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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
March 31, 2019,2020, 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 INCInc
(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)
N/A
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:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.001$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: 29,066,92529,814,797 common shares as of May 7, 2019.27, 2020.
EXPLANATORY NOTE

As previously disclosed in the Current Report on Form 8-K filed by ZAGG Inc (the “Company”) on May 7, 2020, the Company delayed the filing of this Quarterly Report on Form 10-Q (“Quarterly Report”) due to circumstances related to the novel coronavirus (“COVID-19”) pandemic and in reliance on the U.S. Securities and Exchange Commission’s order dated March 25, 2020, under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and certain rules thereunder (Release No. 34-88465). In particular, COVID-19 and related precautionary responses resulted in limited access to the Company’s facilities and disrupted customary interactions among internal accounting personnel, professional advisors and other staff involved in the completion of the Company’s quarterly review and preparation of this Quarterly Report. These limitations and restrictions caused delays in the completion of the Company’s internal quarterly review, including evaluation of the various impacts of COVID-19 on the Company’s financial statements and its ability to timely prepare and complete this Quarterly Report.



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CONTENTSPAGE
PART I - FINANCIAL INFORMATION
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PART II - OTHER INFORMATION
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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)
March 31, 2019December 31, 2018March 31, 2020December 31, 2019
ASSETSASSETSASSETS
Current assets:Current assets:Current assets:
Cash and cash equivalents$14,789 $15,793 Cash and cash equivalents$14,150  $17,801  
Accounts receivable, net of allowances of $700 and $88593,617 156,667 Accounts receivable, net of allowances of $1,655 and $1,14383,746  142,804  
Income tax receivable 2,149 375 Income tax receivable  2,330  —  
Inventories100,226 82,919 Inventories93,556  144,944  
Prepaid expenses and other current assets 4,371 5,473 Prepaid expenses and other current assets  4,719  6,124  
Total current assetsTotal current assets215,152 261,227 Total current assets198,501  311,673  
Property and equipment, net of accumulated depreciation of $12,326 and $11,84418,016 16,118 
Intangible assets, net of accumulated amortization of $83,046 and $78,627 75,189 52,054 
Deferred income tax assets14,302 19,403 
Property and equipment, net of accumulated depreciation of $12,717 and $14,159Property and equipment, net of accumulated depreciation of $12,717 and $14,15915,247  18,019  
Intangible assets, net of accumulated amortization of $99,176 and $95,632Intangible assets, net of accumulated amortization of $99,176 and $95,63258,418  63,110  
Deferred income tax assets, netDeferred income tax assets, net23,148  22,657  
Operating lease right of use assets Operating lease right of use assets  9,208  9,636  
Goodwill Goodwill 43,560 27,638 Goodwill  24,920  43,569  
Other assetsOther assets10,574 1,571 Other assets200  567  
Total assetsTotal assets$376,793 $378,011 Total assets$329,642  $469,231  
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:Current liabilities:Current liabilities:
Accounts payable$55,045 $80,908 Accounts payable$50,854  $87,303  
Sales returns liability 33,824 54,432 Income tax payable  —  5,266  
Accrued wages and wage related expenses 6,183 6,624 Sales returns liability  30,571  43,853  
Accrued liabilities11,791 13,723 Accrued wages and wage related expenses  6,785  6,328  
Accrued liabilities12,771  15,164  
Current portion of operating lease liabilities  2,583  2,099  
Total current liabilitiesTotal current liabilities106,843 155,687 Total current liabilities103,564  160,013  
Line of creditLine of credit93,363 58,363 Line of credit99,540  107,140  
Other long-term liabilities20,052 5,470 
Operating lease liabilities Operating lease liabilities  9,674  10,599  
Total liabilitiesTotal liabilities220,258 219,520 Total liabilities212,778  277,752  
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 12 and Note 13)Commitments and contingencies (Note 12 and Note 13)
Stockholders’ equity:Stockholders’ equity:Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized; 36,117 and 34,457 shares issued36 34 Common stock, $0.001 par value; 100,000 shares authorized; 36,884 and 36,610 shares issued37  37  
Treasury stock, 7,055 and 6,983 common shares at cost (50,455)(49,733)Treasury stock, 7,055 and 7,055 common shares at cost(50,455) (50,455) 
Additional paid-in capital109,869 96,486 Additional paid-in capital117,552  116,533  
Accumulated other comprehensive loss(1,566)(1,410)Accumulated other comprehensive loss(1,351) (1,631) 
Retained earnings98,651 113,114 Retained earnings51,081  126,995  
Total stockholders’ equityTotal stockholders’ equity156,535 158,491 Total stockholders’ equity116,864  191,479  
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$376,793 $378,011 Total liabilities and stockholders’ equity$329,642  $469,231  

