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Section 1: 8-K/A (AMENDMENT TO CURRENT REPORT DATED MARCH 3, 2016.)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

 

FORM 8-K/A

(Amendment No. 1)

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): March 3, 2016

 

ZAGG INC

(Exact name of registrant as specified in its charter)

Nevada 001-34528 20-2559624
(State or other jurisdiction of incorporation) (Commission
File Number)
(I.R.S. Employer
Identification No.)

 

 

910 West Legacy Center Drive, Suite 500

Midvale, Utah 84047

(Address of principal executive offices)


Registrant’s telephone number, including area code: (801) 263-0699

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17CFR 230.425)

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

EXPLANATORY NOTE

 

On February 2, 2016, ZAGG Inc, a Nevada corporation (the “Company”), and ZM Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with mophie inc., a California corporation (“mophie”), the principal shareholders of mophie named therein, and Daniel Huang as representative of the mophie shareholders, warrant holders and option holders, pursuant to which Merger Sub merged with and into mophie, with mophie continuing as the surviving corporation (the “Merger”).

 

On March 8, 2016, the Company filed a Current Report on Form 8-K (the “Initial Filing”) with the United States Securities and Exchange Commission to report the consummation of the Merger, which was completed on March 3, 2016. This Current Report on Form 8-K/A amends and supplements Item 9.01 of the Initial Filing to present certain financial statements of mophie and to present certain unaudited pro forma financial information of the Company in connection with the Merger.

 

Item 9.01 Financial Statements and Exhibits

 

(a)           Financial Statements of Businesses Acquired

 

The financial statements required by Item 9.01(a) are filed as Exhibit 99.4 to this Current Report and are incorporated herein by reference.

 

(b)           Pro Forma Financial Information

 

The pro forma financial information required by Item 9.01(b) are filed as Exhibit 99.5 to this Current Report and are incorporated herein by reference.

 

(d)           Exhibits.       

 

The following are filed as Exhibits to this Current Report on Form 8-K/A.

 

Exhibit No.   Description
23.1 Consent of PricewaterhouseCoopers.
99.4   Audited financial statements of mophie as of and for the years ended December 31, 2015, 2014 and 2013
99.5   Pro forma financial information

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: May 17, 2016 ZAGG Inc
   
  By:  /s/ Bradley J. Holiday
  Name:
Its:
Bradley J. Holiday
Chief Financial Officer

 

 

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Section 2: EX-23.1 (CONSENT OF PRICEWATERHOUSECOOPERS.)

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-181748 and 333-208213) and Form S-8 (No. 333-147510, 333-179227, 333-187467, and 333-203892) of ZAGG Inc of our report dated May 17, 2016 relating to the financial statements of mophie inc., which appears in this Current Report on Form 8-K/A.

/s/ PricewaterhouseCoopers LLP

Grand Rapids, MI

May 17, 2016

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Section 3: EX-99.4 (AUDITED FINANCIAL STATEMENTS OF MOPHIE AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013)

Exhibit 99.4

 

 

 

 

 

 
 

 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 
 

 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 
 

 

 

 

 
 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 
 

 

 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

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Section 4: EX-99.5 (PRO FORMA FINANCIAL INFORMATION)

Exhibit 99.5

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(in thousands)

 

On March 3, 2016, ZAGG Inc (the “Company” or “ZAGG”) completed its acquisition of mophie inc. (“mophie”) (the “Acquisition”). In addition, the Company entered into a $110,000 credit facility consisting of an $85,000 revolving credit facility and a $25,000 term loan.

 

The following unaudited pro forma condensed combined financial information is derived from the historical consolidated financial statements of ZAGG and mophie. The unaudited pro forma condensed combined financial information is prepared using the purchase method of accounting with ZAGG being treated as the acquirer. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and three months ended March 31, 2016 are presented as if the Acquisition and the related borrowings used to finance the Acquisition occurred on January 1, 2015.

 

The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by ZAGG. These accounting policies are similar in most material respects to those of mophie. ZAGG is currently performing a more detailed review of mophie’s accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when confirmed, could have a material impact on the combined financial information.

 

The preliminary allocation of purchase price in the Acquisition as reflected in this unaudited pro forma condensed combined financial information has been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed as of the date of the Acquisition. 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, when management’s estimates are finalized. Consequently, the preliminary purchase price allocation could change significantly from that used in the pro forma condensed combined financial information presented below.

 

The unaudited pro forma condensed combined statements of operations do not include (1) any revenue or cost savings synergies that may be achievable subsequent to the completion of the Acquisition or (2) the impact of non-recurring items directly related to the Acquisition.

