
For the three and six months ended June 30, 2018, rent expense was $818 and $1,546, respectively. For the three and six months ended June 30, 2017, rent expense was $758 and $1,443, respectively. Rent expense was recognized on a basis which approximates straight-line over the lease term and was recorded as a component of selling, general and administrative expense on the condensed consolidated statement of operations.
Commercial Litigation
ZAGG Inc and mophie, Inc. v. Anker Technology Co. Ltd. and Fantasia Trading LLC,, United States District Court for the Central District of California, Case No. 8:17-CV-2193-DOC-DFM (the “Anker Lawsuit”). On December 15, 2017, ZAGGthe Company and mophie filed the Anker Lawsuit alleging that Anker Technology Co. Ltd. (“Anker”) and Fantasia Trading LLC (“Fantasia”) infringe U.S. Patent Nos. 8,971,039, 9,077,013, 9,088,028, 9,088,029, 9,172,070, and 9,406,913 in connection with protective battery cases for smartphones.  The Anker products accused of infringement include Anker’s Ultra Slim Extended Battery Case for iPhone 6 / 6s (4.7 inch) with 2850mAh capacity; Premium Extended Battery Case for iPhone 6 / 6s (4.7 inch) with 3100mAh Capacity; PowerCore Case for iPhone 7 (4.7 inch), 80% Extra Battery; and PowerCore Case for iPhone 7 (4.7 inch), 95% Extra Battery.Battery; and 2400mAh MFI Certified Rubber-Feel Premium Rechargeable Extended Battery Case for iPhone 5s, 5.  The complaint filed by ZAGGthe Company and mophie seeks monetary damages and an injunction against Anker.  On March 12, 2018, Anker and Fantasia filed answers and counterclaims in the lawsuit. In their answers, Anker and Fantasia denied infringement of any valid claim and asserted counterclaims for non-infringement and invalidity of the patents at issue.
The Company disputes Anker’s contentions and will defend the claims and otherwise respond to the allegations. The matter is scheduled for trial in November 2019. This matter is not expected to have a material adverse effect on the Company’s financial position, results of operations, or liquidity.
Best Case and Accessories, Inc. v. Zagg, Inc. United States District Court for the Eastern District of New York, Case No. 1:18-CV-04048-LDH-RML (the “BCA Lawsuit”). On July 13, 2018, Best Case and Accessories, Inc. (“Best Case”) filed a complaint against the Company. The Company had previously sent a letter to Best Case alleging that it was using product packaging and display trade dress that is confusingly similar to the Company’s trade dress. In the complaint, Best Case alleges that it does not infringe the Company’s trade dress and that the Company tortiously interfered with Best Case’s business relationships, which the Company disputes. On February 8, 2019, the Company filed a complaint for trade dress infringement against Best Case in the United States District Court for the District of Utah, Case No. 2:19-CV-00090-PMW, in order to respond to the allegations and defend against the claims. This matter is not expected to have a material adverse effect on the Company’s financial position, results of operations, or liquidity.
Dan Dolar, an individual and on behalf of those similarly situated, Plaintiff, v. Mophie, Inc., a California corporation, Defendant, Superior Court of the State of California, Orange County, Case No. 30-2019-01066228-CU-BT-CXC. On April 25, 2019, Dolar filed a complaint against mophie inc. (“mophie”) alleging, among other things, violations of California Consumers Legal Remedies Act, California False Advertising Law, breach of express warranty, violations of the Magnuson-Moss Warranty Act, violations of California Unfair Competition Law, and violation of state Consumer Protection Statutes. The complaint is based on Dolar’s allegation that mophie systematically and routinely mischaracterizes the mAh ratings of the batteries in its products. In his complaint, Dolar seeks to certify a class of Californians who purchased mophie battery-enabled products. The complaint does not specify an amount of damages claimed. Because the complaint was filed so recently, mophie has not been able to fully investigate Dolar’s claims. Based upon information presently available to mophie, it denies that it has engaged in the alleged practices, and intends to vigorously defend the lawsuit.
Michael Young, individually and on behalf of those similarly situated individuals, Plaintiff, v. Mophie, Inc., Defendant, United States District Court, Central District of California. On May 2, 2019, Young filed a complaint against mophie alleging, among other things, violations of consumers protection and unfair trade practice laws Alaska, Connecticut, Delaware, the District of Columbia, Illinois, New Hampshire, New York, Wisconsin, Florida, Hawaii, Massachusetts, Nebraska, Washington, Missouri, Maine, Michigan, New Jersey, Vermont and Rhode Island , breach of express warranties and unjust enrichment. The complaint is based on Dolar’s allegation that mophie systematically and routinely mischaracterizes the mAh ratings of the batteries in its products. In his complaint, Young seeks to certify a class of consumer in the stated named above who purchased mophie battery-enabled products. The complaint does not specify an amount of damages claimed. Because the complaint was filed so recently and has not yet been served on mophie, mophie has not been able to fully investigate Young’s claims. Based upon information presently available to mophie, it denies that it has engaged in the alleged practices, and intends to vigorously defend the lawsuit.
SEC Investigation
In the fourth quarter of 2012, theThe Company received requests to provide documentation and information to the staff ofpreviously disclosed an investigation by the SEC in connection with an investigation being conducted by the SEC's Salt Lake City office. The Company believes the investigation includes a review of therelated to facts and circumstances surrounding former Chief Executive Officer Robert Pedersen'sPedersen’s pledge and subsequent sale of Company shares and the fact that such pledges and sales were not disclosed in the Company'sCompany’s 2011 10-K filed on March 15, 2012, or 2012 Proxy filed on April 27, 2012. TheOn March 7, 2019, the Staff of the SEC informed the Company respondedthat, after additional consideration and analysis, it has decided to these requeststerminate the investigation and is cooperating withdismiss the staff although there has been no resolution to date.matter.
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Other Litigation
The Company is not a party to any other material litigation or claims at this time. While the Company currently believes that the amount of any ultimate probable loss for known matters would not be material to the Company’s financial condition, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on the Company’s financial condition or results of operations in a particular period.
The Company establishes reservesrecords a liability when a particular contingency is probable and estimable. The Company has not accrued for any loss as of June 30, 2018,losses in the condensed consolidated financial statements as of March 31, 2019, due to the Company doesfact that either the losses are immaterial or the losses are not consider a loss to beconsidered probable or estimable. The Company faces contingencies that are reasonably possible to occur; however, the reasonably possible exposure to losses cannot currently be estimated.
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(10)(11) CONCENTRATIONS
Concentration of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company places its cash with high credit quality financial institutions. The Company maintains its cash in bank deposit accounts, which, at times, exceed federally insured limits. The Company has not experienced any losses in cash accounts for the sixthree months ended June 30, 2018March 31, 2019, and 2017.2018.
At June 30, 2018As of March 31, 2019, and December 31, 2017,2018, two separate customers were equal to or exceeded 10% of the balance of accounts receivable, as follows:
June 30, 2018December 31, 2017March 31, 2019December 31, 2018
Superior Communications, Inc. (“Superior”)Superior Communications, Inc. (“Superior”)43 %31 %Superior Communications, Inc. (“Superior”)42%  50%  
Best Buy Co., Inc. (“Best Buy”)Best Buy Co., Inc. (“Best Buy”)14 %18 %Best Buy Co., Inc. (“Best Buy”)10%  15%  
No other customer account balances were more than 10% of accounts receivable at June 30, 2018 oras of March 31, 2019, and December 31, 2017.2018. If one or more of the Company’s 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’s financial condition and results of operations.
Concentration of suppliers
We do not directly manufacture any of our products; rather, we employ various third party manufacturing partners in the United States 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 film and InvisibleShield On-Demand (“ISOD”) products has been produced by a single supplier for many years. Our 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:
• Screen Protection – Our screen product line is comprised of sales of InvisibleShield glass products, InvisibleShield film products, and ISOD film blanks. InvisibleShield glass products are sourced from factories in Asia with protective glass expertise, each of which uses a number of sub-suppliers for raw materials and other components. Our InvisibleShield film and ISOD products are sourced through our third-party logistics partner, who purchases the raw film inventory from a single supplier (as discussed above).
• Battery Cases and Power Management – Our battery case and power management product lines consists of power products that are designed to provide on-the-go power and wireless charging for tablets, smartphones, laptops, cameras, and virtually all other electronic mobile devices. Our power products are sourced from factories in Asia with battery expertise, each of which uses a number of sub-suppliers for raw materials and other components.
• Keyboards – Our keyboard product line consists of (1) device specific keyboards designed to fit individual tablets produced by original equipment manufacturers and (2) keyboards that are designed to be device agnostic and can be used on virtually any mobile device. Our keyboard products are sourced from factories in Asia with keyboard expertise, each of which uses a number of sub-suppliers for raw materials and other components.
• Audio – Our audio product line consists of earbuds and headphones that are designed to be compatible with virtually all electronic mobile devices. Our audio products are sourced from factories in Asia with audio expertise, each of which uses a number of sub-suppliers for raw materials and other components.
Our product and operations teams work closely with suppliers from initial product development and throughout the manufacturing process to ensure that (1) the supplier understands, and will build according to, the product specifications, (2) appropriate quality is maintained for the finished goods and for all sub-components, and (3) the supplier can meet our supply needs.