See accompanying notes to condensed consolidated financial statements.
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ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
For the Three Months EndedFor the Three Months Ended
March 31, 2019March 31, 2018March 31, 2020March 31, 2019
Net salesNet sales$78,750 $112,066 Net sales$90,981  $78,750  
Cost of salesCost of sales54,928 74,474 Cost of sales109,923  54,928  
Gross profit23,822 37,592 
Gross (loss) profitGross (loss) profit(18,942) 23,822  
Operating expenses:Operating expenses:Operating expenses:
Advertising and marketing4,585 2,594 Advertising and marketing4,426  4,585  
Selling, general and administrative31,584 24,307 Selling, general and administrative32,593  31,586  
Transaction costs247 — Transaction costs345  247  
Amortization of intangible assets4,466 2,772 Impairment of goodwill18,649  —  
Loss (gain) on disposal of intangible assets and equipment3,683  (2) 
Amortization of intangible assets3,544  4,466  
Total operating expensesTotal operating expenses40,882 29,673 Total operating expenses63,240  40,882  
(Loss) income from operations(17,060)7,919 
Loss from operationsLoss from operations(82,182) (17,060) 
Other income (expense):Other income (expense):Other income (expense):
Interest expense(1,010)(500)Interest expense(1,534) (1,010) 
Other (expense) income(516)495 Other income (expense)2  (516) 
Total other expenseTotal other expense(1,526)(5)Total other expense(1,532) (1,526) 
(Loss) income before provision for income taxes(18,586)7,914 
Loss before provision for income taxesLoss before provision for income taxes(83,714) (18,586) 
Income tax benefit (provision)4,162 (885)
Income tax benefitIncome tax benefit8,159  4,162  
Net (loss) income$(14,424)$7,029 
Net lossNet loss$(75,555) $(14,424) 
(Loss) earnings per share attributable to stockholders:
Loss per share attributable to stockholders:Loss per share attributable to stockholders:
Basic (loss) earnings per share$(0.50)$0.25 Basic loss per share$(2.54) $(0.50) 
Diluted (loss) earnings per share$(0.50)$0.24 Diluted loss per share$(2.54) $(0.50) 

See accompanying notes to condensed consolidated financial statements.
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ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(Amounts in thousands)
(Unaudited)
For the Three Months Ended
March 31, 2019March 31, 2018
Net (loss) income$(14,424)$7,029 
Other comprehensive (loss) gain, net of tax:
Foreign currency translation (loss) gain(156)289 
Total other comprehensive (loss) income(156)289 
Total comprehensive (loss) income$(14,580)$7,318 
For the Three Months Ended
March 31, 2020March 31, 2019
Net loss$(75,555) $(14,424) 
Other comprehensive gain (loss), net of tax:
Foreign currency translation gain (loss)280  (156) 
Total other comprehensive income (loss)280  (156) 
Total comprehensive loss$(75,275) $(14,580) 

See accompanying notes to condensed consolidated financial statements.
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ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Amounts in thousands)
(Unaudited)
For the Three Months Ended March 31, 2019
Common Stock
SharesAmountAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders’
Equity
Balances, December 31, 201834,457 $34 $96,486 $(1,410)$(49,733)$113,114 $158,491 
Cumulative effect of accounting change— — — — — (39)(39)
Balance after cumulative effect of accounting change34,457 34 96,486 (1,410)(49,733)113,075 158,452 
Net loss— — — — — (14,424)(14,424)
Other comprehensive loss— — — (156)— — (156)
Treasury stock purchase— — — — (722)— (722)
Restricted stock release200 — — — — — — 
Employee stock purchase plan release2 — 13 — — — 13 
Stock-based compensation expense— — 1,185 — — — 1,185 
Payment of withholding taxes on restricted stock units— — (782)— — — (782)
Shares issued as consideration for acquisition1,458 2 12,967 — — — 12,969 
Balances, March 31, 201936,117 $36 $109,869 $(1,566)$(50,455)$98,651 $156,535 
For the Three Months Ended March 31, 2018
Common Stock
SharesAmountAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders’
Equity
Balances, December 31, 201734,104 $34 $96,145 $(348)$(37,637)$77,805 $135,999 
For the Three Months Ended March 31, 2020
Common Stock
SharesAmountAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders’ Equity
Balances, December 31, 2019Balances, December 31, 201936,610  $37  $116,533  $(1,631) $(50,455) $126,995  $191,479  
Cumulative effect of accounting changeCumulative effect of accounting change— — — — — (3,880)(3,880)Cumulative effect of accounting change—  —  —  —  —  (359) (359) 
Balance after cumulative effect of accounting changeBalance after cumulative effect of accounting change34,104 34 96,145 (348)(37,637)73,925 132,119 Balance after cumulative effect of accounting change36,610  37  116,533  (1,631) (50,455) 126,636  191,120  
Net income— — — — — 7,029 7,029 
Other comprehensive loss— — — 289 — — 289 
Net lossNet loss—  —  —  —  —  (75,555) (75,555) 
Other comprehensive incomeOther comprehensive income—  —  —  280  —  —  280  
Restricted stock releaseRestricted stock release312 — — — — — — Restricted stock release270  —  —  —  —  —  —  
Employee stock purchase plan releaseEmployee stock purchase plan release1 — — — — — — Employee stock purchase plan release4  —  39  —  —  —  39  
Stock-based compensation expenseStock-based compensation expense— — 601 — — — 601 Stock-based compensation expense—  —  1,294  —  —  —  1,294  
Payment of withholding taxes on restricted stock unitsPayment of withholding taxes on restricted stock units— — (2,612)— — — (2,612)Payment of withholding taxes on restricted stock units—  —  (314) —  —  —  (314) 
Balances, March 31, 201834,417 $34 $94,134 $(59)$(37,637)$80,954 $137,426 
Balances, March 31, 2020Balances, March 31, 202036,884  $37  $117,552  $(1,351) $(50,455) $51,081  $116,864  