 

The unaudited pro forma condensed combined financial information is presented for informational purposes only, and is not necessarily indicative of the operating results that would actually have occurred had the Acquisition been completed at the beginning of the periods presented. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future consolidated operating results of the combined company. The unaudited pro forma condensed combined financial information should be read together with:

 

·the accompanying notes to the unaudited pro forma condensed combined financial information pro forma adjustments;

 

·the separate audited historical consolidated financial statements of ZAGG for the fiscal year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K that can be found at www.sec.gov;

 

·the separate unaudited historical condensed consolidated financial statements of ZAGG for the fiscal quarter ended March 31, 2016, included in Form 10-Q that can be found at www.sec.gov;

 

·the separate audited historical consolidated financial statements of mophie for the fiscal years ended December 31, 2015, 2014 and 2013 in Exhibit 99.3 in this Current Report on Form 8-K/A.

 

Certain reclassifications have been made to the mophie historical amounts to conform to the Company’s presentation of the pro forma financial information. These adjustments are described in Note 2.

 

 

 

Unaudited Pro Forma Condensed Combined Statements of Operations
For the year ended December 31, 2015

(in thousands, except per share amounts)

 

   Historical   Historical   Reclassification   Note   Pro Forma   Note   Pro Forma 
   ZAGG   mophie   Adjustment   References   Adjustment   References   Combined 
                                    
Net sales  $269,311   $185,854   $-          $-          $455,165 
Cost of sales   167,627    153,454    (2,986)    (a)     6,937     (b)     325,032 
                                    
Gross profit   101,684    32,400    2,986         (6,937)        130,133 
                                    
Operating expenses:                                   
Advertising and marketing   10,436    -      22,282     (a)     -           32,718 
Selling, general and administrative   56,931    65,045    (22,282)    (a)     -           102,123 
              (557)    (a)                 
              2,986     (a)                 
Amortization expense   8,453    -      557     (a)     (557)    (c)     17,233 
                        8,780     (c)       
                                    
Total operating expenses   75,820    65,045    2,986         8,223         152,074 
                                    
Income (loss) from operations   25,864    (32,645)   -           (15,160)        (21,941)
                                    
Other (expense) income:                                   
Interest expense   (97)   (4,029)   -           4,126     (d)     (1,437)
                        (1,199)    (d)       
                        (238)    (d)       
Change in Series A liability   -      235    -           (235)    (e)     -   
Change in Series B liability   -      6,680    -           (6,680)    (e)     -   
Other expense   (69)   -      -           -           (69)
                                    
Total other (expense) income   (166)   2,886    -           (4,226)        (1,506)
                                    
Income (loss) before provision for income taxes   25,698    (29,759)   -           (19,386)        (23,447)
                                    
Income tax (provision) benefit   (10,111)   590    -           7,627     (f)     (1,894)
                                    
Net income (loss)   15,587    (29,169)   -           (11,759)        (25,341)
                                    
Earnings (loss) per share:                                   
                                    
Basic earnings (loss) per share  $0.54                            $(0.88)
                                    
Diluted earnings (loss) per share  $0.54                            $(0.88)
                                    
Weighted average shares outstanding for earnings (loss) per share:                                   
                                    
Basic   28,773                             28,773 
                                    
Diluted   29,089                             28,773 

 

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Unaudited Pro Forma Condensed Combined Statements of Operations
For the Three Months ended March 31, 2016

(in thousands, except per share amounts)

 

   Historical   Historical   Pro Forma   Note   Pro Forma 
   ZAGG   mophie   Adjustment   References   Combined 
                          
                          
Net sales  $62,432   $17,326   $-          $79,758 
Cost of sales   38,703    15,227    (1,156)    (g)     52,774 
                          
Gross profit   23,729    2,099    1,156         26,984 
                          
Operating expenses:                         
Advertising and marketing   2,914    341    -           3,255 
Selling, general and administrative   19,755    8,764    -           28,519 
Transaction expense   2,017    -      (2,017)    (h)     -   
Amortization expense   2,746    102    1,105     (i)     3,851 
              (102)    (i)       
                          
Total operating expenses   27,432    9,207    (1,014)        35,625 
                          
Income (loss) from operations   (3,703)   (7,108)   2,170         (8,641)
                          
Other (expense) income:                         
Interest expense   (188)   (1,564)   1,752     (j)     (335)
              (275)    (j)       
              (60)    (j)       
Other expense   (200)   117    -           (83)
                          
Total other (expense) income   (388)   (1,447)   1,417         (418)
                          
