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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
(Mark one)
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended
June 30, 2019, or
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______________ to _____________.
001-34528
(Commission File Number)
ZAGG INC
(Exact name of registrant as specified in its charter)
Delaware20-2559624
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)

910 West Legacy Center Way, Suite 500
Midvale, Utah 84047
(Address of principal executive offices, including zip code)
(801) 263-0699
(Registrant’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 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 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
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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.001 par value
ZAGGThe 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: 29,080,293 common shares as of August 6, 2019.




ItemContentsPage



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 amounts)
(Unaudited)
June 30, 2019December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents$12,885 $15,793 
Accounts receivable, net of allowances of $431 and $885
102,578 156,667 
Income tax receivable 3,427 375 
Inventories110,565 82,919 
Prepaid expenses and other current assets 6,393 5,473 
Total current assets235,848 261,227 
Property and equipment, net of accumulated depreciation of $13,860 and $11,844
17,714 16,118 
Intangible assets, net of accumulated amortization of $87,692 and $78,627
70,542 52,054 
Deferred income tax assets15,396 19,403 
Operating lease right of use assets 10,380 — 
Goodwill 43,560 27,638 
Other assets1,315 1,571 
Total assets$394,755 $378,011 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$70,988 $80,908 
Sales returns liability 37,522 54,432 
Accrued wages and wage related expenses 6,665 6,624 
Accrued liabilities9,511 13,723 
Current portion of operating lease liabilities 2,154 — 
Total current liabilities126,840 155,687 
Line of credit95,363 58,363 
Operating lease liabilities 11,889 — 
Other long-term liabilities7,913 5,470 
Total liabilities242,005 219,520 
Commitments and contingencies (Note 1 and Note 10)
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized; 36,140 and 34,457 shares issued
36 34 
Treasury stock, 7,055 and 6,983 common shares at cost
(50,455)(49,733)
Additional paid-in capital111,279 96,486 
Accumulated other comprehensive loss(1,425)(1,410)
Retained earnings93,315 113,114 
Total stockholders’ equity152,750 158,491 
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)
For the Three Months EndedFor the Six Months Ended
June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Net sales$106,796 $118,565 $185,546 $230,631 
Cost of sales69,037 80,908 123,965 155,381 
Gross profit37,759 37,657 61,581 75,250 
Operating expenses:
Advertising and marketing4,514 2,638 9,099 5,233 
Selling, general and administrative34,491 27,035 66,075 51,342 
Transaction costs374 18 621 18 
Amortization of intangible assets4,599 2,773 9,065 5,545 
Total operating expenses43,978 32,464 84,860 62,138 
(Loss) income from operations(6,219)5,193 (23,279)13,112 
Other income (expense):
Interest expense(1,103)(346)(2,113)(846)
Other income (expense)1,192 (681)676 (186)
Total other income (expense)89 (1,027)(1,437)(1,032)
(Loss) income before provision for income taxes(6,130)4,166 (24,716)12,080 
Income tax benefit (provision)794 (950)4,956 (1,835)
Net (loss) income$(5,336)$3,216 $(19,760)$10,245 
(Loss) earnings per share attributable to stockholders:
Basic (loss) earnings per share$(0.18)$0.11 $(0.68)$0.36 
Diluted (loss) earnings per share$(0.18)$0.11 $(0.68)$0.36 

See accompanying notes to condensed consolidated financial statements.
2

Table of Contents
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
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)$10,245 
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)141 (969)(15)(680)
Total other comprehensive income (loss)141 (969)(15)(680)
Total comprehensive (loss) income$(5,195)$2,247 $(19,775)$9,565 

See accompanying notes to condensed consolidated financial statements.
3

Table of Contents
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Amounts in thousands)
(Unaudited)
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.
4