For the Three Months Ended March 31, 2019
Common Stock
SharesAmountAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders’ Equity
Balances, December 31, 201834,457  $34  $96,486  $(1,410) $(49,733) $113,114  $158,491  
Cumulative effect of accounting change—  —  —  —  —  (39) (39) 
Balance after cumulative effect of accounting change34,457  34  96,486  (1,410) (49,733) 113,075  158,452  
Net loss—  —  —  —  —  (14,424) (14,424) 
Other comprehensive loss—  —  —  (156) —  —  (156) 
Treasury stock purchase—  —  —  —  (722) —  (722) 
Restricted stock release200  —  —  —  —  —  —  
Employee stock purchase plan release2  —  13  —  —  —  13  
Stock-based compensation expense—  —  1,185  —  —  —  1,185  
Payment of withholding taxes on restricted stock units—  —  (782) —  —  —  (782) 
Shares issued as consideration for acquisition1,458  2  12,967  —  —  —  12,969  
Balances, March 31, 201936,117  $36  $109,869  $(1,566) $(50,455) $98,651  $156,535  

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 Three Months EndedFor the Three Months Ended
March 31, 2019March 31, 2018March 31, 2020March 31, 2019
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net (loss) income$(14,424)$7,029 Net loss$(75,555) $(14,424) 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation expense1,185 601 Stock-based compensation expense1,294  1,185  
Depreciation and amortization5,989 5,030 Depreciation and amortization5,376  5,989  
Deferred income tax (benefit) expense(1,076)322 Deferred income tax assets(498) (1,076) 
Gain (loss) on disposal of property and equipment(2)10 Loss (gain) on disposal of intangible assets and equipment3,683  (2) 
Amortization of deferred loan costs50 71 Amortization of deferred loan costs195  50  
Amortization of right of use assets, net of acquisitions499 — Impairment of goodwill18,649  —  
Changes in operating assets and liabilities:Right of use asset expenses668  499  
Accounts receivable, net65,302 50,036 Changes in operating assets and liabilities:
Inventories(14,229)(3,367)Accounts receivable, net59,819  65,302  
Prepaid expenses and other current assets2,327 1,279 Inventories50,893  (14,229) 
Other assets(138)(385)Prepaid expenses and other current assets1,397  2,327  
Accounts payable(28,717)(41,394)Other assets187  (138) 
Income tax (payable) receivable(2,192)200 Accounts payable(36,526) (28,717) 
Sales returns liability(23,287)(6,555)Income tax payable(7,601) (2,192) 
Accrued wages and wage related expenses(1,563)(497)Sales returns liability(13,216) (23,287) 
Accrued liabilities(1,941)(1,805)Accrued wages and wage related expenses462  (1,563) 
Other long-term liabilities(132)— Accrued and other long-term liabilities(2,316) (1,608) 
Other212 (847)Lease liabilities(832) (465) 
Net cash (used in) provided by operating activities(12,137)9,728 
Other(320) 212  
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities5,759  (12,137) 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Purchase of property and equipment(2,628)(1,933)Purchase of property and equipment(1,275) (2,628) 
Proceeds from disposal of equipment2 26 Proceeds from disposal of equipment—  2  
Purchase of HALO, net of cash acquired(20,368)— Purchase of HALO, net of cash acquired—  (20,368) 
Net cash used in investing activitiesNet cash used in investing activities(22,994)(1,907)Net cash used in investing activities(1,275) (22,994) 
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Proceeds from revolving credit facility125,932 138,899 Proceeds from revolving credit facility54,124  125,932  
Payments on revolving credit facility(90,932)(152,711)Payments on revolving credit facility(61,724) (90,932) 
Payments on term loan facility— (1,563)Purchase of treasury stock—  (722) 
Purchase of treasury stock(722)— Payment of withholding on restricted stock units(314) —  
Proceeds from issuance of stock under employee stock purchase plan13 — Proceeds from issuance of stock under employee stock purchase plan39  13  
Net cash provided by (used in) financing activities34,291 (15,375)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(7,875) 34,291  
Effect of foreign currency exchange rates on cash equivalentsEffect of foreign currency exchange rates on cash equivalents(164)310 Effect of foreign currency exchange rates on cash equivalents(260) (164) 
Net decrease in cash and cash equivalentsNet decrease in cash and cash equivalents(1,004)(7,244)Net decrease in cash and cash equivalents(3,651) (1,004) 
Cash and cash equivalents at beginning of the periodCash and cash equivalents at beginning of the period15,793 24,989 Cash and cash equivalents at beginning of the period17,801  15,793  
Cash and cash equivalents at end of the periodCash and cash equivalents at end of the period$14,789 $17,745 Cash and cash equivalents at end of the period$14,150  $14,789  

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

For the Three Months Ended
March 31, 2020March 31, 2019
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$921  $923  
Cash refunded during the period for income taxes, net(58) (811) 
Cash paid during the period for rent expenses included in the measurement of lease liabilities993  642  
Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment financed through accounts payable$618  $696  
Withholding tax on restricted stock units recorded in accrued wages and wage related expenses—  782  
Purchase of HALO through amounts due to seller, contingent payments and common stock—  16,985  

