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 September
June 30, 2018,2019, 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 500 910 West Legacy Center Way, Suite 500
Midvale, Utah 84047
(Address of principal executive offices, including zip code)
(801) 263-0699
(Registrant’s telephone number, including area code)
Not Applicable
(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:
Common Stock, $0.001 par valueZAGGThe Nasdaq Stock Market, LLC
(Title of each class)(Trading Symbol(s))(Name of each exchange on which registered)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 27,793,17929,080,293 common shares as of November 5, 2018.

August 6, 2019.



ItemContentsPage
CONTENTSPAGE
PART I - FINANCIAL INFORMATION
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2
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68
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PART II - OTHER INFORMATION
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3029
3130



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



Table of Contents
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value)value amounts)
(Unaudited)
September 30, 2018December 31, 2017June 30, 2019December 31, 2018
ASSETS ASSETS ASSETS
Current assets: Current assets: Current assets:
Cash and cash equivalents $17,780 $24,989 Cash and cash equivalents$12,885 $15,793 
Accounts receivable, net of allowances of $707 and $734 115,801 123,220 Accounts receivable, net of allowances of $431 and $885102,578 156,667 
Income tax receivable 941 — Income tax receivable 3,427 375 
Inventories 78,666 75,046 Inventories110,565 82,919 
Prepaid expenses and other current assets 6,649 4,547 Prepaid expenses and other current assets 6,393 5,473 
Total current assets Total current assets 219,837 227,802 Total current assets235,848 261,227 
Property and equipment, net of accumulated depreciation of $15,284 and $12,540 13,936 13,444 
Intangible assets, net of accumulated amortization of $75,151 and $66,639 32,505 39,244 
Property and equipment, net of accumulated depreciation of $13,860 and $11,844Property and equipment, net of accumulated depreciation of $13,860 and $11,84417,714 16,118 
Intangible assets, net of accumulated amortization of $87,692 and $78,627Intangible assets, net of accumulated amortization of $87,692 and $78,62770,542 52,054 
Deferred income tax assets Deferred income tax assets 22,134 24,403 Deferred income tax assets15,396 19,403 
Operating lease right of use assets Operating lease right of use assets 10,380 — 
Goodwill Goodwill 12,570 12,272 Goodwill 43,560 27,638 
Other assets Other assets 1,667 3,426 Other assets1,315 1,571 
Total assets Total assets $302,649 $320,591 Total assets$394,755 $378,011 
LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Current liabilities: Current liabilities:
Accounts payable $67,355 $96,472 Accounts payable$70,988 $80,908 
Income tax payable — 2,052 Sales returns liability 37,522 54,432 
Sales returns liability 43,506 34,536 Accrued wages and wage related expenses 6,665 6,624 
Accrued wages and wage related expenses 5,812 5,652 Accrued liabilities9,511 13,723 
Accrued liabilities 8,091 8,168 Current portion of operating lease liabilities 2,154 — 
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 Total current liabilities 124,764 184,592 Total current liabilities126,840 155,687 
Non-current portion of line of credit 28,000 — 
Line of creditLine of credit95,363 58,363 
Operating lease liabilities Operating lease liabilities 11,889 — 
Other long-term liabilitiesOther long-term liabilities7,913 5,470 
Total liabilities Total liabilities 152,764 184,592 Total liabilities242,005 219,520 
Commitments and contingencies (Note 1 and Note 10)Commitments and contingencies (Note 1 and Note 10)
Stockholders’ equity: Stockholders’ equity: Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized; 34,433 and 34,104 shares issued  34 34 Common stock, $0.001 par value; 100,000 shares authorized; 36,140 and 34,457 shares issued36 34 
Treasury stock, 6,448 and 6,065 common shares at cost (43,734)(37,637)Treasury stock, 7,055 and 6,983 common shares at cost(50,455)(49,733)
Additional paid-in capital 95,642 96,145 Additional paid-in capital111,279 96,486 
Accumulated other comprehensive loss (853)(348)Accumulated other comprehensive loss(1,425)(1,410)
Retained earnings 98,796 77,805 Retained earnings93,315 113,114 
Total stockholders’ equity Total stockholders’ equity 149,885 135,999 Total stockholders’ equity152,750 158,491 
Total liabilities and stockholders’ equity Total liabilities and stockholders’ equity $302,649 $320,591 Total liabilities and stockholders’ equity$394,755 $378,011 

See accompanying notes to condensed consolidated financial statements.
1

Table of Contents
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended For the Three Months EndedFor the Six Months Ended
September 30, 2018September 30, 2017September 30, 2018September 30, 2017June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Net sales Net sales $141,087 $134,398 $371,718 $342,571 Net sales$106,796 $118,565 $185,546 $230,631 
Cost of sales Cost of sales 88,916 86,006 244,297 229,749 Cost of sales69,037 80,908 123,965 155,381 
Gross profit Gross profit 52,171 48,392 127,421 112,822 Gross profit37,759 37,657 61,581 75,250 
Operating expenses: Operating expenses: Operating expenses:
Advertising and marketing 3,089 2,627 8,322 7,703 Advertising and marketing4,514 2,638 9,099 5,233 
Selling, general and administrative 27,349 26,720 78,692 78,727 Selling, general and administrative34,491 27,035 66,075 51,342 
Transaction costs 618 96 635 611 Transaction costs374 18 621 18 
Impairment of intangible asset — — — 1,959 Amortization of intangible assets4,599 2,773 9,065 5,545 
Amortization of intangible assets 2,859 3,014 8,404 9,040 
Total operating expenses Total operating expenses 33,915 32,457 96,053 98,040 Total operating expenses43,978 32,464 84,860 62,138 
Income from operations 18,256 15,935 31,368 14,782 
(Loss) income from operations(Loss) income from operations(6,219)5,193 (23,279)13,112 
Other income (expense): Other income (expense): Other income (expense):
Interest expense (286)(417)(1,132)(1,527)Interest expense(1,103)(346)(2,113)(846)
Other (expense) income (176)18 (362)67 Other income (expense)1,192 (681)676 (186)
Total other expense (462)(399)(1,494)(1,460)
Total other income (expense)Total other income (expense)89 (1,027)(1,437)(1,032)
Income before provision for income taxes 17,794 15,536 29,874 13,322 
(Loss) income before provision for income taxes(Loss) income before provision for income taxes(6,130)4,166 (24,716)12,080 
Income tax provision (3,168)(5,760)(5,003)(6,281)
Income tax benefit (provision)Income tax benefit (provision)794 (950)4,956 (1,835)
Net income $14,626 $9,776 $24,871 $7,041 
Net (loss) incomeNet (loss) income$(5,336)$3,216 $(19,760)$10,245 
Earnings per share attributable to stockholders:
(Loss) earnings per share attributable to stockholders:(Loss) earnings per share attributable to stockholders:
Basic earnings per share $0.52 $0.35 $0.88 $0.25 Basic (loss) earnings per share$(0.18)$0.11 $(0.68)$0.36 
Diluted earnings per share $0.51 $0.34 $0.87 $0.25 Diluted (loss) earnings per share$(0.18)$0.11 $(0.68)$0.36 

See accompanying notes to condensed consolidated financial statements.
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Table of Contents
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
Three Months Ended Nine Months Ended For the Three Months EndedFor the Six Months Ended
September 30, 2018September 30, 2017September 30, 2018September 30, 2017June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Net income $14,626 $9,776 $24,871 $7,041 
Net (loss) incomeNet (loss) income$(5,336)$3,216 $(19,760)$10,245 
Other comprehensive gain (loss), net of tax: Other comprehensive gain (loss), net of tax: Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss) 175 326 (505)1,171 Foreign currency translation gain (loss)141 (969)(15)(680)
Total other comprehensive income (loss) Total other comprehensive income (loss) 175 326 (505)1,171 Total other comprehensive income (loss)141 (969)(15)(680)
Total comprehensive income $14,801 $10,102 $24,366 $8,212 
Total comprehensive (loss) incomeTotal comprehensive (loss) income$(5,195)$2,247 $(19,775)$9,565 