Income (loss) before provision for income taxes   (4,091)   (8,555)   3,587         (9,059)
                          
Income tax (provision) benefit   801    1,676    (1,372)    (k)     1,105 
                          
Net income (loss)   (3,290)   (6,879)   2,215         (7,954)
                          
Earnings (loss) per share:                         
                          
Basic earnings (loss) per share  $(0.12)                 $(0.29)
                          
Diluted earnings (loss) per share  $(0.12)                 $(0.29)
                          
Weighted average shares outstanding for earnings (loss) per share:                         
                          
Basic   27,710         169     (l)     27,879 
                          
Diluted   27,710         169     (l)     27,879 

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Note 1 – Basis of Pro Forma Presentation (amounts in thousands)

 

On February 2, 2016, ZAGG and ZM Acquisition, Inc. (“Merger Sub”), a Delaware corporation and wholly-owned subsidiary of the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with mophie, a California corporation, the principal shareholders of mophie named therein (the “Principal Shareholders”), and Daniel Huang as representative of the mophie shareholders, warrant holders, and option holders, pursuant to which Merger Sub merged with and into mophie, with mophie continuing as the surviving corporation (the “Merger”). On March 3, 2016 (the “Acquisition Date”), the Company completed the Merger. The combination of ZAGG and mophie creates a diversified market leader in multiple mobile accessories categories.

 

The Company purchased mophie for total gross up-front consideration of $100,000 in cash, subject to a working capital adjustment. The Merger Agreement includes an earn-out provision whereby additional consideration would be paid based on whether mophie’s 12-month Adjusted EBITDA (as defined in the Merger Agreement) from April 1, 2016 to March 31, 2017 (“Earn-out Period”) exceeds $20,000. For every dollar in Adjusted EBITDA generated during the Earn-out Period that exceeds $20,000, the Company will pay additional consideration at a five times multiple (“Earn-out Consideration”). Any Earn-out Consideration will initially be paid by the issuance of up to $5,000 in shares of the Company’s common stock valued as of February 2, 2016 (the day prior to the public announcement of the definitive agreement on February 3, 2016).

 

In addition to the Earn-out Consideration, the Merger Agreement states that the Company will also remit cash to the Principal Shareholders once the following contingent items related to pre-acquisition operations have been resolved:

 

·Federal and state tax refunds expected to be due to the Company related to 2012 and 2013 tax years.
·Customs and duties refunds for pre-closing overpayments of customs and duties amounts to governmental agencies.
·Proceeds from the sale of real property located in Kalamazoo, Michigan.

 

In addition, $2,000 of the cash consideration paid to the Principal Shareholders was placed in an escrow account to cover any potential tax, legal, or other contingencies that could potentially arise relating to pre-acquisition events for which ZAGG is indemnified. If charges exceed $2,000, ZAGG may recover these amounts through a $10,000 insurance policy related to representations and warranties. Currently, the Company is not aware of any such contingencies or potential indemnity claims.

 

The following summarizes the components of the purchase price:

 

Cash consideration  $100,000 
Preliminary working capital adjustment   (23,478)
Preliminary contingent payments   2,027 
Preliminary fair value of earn-out consideration   1,565 
Total preliminary purchase price  $80,114 

 

The total purchase price of $80,114 has been preliminarily allocated to identifiable assets acquired and liabilities assumed based on their respective preliminary fair values. The excess of the purchase price over the fair value of tangible and intangible assets acquired and liabilities assumed was recorded as goodwill. The allocation of goodwill to reportable segments has not yet been completed.

 

The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed as of the Acquisition Date. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are based on estimates and assumptions and are subject to revisions, which may result in adjustments to the preliminary values presented below, when management’s estimates are finalized:

 

Cash and cash equivalents  $1,779 
Trade receivables (gross contractual receivables of $13,569)   13,483 
Inventories   37,290 
Prepaid expenses and other assets   1,073 
Income tax receivable   11,548 
Deferred tax assets   24,925 
Property and equipment   10,196 
Land held for sale   325 
Definite-lived identifiable intangible assets    45,463 
Goodwill   14,092 
Current liabilities   (80,060)
Total  $80,114 

 

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Due to the fact that the acquisition of mophie occurred in the current interim period and in light of the magnitude of the transaction, the Company’s fair value estimates for the purchase price, assets acquired, and liabilities assumed are preliminary and may change during the allowable measurement period. The allowable measurement period continues to the date the Company obtains and analyzes all relevant information that existed as of the date of the acquisition 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 date of acquisition (March 3, 2017). The Company is analyzing information to verify assets acquired and liabilities assumed.