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 (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, 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 principlesUnited States (“U.S.”) generally accepted in the United States of Americaaccounting principles (“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, 20182019 (the “2018“2019 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 2019 Form 10-K for the year ended December 31, 2018.10-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)326, “Financial Instruments - Credit Losses”
The Company adopted ASC Topic 842326,“Leases”Financial Instruments - Credit Losses” (“Topic 842”326”) with a date of initial application of January 1, 2019.2020. As a result of this adoption, the Company has changed its accounting policy for leasesestimating allowance for credit losses on trade receivable, as detailed below.
The Company applied Topic 842 on January 1, 2019, using the modified retrospective approach. The adoption of Topic 842 includes the326 prospectively with recording a cumulative effect of adopting the new standard being recognizedadjustment in retained earnings atbeginning January 1, 2019,2020, which allows for the application of the standard solely to the transition period in 20192020 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 elected the package of available practical expedients allowable under Topic 842 guidelines in its adoption approach.incurred loss impairment methodology.
The adoption of Topic 842326 resulted in an increase in long-term lease liabilities of $10,684 which was included in other long-term liabilities; an increase in short-term lease liabilities of $2,362 which was included in accrued liabilities; an initial recognition of right of use (“ROU”) assets of $8,842 which was included in other assets; 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$359 in retained earnings as a cumulative effect of adoption.
As the Company The new standard 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 March 31, 2019. Under Topic 840, 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 significant material impact in the Company’s consolidated balance sheets but did not have a significant impact in itsor condensed consolidated statements of operations. In addition, the adoption of Topic 842326 had no impact to cash provided by or used in operating, financing, or investing on the condensed consolidated statements of cash flows.
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LeaseAllowance for credit losses accounting policy
The Company determines if an arrangement is a lease at contract inceptionestimates the allowance for credit losses in relation to accounts receivable based on relevant qualitative and then determines if such qualifying lease is classified as an operating lease or a finance lease. Asquantitative information about historical events, current conditions, and reasonable and supportable forecasts that affect the collectability of March 31, 2019,the reported accounts receivable. To estimate the allowance for credit losses, the Company only has operating leases. For operating leases,starts with its historical loss experience as suggested by ASC 326. Numerous methods are permitted to perform such calculation. The Company evaluated its current method of estimating the allowance for credit losses and determined that the current method of using an aging schedule to develop historical credit loss percentages, which is allowed under ASC 326, is deemed appropriate. The historical credit loss percentages are developed for each aging category based on eight quarters of credit loss history and the Company measures lease liabilities based on the present valuedetermined customers in each 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 its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. 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 the lease 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 10 months to 9 years, some of which include options to extend the leases up to 10 years. The following table provides information about operating lease ROU assets, current lease liabilities, and non-current lease liabilities as of March 31, 2019:
March 31, 2019
Right of use assets, included in other assets$9,091 
Operating lease liabilities, included in accrued liabilities2,193 
Operating lease liabilities, included in other long-term liabilities12,163 
The following summarizes the activities in the Company’s ROU assets and lease liabilities for the three months ended March 31, 2019:
Beginning Balance as of January 1, 2019Adoption of Topic 842AdditionsAmortizationEnding Balance as of March 31, 2019
ROU assets$— $8,842 $748 $(499)$9,091 
Lease liabilities— 13,046 1,775 (465)14,356 
For the three months ended March 31, 2019, and 2018, the rent expense was $853 and $782, respectively. Rent expense was recognized on a basis which approximates straight-line over the lease term and was recorded as a component of selling, general and administrative expense on the condensed consolidated statement of operations. As of March 31, 2019, the Company had a weighted-average remaining lease term of 5.6 years and a weighted-average discount rate used to calculate the lease liability of 4.43%.
these aging categories share similar risk characteristics.
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Future maturitiesThe Company then adjusts the historical credit loss percentage by current and forecasted economic conditions. Due to the short-term nature of lease liabilities asits accounts receivable and that it carries credit insurance on a significant portion of the accounts receivable balance, the Company believes changes to economic conditions may not have significant effect on the estimate of the allowance for credit losses for accounts receivable; thus, the Company determined to include a baseline credit loss percentage into the historical credit loss percentage for each aging category to reflect the potential impact of the current and economic conditions. Such baseline will be adjusted further if changes in the economic environment change the Company's expectation for future credit losses.
As of March 31, 2019 were as follows:

Remaining 2019$2,509 
20203,044 
20212,677 
20222,737 
20232,202 
Thereafter3,141 
Total lease payments$16,310 
Less: imputed interest(1,954)
Lease liabilities$14,356 
No other leases have been entered into under which2020, the Company has significant rightsdetermined the baseline of credit loss percentage should be increased in response to the COVID-19 pandemic and obligations asestimated the lessee except those noted above.allowance for credit losses to be $1,655.
(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 months ended March 31, 2019,2020, and 2018,2019, was approximately as follows:
For the Three Months EndedFor the Three Months Ended
March 31, 2019March 31, 2018March 31, 2020March 31, 2019
Protection (screen protection and cases)Protection (screen protection and cases)59%  50%  Protection (screen protection and cases)67%59%
Power (power management and power cases)Power (power management and power cases)29%  39%  Power (power management and power cases)25%29%
AudioAudio5%  5%  Audio2%5%
Productivity (keyboards and other)Productivity (keyboards and other)7%  6%  Productivity (keyboards and other)6%7%
The percentage of net sales related to the Company’s key distribution channels for the three months ended March 31, 2019,2020, and 2018,2019, was approximately as follows:
For the Three Months Ended
March 31, 2019March 31, 2018
Indirect channel79%  88%  
Website14%  8%  
Franchisees7%  4%  

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For the Three Months Ended
March 31, 2020March 31, 2019
Indirect channel87%79%
Website8%14%
Franchisees5%7%
The percentage of net sales related to the Company’s key geographic regions for the three months ended March 31, 2019,2020, and 2018,2019, was approximately as follows:
For the Three Months EndedFor the Three Months Ended
March 31, 2019March 31, 2018March 31, 2020March 31, 2019
United StatesUnited States71%  82%  United States77%71%
EuropeEurope12%  9%  Europe14%12%
OtherOther17%  9%  Other9%17%