See accompanying notes to condensed consolidated financial statements.
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Table of Contents
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSEQUITY
(Amounts in thousands)
(Unaudited)
Nine Months Ended 
September 30, 2018September 30, 2017
Cash flows from operating activities: 
Net income $24,871 $7,041 
Adjustments to reconcile net income to net cash provided by operating activities: 
Stock-based compensation expense 2,165 2,536 
Depreciation and amortization 13,330 16,508 
Deferred income tax expense 2,266 5,203 
Loss on disposal of property and equipment 9 13 
Loss on deferred loan costs with debt modification 243 — 
Amortization of deferred loan costs 147 192 
Impairment of intangible asset — 1,959 
Changes in operating assets and liabilities: 
Accounts receivable, net 7,735 (12,054)
Inventories (1,751)1,636 
Prepaid expenses and other current assets (694)(104)
Other assets 1,618 918 
Accounts payable (30,469)(3,526)
Income tax (payable) receivable (3,153)3,195 
Sales returns liability3,831 907 
Accrued wages and wage related expenses58 (520)
Accrued liabilities (539)1,143 
Deferred revenue — (59)
Other 191 (416)
Net cash provided by operating activities 19,858 24,572 
Cash flows from investing activities: 
Purchase of property and equipment (4,444)(3,792)
Proceeds from disposal of equipment 26 28 
Purchase of BRAVEN (3,951)— 
Net cash used in investing activities (8,369)(3,764)
Cash flows from financing activities: 
Payment of deferred loan costs (294)(157)
Proceeds from revolving credit facility 238,994 296,485 
Payments on revolving credit facility (246,448)(311,528)
Payments on term loan facility (2,084)(4,687)
Purchase of treasury stock (6,097)(1,492)
Payment of withholding on restricted stock units (2,630)(240)
Proceeds from issuance of stock under employee stock purchase plan 55 29 
Net cash used in financing activities (18,504)(21,590)
Effect of foreign currency exchange rates on cash equivalents (194)572 
Net decrease in cash and cash equivalents (7,209)(210)
Cash and cash equivalents at beginning of the period 24,989 11,604 
Cash and cash equivalents at end of the period $17,780 $11,394 
For the Three Months Ended June 30, 2019
Common Stock
SharesAmountAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders’
Equity
Balances, March 31, 201936,117 $36 $109,870 $(1,566)$(50,455)$98,651 $156,536 
Net loss— — — — — (5,336)(5,336)
Other comprehensive income— — — 141 — — 141 
Treasury stock purchase— — — — — — — 
Restricted stock release22 — — — — — — 
Employee stock purchase plan release1 — — — — — — 
Stock-based compensation expense— — 1,475 — — — 1,475 
Payment of withholding taxes on restricted stock units— — (66)— — — (66)
Shares issued as consideration for acquisition— — — — — — — 
Balances, June 30, 201936,140 $36 $111,279 $(1,425)$(50,455)$93,315 $152,750 
For the Six Months Ended June 30, 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— — — — — (19,760)(19,760)
Other comprehensive income— — — (15)— — (15)
Treasury stock purchase— — — — (722)— (722)
Restricted stock release222 — — — — — — 
Employee stock purchase plan release3 — 13 — — — 13 
Stock-based compensation expense— — 2,660 — — — 2,660 
Payment of withholding taxes on restricted stock units— — (848)— — — (848)
Shares issued as consideration for acquisition1,458 $2 $12,968 $— $— $— $12,970 
Balances, June 30, 201936,140 $36 $111,279 $(1,425)$(50,455)$93,315 $152,750 

See accompanying notes to condensed consolidated financial statements.
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ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(Amounts in thousands)
(Unaudited)
For the Three Months Ended June 30, 2018
Common Stock
SharesAmountAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders’
Equity
Balances, March 31, 201834,416 $34 $94,134 $(59)$(37,637)$80,954 $137,426 
Net income— — — — — 3,216 3,216 
Other comprehensive loss— — — (969)— — (969)
Treasury stock purchase— — — — (3,006)— (3,006)
Restricted stock release7 — — — — — — 
Employee stock purchase plan release— — 55 — — — 55 
Stock-based compensation expense— — 807 — — — 807 
Payment of withholding taxes on restricted stock units— — (19)— — — (19)
Balances, June 30, 201834,423 $34 $94,977 $(1,028)$(40,643)$84,170 $137,510 
For the Six Months Ended June 30, 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— — — — — 10,245 10,245 
Other comprehensive loss— — — (680)— — (680)
Treasury stock purchase— — — — (3,006)— (3,006)
Restricted stock release318 — — — — — — 
Employee stock purchase plan release1 — 55 — — — 55 
Stock-based compensation expense— — 1,408 — — — 1,408 
Payment of withholding taxes on restricted stock units— — (2,631)— — — (2,631)
Balances, June 30, 201834,423 $34 $94,977 $(1,028)$(40,643)$84,170 $137,510 

See accompanying notes to condensed consolidated financial statements.
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Table of Contents
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the Six Months Ended
June 30, 2019June 30, 2018
Cash flows from operating activities:
Net (loss) income$(19,760)$10,245 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Stock-based compensation expense2,660 1,408 
Depreciation and amortization12,256 9,230 
Deferred income tax assets(2,169)481 
Loss on disposal of property and equipment6 9 
Loss on deferred loan costs with debt modification— 243 
Amortization of deferred loan costs101 106 
Amortization of right of use assets1,066 — 
Changes in operating assets and liabilities:
Accounts receivable, net55,006 37,318 
Inventories(24,313)5,080 
Prepaid expenses and other current assets396 503 
Other assets179 (563)
Accounts payable(12,654)(34,480)
Income tax receivable(3,555)(3,512)
Sales returns liability(19,627)(5,092)
Accrued wages and wage related expenses(360)153 
Accrued liabilities(1,904)(1,404)
Lease liabilities(1,134)— 
Other79 232 
Net cash (used in) provided by operating activities(13,727)19,957 
Cash flows from investing activities:
Purchase of property and equipment(4,213)(2,701)
Proceeds from disposal of equipment2 26 
Purchase of HALO, net of cash acquired(20,368)— 
Net cash used in investing activities(24,579)(2,675)
Cash flows from financing activities:
Proceeds from revolving credit facility176,566 198,761 
Payments on revolving credit facility(139,566)(214,215)
Payments on term loan facility— (2,084)
Purchase of treasury stock(722)(3,006)
Payment of withholding on restricted stock units(782)(2,610)
Payment of deferred loan costs— (294)
Proceeds from issuance of stock under employee stock purchase plan13 55 
Net cash provided by (used in) financing activities35,509 (23,393)
Effect of foreign currency exchange rates on cash equivalents(111)(296)
Net decrease in cash and cash equivalents(2,908)(6,407)
Cash and cash equivalents at beginning of the period15,793 24,989 
Cash and cash equivalents at end of the period$12,885 $18,582 

See accompanying notes to condensed consolidated financial statements.
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Table of Contents
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
Nine Months Ended For the Six Months Ended
September 30, 2018September 30, 2017June 30, 2019June 30, 2018
Supplemental disclosure of cash flow information: Supplemental disclosure of cash flow information: Supplemental disclosure of cash flow information:
Cash paid during the period for interest $1,127 $1,361 Cash paid during the period for interest$1,998 $926 
Cash paid (refunded) during the period for income taxes, net 5,729 (2,317)Cash paid during the period for income taxes, net629 4,683 
Cash paid during the period for rent expenses included in the measurement of lease liabilities1,453 — 
Supplemental disclosure of non-cash investing and financing activities: Supplemental disclosure of non-cash investing and financing activities: Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment financed through accounts payable $1,036 $1,719 Purchase of property and equipment financed through accounts payable$451 $541 
Withholding tax on restricted stock units recorded in accrued wages and wage related expenses 93 — Withholding tax on restricted stock units recorded in accrued wages and wage related expenses66 21 
Modification of debt that resulted in payment of existing term loan balance 11,991 — Purchase of HALO through amounts due to seller, contingent payments and common stock16,985 — 
Indemnity Holdback of BRAVEN Acquisition included in accrued liabilities500 — Modification of debt that resulted in payment of existing term loan balance— 11,991 
Noncash change in lease asset and operating liabilities from remeasurement of existing leases and addition of new leases1,856 — 


See accompanying notes to condensed consolidated financial statements.
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ZAGG INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars, units, &and shares in thousands, except per share data)amounts)
(Unaudited)
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
ZAGG Inc and its subsidiaries (“ZAGG,” or the(the “Company”) are innovation leaders in mobile tech accessories for smartphones and tablets. For over 1015 years, the 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®IFROGZ®, BRAVEN®, Gear4®, and BRAVEN®HALO® brands.
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States 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 Annual Report on Form 10-K for the year ended December 31, 20172018 (the “2017“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 2017Company’s consolidated financial statements included in the 2018 Form 10-K. 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 Accounting 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 606842, “Revenue from Contracts with Customers”“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, “Revenue Recognition”Leases” (“Topic 605”840”). standard. The Company also 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 operating lease liabilities; an increase in prepaid expenses and othershort-term lease liabilities of $2,362 which was included in current portion of operating lease liabilities; an initial recognition of right of use (“ROU”) assets of $1,255 for the recognition of the$8,842 which was included in operating lease right of returnuse assets; an increase in sales return liability of $5,250 for the recognitiondeferred tax assets, net of the sales return liability on$1,424; a gross basis and for the change in estimating refundderecognition of $3,346 related to lease liabilities under Topic 606; an increase840 which was included in accrued liabilities of $314;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
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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 offered to end customers. Under Topic 605, price concessions to end customers were recognized when such incentives were explicitly offeredaddition of the Company’s operating leases to the end customer, whereas under Topic 606 such incentives are estimatedcondensed consolidated balance sheet, creating ROU assets and recorded at the time of the sale of products to the Company’s customers.
6