 

Concurrent with the close of the Merger on March 3, 2016, the Company entered into a Credit and Security Agreement with KeyBank National Association, which provides an $85,000 revolving credit commitment (“Line of Credit”). Borrowings and repayments under the Line of Credit may occur from time to time in the Company’s ordinary course of business through the maturity date of March 2, 2021, at which time any amounts outstanding are to be paid in full (60-month term). The Credit and Security Agreement also provides a $25,000 term loan commitment (“Term Loan”). Principal and interest payments on the Term Loan are to be made in consecutive monthly installments of $521 commencing on April 1, 2016 and continuing until the Term Loan is paid in full on March 2, 2020 (48-month term). The Company’s pre-merger credit agreement was terminated in connection with the Credit and Security Agreement.

 

The accompanying unaudited pro forma condensed combined financial information is derived from the historical consolidated financial statements of ZAGG and mophie. The unaudited pro forma condensed combined financial information is prepared using the purchase method of accounting with ZAGG being treated as the acquirer. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and three months ended March 31, 2016 are presented as if the Acquisition and the related borrowings used to finance the Acquisition occurred on January 1, 2015.

 

The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by ZAGG. These accounting policies are similar in most material respects to those of mophie. ZAGG is currently performing a more detailed review of mophie’s accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when confirmed, could have a material impact on the combined financial information.

 

Note 2 – Pro Forma Adjustments (amounts in thousands)

 

Unaudited Pro Forma Condensed Combined Statement of Operations Adjustments (for the Year Ended December 31, 2015)

 

(a) Reflects reclassification adjustments to present mophie’s historical statement of operations consistent with the historical ZAGG presentation. mophie presented operating expenses on a single line designated as “selling, general, and administrative expenses” in its 2015, 2014, and 2013 consolidated financial statements. This adjustment reclassifies $22,282 as advertising and marketing expense and $557 as amortization expense. In addition, $2,986 in depreciation expense was reclassified from cost of goods sold to selling, general and administrative expense to conform to ZAGG’s accounting policies.

 

(b) mophie’s inventory was increased to reflect an adjustment to fair value at the acquisition date. The adjustment to fair value is recognized through the statement of operations as the acquired inventory is sold, which will occur within approximately the first six months following the closing of the transaction. Cost of goods sold was increased to reflect the amortization of the fair value adjustment of mophie’s inventory by $6,937 for the year ended December 31, 2015.

 

(c) Reflects removal of historical mophie amortization of $557 and addition of full year amortization of acquired intangible assets of $8,780.

 

(d) Reflects removal of interest expense related to pre-acquisition debt at ZAGG and mophie of $4,126; addition of estimated interest expense for full year from new debt of $1,199; and addition for a full year of deferred loan cost amortization of $238.

 

(e) Reflects removal of mophie Series A liability and Series B preferred stock liability.

 

(f) Reflects the tax effect of adjustments to income (loss) before provision for income taxes at the statutory rates in effect for the year. The effective tax rate of the combined company could be significantly different depending on post-Merger activities.

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Unaudited Pro Forma Condensed Combined Statement of Operations Adjustments (for the Three Months Ended March 31, 2016)

 

The “Historical ZAGG” statement of operations includes operating results as reported in the Form 10-Q for the three months ended March 31, 2016, including mophie operations from the March 3, 2016 acquisition date to the end of the quarter. The “Historical mophie” statement of operations includes operating results from January 1, 2016 to March 2, 2016. No reclassification adjustments were necessary in the pro forma information for the three months ended March 31, 2016 as the amounts had not been previously published by mophie.

 

(g) Reflects removal of cost of goods sold of $1,156 related to the amortization of the fair value adjustment recorded to mophie’s inventory.

 

(h) Reflects removal of mophie transaction expense recognized during the first quarter of 2016 concurrent with the close of the transaction.

 

(i) Reflects removal of historical mophie amortization expense of $102 and addition of two months of amortization of acquired intangible assets of $1,105.

 

(j) Reflects removal of interest expense related to pre-acquisition debt at ZAGG and mophie of $1,752; addition of estimated interest expense for three months from new debt of $275; and addition for two months of deferred loan cost amortization of $60.

 

(k) Reflects the tax effect of adjustments to income (loss) before provision for income taxes at the statutory rates in effect for the year. The effective tax rate of the combined company could be significantly different depending on post-Merger activities.

 

(l) Reflects common stock estimated to be issued after the earn-out period based on the fair value of preliminary earn-out consideration of $1,565.

 

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