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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 March 31, 2019,2020, and December 31, 2018:2019:
March 31, 2019December 31, 2018March 31, 2020December 31, 2019
Receivables, which comprises the balance in accounts receivable, net of allowancesReceivables, which comprises the balance in accounts receivable, net of allowances$93,617 $156,667 Receivables, which comprises the balance in accounts receivable, net of allowances$83,746  $142,804  
Right of return assets, which are included in prepaid expenses and other current assetsRight of return assets, which are included in prepaid expenses and other current assets785 999 Right of return assets, which are included in prepaid expenses and other current assets314  2,177  
Refund liabilities, which are included in sales return liabilityRefund liabilities, which are included in sales return liability29,966 49,786 Refund liabilities, which are included in sales return liability27,960  39,790  
Warranty liabilities, which are included in sales return liabilityWarranty liabilities, which are included in sales return liability3,858 4,646 Warranty liabilities, which are included in sales return liability2,611  4,063  
Contract liabilities, which are included in accrued liabilitiesContract liabilities, which are included in accrued liabilities85 96 Contract liabilities, which are included in accrued liabilities35  39  
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 months ended March 31, 2019, revenue recognized that was included in the contract liability balance as of December 31, 2018, was $11.
The following summarizes the activities in the Company’s warranty liabilities for the three months ended March 31, 2020, and 2019:
Balance as of December 31, 2018$4,646 
Additions2,253 
Warranty claims charged(3,041)
Balance as of March 31, 2019$3,858 
March 31, 2020March 31, 2019
Balance at beginning of period$4,063  $4,646  
Additions416  2,253  
Warranty claims charged(1,867) (3,041) 
Foreign currency translation gain(1) —  
Balance at end of period$2,611  $3,858  

(3) ACQUISITIONS
Acquisition ofACQUISITION 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 portfolio andprimarily to enter into new distribution channels.channels and to expand its product and intellectual property portfolio.
(4) INVENTORIES
During the three months ended March 31, 2020, as a result of current and expected 2020 demand reductions due to the COVID-19 pandemic, the Company reassessed the (1) long-term profitability of all brands and product lines, and (2) the recoverability of inventory on-hand (the “Strategic Review”). As a result of the Strategic Review, the Company determined to discontinue the BRAVEN audio brand, exit the battery case product category, and simplify the following product lines: IFROGZ audio, ZAGG keyboards, and mophie power stations. Ultimately, the demand reduction linked to COVID-19 combined with these efforts to exit less profitable categories, resulted in a write-down to inventory during the three months ended March 31, 2020 of $44,833, which is included in the cost of sales in the condensed consolidated statements of operations.
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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 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.
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 
Other assets546 
Accounts payable(2,867)
Income tax payable(501)
Accrued expenses(217)
Accrued wages and wage related expenses(324)
Sales return liability(2,728)
Deferred tax liability(6,177)
Other long-term liabilities(1,611)
Total$38,504 