The accounts that changed under Topic 606 forlease liabilities on the condensed consolidated balance sheet as of SeptemberJune 30, 2018 have been outlined as follows:
Condensed consolidated balance sheet changes Reported as of September 30, 2018 Adjustments as of September 30, 2018 Balances Without Adoption of Topic 606 as of September 30, 2018 
Accounts receivable, net of allowances $115,801 $(233)$115,568 
Prepaid expenses and other current assets 6,649 (1,139)5,510 
Sales returns liability 43,506 (6,929)36,577 
Accrued liabilities 8,091 (439)7,652 
Deferred revenue — 439 439 
Retained earnings 98,796 5,557 104,353 
The accounts that changed under2019. Under Topic 606 for840, operating leases were not included on the condensed consolidated statement of operations for the three months ended September 30, 2018 have been outlined as follows:
Condensed consolidated statement of operations changes Reported for the Three Months Ended September 30, 2018 Adjustments for the Three Months Ended September 30, 2018 Amounts Without Adoption of Topic 606 for the Three Months Ended September 30, 2018 
Net sales $141,087 $3,494 $144,581 
Cost of sales 88,916 161 89,077 
The accounts that changedbalance sheets, whereas under Topic 606 for842, ROU assets and lease liabilities are calculated and recorded on the lease commencement date. The standard had a material impact in the Company’s 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 statementstatements of operations for the nine months ended September 30, 2018 have been outlined as follows:cash flows.
Condensed consolidated statement of operations changes Reported for the Nine Months Ended September 30, 2018 Adjustments for the Nine Months Ended September 30, 2018 Amounts Without Adoption of Topic 606 for the Nine Months Ended September 30, 2018 
Net sales$371,718 $5,544 $377,262 
Cost of sales244,297 (13)244,284 
Revenue recognitionLease accounting policy
The Company’s revenueCompany determines if an arrangement is primarily 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 its products through its indirect channel, including retailers and distributors; (2) sales of its products through its 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,June 30, 2019, the websites is not a part of, and is not incorporated by reference into, this report) and its corporate-owned ZAGG-branded store; and (3) from franchise fees derived fromCompany only has operating leases. For operating leases, the on-boarding of new franchisees and sales of its products to franchisees. The Company’s revenue is measuredCompany measures lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. As most of its leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on relevant information available at each leases' commencement date in determining the present value of future payments for each individual lease. ROU assets are measured as the sum of the amount of consideration it expects to receive, reduced by estimates for variable consideration which includes 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.
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For substantially allinitial measurement of the Company's sales,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 leases that will be recognized when it is reasonably certain that the performance obligation is met and revenueCompany will exercise that option. Lease expense for operating leases is recognized aton a point in time when control of the goods is transferred to the customer, which generally occurs upon delivery to the customer or to the shipping carrier.
For franchise fees, revenue is derived from the sale of licenses, training, equipment and marketing, among other items. The Company recognizes franchise fee revenue for performance obligationsstraight-line basis over the franchise contractual term using a straight-line basis.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and are collected by the Company from a customer, are excluded from revenue.
Sales returns, discounts and other credits
The nature of the Company’s 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. The Company estimates these amounts based on the expected amount to be provided to customers and reduces revenue accordingly for each transaction.lease term.
The Company estimateshas lease agreements with lease and non-lease components under the definition of Topic 842. Upon adoption of Topic 842, the Company elected a reservepractical expedient not to separate the lease and non-lease components for sales returns, discounts,its leases for physical space and other credits,equipment and records the respective estimated reserve amounts, includingaccounts for them as 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.single lease component.
Contract balancesLease information
The following table provides information about receivables, rightCompany has operating leases for offices, retail stores, and warehouse space that expire through 2027. The Company’s leases have remaining lease terms of return assets, contract liabilities, refund liabilities, and warranty liabilities from contracts with customers as7 months to 9 years, some of September 30, 2018:
September 30, 2018
Receivables, which comprises the balance in accounts receivable, net of allowances $115,801 
Right of return assets, which are included in prepaid expenses and other current assets 1,139 
Refund liabilities, which are included in sales return liability 39,195 
Warranty liabilities, which are included in sales return liability 4,311 
Contract liabilities, which are included in accrued liabilities439 
The current balance ofwhich include options to extend the right of return assets is the estimated amount of inventoryleases up to be returned that is expected to be resold. The current balance of contract liabilities primarily relates to the advance consideration received from customers for products for which transfer of control has not yet occurred, and therefore recognition of revenue is deferred until the transfer of control has been completed. The current balance of refund liabilities is the expected amount of estimated sales returns, discounts and other credits from sales that have occurred. The current balance of warranty liabilities is the expected amount of warranty claim returns from sales that have occurred. 
10 years. The following summarizes the activities in the Company’s warrantyROU assets and lease liabilities for the ninesix months ended SeptemberJune 30, 2018:2019:
Balance
Beginning Balance as of January 1, 2019Adoption of Topic 842AdditionsAmortizationEnding Balance as of June 30, 2019
ROU assets$— $8,842 $2,604 $(1,066)$10,380 
Lease liabilities— 13,046 2,131 (1,134)14,043 
For the three and six months ended June 30, 2019, the rent expense was $799 and $1,652, respectively. For the three and six months ended June 30, 2018, the rent expense was $818 and $1,546, respectively. Rent expense was recognized on a basis which approximates straight-line over the lease term and was recorded as a component of December 31, 2017
$4,189 
Additions9,249 
Warranty claims charged(9,125)
Foreign currency translation gain(2)
Balance as of September 30, 2018$4,311 
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 June 30, 2019, the Company had a weighted-average remaining lease term of 5.4 years and a weighted-average discount rate used to calculate the lease liability of 4.42%.
Future maturities of lease liabilities as of June 30, 2019 were as follows:
Remaining 2019$1,801 
20203,199 
20212,718 
20222,738 
20232,203 
Thereafter3,144 
Total lease payments$15,803 
Less: imputed interest(1,760)
Lease liabilities$14,043 
No other leases have been entered into under which the Company has significant rights and obligations as the lessee except those noted above.
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Minimum rental payments for operating leases required under Topic 840 as of December 31, 2018 are as follows:
2019$3,198 
20202,842 
20212,457 
20222,517 
20231,976 
Thereafter2,098 
Total operating lease commitments$15,088 

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• The Company recognizes the cost for shipping and handling as a fulfillment activity after control over products have transferred to the customer. For product sales, the standard shipping terms are FOB shipping point under which revenue is recorded when the product is shipped, net of estimated returns and discounts. Shipping and handling costs are included in cost of sales.
• 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 the Company recognizes revenue at the amount to which it has 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.
The percentage of net sales related to the Company’s key product lines for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, was approximately as follows:
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
Screen Protection 63%  57%  56%  52%  
Power Management 22%  19%  27%  18%  
Power Cases 5%  12%  6%  18%  
Keyboards 6%  5%  6%  6%  
Audio 3%  6%  4%  6%  
Other 1%  1%  1%  0 %  
For the Three Months EndedFor the Six Months Ended
June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Protection (screen protection and cases)54%  55%  56%  52%  
Power (power management and power cases)34%  34%  32%  36%  
Audio3%  4%  4%  5%  
Productivity (keyboards and other)9%  7%  8%  7%  
The percentage of net sales related to the Company’s key distribution channels for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, was approximately as follows:
Three Months Ended Nine Months Ended For the Three Months EndedFor the Six Months Ended
September 30, 2018September 30, 2017September 30, 2018September 30, 2017June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Indirect channel Indirect channel 88%  90%  88%  89%  Indirect channel85%  88%  82%  88%  
Website Website 7%  7%  8%  8%  Website10%  8%  12%  8%  
Franchisees Franchisees 5%  3%  4%  3%  Franchisees5%  4%  6%  4%  
The percentage of net sales related to the Company’s key geographic regions for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, was approximately as follows:
Three Months Ended Nine Months Ended For the Three Months EndedFor the Six Months Ended
September 30, 2018September 30, 2017September 30, 2018September 30, 2017June 30, 2019June 30, 2018June 30, 2019June 30, 2018
United States United States 85%  85%  84%  86%  United States74%  85%  72%  83%  
Europe Europe 8%  9%  9%  8%  Europe15%  10%  14%  10%  
Other Other 7%  6%  7%  6%  Other11%  5%  14%  7%  

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Recent Accounting PronouncementsContract Balances
In February 2016,Timing of revenue recognition may differ from timing of invoicing to customers or timing of consideration received. The following table provides information about receivables, right of return assets, contract liabilities, refund liabilities, and warranty liabilities from the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“Topic 842”),which modifies the accounting for leases, intending to increase transparencyCompany’s contracts with customers as of June 30, 2019 and comparabilityDecember 31, 2018:
June 30, 2019December 31, 2018
Receivables, which comprises the balance in accounts receivable, net of allowances$102,578 $156,667 
Right of return assets, which are included in prepaid expenses and other current assets706 999 
Refund liabilities, which are included in sales return liability33,904 49,786 
Warranty liabilities, which are included in sales return liability3,618 4,646 
Contract liabilities, which are included in accrued liabilities60 96 
The current balance of organizations by requiring balance sheet presentation of leased assets and increased financial statement disclosure of leasing arrangements. Topic 842 will require entities to recognize a liability for their lease obligations and a corresponding asset representing the right to useof return assets is the underlying asset over the lease term. Lease obligations areestimated amount of inventory to be measured at their present value and accounted for using the effective interest method. The accounting for the leased asset will differ slightly depending on whether the agreementreturned that is deemedexpected to be a financing or operating lease. For financing leases,resold. The current balance of refund liabilities is the leased assetexpected amount of estimated sales returns, discounts and other credits from sales that have occurred. The current balance of warranty liabilities is depreciated on a straight-line basisthe 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 products for which transfer of control has not yet occurred and depreciation expensetherefore, revenue is recorded separately fromdeferred and will be recognized when the interest expensetransfer of control has been completed.
During the three and six months ended June 30, 2019, revenue recognized that was included in the statements of operations, resulting in higher expense in the earlier part of the lease term. For operating leases, the depreciation and interest expense components are combined, recognized evenly over the term of the lease, and presented as a reduction to operating income. Topic 842 requires that assets and liabilities be presented or disclosed separately, and requires additional disclosure of certain qualitative and quantitative information related to these lease agreements. Topic 842 is effective for annual and interim periods beginning after December 15, 2018. In addition, in July 2018, the FASB issued ASU No. 2018-11 “Targeted Improvements” to provide an additional transition method whereby entities are allowed to initially apply Topic 842 by adjusting equity at the adoption date. The Company plans to adopt the standard using the modified retrospective approach beginning January 1, 2019. The Company expects to elect the package of practical expedients upon adoption, 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.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on reported results of operations. A reclassification has been made with a $2,347 reduction to accrued liabilities and a $2,347 increase to sales returnscontract liability both current liabilities.
(2) ACQUISITION OF BRAVEN
On July 20, 2018 (the “Acquisition Date”), ZAGG Amplified, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (the “Buyer”), entered into and closed an asset purchase agreement with Incipio LLC (“Incipio”) to acquire BRAVEN Audio (“BRAVEN”) (the “BRAVEN Acquisition”). In connection with the BRAVEN Acquisition, the Buyer acquired accounts receivable, inventory, property and equipment, intellectual property, a product and engineering team, and certain other assets as well as assumed certain liabilities for total consideration of $5,000 in cash, adjusted by accounts receivable and accounts payable of $549 for a net purchase price of $4,451. As agreed in the purchase agreement, the Buyer retained a reserve of $500 for indemnity claims to be paid 12 months (the “Indemnity Holdback") following the Acquisition Date; the Indemnity Holdback is included in accrued liabilities in the accompanying condensed consolidated balance sheet as of September 30, 2018. Any remaining amount of the Indemnity Holdback shall be remitted to Incipio as specified in the purchase agreement. BRAVEN products include rugged Bluetooth® speakersDecember 31, 2018, was $25 and earbuds, which are expected to expand the Company’s product profile and markets and may amplify its brands and increase the long-term value of its business.$36, respectively.
The following summarizes the purchase consideration andactivities in the cash outflow atCompany’s warranty liabilities for the Acquisition Date:six months ended June 30, 2019:
Balance as of December 31, 2018September 30, 2018$4,646 
Additions4,744 
Warranty claims charged(5,772)
Balance as of June 30, 2019$3,618 