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Concentration of net sales
For the three and six months ended June 30, 2018, Superior andMarch 31, 2019, Best Buy accounted for over 10% of net sales, and for the three months ended June 30, 2017,March 31, 2018, Superior accounted for over 10% of net sales, while for the six months ended June 30, 2017, Superior and GENCO accounted for over 10% of net sales, as follows:
Three Months EndedSix Months EndedFor the Three Months Ended
June 30, 2018June 30, 2017June 30, 2018June 30, 2017March 31, 2019March 31, 2018
SuperiorSuperior34 %31 %31 %29 %Superior6%  29%  
Best BuyBest Buy11 %9 %10 %8 %Best Buy10%  8%  
GENCO3 %8 %4 %10 %
For the three and six months ended June 30,March 31, 2019, and 2018, and 2017, no other customers accounted for greater than 10% of net sales.
Although we havethe Company has contracts in place governing ourthe relationships with ourits retail distribution customers (“retailers”), the contracts are not long-term and all ourthe retailers generally purchase from usthe Company on a purchase order basis. As a result, these retailers generally may, with little or no notice or penalty, cease ordering and selling ourthe Company’s products, or materially reduce their orders. If any of these retailers cease selling ourthe Company’s products, slow their rate of purchase of ourits products, or decrease the number of products they purchase, ourthe Company’s results of operations could be adversely affected.
Concentration of region
The percentage of net sales by geographic region for the three and six months ended June 30, 2018 and 2017, was approximately:

Three Months EndedSix Months Ended
June 30, 2018June 30, 2017June 30, 2018June 30, 2017
United States85 %87 %83 %86 %
Europe10 %8 %10 %8 %
Other5 %5 %7 %6 %


(11) SUBSEQUENT EVENTS
Acquisition of BRAVEN
On July 20, 2018, the Company entered into and closed an asset purchase agreement to acquire the BRAVEN brand, inventory, intellectual property, accounts receivable, product and engineering team, and certain other assets and liabilities for $5,000. BRAVEN  products that include rugged Bluetooth® speakers and earbuds.
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Item 2. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “forecasts,” “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 effect on our operations and future prospects include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Our Business
ZAGG is anInc and its subsidiaries (“we,” “us,” “our,” “ZAGG,” or the “Company”) are global innovation leaderleaders 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.
In addition to itsour home-grown brands, ZAGG haswe have created a platform to combine category-creating and innovative brands that we have acquired with our existing house of brands to address specific consumer needs toand empower a mobile lifestyle. The Company hasWe have an award-winning product portfolio that includes screen protection, power cases, power management, wireless charging, personal audio, mobile keyboards, protective cases, and casesother mobile accessories sold under the ZAGG®ZAGG®, InvisibleShield®InvisibleShield®, mophie®mophie®, IFROGZ®, BRAVEN®, Gear4®, and IFROGZ®HALO® brands.
We maintain our corporate headquarters at 910 West Legacy Center Way, Suite 500, Midvale, Utah 84047. TheOur telephone number of the Company is (801) 263-0699. Our263-0699, and our website addresses are www.ZAGG.com,  www.mophie.com, www.gear4.com, and www.mophie.comwww.halo2cloud.com (the URLs are included here in this report as inactive textual references, and information contained on, or accessible through, our websites is not a part of, and is not incorporated by reference into, this report).

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The Company hasWe have established four corporate objectives and seven core values to act as a foundation for ZAGG'sour corporate culture and guide ZAGGus daily:
zagg-20190331_g1.jpg
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Corporate ObjectivesCore Values
Creative Product SolutionsIntegrity
Core ValuesTargeted Global DistributionOwnership
Operational ExcellenceCare for People
The Preferred BrandIntegrity
Creative Product SolutionsOwnership
Targeted Global DistributionCare for People
Operational ExcellencePassion
Continuous Improvement
Performance
Sense of Urgency