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

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The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been 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.
For the three months ended March 31, 2019, pro forma net loss includes pro forma amortization expense of $30 and excludes non-recurring items including acquisition-related costs of $247 and the expensing of the fair value adjustment to inventory of $343. For the three months ended March 31, 2018, pro forma net income includes pro forma amortization expense of $784, acquisition-related costs of $247 and amortization related to the fair value adjustment to inventory of $343.
The pro forma results do not reflect events that either have occurred or may occur after the HALO Acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods.
As part of the HALO Acquisition, the Company incurred legal, accounting, and other due diligence fees that were expensed when incurred. Total fees incurred related to the HALO Acquisition for the three months ended March 31, 2019, was $247 which was included as a component of operating expenses on the consolidated statements of operations.
Acquisition of Gear4
On November 30, 2018, Patriot Corporation Unlimited Company, an entity registered and incorporated in Ireland and a 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
The following pro-forma results of operations for the three months ended March 31, 2018, give pro forma effect as if the acquisition of Gear4 and the related borrowings used to finance the acquisition had occurred at the beginning of the periods presented, after giving effect to certain adjustments including the amortization of intangible assets, interest expense, tax adjustments, specific transaction related expenses incurred prior to the execution date, and assumes the purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date of purchase.
For the Three Months Ended
March 31, 2018
Net sales$117,272 
Net income$5,360 
Basic earnings per share$0.19 
Diluted earnings per share$0.19 
The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2017. Furthermore, such pro forma information is not necessarily indicative of future operating results of the combined companies, due to changes in operating activities following the purchase, and should not be construed as representative of the operating results of the combined companies for any future dates or periods.
For the three months ended March 31, 2018, pro forma net income includes pro forma amortization expense of $883 and interest from the amended credit facility and amortization of debt issuance costs of $433.
The pro forma results do not reflect events that either have occurred or may occur after the Gear4 Acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods.
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(4) INVENTORIES
Inventories consisted of the following as of March 31, 2019,2020, and December 31, 2018:2019:
March 31, 2019December 31, 2018March 31, 2020December 31, 2019
Finished goodsFinished goods$99,237 $81,397 Finished goods$91,388  $142,054  
Raw materialsRaw materials989 1,522 Raw materials2,168  2,890  
Total inventoriesTotal inventories$100,226 $82,919 Total inventories$93,556  $144,944  
Included in prepaid expenses and other current assets were inventory deposits with third-party manufacturers of $453$148 and $382$148 as of March 31, 2019,2020, and December 31, 2018,2019, respectively.
(5) PROPERTY AND EQUIPMENT
In connection with the Strategic Review, the Company determined to dispose of certain equipment and molds that would no longer be used on go-forward brands and product lines, and wrote-off $2,535 for the three months ended March 31, 2020, which was included in loss on disposal of intangible assets and equipment in the condensed consolidated statements of operations.
Property and equipment, net consisted of the following as of March 31, 2020, and December 31, 2019:
Useful LivesMarch 31, 2020December 31, 2019
Computer equipment and software3 to 5 years$1,887  $1,237  
Equipment and molds3 to 10 years14,484  18,851  
Furniture and fixtures7 years1,857  1,876  
Automobiles5 years35  75  
Building and improvements40 years2,429  2,429  
Leasehold improvements1 to 9 years7,272  7,710  
Property and equipment, gross27,964  32,178  
Less accumulated depreciation and amortization(12,717) (14,159) 
Property and equipment, net$15,247  $18,019  
For the three months ended March 31, 2020, and 2019, depreciation expenses were $1,832 and $1,592, respectively, which were included as a component of selling, general and administrative expense in the consolidated statements of income.
(6) GOODWILL AND INTANGIBLE ASSETS
There was an $18,649 impairment to goodwill during three months ended March 31, 2020. Goodwill was impaired as the carrying value of the Company's net assets as of March 31, 2020 exceeded the Company's calculation of its diminished market capitalization caused by a decrease of the Company's stock price that occurred during the three months ended March 31, 2020. The market capitalization was determined by multiplying the total number of the Company's outstanding shares as of March 31, 2020 by the Company's average stock price for a determined reasonable period with an estimated additional control premium included as part of the market capitalization. During the three months ended March 31, 2019, goodwill increased in connection with the HALO Acquisition. The following table summarizes the changes in goodwill during the three months ended March 31, 2020, and the twelve months ended December 31, 2019:
Balance as of December 31, 2018$27,638 
Increase in connection with HALO Acquisition15,922 
Balance as of March 31, 2019$43,560 
March 31, 2020December 31, 2019
Balance at beginning of period$43,569  $27,638  
Addition in connection with the acquisition of HALO—  15,931  
Impairment of goodwill(18,649) —  
Balance at end of period$24,920  $43,569  
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There was no change in goodwillwere 0 additions to intangible assets during the three months ended March 31, 2018.
In connection with2020. For the three months ended March 31, 2019, as a consequence of the HALO Acquisition, intangible assets increased $27,554 for patents and technology, trade names, customer relationships, andnet of unfavorable lease forleases obtained. Additionally, during the three months ended March 31, 2019. There were no additions2020, the Company discontinued its use of certain trade names, patents and technology in connection with the Strategic Review. As such, a loss of $1,148 was recorded to reduce intangible assets forand is included in loss on disposal of intangible assets and equipment in the three months ended March 31, 2018. Additionally, there were no impairmentscondensed consolidated statements of operations. There was 0 impairment of intangible assets for the three months ended March 31, 2019,2020, and 2018.2019.
Intangible assets, net of accumulated amortization as of March 31, 2019,2020, and December 31, 2018,2019, were as follows:
March 31, 2019December 31, 2018March 31, 2020Weighted Average Amortization PeriodDecember 31, 2019Weighted Average Amortization Period
Trade namesTrade names$29,946 $26,988 Trade names$23,871  9.7 years$25,871  9.7 years
Patents and technologyPatents and technology21,652 8,723 Patents and technology13,961  8.3 years15,306  8.3 years