(3) ACQUISITIONS
Acquisition of HALO
On January 3, 2019, (the “HALO Acquisition Date”), ZAGG Hampton LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, entered into a membership interest purchase agreement (the “Purchase Agreement”) with Halo2Cloud, LLC (“HALO”) and its equity owners to acquire all of the 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 wall chargers, portable power, and other accessories. The Company acquired HALO to expand its product and intellectual property portfolio, and to enter into new distribution channels.
The total purchase consideration for the HALO Acquisition was $23,943 in cash, 1,458 shares of the 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.
As 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 as 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 ending 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.
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The following summarizes the components of the purchase consideration for HALO:
NetCash consideration$23,943 
Company common stock12,968 
Contingent consideration1,593 
Total purchase price$4,451 
Indemnity Holdback(500)
Total cash outflow$3,95138,504 

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The nettotal purchase price of $4,451$38,504 has been allocated to identifiable assets acquired and liabilities assumed based on their respectivepreliminary 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: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:
September 30, 2018
Accounts receivable Cash$6501,151 
Accounts receivable2,436 
Inventory2,889 
Inventory step up2,320494 
Prepaid expenses and other assets1,310 
Property and equipment368627 
Amortizable identifiable intangible assets1,77427,554 
Goodwill29815,922 
Operating lease right of use assets748 
Accounts payable(959)(2,867)
Income tax payable(501)
Accrued expenses(255)
Accrued wages and wage related expenses(324)
Sales return liability(2,728)
Deferred tax liability(6,177)
Lease liabilities(1,775)
Total$4,45138,504 
The Company is still finalizing the fair value measurements of the assets acquired and liabilities assumed, and therefore, the Company’s fair value estimates for the 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 from 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 patents and technology,technologies, trade names, and backlog.customer relationships. The fair value of the identifiable intangible assets was determined using various valuation methods, including the income and cost approaches.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 discount 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.
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The cost approach determined the valuation of the identifiable intangible assets by applying the concept of replacement cost whereby a prudent investor is believed not willing to pay for an asset more than the cost to replace such asset. Thepreliminary amounts assigned to each class of intangible asset and the related weighted average amortization periods are as follows:
Intangible Asset ClassWeighted Average Amortization Period
Patents and technology Technologies$87214,187 3.18.9 years
Trade names9014,409 10.0 years
Backlog Customer relationships18,958 0.58.0 years
Total$27,554 1,774 
Goodwill
Goodwill represents the excess of the BRAVENHALO 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.
Acquisition Costs
(3)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 and six months ended June 30, 2019 was $36 and $283, respectively, which were included as a component of operating expenses on the consolidated statements of operations.
Results of Operations
The results of operations 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 June 30, 2019, HALO generated net sales of $5,198 and had a net loss before tax of $3,761.
Acquisition of Gear4
On November 30, 2018, Patriot Corporation Unlimited Company, an entity registered and incorporated in Ireland and a wholly-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 acquire from STRAX all of the issued and outstanding equity securities of Gear4 (the “Gear4 Acquisition”).
Pro Forma Results of Operations for HALO and Gear4
The following pro-forma results of operations for the three months ended June 30, 2018, and for the six months ended June 30, 2019, and 2018, give pro forma effect as if the acquisitions of HALO and Gear4 and the related borrowings used to finance the acquisition had occurred on January 1, 2018, 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 EndedFor the Six Months Ended
June 30, 2018June 30, 2019June 30, 2018
Net sales$123,245 $185,546 $239,373 
Net (loss) income$(97)$(18,538)$1,745 
Basic (loss) earnings per share$(0.01)$(0.64)$0.06 
Diluted (loss) earnings per share$— $(0.64)$0.06 

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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 consummated 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.
The nonrecurring pro forma adjustments attributable to the pro forma results of operations are as follows:
For the Three Months EndedFor the Six Months Ended
June 30, 2018June 30, 2019June 30, 2018
Amortization expense$1,667 $59 $3,333 
Transaction costs$327 $(283)$606 
Amortization of fair value adjustment to inventory$198 $(494)$589 
Interest from the amended credit facility and amortization of debt issuance costs$433 $— $866 
The pro forma results do not reflect events that either have occurred or may occur after the HALO Acquisition and Gear4 Acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods.
(4) INVENTORIES
Inventories consisted of the following as of SeptemberJune 30, 20182019, and December 31, 2017:2018:
September 30, 2018December 31, 2017June 30, 2019December 31, 2018
Finished goods Finished goods $78,398 $74,734 Finished goods$108,781 $81,397 
Raw materials Raw materials 268 312 Raw materials1,784 1,522 
Total inventories Total inventories $78,666 $75,046 Total inventories$110,565 $82,919 
Included in prepaid expenses and other current assets were inventory deposits with third-party manufacturers of $2,361$382 and $1,906$382 as of SeptemberJune 30, 20182019, and December 31, 2017,2018, respectively.

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(4)(5) GOODWILL AND INTANGIBLE ASSETS
There was no change in goodwill during the three months ended June 30, 2019. During the three and ninesix months ended SeptemberJune 30, 2018,2019, goodwill increased in connection with the BRAVENHALO Acquisition. The following table summarizes the changes in goodwill during the ninesix months ended SeptemberJune 30, 2018:2019:
Balance as of December 31, 2017 2018$12,27227,638 
Increase in connection with BRAVENHALO Acquisition29815,922 
Balance as of SeptemberJune 30, 2018 2019$12,57043,560 
There was no change in goodwill during the three and ninesix months ended SeptemberJune 30, 2017.2018.
There were no additions to intangible assets for the three months ended June 30, 2019. In connection with the BRAVENHALO Acquisition, intangible assets increased $1,774$27,554 for patents and technology, trade names, and backlogcustomer relationships for the three and ninesix months ended SeptemberJune 30, 2018.2019. There were no additions to intangible assets for the three and ninesix months ended SeptemberJune 30, 2017. There2018. Additionally, there were no impairments of intangible assets for the three and ninesix months ended SeptemberJune 30, 2019, and 2018. Additionally, there were no impairments to intangible assets for the three months ended September 30, 2017. The following table summarizes the impairments of gross intangible assets for the nine months ended September 30, 2017:
Balance as of December 31, 2016$108,659 
Impairment loss on patent (2,777)
Balance as of September 30, 2017$105,882 
On April 11, 2017, 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 of March 31, 2017. Consequently, for the nine months ended September 30, 2017, the Company recorded an impairment loss to intangible assets consisting of a reduction of gross carrying amount of $2,777, accumulated amortization of $818, and net carrying value of $1,959 to reduce the net carrying value of the canceled patent to $0.
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Intangible assets, net of accumulated amortization as of SeptemberJune 30, 20182019, and December 31, 2017,2018, were as follows:
September 30, 2018December 31, 2017June 30, 2019December 31, 2018
Trade names Trade names $16,340 $17,854 Trade names$28,634 $26,988 
Patents and technology Patents and technology 9,537 10,981 Patents and technology20,281 8,723 
Customer relationships Customer relationships 5,752 9,259 Customer relationships21,027 15,560 
Non-compete agreements Non-compete agreements 868 1,137 Non-compete agreements599 778 
Other Other 8 13 Other1 5 
Total intangible assets, net of accumulated amortization Total intangible assets, net of accumulated amortization $32,505 $39,244 Total intangible assets, net of accumulated amortization$70,542 $52,054 
The total weighted average useful lives of intangible assets as of SeptemberJune 30, 20182019, and December 31, 2017,2018, was 8.18.3 years and 8.28.3 years, respectively.
(5)(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’sCompany's effective tax rate for the three and ninesix months ended SeptemberJune 30, 20182019, was 18%13% and 17%20%, respectively. The Company’s effective tax rate for the three and ninesix months ended SeptemberJune 30, 20172018, was 37%23% and 47%15%, respectively. The change in the effective tax rate for the three and nine months ended SeptemberJune 30, 20182019, compared to the three and nine months ended SeptemberJune 30, 20172018, was primarily due to the impact of a discrete item for restricted stock unit awards relative to pre-tax book income for the period. The change in the effective tax rate for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, was due to several factors including but not limited to a changedifference in the federal statutory rate from 35% to 21% andamount of the effectdiscrete item for restricted stock unit awards, as well as an increase in the amounts disallowed under §162(m) of discrete items.the Internal Revenue Code. 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.