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.
Our Products
Our innovative products are included in the following general categories:
•Protection (screen protection and protective cases)
•Power (power stations, wireless chargers, and power cases)
•Audio (earbuds, headphones, and speakers)
•Productivity and Other (keyboards and other mobile accessory products)
These products are broken down by brand as follows:
InvisibleShield Products
InvisibleShield products, including InvisibleShield Film, InvisibleShield Glass, and the InvisibleShield On Demand®(“ISOD”) solution, are designed to provide premium, lifetime protection for mobile device screens against shattering or scratching through military-grade solutions. Our products are designed to provide peace of mind by enabling consumers to fearlessly enjoy their mobile devices and never experiencewithout the inconvenience of a shattered, cracked, or scratched screen.
InvisibleShield is focused on producing industry-leading screen and device protection. Our protective filmInvisibleShield Film and glassInvisibleShield Glass products offer consumers a wide array of protection types and features, all with a limited lifetime warranty.
Our InvisibleShield films wereFilm was originally developed to protect the leading edge of rotary blades on military helicopters. Through constant innovation, we continue to formulate new filmsfilm that areis designed to offer the highest standards in self-healing scratch and impact protection. We also continue to drive innovation around simplifying the customer application experience like we’ve done with our EZ Apply® tabs, which are designed to help users align and apply InvisibleShield products. We alsoAdditionally, we provide custom-fit screen protection for thousands of device types through our automated InvisibleShield On Demand (“ISOD”)ISOD solution. With our ISOD solution, retailers can supply consumers with screen protection for nearly any device model, all without having to hold excess inventory.
Launched during the first quarter of 2014, InvisibleShield Glass is designed to provide premium screen protection and clarity, along with a superior feel and universally compatible touch sensitivity. During 2018, we launched InvisibleShield Glass + VisionGuard™ for Apple® iPhone® smartphones, Apple iPad® tablets and Google® Pixel® smartphones, which features protective EyeSafe® technology that filters out portions of the harmful high-energy visible blue light spectrum emanating from device screens, while maintaining the superior color performance of the device display. In addition, in 2019 we introduced InvisibleShield Ultra Clear™ for selected smartphone models that offers maximum clarity and shatter protection with an advanced glass-like surface that feels as smooth as the smartphone’s original screen.
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ZAGG hasWe have maintained the leading market share in screen protection and has maintained that leading positionin the United States (“U.S.”) 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 technology and consumer needs in the market.
Gear4 Products
Gear4 HK Limited (“Gear4”), is one of the top selling smartphone case brands in the United Kingdom (“U.K.”). Gear4 protective cases exclusively feature D3O® technology, which is designed to provide the thinnest and most advanced impact and shock absorption - the same material used in professional sports, industrial, and military equipment applications. In their raw states, D3O materials, can flow freely when manipulated slowly, but on shock, lock together to absorb and disperse energy before instantly returning to their flexible state. In early 2019, we released the Chelsea product line which is a new-to-market concept that allows consumers to express their personal style by swapping the design of their case with ease. With this new Gear4 innovation, consumers can easily insert the design between a Gear4 clear case and the device for the perfect combination of style and impact protection.
With D3O technology and our expansive global distribution channels, we believe Gear4 cases will offer the best mobile device protection experience for our customers and provide us with meaningful growth opportunities in our protection product line.
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mophie Products
mophie is a leading battery case, mobile power, and wireless charging brand with award-winning products designed to liberate mobile users from the limitations of mobile devices by providing more time to rock, talk, watch, game, surf, save, and send. Notably, the original juice pack® ispack® was designed to provide device-specific protection as well as additional battery power to many of the most popular mobile phones. mophie products are recognized for style and engineered for performance, providing a seamless integration of hardware, software, and design.
The Currently, the mophie ecosystem of mobile accessories is designed to provideprovides both power and protection for virtually any mobile device. With groundbreaking battery cases, including extra data storage options, wireless charging, universal batteries, cables, adapters, and docks, mophie products represent innovation at the forefront of design and development.
During the third quarter of 2017, mophie launched anmophie’s innovative new universal wireless charging pad that ispads are designed to provide an optimized charging experience forwith the iPhone 8, iPhone 8 Plus and iPhone X; the mophie charging pad also includes latest Qi wireless charging technology for universal compatibility. During 2018, new charge stream powerstation® products were launched to ensure consumers have access to easy, fast and convenient wireless charging anywhere and anytime for Apple, Samsung®, and other Qi-enabled mobile devices. In early 2019, we launched the new juice pack access battery cases to provide advanced impact protection for Apple’s latest smartphones that feature extra battery life, wireless charging and full access to the iPhone Lightning® port.
We continue to innovate and expand our power case and power management product lines under the mophie brand to provide new product experiences that are pleasing to consumers.
HALO Products
Halo2Cloud, LLC (“HALO”) leads in providing direct-to-consumer accessories backed by an extensive intellectual property portfolio. HALO designs, develops, and markets innovative technology products to make consumers' lives easier through empowering mobile lifestyles. HALO products are at the nexus of fashion and function to power consumers' lives. With a rich history of innovation that includes wireless charging, car and wall chargers, portable power, and power wallets, with a long-standing reputation as one of the top selling electronics brands on QVC®, HALO is a global leader in televised home shopping and e-commerce.
We believe that products under the HALO brand will continue to lead in providing the most innovative mobile lifestyle solutions available on the market today and that these products will continue to be positioned to address the evolving needs of consumers around the world.
IFROGZ Products
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.
In 2007, the IFROGZ EarPollution™ EarPollution® product line was released. The eclectic selection of earbuds and headphones specifically targetedtarget a younger demographic while still appealing to a wide spectrum of consumers. During 2018, we introduced the Sound Hub™ wireless earbud family. With this new line of wireless audio, consumers have more customized options for their wireless audio as its Bluetooth® receiver turns any device with a 3.5mm jack (such as headphones, earbuds, and speakers) into a wireless audio device.
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.
BRAVEN Products
BRAVEN products innovate the rugged Bluetooth audio category by combining unparalleled design with cutting-edge technology to produce premium Bluetooth audio solutions for the outdoor adventurer and modern audio enthusiast. BRAVEN’s intelligently designed products include robust craftsmanship and world-class engineering to create a thrilling audio experience.
We anticipate that the combination of high audio quality, ease of use, and superior features will enable us to develop the BRAVEN brand into one of the fastest growing wireless audio brands in the industry.
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ZAGG Products
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.
OurAs such, our ZAGG products are designed to feature cutting-edge design and innovation to provide portability, style, and productivity that can keep up with even the most active mobile users. We believe that withsupport the communicators, commuters, creators, and closers who live a mobile lifestyle. With the right ZAGG mobile accessories, we believe no one ever hasneeds to feel tethered or held back.
ZAGG keyboards are designed to offer consumers an enhanced and innovative productivity experience. Since entering this category, in 2010, ZAGG haswe have continually reinvented itsthe ZAGG line of keyboards while also providing timely, curated solutions for new devices released by Apple, Microsoft,Microsoft®, and Samsung, as well as other leading mobile device manufacturers.providers. In addition to device-specific keyboards and folio keyboard cases, ZAGG’sthe ZAGG line of universal full-size Bluetooth®Bluetooth keyboards are designed to be compatible with virtually any device and mobile operating system. During 2018, we expanded our keyboard lineup with the Flex® universal keyboard and stand, which features a slim and portable design. The Flex universal keyboard can work with any Bluetooth device and make data entry fast and easy by eliminating hunt-and-peck typing. In early 2019, we unveiled the Slim Book™ Go, Rugged Book™ Go, and Messenger Folio™ keyboards for iPad and iPad Pro models which feature a protective, yet lightweight design that boasts backlit, laptop-style keys for ultimate productivity in today’s on-the-go world.
We continue to innovate and expand our wireless keyboard product lines as end users’ requirements evolve in this rapidly changing market segment.market.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires that we make estimates and judgments. We basejudgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of 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 we believeare believed to be reasonable.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. Our critical accounting policies and estimates are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on2018 Form 10-K for the year ended December 31, 2017.10-K. There have been no material changes to the critical accounting policies or estimates previously disclosed in that report except for the implementation of certain estimates for revenue recognition under Topic 606 as disclosed below.