Table of Contents
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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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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ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
For the Six Months Ended
June 30, 2019June 30, 2018
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$1,998 $926 
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:
Purchase of property and equipment financed through accounts payable$451 $541 
Withholding tax on restricted stock units recorded in accrued wages and wage related expenses66 21 
Purchase of HALO through amounts due to seller, contingent payments and common stock16,985  
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 amounts)
(Unaudited)
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
ZAGG Inc and its subsidiaries (the “Company”) are innovation leaders in mobile tech accessories for smartphones and tablets. For over 15 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, audio, mobile keyboards, protective cases, and other mobile accessories sold under the ZAGG®, InvisibleShield®, mophie®, IFROGZ®, BRAVEN®, Gear4®, and 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, 2018 (the “2018 Form 10-K”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods, with related disclosures of these amounts in the notes to the financial statements. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1 to the Company’s 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 842, “Leases” (In thousands, except lease terms and discount rates)
The Company adopted ASC Topic 842,“Leases” (“Topic 842”) with a date of initial application of January 1, 2019. As a result of this adoption, the Company has changed its accounting policy for leases as detailed below.
The Company applied Topic 842 on January 1, 2019, using the modified retrospective approach. The adoption of Topic 842 includes the cumulative effect of adopting the new standard being recognized in retained earnings at January 1, 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 840, “Leases” (“Topic 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 842 resulted in an increase in long-term lease liabilities of $10,684 which was included in operating lease liabilities; an increase in short-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 $8,842 which was included in operating lease right of use assets; an increase of deferred tax assets, net of $1,424; a derecognition of $3,346 related to lease liabilities under Topic 840 which was included in accrued liabilities; a decrease in deferred rent of $819 which was included in accrued liabilities; and a decrease of $39 in retained earnings as a cumulative effect of adoption.
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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 842 was the addition of the Company’s operating leases to the condensed consolidated balance sheet, creating ROU assets and lease liabilities on the condensed consolidated balance sheet as of June 30, 2019. Under Topic 840, operating leases were not included on the condensed consolidated balance sheets, whereas under Topic 842, 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 statements of cash flows.
Lease accounting policy
The Company determines if an arrangement is a lease at contract inception and then determines if such qualifying lease is classified as an operating lease or a finance lease. As of June 30, 2019, the Company only has operating leases. For operating leases, the Company 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 the initial measurement of the lease liability, plus any prepaid lease payments made minus any lease incentives received, and any initial direct costs incurred. The Company’s lease terms may include options to extend or terminate leases that will be recognized when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components under the definition of Topic 842. Upon adoption of Topic 842, the Company elected a practical expedient not to separate the lease and non-lease components for its leases for physical space and equipment and accounts for them as a single lease component.
Lease information
The Company has operating leases for offices, retail stores, and warehouse space that expire through 2027. The Company’s leases have remaining lease terms of 7 months to 9 years, some of which include options to extend the leases up to 10 years. The following summarizes the activities in the Company’s ROU assets and lease liabilities for the six months ended June 30, 2019:
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 selling, general and administrative 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 

(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 six months ended June 30, 2019 and 2018, was approximately as follows:
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 six months ended June 30, 2019 and 2018, was approximately as follows:
For the Three Months EndedFor the Six Months Ended
June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Indirect channel85 88 82 88 
Website10 8 12 8 
Franchisees5 4 6 4 
The percentage of net sales related to the Company’s key geographic regions for the three and six months ended June 30, 2019 and 2018, was approximately as follows:
For the Three Months EndedFor the Six Months Ended
June 30, 2019June 30, 2018June 30, 2019June 30, 2018
United States74 85 72 83 
Europe15 10 14 10 
Other11 5 14 7 

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Contract Balances
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 Company’s contracts with customers as of June 30, 2019 and December 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 the right of return assets is the estimated amount of inventory to be returned that is expected to be resold. The current balance of refund liabilities is the expected amount of estimated sales returns, discounts and other credits from sales that have occurred. The current balance of warranty liabilities is the expected amount of warranty claim returns from sales that have occurred. The current balance of contract liabilities primarily relates to the advance consideration received from customers for products for which transfer of control has not yet occurred and therefore, revenue is deferred and will be recognized when the transfer of control has been completed.
During the three and six months ended June 30, 2019, revenue recognized that was included in the contract liability balance as of December 31, 2018, was $25 and $36, respectively.
The following summarizes the activities in the Company’s warranty liabilities for the six months ended June 30, 2019:
Balance as of December 31, 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:
Cash consideration$23,943 
Company common stock12,968 
Contingent consideration1,593 
Total purchase price$38,504 
The total purchase price of $38,504 has been allocated to identifiable assets acquired and liabilities assumed based on their preliminary fair values. The excess of the purchase price over the preliminary fair value of the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill.
The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed as of the HALO Acquisition Date. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are based on estimates and assumptions and are subject to revisions, which may result in adjustments to the preliminary values presented below, when management’s estimates are finalized:
Cash$1,151 
Accounts receivable2,436 
Inventory2,889 
Inventory step up494 
Prepaid expenses and other assets1,310 
Property and equipment627 
Amortizable identifiable intangible assets27,554 
Goodwill15,922 
Operating lease right of use assets748 
Accounts payable(2,867)