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(6) DEBT AND LINE OF CREDIT
Long-term debt, net as of September 30, 2018 and December 31, 2017, was as follows:
September 30, 2018December 31, 2017
Line of credit $28,000 $23,475 
Long-term debt, net of deferred loan costs of $0 and $141 — 13,922 
Total debt outstanding 28,000 37,397 
Current portion of total debt outstanding, net of deferred loan costs of $0 and $141 — 37,397 
Total long-term debt outstanding $28,000 $— 
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 $521 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 $739 remaining as of September 30, 2018 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.
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.

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(7) STOCK-BASED COMPENSATION
The grant of restricted stock units with respective weighted-average fair value per share for the three and ninesix months ended SeptemberJune 30, 20182019, and 20172018, is summarized as follows:
Three Months EndedNine Months EndedFor the Three Months EndedFor the Six Months Ended
September 30, 2018September 30, 2017September 30, 2018September 30, 2017June 30, 2019June 30, 2018June 30, 2019June 30, 2018
GrantedGranted14 45 293 479 Granted—197 643 278 
Weighted average fair value per shareWeighted average fair value per share$15.80 $8.65 $12.64 $6.77 Weighted average fair value per share$— $11.65 $9.82 $12.48 
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 293643 and 479278 restricted stock units granted during the ninesix months ended SeptemberJune 30, 20182019, and 2017,2018, the Company granted 182287 and 372167 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, and/or specific goals for the individual executive, and (2) continued employment through the applicable vesting date.
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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. The following isare stock-based compensation expenses related to restricted stock units recorded for the three and ninesix months ended SeptemberJune 30, 2019, and 2018, and 2017, which isare included as a component of selling, general, and administrative expense on the condensed consolidated statement of operations:
Three Months EndedNine Months Ended
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
Stock-based compensation expense related to restricted stock units$757 $899 $2,165 $2,536 
For the Three Months EndedFor the Six Months Ended
June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Stock-based compensation expense related to restricted stock units$1,475 $807 $2,660 $1,408 
During the ninesix months ended SeptemberJune 30, 20182019, and 2017,2018, certain Company 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 $2,723$848 and $240$2,631 reflected as a reduction of additional paid-in capital, respectively. Of the $2,723$848 recorded as a reduction of additional paid-in capital, $93$66 was included in accrued wages and wage related expenses as of SeptemberJune 30, 2018.2019.
(8) EARNINGS (LOSS) PER SHARESHARE:
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 ninesix months ended SeptemberJune 30, 20182019, and 2017:2018:
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
Net income $14,626 $9,776 $24,871 $7,041 
Weighted average shares outstanding: 
Basic 28,241 27,969 28,250 27,996 
Dilutive effect of restricted stock units 322 412 390 233 
Diluted 28,563 28,381 28,640 28,229 
Earnings per share: 
Basic $0.52 $0.35 $0.88 $0.25 
Diluted $0.51 $0.34 $0.87 $0.25 

For the Three Months EndedFor the Six Months Ended
June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Net (loss) income$(5,336)$3,216 $(19,760)$10,245 
Weighted average shares outstanding:
  Basic29,064 28,299 28,974 28,254 
  Dilutive effect of restricted stock units— 367 — 425 
  Diluted29,064 28,666 28,974 28,679 
Earnings (loss) per share:
  Basic$(0.18)$0.11 $(0.68)$0.36 
  Diluted$(0.18)$0.11 $(0.68)$0.36 
For the three and ninesix months ended SeptemberJune 30, 2018, 65 and 982019, 966 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 and six months ended June 30, 2018, 114 restricted stock units used to purchase shares of common stock were not considered in calculating diluted earnings per share respectively, as their effect would have been anti-dilutive. For the three and nine months ended September 30, 2017, there were no restricted stock units excluded from the calculation of diluted earnings per share.
(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, the Company's 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 the Company's outstanding common stock.
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As of SeptemberJune 30, 20182019, and December 31, 2017,2018, a total of $11,461$20,000 and $17,558$5,462 remained authorized under the respective stock repurchase program, respectively.programs.
The Company repurchased shares for the three and ninesix months ended SeptemberJune 30, 2019, and 2018, presented as follows:
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
Shares repurchased 201 — 383 234 
Cash consideration paid  $3,091 $— $6,097 $1,492 
Commissions to brokers included in cash consideration paid $8 $— $15 $9 
Weighted average price per share repurchased $15.36 $— $15.90 $6.35 

For the Three Months EndedFor the Six Months Ended
June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Shares repurchased— 182 72 182 
Cash consideration paid$— $3,006 $722 $3,006 
Commissions to brokers included in cash consideration paid$— $7 $2 $7 
Weighted average price per share repurchased$— $16.49 $10.00 $16.49 
The consideration paid has been recorded within stockholders’ equity in the condensed consolidated balance sheet.



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(10) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office and warehouse space, office equipment, and a retail store location under operating leases that expire through 2026. Future minimum rental payments required under the operating leases as of September 30, 2018, were as follows:
2018$567 
20193,001 
20202,829 
20212,450 
20222,510 
Thereafter 4,068 
Total operating lease commitments $15,425 
For the three and nine months ended September 30, 2018, rent expense was $768 and $2,314, respectively. For the three and nine months ended September 30, 2017, rent expense was $736 and $2,179, 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, ZAGG 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 ZAGG 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 parties have reached a confidential settlement, and Anker and Fantasia have ceased sales of the battery cases accused of infringement. The Anker Lawsuit was dismissed in June 2019.
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. On July 13, 2018, Best Case and Accessories, Inc. filed a complaint against the Company. The Company disputes Anker’s contentionshad previously sent a letter to Best Case and will defendAccessories, Inc. alleging that it was using product packaging and display trade dress that is confusingly similar to the claimsCompany's trade dress. In the complaint, Best Case and otherwiseAccessories, Inc. alleges that it does not infringe the Company's trade dress and that the Company tortuously interfered with Best Case and Accessories, Inc.'s business relationships, which the Company disputes. On February 8, 2019, the Company filed a Complaint for trade dress infringement against Best Case and Accessories, Inc. 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.  The matter is scheduled for trial in November 2019.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, Dan Dolar (“Dolar”) filed a complaint against mophie inc. (“mophie”) alleging, among other things, violation of California Consumers Legal Remedies Act, California False Advertising Law, breach of express warranty, violation of the Magnuson-Moss Warranty Act, violation of California Unfair Competition Law, and violation of state Consumer Protection Statutes. The complaint alleged that mophie mischaracterizes the mAh ratings of the batteries in its products, and asked the court to certify a class of Californians who purchased mophie battery-enabled products. On June 14, 2019, the court dismissed the complaint without prejudice at Dolar’s request so that Dolar’s claims could be pursued in the United States District Court in the case of Young v. Mophie Inc., Case No. 8:19-cv-00827-JVS-DFM, discussed below.
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Michael Young and Dan Dolar, individually and on behalf of other similarly situated individuals, Plaintiff, v. Mophie Inc., Defendant, United States District Court, Central District of California, Case No. 8:19-cv-00827-JVS-DFM. This action started with a complaint filed by Young against mophie inc. (“mophie”) on May 2, 2019. On June 13, 2019, Young and Dolar joined together as plaintiffs and filed a first amended complaint (the “FAC”). In the FAC, Young and Dolar allege, among other things, that mophie has engaged in unfair and deceptive acts and practices in violation of the California Consumer Legal Remedies Act, violation of California’s False Advertising Law, violation of California’s Unfair Competition Law, violation of the Florida Deceptive and Unfair Trade Practices Act, violation of purportedly material identical state consumer protection statutes in various other states, violation of the Magnuson-Moss Warranty Act, breach of express warranty, and unjust enrichment. The FAC is based on Young’s and Dolar’s allegation that mophie mischaracterizes the mAh ratings of the batteries in certain of its products. Young and Dolar seek to certify a class of consumer nationwide and in various states who purchased mophie battery-enabled products. The FAC does not specify an amount of damages claimed, but alleges that damages will be in excess of $5,000. On July 11, 2019, mophie filed a motion to dismiss all of the claims asserted in the action. mophie denies that it has engaged in the alleged practices and intends to vigorously defend the lawsuit.
SEC Investigation
The Company has reached an agreement with the Staff of the SEC to settle the previously disclosed an investigation by the SEC related to facts and circumstances surrounding former Chief Executive Officer Robert Pedersen’s pledge and subsequent sale of Company shares and the fact that such pledges and sales were not disclosed in the Company’s 2011 10-K filed on March 15, 2012, or 2012 Proxy filed on April 27, 2012. Without admitting or denyingOn March 7, 2019, the allegations contained inStaff of the order,SEC informed the Company that, after additional consideration and analysis, it has agreeddecided to pay a civil penalty interminate the amount of $75 toinvestigation and dismiss the SEC and has consented to the entry of an order with respect to violations of Section 13(a) of the Exchange Act and Rule 13a-1 promulgated thereunder, which relate to disclosures in the annual report. The agreement remains subject to final approval by the Commission.matter.
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 losses in the condensed consolidated financial statements as of SeptemberJune 30, 20182019, due to the fact that either the losses are immaterial or the losses are not considered 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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(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,customarily exceed federally insured limits. The Company has not experienced any losses in cash accounts for the ninesix months ended SeptemberJune 30, 20182019, and 2017.2018.
As of SeptemberJune 30, 20182019, and December 31, 2017,2018, three and two separate customers were equal to or exceeded 10% of the balance of accounts receivable, respectively, as follows:
September 30, 2018December 31, 2017June 30, 2019December 31, 2018
Superior Communications, Inc. (“Superior”) Superior Communications, Inc. (“Superior”) 45%  31%  Superior Communications, Inc. (“Superior”)19%  50%  
Best Buy Co., Inc. (“Best Buy”) Best Buy Co., Inc. (“Best Buy”) 18%  18%  Best Buy Co., Inc. (“Best Buy”)11%  15%  
Verizon Wireless ("Verizon")Verizon Wireless ("Verizon")19%  1%  
The Company established a direct sales relationship with Verizon during the second half of 2018. Previous to the Company's direct sales relationship with Verizon, Verizon purchased the Company's products through Superior. No other customer account balances were more than 10% of accounts receivable as of SeptemberJune 30, 20182019, 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
The Company does not directly manufacture any of its products; rather, the Company employs various third-party manufacturing partners in the United States and Asia to perform these services on its 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. The Company has endeavored to use common components and readily available raw materials in the design of its 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. The film supplier has contractually agreed not to sell the raw materials to any of the Company’s competitors.
Below is a high-level summary by product category of the manufacturing sources used by the Company:
• Screen Protection – The 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. The InvisibleShield film and ISOD products are sourced through the Company’s third-party logistics partner, who purchases the raw film inventory from a single supplier (as discussed above).
• Battery Cases and Power Management – The battery case and power management product lines consist 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. The 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 – The 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. The 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 – The audio product line consists of speakers, earbuds and headphones that are designed to be compatible with virtually all electronic mobile devices. The 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.
The Company’s 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 the Company’s supply needs.