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Revenue recognition accounting policy
The Company’s revenue is derived from (1) sales of our products through our indirect channel, including retailers and distributors; (2) sales of our products through our direct channel, including www.ZAGG.com and www.mophie.com and our corporate-owned ZAGG-branded store; and (3) from franchise fees derived from the on-boarding of new franchisees. The Company’s revenue is measured based on the amount of consideration we expect to receive, reduced by estimates for sales returns, discounts, and other credits. The observable standalone selling prices of products sold are based on the prices charged to customers and are mutually agreed upon by both parties before any orders are authorized.
For substantially all of our sales, revenue is recognized at a point in time when control of the goods is transferred to the customer, which generally occurs upon delivery to the carrier or the customer. For franchise fees, revenue is derived from the sale of licenses, training, inventory and equipment and marketing, among other items. We recognize revenue for performance obligations on a straight-line basis over the franchise term.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
Topic 606 has required significant changes to how the Company's revenue is recognized. Updates to the Company's accounting policies have been made as part of adoption of this new standard. These changes to the Company's accounting policies and procedures under the new standard have most significantly impacted the estimates previously used to determine the company's sales returns, discounts and other credits. The new reserve calculations for these estimates apply assumptions allowable under Topic 606, which require judgment. In applying these new assumptions, and in the application of Topic 606, the Company has determined that the updated accounting policies to ensure compliance under Topic 606 continue to be critical accounting policies and estimates.
Sales returns, discounts and other credits
The nature of our contracts gives rise to several types of variable consideration, including sales returns, discounts, and other credits. Certain customers receive credit-based incentives or credits, which are accounted for as variable consideration in the form of credit memos off future purchases from the Company. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue accordingly on the invoice date.
We estimate a reserve for sales returns, discounts, and other credits, and record the respective estimated reserve amounts, including a right to return asset when a product is expected to be returned and resold. Historical experience, actual claims, and customer return rights are the key factors used in determining the estimated sales returns, discounts, and other credits.report.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 1, “Nature of Operations and Basis of Presentation” of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
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Results of Operations
Three months ended June 30, 2018 and 2017 (Amounts in thousands, except per share data)
Three months ended March 31, 2019 and 2018
Net sales
Net sales for the three months ended June 30, 2018,March 31, 2019, were $118,565,$78,750, compared to net sales of $115,227$112,066 for the three months ended June 30, 2017, an increaseMarch 31, 2018, a decrease of $3,338,$33,316 or approximately 3%30%. The $3,338 increase$33,316 decrease in net sales was primarily attributable to (1) the increase indecreased sales of our power management products, specifically related to wireless charging accessories due to challenging sell-in comparisons from the initial product launch in 2017 that extended into the first quarter of 2018 and (2) increaseda decrease in sales of screen protection products in keyand wireless and retail accounts, particularly in international markets.charging accessories due to a pull forward of shipments into the fourth quarter of 2018 ahead of a potential tariff increase. These increasesdecreases were partially offset by a decrease inincreased sales of power cases.

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The percentagecases driven from the launch of netthe new juice pack access and initial sales related tofrom our key product lines for the three months ended June 30, 2018newly acquired brands: Gear4, HALO, and 2017, was approximately as follows:
Three Months Ended
June 30, 2018June 30, 2017
Screen Protection54 %51 %
Power Management27 %17 %
Power Cases7 %19 %
Keyboards7 %5 %
Audio4 %7 %
Other1 %1 %
The percentage of net sales related to our key distribution channels for the three months ended June 30, 2018 and 2017, was approximately as follows:
Three Months Ended
June 30, 2018June 30, 2017
Indirect channel88 %89 %
Website8 %7 %
Franchisees4 %4 %
The percentage of net sales related to our key geographic regions for the three months ended June 30, 2018 and 2017, was approximately as follows:
Three Months Ended
June 30, 2018June 30, 2017
United States85 %87 %
Europe10 %8 %
Other5 %5 %