Customer relationshipsCustomer relationships22,894 15,560 Customer relationships20,257  7.7 years21,514  7.7 years
Non-compete agreementsNon-compete agreements692 778 Non-compete agreements329  4.9 years419  4.9 years
Other5 5 
Total intangible assets, net of accumulated amortizationTotal intangible assets, net of accumulated amortization$75,189 $52,054 Total intangible assets, net of accumulated amortization$58,418  8.3 years$63,110  8.3 years
The total weighted average useful lives of intangible assets as of March 31, 2019, and December 31, 2018, was 8.3 years and 8.3 years, respectively.
(6)(7) INCOME TAXES
For interim periods, the tax provision is generally determined utilizing an estimate of the Company’s annual effective tax rate adjusted for discrete items, if any. Due to the Company's year-to-date loss and forecasted loss for the year, the tax benefit for the loss for the three months ended March 31, 2020 was limited to the expected annual tax benefit for the year ended December 31, 2020. The Company’s effective tax rate was 22%10% and 11%22% for the three months ended March 31, 2019,2020, and 2018,2019, respectively. The increasedecrease in the effective tax rate was primarily due to several factors including but not limited to a difference inlimiting the amount oftax benefit for the discrete item with respectquarter to the restricted stock unit awards. The majority of the Company’s restricted stock unit awards vest in the first quarter.expected annual tax benefit. The Company’s effective tax rate will also 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.
(8) LINE OF CREDIT
On April 12, 2018, the Company entered into an amended and restated credit and security agreement (the “2018 Credit and Security Agreement”) with KeyBank National Association (“KeyBank”), 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, which was subsequently amended by a first amendment agreement dated as of November 28, 2018 (the “First Amendment Agreement”), a second amendment agreement dated as of August 30, 2019 (the “Second Amendment Agreement”), and a third amendment agreement dated as of December 4, 2019 (the “Third Amendment Agreement”). The maturity date of the 2018 Credit and Security Agreement is April 11, 2023.
Long-term debt, net as of March 31, 2020, and December 31, 2019, were $99,540 and $107,140, respectively. As of March 31, 2020, $200 was issued for letters of credit and $25,260 was available to be issued for letters of credit.
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(7)(9) STOCK-BASED COMPENSATION
The grant of restricted stock units with respective weighted-average fair value per share for the three months ended March 31, 2019,2020, and 2018,2019, is summarized as follows:
For the Three Months EndedFor the Three Months Ended
March 31, 2019March 31, 2018March 31, 2020March 31, 2019
GrantedGranted643 81 Granted620  643  
Weighted average fair value per shareWeighted average fair value per share$9.82 $14.50 Weighted average fair value per share$7.50  $9.82  
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-monthnine-month (annual board of directors’ grant) to a three-yearthree-year vesting term, depending on the terms of the individual grant.
As part of the 620 and 643 restricted stock units granted during the three months ended March 31, 2020, and 2019, the Company granted 417 and 287 restricted stock units 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, orand other specific net sales and profitability goals for the individual executive,from 2020 to 2022, and (2) continued employment through the applicable vesting date. No restricted stock units granted during the three months ended March 31, 2018 were linked to any performance criterion.
The estimated fair value of the restricted stock units is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the award. The following are stock-based compensation expenses related to restricted stock units recorded for the three months ended March 31, 2019,2020, and 2018,2019, which are included as a component of selling, general, and administrative expense on the condensed consolidated statement of operations:
For the Three Months Ended
March 31, 2019March 31, 2018
Stock-based compensation expense related to restricted stock units$1,185 $601 
For the Three Months Ended
March 31, 2020March 31, 2019
Stock-based compensation expense related to restricted stock units$1,294  $1,185  
During the three months ended March 31, 2019, and 2018, certainCertain Company employees have 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. ThisThese elections have resulted in the Company recording $782$314 and $2,612$782 reflected as a reduction of additional paid-in capital during the three months ended March 31, 2020, and 2019, respectively. OfAll of the $782 and $2,612$314 recorded as a reduction of additional paid-in capital $782 and $2,610 was included in accrued wages and wage related expensespaid as of March 31, 2019, and 2018, respectively.2020.
(8) EARNINGS (LOSS)(10) LOSS PER SHARE
Basic earnings (loss)loss per common share excludes dilution and is computed by dividing net earnings (loss)loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share, if applicable, reflects the potential dilution that could occur if stock options, and restricted stock, or other common stock equivalents were exercised or converted into common stock. The dilutive effect of stock options or other common stock equivalents is calculated using the treasury stock method.
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The following is a reconciliation of the numerator and denominator used to calculate basic earnings (loss)loss per common share and diluted earnings (loss)loss per common share for the three months ended March 31, 2019,2020, and 2018:2019:
For the Three Months EndedFor the Three Months Ended
March 31, 2019March 31, 2018March 31, 2020March 31, 2019
Net (loss) income$(14,424)$7,029 
Net lossNet loss$(75,555) $(14,424) 
Weighted average shares outstanding:Weighted average shares outstanding:Weighted average shares outstanding:
BasicBasic28,883 28,209  Basic29,745  28,883  
Dilutive effect of restricted stock unitsDilutive effect of restricted stock units— 484  Dilutive effect of restricted stock units—  —  
DilutedDiluted28,883 28,693  Diluted29,745  28,883  
(Loss) earnings per share:
Loss per share:Loss per share:
BasicBasic$(0.50)$0.25  Basic$(2.54) $(0.50) 
DilutedDiluted$(0.50)$0.24  Diluted$(2.54) $(0.50) 
For the three months ended March 31, 2020, and 2019, 1,167 and 1,187 restricted stock units, respectively, were not considered in calculating diluted loss per share because the Company was in a loss position and, therefore, the effect would have been anti-dilutive.
For the three months ended March 31, 2018, 114 restricted stock units used to purchase shares of common stock were not considered in calculating diluted earnings per share as their effect would have been anti-dilutive.
(9)(11) 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.date (the “2015 Stock Repurchase Program”). On March 11, 2019, ourthe 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 ourthe Company's outstanding common stock.stock (the “2019 Stock Repurchase Program”).
As ofDuring the three months ended March 31, 2019, and December 31, 2018, a total2020, the Company did not purchase any shares of $20,000 and $5,462 remained authorized under the stock repurchase program, respectively.