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Concentration of net sales
For the three and nine months ended SeptemberJune 30, 20182019, Verizon accounted for over 10% of net sales, and 2017,for the three and six months ended June 30, 2018, Superior and Best Buy accounted for over 10% of net sales, as follows:
Three Months Ended Nine Months Ended For the Three Months EndedFor the Six Months Ended
September 30, 2018September 30, 2017September 30, 2018September 30, 2017June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Superior Superior 36%  32%  33%  31%  Superior5%  34%  6%  31%  
Best Buy Best Buy 12%  12%  11%  10%  Best Buy9%  11%  9%  10%  
VerizonVerizon13%  —%  9%  —%  
For the three and ninesix months ended SeptemberJune 30, 20182019, and 2017,2018, no other customers accounted for greater than 10% of net sales.
Although the Company has contracts in place governing the relationships with its retail distribution customers (“retailers”), the contracts are not long-term and all the retailers generally purchase from the Company on a purchase order basis. As a result, these retailers generally may, with little or no notice or penalty, cease ordering and selling the Company’s products, or materially reduce their orders. If any of these retailers cease selling the Company’s products, slow their rate of purchase of its products, or decrease the number of products they purchase, the Company’s results of operations could be adversely affected.
Concentration of region
The percentage of net sales by geographic region for the three and nine months ended September 30, 2018 and 2017, was approximately:
Three Months Ended Nine Months Ended 
September 30, 2018September 30, 2017September 30, 2018September 30, 2017
United States 85%  85%  84%  86%  
Europe 8%  9%  9%  8%  
Other 7%  6%  7%  6%  

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “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 Inc and its subsidiaries (“we,” “us,” “our,” “ZAGG,” or the “Company”) are anglobal innovation leaderleaders in accessories and technologies that empower mobile tech accessories for smartphones and tablets, and are committedlifestyles, with a commitment to enhance every aspect of performance, productivity, and durability in mobile devices with our creative product solutions. We wereOur 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 our mission is to ensure better performance inenable the real world.optimal mobile lifestyle through the use of our products.
In addition to our home-grown brands, we 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. We 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®IFROGZ®, BRAVEN®, Gear4®, and BRAVEN®HALO® brands.
We maintain our corporate headquarters at 910 West Legacy Center Way, Suite 500, Midvale, Utah 84047. Our telephone number is (801) 263-0699, and our website addresses are www.ZAGG.com, www.mophie.com, www.gear4.com, and www.mophie.comwww.BestHALO.com (the URLs are included here as an 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).
We have established four corporate objectives and seven core values to act as a foundation for our corporate culture and guide us daily:
zagg-20190630_g1.jpg
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Corporate ObjectivesCore Values
The Preferred BrandCreative Product SolutionsIntegrity
Creative Product SolutionsTargeted Global DistributionOwnership
Targeted Global DistributionOperational ExcellenceCare for People
Operational ExcellenceThe Preferred BrandPassion
Continuous Improvement
Performance
Sense of Urgency
The corporate objectives are intended to align our functional teams’ goals and execution. Every one 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 our 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 likeAdditionally, we have done with our EZ Apply® tabs, which are designed to help users align and apply InvisibleShield products. We also 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.
InvisibleShield Glass is designed to provide premium screen protection and clarity, along with a superior feel and universally compatible touch sensitivity. During the third quarter of 2018, we launched InvisibleShield Glass + VisionGuard™ for Apple®for the iPhone Xs, iPhone Xs Max® smartphones, Apple iPad® tablets and iPhone XRGoogle® Pixel® smartphones, which features protective EyeSafe®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 2019 we introduced InvisibleShield Ultra VisionGuard™ and Ultra Clear™ for select smartphone models that offer maximum clarity and shatter protection with an advanced glass-like surface that feels as smooth as the smartphone’s original screen.
We have maintained the leading market share in screen protection in the United States (“U.S.”) and have maintained that leading positionthe United Kingdom (“U.K.”) 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 is one of the top selling smartphone case brands in the 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 many 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 power and charging 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 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.
mophie’s innovative new universal wireless charging pad ispads are designed to provide an optimized charging experience with the latest Qi wireless charging technology for universal compatibility. During the third quarter of 2018, new charge stream powerstationspowerstation® products were launched to ensure customersconsumers have access to easy, fast and convenient wireless charging anywhere and anytime for Apple, Samsung®®, Samsung® and other Qi-enabled mobile devices. In 2019, we launched the following products:

•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;
•a new line of universal batteries with four capacities, featuring multiple charging ports including a shared USB-C input and output port, and the powerstation hub portable battery with convenient foldable AC power prongs that can be used as a wall outlet hub or as a portable battery; and
•new charging accessories, including a new wireless charging pad, two car chargers and a variety of USB cables for Apple products.
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.
20HALO Products

HALO is a leader in providing direct-to-consumer accessories backed by an extensive intellectual property portfolio designed to make consumers' lives easier through empowering mobile lifestyles. Driven by innovative styling and technology, HALO products are at the nexus of fashion and function. 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 the televised home shopping and e-commerce space.
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. This eclectic selection of earbuds and headphones specifically targetedtarget a younger demographic while still appealing to a wide spectrum of consumers. DuringIn the third quarterfirst half of 2018,2019, we introducedlaunched the Sound HubAIRTIMETM ™ wireless earbud family. With this new line of wireless audio, customers have more customized options for their wireless audio as itsTruly Wireless Earbuds, which include quick-charging and an auto-pair technology that connects both earbuds to any Bluetooth® receiver turns any device with a 3.5mm jack, such as headphones, earbuds, and speakers, into a wireless audio device.seamlessly.
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 iFrogz and EarPollution and IFROGZ brands.product lines.
BRAVEN Products
DuringBRAVEN products innovate the third quarter of 2018, we acquired BRAVEN Audio to expand our product profile. BRAVEN products are designedrugged 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 developcontinue to expand the BRAVEN brand into one of the fastest growing wireless audio brands in the industry.brand.
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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, we have continually reinvented the ZAGG line of keyboards while also providing timely, curated solutions for new devices released by Apple, Microsoft®, and Samsung, as well as other leading mobile device manufacturers.providers. In addition to device-specific keyboards and folio keyboard cases, the ZAGG line of universal full-size Bluetooth keyboards are designed to be compatible with virtually any device and mobile operating system. DuringIn early 2019, we unveiled the third quarter of 2018, we expanded our keyboard lineup with the Flex® universal keyboardSlim Book™ Go, Rugged Book™ Go, and stand,Messenger Folio™ keyboards for iPad and iPad Pro models which featuresfeature 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.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 20172018 Form 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.
Revenue recognition accounting policy
Our 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. Our 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.
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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 us from a customer, are excluded from revenue.
Topic 606 has required significant changes to how our revenue is recognized. Updates to our accounting policies have been made as part of adoption of this new standard. These changes to our accounting policies and procedures under the new standard have most significantly impacted the estimates previously used to determine our sales returns, discounts and other credits. The new variable consideration calculations for these estimates apply assumptions required by Topic 606, which require judgment. In applying these new assumptions, and in the application of Topic 606, we have determined that the updated accounting policies and estimates 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 us. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue accordingly on the invoice date.
We estimate variable consideration for sales returns, discounts, and other credits, and record the respective estimated 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 (Amounts in thousands, except per share data)
Three months ended SeptemberJune 30, 20182019 and 20172018
For the Three Months Ended
June 30, 2019June 30, 2018
Amount% of Net SalesAmount% of Net Sales
Net sales$106,796 100.0 %$118,565 100.0 %
Gross profit37,759 35.4 %37,657 31.8 %
Operating expenses43,978 41.2 %32,464 27.4 %
Other income (expense), net89 0.1 %(1,027)(0.9)%
Income tax benefit (provision)794 0.7 %(950)(0.8)%
Net (loss) income(5,336)(5.0)%3,216 2.7 %
Net sales
Net sales for the three months ended SeptemberJune 30, 2018,2019, were $141,087,$106,796, compared to net sales of $134,398$118,565 for the three months ended SeptemberJune 30, 2017, an increase2018, a decrease of $6,689,$11,769 or approximately 5%10%. The $6,689 increase$11,769 decrease in net sales was primarily attributable to (1) increaseda decrease in sales of screen protection products in key wireless and retail accounts driven bydue to a pull forward of shipments into the new iPhone launch as well as the introductionfourth quarter of the Glass + VisionGuard screen protection products,2018 ahead of a potential tariff increase and (2) the increase indecreased sales of ourmophie power management products, specifically relateddue to wireless charging accessories. These increaseschallenging sell-in comparisons during the second quarter of 2019 compared to the same period last year. Decreases in mophie power management were offset by HALO product sales. In addition, decreases in net sales were partially offset by a decrease in(1) increased sales of powerGear4 cases, and audio.
The percentage(2) a reduction of net sales related to our key product lines for the three months ended September 30, 2018credits and 2017, was approximately as follows:
Three Months Ended 
September 30, 2018September 30, 2017
Screen Protection 63%  57%  
Power Management 22%  19%  
Power Cases 5%  12%  
Keyboards 6%  5%  
Audio 3%  6%  
Other 1%  1%  