BRAVEN.
Gross profit
Gross profit for the three months ended June 30, 2018,March 31, 2019, was $37,657,$23,822 or approximately 32%30% of net sales, compared to gross profit of $35,824,$37,592 or approximately 31%34% of net sales for the three months ended June 30, 2017.March 31, 2018. The increasedecrease in gross profit margin was primarily attributable to (1) the mix of curved glass screen protection products, which are at comparatively lower margins than our highest margin product category,flat glass products and which sales increased during the three months ended June 30, 2018, to approximately 54% of net salesMarch 31, 2019 compared to approximately 51% of net sales during the three months ended June 30, 2017,same period last year, and (2) improved margins on mophie-branded products.a decrease in sales of our wireless charging products compared to the same period last year.
Operating expenses
OperatingTotal operating expenses for the three months ended June 30, 2018,March 31, 2019, were $32,464,$40,882, compared to operating expenses of $30,327$29,673 for the three months ended June 30, 2017,March 31, 2018, an increase of $2,137,$11,209 or approximately 7%38%. The $2,137$11,209 increase in operating expenses was primarily attributable to (1) increases in headcountadditional selling, general and administrative expense associated with the newly acquired BRAVEN, Gear4 and HALO brands, (2) higher amortization of long-lived intangibles related to the BRAVEN, Gear4 and HALO acquisitions, and (3) increased marketing investments to support additional growthour growing portfolio of the Company,brands and (2) increases in advertising and marketing spend.
We recognized income from operations of $5,193 for the three months ended June 30, 2018, compared to income from operations of $5,497 for the three months ended June 30, 2017, a decrease of $304.

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products.
Other expense, net
For the three months ended June 30, 2018,March 31, 2019, total other expense, net was $1,027$1,526 compared to total other expense, net of $552$5 for the three months ended June 30, 2017.March 31, 2018. The increase in other expense is primarily attributable to a loss on foreign exchange transactions and an increase of approximately $681.interest expense due to higher carrying amounts of debt.
Income tax provisionbenefit (provision)
We recognized an income tax provisionbenefit of $951$4,162 for the three months ended June 30, 2018,March 31, 2019, compared to an income tax provision of $1,542$885 for the three months ended June 30, 2017.March 31, 2018. Our effective tax rate was 23%22% and 31%11% for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively. The changeincrease in the effective tax rate was due to several factors including but not limited to a changedifference in the federal statutory rateamount of the discrete item with respect to the restricted stock unit awards. The majority of the Company’s restricted stock unit awards vest in the quarter. The windfall adjustment decreased significantly from 35%the quarter of 2018 to 21% and an increase to income in foreign jurisdictions. The Company’sthe quarter of 2019. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items including amounts disallowed under §162(m) of the Company’sInternal Revenue Code, our global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.
Net (loss) income
We recognizedAs a result of these factors, we reported net incomeloss of $3,215, with diluted earnings$14,424 or $0.50 per share of $0.11on a fully diluted basis for the three months ended June 30, 2018,March 31, 2019, compared to net income of $3,403, with diluted earnings$7,029 or $0.24 per share of $0.12,on a fully diluted basis for the three months ended June 30, 2017.March 31, 2018.
Six months ended June 30, 2018Liquidity and 2017Capital Resources (Amounts in thousands, except per share data)thousands)
Net salesAs of March 31, 2019, our principal sources of liquidity were cash on hand and net borrowings from revolving credit facilities. Our principal uses of cash have been for a business acquisition, cash used in operations, purchase of property and equipment, and purchase of treasury shares.
Net sales for the six months ended June 30,Cash and cash equivalents on-hand decreased to $14,789 on March 31, 2019, from $15,793 on December 31, 2018, were $230,631, compared toa decrease of $1,004. The net sales of $208,173 for the six months ended June 30, 2017, an increase of $22,458, or approximately 11%. The $22,458 increase in net salesdecrease was primarily attributable to (1) $20,368 net cash paid for the increaseHALO Acquisition, (2) $12,137 used in salesoperating activities, (3) $2,628 paid for property and equipment purchases, and (4) $722 of our power management products, specifically related to wireless charging accessories, and (2) increases in screen protection products in key wireless and retail accounts, particularly in international markets.payments for treasury stock. These increases wereexpenditures are partially offset by a decrease in sales of power cases.
The percentage of$35,000 net sales related to our key product lines for the six months ended June 30, 2018 and 2017, was approximately as follows:
Six Months Ended
June 30, 2018June 30, 2017
Screen Protection52 %49 %
Power Management30 %17 %
Power Cases6 %21 %
Audio5 %6 %
Keyboards6 %6 %
Other1 %1 %
The percentage of net sales related to our key distribution channels for the six months ended June 30, 2018 and 2017, was approximately as follows:
Six Months Ended
June 30, 2018June 30, 2017
Indirect channel88 %88 %
Website8 %9 %
Franchisees4 %3 %

proceeds from revolving credit facilities.
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The percentage of net sales related to our key geographic regions for the six months ended June 30, 2018 and 2017, was approximately as follows:

Six Months Ended
June 30, 2018June 30, 2017
United States83 %86 %
Europe10 %8 %
Other7 %6 %
Gross profit
Gross profit for the six months ended June 30, 2018, was $75,250, or approximately 33% of net sales, compared to gross profit of $64,430, or approximately 31% of net sales for the six months ended June 30, 2017. The increase in gross profit margin was primarily attributable to (1) the mix of screen protection products, our highest margin product category, which increased during the six months ended June 30, 2018, to approximately 52% of net sales compared to approximately 49% of net sales during the six months ended June 30, 2017, and (2) improved margins on mophie-branded products.
Operating expenses
Operating expenses for the six months ended June 30, 2018, were $62,138, compared to operating expenses of $65,582 for the six months ended June 30, 2017, a decrease of $3,444, or approximately 5%. The $3,444 decrease in operating expenses was primarily attributable to (1) a $1,959 charge in 2017 related to the impairment of a patent that did not recur in 2018, and (2) operating expense synergies realized related to the mophie integration. These decreases in operating expense were partially offset by (1) increases in headcount to support additional growth of the Company and (2) increases in advertising and marketing spend.
Income (loss) from operations
We recognized income from operations of $13,112 for the six months ended June 30, 2018, compared to a loss from operations of $1,152 for the six months ended June 30, 2017, an increase of $14,264.
Other expense, net
For the six months ended June 30, 2018, other expense was $1,032 compared to other expense of $1,062 for the six months ended June 30, 2017. The decrease in other expense is primarily attributable to a reduction of interest expense due to lower carrying amounts for the Company's debt.
Income tax provision
We recognized an income tax provision of $1,835 for the six months ended June 30, 2018, compared to an income tax provision of $521 for the six months ended June 30, 2017. Our effective tax rate was 15% and (24)% for the six months ended June 30, 2018 and 2017, respectively. The change in the effective tax rate was due to several factors including but not limited to a change in the federal statutory rate from 35% to 21%, a change to book income in the second quarter of 2018 compared to a book loss in the second quarter of 2017, and an increase to income from foreign jurisdictions. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items, the Company’s global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.
Net income (loss)
We recognized net income of $10,245, with diluted earnings per share of $0.36 for the six months ended June 30, 2018, compared to a net loss of $2,735, with diluted loss per share of $0.10, for the six months ended June 30, 2017.
Liquidity and Capital Resources (in thousands)
At June 30, 2018, our principal sources of liquidity were cash provided by operations, cash on hand, and the revolving credit facility. Our principal uses of cash have been for (1) payments on the term and revolving credit facilities, (2) purchases of treasury shares, (3) purchase of property and equipment, and (4) payments for the net share settlement of restricted stock.
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Cash and cash equivalents on-hand decreased to $18,582 on June 30, 2018, from $24,989 on December 31, 2017, a decrease of $6,407. The net decrease was primarily attributable to (1) $17,538 net payments on the term and revolving credit facilities, (2) $3,006 payments for treasury stock, (3) $2,701 from property and equipment purchases, and (4) $2,610 payments for the net share settlement of restricted stock. These expenditures are partially offset by $19,957 generated from operating activities.
Accounts receivable, net of allowances, decreased to $83,990$93,617 on June 30, 2018,March 31, 2019, from $123,220$156,667 on December 31, 2017,2018, a decrease of $39,230.$63,050. The net decrease was primarily attributable to comparatively lower sales for the secondfirst quarter of 20182019 in comparison to the fourth quarter of 2017,2018, as well as strong cash collections during the sixthree months ended June 30, 2018.March 31, 2019.
Inventories decreasedincreased to $69,662$100,226 on June 30, 2018,March 31, 2019, from $75,046$82,919 on December 31, 2017, a decrease2018, an increase of $5,384.$17,307. The net decreaseincrease was primarily attributable to (1) improved operations managementlower sales in the first quarter of inventory, and (2) seasonal fluctuations in inventory levels. These decreases were partially offset by2019, an increase in inventory levels needed to support new product launches, and an increase in inventory from the wireless charging product line.acquisition of HALO.
Accounts payable decreased to $60,372$55,045 on June 30, 2018,March 31, 2019, from $96,472$80,908 on December 31, 2017,2018, a decrease of $36,100.$25,863. The net decrease was primarily attributable to comparatively lower sales for the secondfirst quarter of 20182019 in comparison to the fourth quarter of 2017 with an associated reduction of expenditures2018 and payment on accounts payable outstanding on December 31, 2018, during the sixthree months ended June 30, 2018.March 31, 2019. These decreases were partially offset by liabilities assumed in the acquisition of HALO.
At June 30, 2018, the Company had a positiveAs of March 31, 2019, we achieved working capital of $71,316$108,309 compared to positive working capital of $43,210$105,540 as of December 31, 2017,2018, an increase of $28,106.$2,769. The net increase in the working capital position was primarily attributable to reductionsthe changes in accounts receivable, net of allowances, inventories, and accounts payable previously noted, as well as a decrease in the sales return liability due to decreased sales during the three months ended March 31, 2019 and an increase in income tax receivable due to the shift of debt from current liabilities to non-current liabilities.loss recorded for the three months ended March 31, 2019.
Based on the current level of operations, we believe that cash to be generated from operations, cash on hand and available borrowings under existingour current credit arrangementsarrangement will be adequate to fund expected capital expenditures and working capital needs for the next 12 months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.
To date we have not utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or other strategies to hedge market risk in the foreseeable future.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits pursuant to the Securities Exchange Act of 1934, as amended, or Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosures.
At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures in accordance with the Exchange Act requirements. Based upon that evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period of this report, our disclosure controls and procedures are notwere effective dueand were designed to the material weakness described below.
• The Company’s control environment was ineffective because we failedprovide reasonable assurance that information required to establish appropriate authorities and responsibilities in alignment with the objectives of internal control over financial reporting to certain employees; and
• The Company’s risk assessment process was ineffective because we failed to consider changesbe included in the business operationsreports filed or submitted under the Exchange Act of 1934 is recorded, processed, summarized, and their impact on financial reportingreported as specified in the SEC’s rules and internal controls.

