(3) INVESTMENT IN HzO

HzO, Inc. (“HzO”) is a private company engaged in the development of water-blocking technologies for consumer and industrial electronics applications. Prior to the fourth quarter of 2013, the Company accounted for its investment in HzO under the equity method of accounting. However, due to an equity raise by HzO during the fourth quarter of 2013 that reduced ZAGG’s ownership percentage below 20%, the Company began accounting for the investment as a cost method investment. During the second quarter of 2014, HzO raised an additional $20,000 in equity capital. ZAGG did not participate in the capital raise. Due to this equity raise and 2014 option exercises at HzO, ZAGG’s ownership interest in HzO decreased from 15.3% at December 31, 2013 to 10.1% at December 31, 2014.

For the years ended December 31, 2014, 2013, and 2012, the Company recorded a loss from investment in HzO of $0, $2,013 and $2,866, respectively. The loss from investment in HzO was recorded as a component of other income (expense) in the consolidated statement of operations in each respective period. The carrying value of the investment at December 31, 2014 and 2013 was $0 due to the accumulated losses.