discounts.
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The percentage of net sales related to our key distribution channels for the three months ended September 30, 2018 and 2017, was approximately as follows:
Three Months Ended 
September 30, 2018September 30, 2017
Indirect channel 88%  90%  
Website 7%  7%  
Franchisees 5%  3%  
The percentage of net sales related to our key geographic regions for the three months ended September 30, 2018 and 2017, was approximately as follows:
Three Months Ended 
September 30, 2018September 30, 2017
United States 85%  85%  
Europe 8%  9%  
Other 7%  6%  
Gross profit
Gross profit for the three months ended SeptemberJune 30, 2018,2019, was $52,171,$37,759 or approximately 37%35% of net sales, compared to gross profit of $48,392,$37,657 or approximately 36%32% of net sales for the three months ended SeptemberJune 30, 2017.2018. The increase in gross profit margin was primarily attributable to the mixan increase in sales of screen protectionGear4 brand cases, HALO branded power products, our highestand InvisibleShield VisionGuard products, all which have a higher margin product category, which increased during the three months ended September 30, 2018, to approximately 63% of net sales compared to approximately 57% of net sales during the three months ended September 30, 2017.than historical averages.
Operating expenses
OperatingTotal operating expenses for the three months ended SeptemberJune 30, 2018,2019, were $33,915,$43,978, compared to operating expenses of $32,457$32,464 for the three months ended SeptemberJune 30, 2017,2018, an increase of $1,458,$11,514 or approximately 4%35%. The $1,458$11,514 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) increased marketing investments to support additional growthour growing portfolio of brands and products, (3) increased selling, general and administrative expense to support online channel and international geographic expansion, and (4) higher amortization of long-lived intangibles related to the Company,BRAVEN, Gear4 and (2) transaction costs incurred in connection with the acquisition of BRAVEN. These increases were partially offset by a decrease in depreciation expense resulting from lower carrying amounts of property and equipment during the three months ended September 30, 2018.
Income from operations
We recognized income from operations of $18,256 for the three months ended September 30, 2018, compared to income from operations of $15,935 for the three months ended September 30, 2017, an increase of $2,321.HALO acquisitions.
Other expense,income (expense), net
For the three months ended SeptemberJune 30, 2018,2019, total other income, net was $89 compared to total other expense, was $462 compared to other expensenet of $399$(1,027) for the three months ended SeptemberJune 30, 2017.2018. The increase in other expenseincome (expense) is primarily attributable to a lossgain recorded on settlement of liabilities and a gain on foreign exchange transactions, which wastransactions; partially offset by a reductionan increase of interest expense due to lower carryinghigher amounts of debt.
Income tax provisionbenefit (provision)
We recognized an income tax provisionbenefit of $3,168$794 for the three months ended SeptemberJune 30, 2018,2019, compared to $5,760an income tax provision of $(950) for the three months ended SeptemberJune 30, 2017.2018. Our effective tax rate was 18%13% and 37%23% for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The change in the effective tax rate for the three months endedJune 30, 2019, compared to the three months endedJune 30, 2018,was due primarily to several factors includingthe impact of a change indiscrete item for restricted stock unit awards relative to pre-tax book income for the federal statutory rate from 35% to 21% and the effect of discrete items. The Company’speriod. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items, the Company’sour global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.
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Net (loss) income
We recognizedAs a result of these factors, we reported net incomeloss of $14,626, with diluted earnings$(5,336) or $(0.18) per share of $0.51on a fully diluted basis for the three months ended SeptemberJune 30, 2018,2019, compared to $9,776, with diluted earningsnet income of $3,216 or $0.11 per share of $0.34,on a fully diluted basis for the three months ended SeptemberJune 30, 2017.2018.
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NineSix months ended SeptemberJune 30, 20182019 and 20172018
For the Six Months Ended
June 30, 2019June 30, 2018
Amount% of Net SalesAmount% of Net Sales
Net sales$185,546 100.0 %$230,631 100.0 %
Gross profit61,581 33.2 %75,250 32.6 %
Operating expenses84,860 45.7 %62,138 26.9 %
Other expense, net(1,437)(0.8)%(1,032)(0.4)%
Income tax benefit (provision)4,956 2.7 %(1,835)(0.8)%
Net (loss) income(19,760)(10.6)%10,245 4.4 %
Net sales
Net sales for the ninesix months ended SeptemberJune 30, 2018,2019, were $371,718,$185,546, compared to net sales of $342,571$230,631 for the ninesix months ended SeptemberJune 30, 2017, an increase2018, a decrease of $29,147,$45,085 or approximately 9%20%. The $29,147 increase$45,085 decrease in net sales was primarily attributable to (1) the increase in sales of our power management products, specifically related to wireless charging accessories, and (2) increases in screen protection products in key wireless and retail accounts driven by the new iPhone launch as well as the introduction of the Glass + VisionGuard screen protection products. These increases were partially offset by a decrease in sales of screen protection products due to a pull forward of shipments into the fourth quarter of 2018 ahead of a then-expected tariff increase and (2) decreased sales of mophie power cases and audio.
The percentagemanagement due to challenging sell-in comparisons during the first half of 2019. Decreases in mophie power management were offset by HALO product sales. In addition, decreases in net sales related to our key product lines for the nine months ended September 30, 2018 and 2017, was approximately as follows:
Nine Months Ended 
September 30, 2018September 30, 2017
Screen Protection 56%  52%  
Power Management 27%  18%  
Power Cases 6%  18%  
Keyboards 6%  6%  
Audio 4%  6%  
Other 1%  0 %  
The percentagewere partially offset by increased sales of net sales related to our key distribution channels for the nine months ended September 30, 2018 and 2017, was approximately as follows:
Nine Months Ended 
September 30, 2018September 30, 2017
Indirect channel 88%  89%  
Website 8%  8%  
Franchisees 4%  3%  
The percentage of net sales related to our key geographic regions for the nine months ended September 30, 2018 and 2017, was approximately as follows:
Nine Months Ended 
September 30, 2018September 30, 2017
United States 84%  86%  
Europe 9%  8%  
Other 7%  6%  
Gear4 cases.
Gross profit
Gross profit for the ninesix months ended SeptemberJune 30, 2018,2019, was $127,421,$61,581 or approximately 34%33% of net sales, compared to gross profit of $112,822,$75,250 or approximately 33% of net sales for the ninesix months ended SeptemberJune 30, 2017. The2018. Gross profit has not changed significantly due to decreases in our screen protection sales offset by (1) a reduction of credits and discounts, and (2) an increase in gross profitsales of Gear4 brand cases, HALO branded power products, and InvisibleShield VisionGuard products, all which have a higher margin was primarily attributable to the mix of screen protection products, our highest margin product category, which increased during the nine months ended September 30, 2017, to approximately 56% of net sales compared to approximately 52% of net sales during the nine months ended September 30, 2017. than historical averages.
Operating expenses
OperatingTotal operating expenses for the ninesix months ended SeptemberJune 30, 2018,2019, were $96,053,$84,860, compared to operating expenses of $98,040$62,138 for the ninesix months ended SeptemberJune 30, 2017, a decrease2018, an increase of $1,987,$22,722 or approximately 2%37%. The $1,987 decrease$22,722 increase in operating expenses was primarily attributable to (1) a decrease in depreciationadditional selling, general and administrative expense resulting from lower carrying amountsassociated with the newly acquired BRAVEN, Gear4 and HALO brands, (2) increased marketing investments to support our growing portfolio of propertybrands and equipment during the nine months ended September 30, 2018, (2) a $1,959 charge in 2017products, (3) increased selling, general and administrative expense to support online channel and international geographic expansion, and (4) higher amortization of long-lived intangibles related to the impairment of a patent that did not recur in 2018,BRAVEN, Gear4 and (3) operating expense synergies realized related to the mophie integration. These decreases in operating expense were partially offset by increases in headcount to support the additional growth of the Company.
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Income from operations
We recognized income from operations of $31,368 for the nine months ended September 30, 2018, compared to income from operations of $14,782 for the nine months ended September 30, 2017, an increase of $16,586.HALO acquisitions.
Other expense, net
For the ninesix months ended SeptemberJune 30, 2018,2019, total other expense, net was $1,494$1,437 compared to total other expensesexpense, net of $1,460$1,032 for the ninesix months ended SeptemberJune 30, 2017.2018. The increase in other expense is primarily attributable to a loss on foreign exchange transactions, which was partially offset by a reductionan increase of interest expense due to lower carryinghigher amounts of debt.debt and partially offset by a gain recorded on settlement of liabilities.
Income tax provisionbenefit (provision)
We recognized an income tax benefit of $4,956 for the six months ended June 30, 2019, compared to an income tax provision of $5,003$(1,835) for the ninesix months ended SeptemberJune 30, 2018, compared to $6,281 for the nine months ended September 30, 2017.2018. Our effective tax rate was 17%20% and 47%15% for the ninesix months ended SeptemberJune 30, 20182019, and 2017,2018, respectively. The changeincrease in the effective tax rate was due to several factors including a changedifference in the federal statutory rate from 35%amount of the discrete item with respect to 21% and the effectrestricted stock unit awards, as well as an increase in the amounts disallowed under §162(m) of discrete items. The Company’sthe Internal Revenue Code. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items, the Company’sour global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.
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Net (loss) income
We recognizedAs a result of these factors, we reported net incomeloss of $24,871, with diluted earnings$(19,760) or $(0.68) per share of $0.87on a fully diluted basis for the ninesix months ended SeptemberJune 30, 2018,2019, compared to net income of $7,041, with diluted earnings$10,245 or $0.36 per share of $0.25,on a fully diluted basis for the ninesix months ended SeptemberJune 30, 2017.2018.
Liquidity and Capital Resources (in thousands)(Amounts in thousands)
As of SeptemberJune 30, 2018,2019, our principal sources of liquidity were cash provided by operations, cash on hand and thenet borrowings from revolving credit facility.facilities. Our principal uses of cash for the six months ended June 30, 2019, have been for (1) payments on revolving credit facilities, (2) purchases of treasury shares, (3)a business acquisition, cash used in operations, purchase of property and equipment, and (4) payments for the net share settlement of restricted stock.stock, and purchase of treasury shares.
Cash and cash equivalents on-hand decreased to $17,780$12,885 on SeptemberJune 30, 2018,2019, from $24,989$15,793 on December 31, 2017,2018, a decrease of $7,209.$2,908. The net decrease was primarily attributable to (1) $9,538$20,368 net payments oncash paid for the term and revolving credit facilities,HALO Acquisition, (2) $6,097 payments$13,727 used in operating activities, (3) $4,213 paid for treasury stock, (3) $4,444 from property and equipment purchases, (4) $3,951 payments for the BRAVEN Acquisition, and (5) $2,630$782 of payments for the net share settlement of restricted stock, and (5) $722 of payments for treasury stock. These expenditures are partially offset by $19,858 generated$37,000 net proceeds from operating activities.revolving credit facilities.
Accounts receivable, net of allowances, decreased to $115,801$102,578 on SeptemberJune 30, 2018,2019, from $123,220$156,667 on December 31, 2017,2018, a decrease of $7,419.$54,089. The net decrease was primarily attributable to comparatively lower sales for the thirdsecond quarter of 20182019 in comparison to the fourth quarter of 2017,2018, as well as strong cash collections during the ninesix months ended SeptemberJune 30, 2018.2019.
Inventories increased to $78,666$110,565 on SeptemberJune 30, 2018,2019, from $75,046$82,919 on December 31, 2017,2018, an increase of $3,620.$27,646. The net increase was primarily attributable to lower sales in the first half year of 2019, an increase in inventory levels needed to support new product launches, and an increase in inventory from the wireless charging product line, partially offset by improved operations managementacquisition of inventory.HALO.
Accounts payable decreased to $67,355$70,988 on SeptemberJune 30, 2018,2019, from $96,472$80,908 on December 31, 2017,2018, a decrease of $29,117.$9,920. The net decrease was primarily attributable to comparatively lower salespayment on accounts payable outstanding on December 31, 2018, during the six months ended June 30, 2019 and for payments made to suppliers for inventory purchased during the third quartersix months ended June 30, 2019. These decreases were partially offset by liabilities assumed in the acquisition of 2018 in comparison to the fourth quarter of 2017 with an associated reduction of expenditures during each respective quarterly period.HALO. In addition, the decreasecombination of (1) certain inventory items being purchased in payables for the third quarteradvance of 2018tariff increases that went into effect in comparison to the fourth quarter of 2017 was due to the launch of the wireless charging pad product last year.May 2019 and (2) a slowdown in OEM device sales, has resulted in a higher inventory balance.
As of SeptemberJune 30, 2018, the Company had a positive2019, we achieved working capital of $95,073$109,008 compared to $43,210$105,540 as of December 31, 2017,2018, an increase of $51,863.$3,468. The net increase in the working capital position was primarily attributable to reductionsthe changes in inventories, a decrease in the sales return liability due to decreased sales during the six months ended June 30, 2019, and accounts payable and the shiftpreviously noted; partially offset by accounts receivable, net of debt from current liabilities to non-current liabilities.allowances.
Based on the current level of operations, we believe that cash to be generated from operations, cash on hand and available borrowings under our existingcurrent credit arrangement 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
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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, changes in interest rates, and interest rates.changes in tariffs. 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.