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forms.
Changes in Internal Control over Financial Reporting
To remediate thisThe acquisition of HALO on January 3, 2019, represents a material weaknesschange in internal control over financial reporting since management’s last assessment of our internal control over financial reporting which resulted in an immaterial misstatement to net sales, accounts receivable, cost of goods sold, and inventorywas completed as of December 31, 2018. The HALO business utilizes separate information and accounting systems and processes. We intend to exclude the operations of HALO from the scope of our Sarbanes-Oxley Section 404 report on internal controls over financial reporting for the year ended December 31, 2017 (which misstatement was corrected prior to issuance of the 2017 consolidated financial statements in the Annual Report2019.
We acquired Gear4 on Form 10-K), management has continued to implement the following changes to its internal controls as of JuneNovember 30, 2018:
• Test2018, and evaluate the improved control environment related to the appropriateness of authorities and responsibilitiesexcluded Gear4 from our assessment of internal control over financial reporting;reporting as of December 31, 2018. We are in the process of integrating the Gear4 and HALO businesses into our information and accounting systems and processes and expect that this effort will be completed in 2019.
• Test and evaluate
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Other than the cross functional risk assessment process to identify and assessacquisition of HALO, there were no significant changes in the business that could significantly impactCompany’s internal control over financial reporting;
• Testreporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The process for evaluating controls and evaluate improved control activities over the customer returns process;
• Testprocedures is continuous and evaluate improved control activities over the management of accounts receivable transactions due to the growthencompasses constant improvement of the Company;design and
• Continue evaluations whether control activities can effectiveness of established controls and procedures and the remediation of any deficiencies which may be automated to replace manual processes.
As of  June 30, 2018, the Company has implemented several new cross functional processes and controls to address the material weakness. In addition, others processes and controls are currently being implemented as part of the ongoing remediation.identified during this process.
Inherent Limitations on the Effectiveness of Internal Controls
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Certain of the legal proceedings in which we are involved are discussed in Note 9, “Commitments and Contingencies,10, “Contingencies,” to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, and are hereby incorporated by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors, in our Annual Report on2018 Form 10-K, for the year ended December 31, 2017 (the “2017 Form 10-K”), which could materially affect our business, financial condition or future results. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 20172018 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the fourth quarter of 2015, the Company’sour board of directors authorized the repurchase of up to $20,000 of the Company’sour outstanding common stock with no expiration date. The Company’sOn March 11, 2019, our board of directors also authorized the usecancellation of the 2015 stock repurchase program, and authorized a Rule 10b5-1 plan, which was put into place duringnew stock repurchase program that grants the second quarterrepurchase of 2018.up to $20,000 of our outstanding common stock.
During the three and six months ended June 30, 2018, the CompanyMarch 31, 2019, we repurchased 18272 shares of ZAGG Inc common stock, for a total consideration of $3,006,$722, which included commissions and processing fees totaling $7.$2. As of June 30, 2018,March 31, 2019, a total of $14,552$20,000 remained authorized under the stock repurchase program.
The shares repurchased during the three months ended June 30, 2018March 31, 2019 are as follows:
Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs 
April 1 - April 30, 2018 — $— — $17,558 
May 1 - May 31, 2018 — $— — $17,558 
June 1 - June 30, 2018 182 $16.49 182 $14,552 
Period(a) Total Number of Shares Purchased(b) Average Price Paid per Share(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31, 201972.00 $10.00 72.00 $4,740 
February 1 - February 28, 2019— $— — $4,740 
March 1 - March 31, 2019— $— — $20,000 

Except as previously disclosed in our Current Report on Form 8-K filed on January 8, 2019 in connection with the HALO Acquisition,
there were no other unregistered sales of securities during the three months ended March 31, 2019.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.

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Item 5. Other Information
None.
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Item 6. Exhibits
a. Exhibits: The following Exhibits are filed with this Form 10-Q pursuant to Item 601(a) of Regulation S-K:
Exhibit NumberDescription of Exhibit
10.4
$15,000,000 Revolving Credit Note, dated April 12, 2018, by ZAGG Inc to MUFG Union Bank, N.A.(previously filed as an exhibit to a Current Report on Form 8-K filed with the Commission on April 12, 2018 and incorporated herein by this reference)
10.5
$8,500,000 Swing Line Note, dated April 12, 2018, by ZAGG Inc to KeyBank National Association (previously filed as an exhibit to a Current Report on Form 8-K filed with the Commission on April 12, 2018 and incorporated herein by this reference).
EX-101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
EX-101.SCHXBRL Taxonomy Extension Schema Document
EX-101.CALXBRL Taxonomy Extension Calculation Linkbase
EX-101.DEFXBRL Taxonomy Extension Definition Linkbase
EX-101.LABXBRL Taxonomy Extension Labels Linkbase
EX-101.PREXBRL Taxonomy Extension Presentation Linkbase

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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 INCINC.
Dated: August 1, 2018May 8, 2019/s/ CHRIS AHERN
Chris Ahern
Chief Executive Officer & Director
(Principal executive officer)
Dated: August 1, 2018May 8, 2019/s/ BRADLEY J. HOLIDAYTAYLOR D. SMITH
Bradley J. HolidayTaylor D. Smith
Chief Financial Officer
(Principal financial officer)

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