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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.
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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.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 sales, 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 2017 Form 10-K), management has continued to implement the following changes to its internal controls as of September2019.
We acquired Gear4 on November 30, 2018:
• Update processes2018, and test the improved control environment related to the appropriateness of authorities and responsibilitiesexcluded Gear4 from our assessment of internal control over financial reporting as of December 31, 2018. We are in the process of integrating the Gear4 and
• Update HALO businesses into our information and accounting systems and processes, and test improvedexpect that this effort will be completed in 2019.
There were no significant changes in the Company’s internal control activities over financial reporting during the customer returns process.
As of September 30, 2018,most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company has modified several cross functional processesCompany’s internal control over financial reporting. The process for evaluating controls and controls to address the material weakness. In addition, other processesprocedures is continuous and controls are currently being implemented as partencompasses constant improvement of the ongoing remediation.design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be 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 10, “Commitments and Contingencies,“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 20172018 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.
There were no material changes during the period covered in this report to the risk factors previously disclosed in our 20172018 Form 10-K except as follows:
US.U.S. tariffs and international trade disputes could increase the cost of our products or make our products more expensive for customers.
On July 6, 2018,August 1, 2019, the U.S. Government imposedannounced a 25%10 percent tariff on a varietyan additional $300 billion worth of Chinese imports from China and oneffective September 17, 2018,1, 2019, which would impact certain product lines that were previously not impacted by recent tariffs. With this additional products from China were imposed a 10% tariff which rate willannouncement, our business could be increase to 25% at the beginning of 2019. In response, China imposed a 5% to 10% tariff on certain U.S. goods. Such international trade disputes could result in additional or increased tariffs and other protectionist measures that could adversely affect our business. Tariffs generally increase the cost of our products and the components and raw materials that go into making them. Theseaffected by increased costs could adversely impact the gross margin that we earn on sales ofin importing our products. Tariffs could also make our products more expensive for customers, whichThese factors could make our products less competitive and reduce consumer demand. Countries may also adopt other protectionist measures that could limit our ability to offer our products and services.
We are uncertain of the potential future magnitude that these and other potential trade disputes and policies that may have on our financial statements. The tariffs described above may have a significant impactoccur, and maythese factors could materially adversely affect our business, financial condition, and/orand operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the fourth quarter of 2015, our board of directors authorized the repurchase of up to $20,000 of our outstanding common stock with no expiration date. Our board of directors also authorized the use of a Rule 10b5-1 plan, which was put into place during the second quarter of 2018.
During the three and nine months ended September 30, 2018, we repurchased 201 and 383 shares of ZAGG Inc. common stock, respectively, for a total consideration of $3,091 and $6,097, respectively, which included commissions and processing fees totaling $8 and $15, respectively. As of September 30, 2018, a total of $11,461 remained authorized under the stock repurchase program.
The shares repurchased during the three months ended September 30, 2018 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 
July 1 - July 31, 2018 — $— — $14,552 
August 1 - August 31, 2018 201 $15.36 201 $11,461 
September 1 - September 30, 2018 — $— — $11,461 

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None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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
10.1 Exhibit NumberJim Kearns Employment Agreement dated August 13, 2018 (previously filed as an exhibit to a Current Report on Form 8-K filed with the Commission on August 16, 2018 and incorporated herein by this reference) 
10.2 Exhibit DescriptionJim Kearns Change of Control Agreement dated August 13, 2018 (previously filed as an exhibit to a Current Report on Form 8-K filed with the Commission on August 16, 2018 and incorporated hereinIncorporated by this reference) ReferenceFiled or Furnished Herewith
FormFile NumberExhibitFiling Date
X
X
X
EX-101.INS 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 documentX
EX-101.SCH 101.SCHInline XBRL Taxonomy Extension Schema DocumentX
EX-101.CAL 101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX
EX-101.DEF 101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX
EX-101.LAB 101.LABInline XBRL Taxonomy Extension LabelsLabel Linkbase DocumentX
EX-101.PRE 101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ZAGG INC. INC
(Registrant)
Dated: August 7, 2019By:/s/ CHRIS M. AHERN
November 7, 2018Chris M. Ahern/s/ CHRIS AHERN
Chris Ahern
Chief Executive Officer & Director
(Principal executive officer)
NovemberDated: August 7, 20182019By:/s/ BRADLEY J. HOLIDAYTAYLOR D. SMITH
Bradley J. HolidayTaylor D. Smith
Chief Financial Officer
(Principal financial and accounting officer)

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