The Company repurchased shares forCompany's common stock. During the three months ended March 31, 2019, the Company purchased 72 shares of the Company's common stock under the 2015 Stock Repurchase Program for total consideration of $722 with a weighted average price of $10.00 per share, which included commissions and 2018, as follows:
For the Three Months Ended
March 31, 2019March 31, 2018
Shares repurchased72 — 
Cash consideration paid$722 $— 
Commissions to brokers included in cash consideration paid$2 $— 
Weighted average price per share repurchased$10.00 $— 
processing fees totaling $2. As of March 31, 2020, and December 31, 2019, a total of $20,000 remained authorized for the repurchase of the Company's outstanding common stock under the 2019 Stock Repurchase Program.
The consideration paid has been recorded within stockholders’ equity in the condensed consolidated balance sheet.
(12) LEASES
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 3 months to 7.8 years, some of which include options to extend the leases up to 10 years. For the three months ended March 31, 2020, and 2019, rent expense was $1,112 and $853, respectively. Rent expense is recognized on a basis which approximates straight-line over the lease term and is recorded as a component of selling, general and administrative expense on the condensed consolidated statement of operations. As of March 31, 2020, the Company had a weighted-average remaining lease term of 4.8 years and a weighted-average discount rate used to calculate the lease liability of 4.42%.
Future maturities of lease liabilities as of March 31, 2020, were as follows:
Remaining of 2020$2,454  
20212,903  
20222,807  
20232,367  
20241,400  
Thereafter1,737  
Total lease payments13,668  
Less: imputed interest(1,411) 
Lease liabilities$12,257  
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(10)No other leases have been entered into under which the Company has significant rights and obligations as the lessee except those noted above.
(13) CONTINGENCIES
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, the Company and mophie filed the Anker Lawsuit alleging that Anker Technology Co. Ltd. (“Anker”) and Fantasia Trading LLC (“Fantasia”) infringe U.S. Patent Nos. 8,971,039, 9,077,013, 9,088,028, 9,088,029, 9,172,070, and 9,406,913 in connection with protective battery cases for smartphones.  The Anker products accused of infringement include Anker’s Ultra Slim Extended Battery Case for iPhone 6 / 6s (4.7 inch) with 2850mAh capacity; Premium Extended Battery Case for iPhone 6 / 6s (4.7 inch) with 3100mAh Capacity; PowerCore Case for iPhone 7 (4.7 inch), 80% Extra Battery; PowerCore Case for iPhone 7 (4.7 inch), 95% Extra Battery; and 2400mAh MFI Certified Rubber-Feel Premium Rechargeable Extended Battery Case for iPhone 5s, 5.  The complaint filed by the Company and mophie seeks monetary damages and an injunction against Anker.  On March 12, 2018, Anker and Fantasia filed answers and counterclaims in the lawsuit. In their answers, Anker and Fantasia denied infringement of any valid claim and asserted counterclaims for non-infringement and invalidity of the patents at issue.
The Company disputes Anker’s contentions and will defend the claims and otherwise respond to the allegations. The matter is scheduled for trial in November 2019. This matter is not expected to have a material adverse effect on the Company’s financial position, results of operations, or liquidity.
Best Case and Accessories, Inc. v. Zagg, Inc. United States District Court for the Eastern District of New York, Case No. 1:18-CV-04048-LDH-RML (the “BCA Lawsuit”). On July 13, 2018, Best Case and Accessories, Inc. (“Best Case”) filed a complaint against the Company. The Company had previously sent a letter to Best Case alleging that it was using product packaging and display trade dress that is confusingly similar to the Company’s trade dress. In the complaint, Best Case alleges that it does not infringe the Company’s trade dress and that the Company tortiously interfered with Best Case’s business relationships, which the Company disputes. On February 8, 2019, the Company filed a complaint for trade dress infringement against Best Case in the United States District Court for the District of Utah, Case No. 2:19-CV-00090-PMW, in order to respond to the allegations and defend against the claims. This matter is not expected to have a material adverse effect on the Company’s financial position, results of operations, or liquidity.
Dan Dolar, an individual and on behalf of those similarly situated, Plaintiff, v. Mophie,mophie Inc., a California corporation, Defendant, Superior Court of the State of California, Orange County, Case No. 30-2019-01066228-CU-BT-CXC. On April 25, 2019, Dolar filed a complaint against the Company's subsidiary, mophie inc. (“mophie”) alleging, among other things, violationsviolation of California Consumers Legal Remedies Act, California False Advertising Law, breach of express warranty, violationsviolation of the Magnuson-Moss Warranty Act, violationsviolation of California Unfair Competition Law, and violation of state Consumer Protection Statutes. The complaint is based on Dolar’s allegationalleged that mophie systematically and routinely mischaracterizes the mAh ratings (the measure of energy capacity of a battery) of the batteries in its products. In his complaint, Dolar seeksproducts, and asked the court to certify a class of Californians who purchased mophie battery-enabled products. The complaint does not specify an amount of damages claimed. BecauseOn June 14, 2019, the court dismissed the complaint was filedwithout prejudice at Dolar’s request so recently, mophie has not been able to fully investigatethat Dolar’s claims. Based upon information presently available to mophie, it denies that it has engagedclaims could be pursued in the alleged practices, and intends to vigorously defendUnited States District Court in the lawsuit.case of Young v. mophie Inc., Case No. 8:19-cv-00827-JVS-DFM, discussed below.
Michael Young and Dan Dolar, individually and on behalf of thoseother similarly situated individuals, Plaintiff, v. Mophie,mophie Inc., Defendant, United States District Court, Central District of California. On, Case No. 8:19-cv-00827-JVS-DFM. This action started with a complaint filed by Young against mophie on May 2, 2019. On June 13, 2019, Young and Dolar joined together as plaintiffs and filed a first amended complaint against mophie alleging,(the “FAC”). In the FAC, Young and Dolar allege, among other things, violationsthat mophie has engaged in unfair and deceptive acts and practices in violation of consumersthe 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 and unfair trade practice laws Alaska, Connecticut, Delaware,statutes in various other states, violation of the District of Columbia, Illinois, New Hampshire, New York, Wisconsin, Florida, Hawaii, Massachusetts, Nebraska, Washington, Missouri, Maine, Michigan, New Jersey, Vermont and Rhode Island ,Magnuson-Moss Warranty Act, breach of express warrantieswarranty, and unjust enrichment. The complaintFAC is based on Young’s and Dolar’s allegation that mophie systematically and routinely mischaracterizes the mAh ratings (the measure of energy capacity of a battery) of the batteries in certain of its products. In his complaint, Young seeksand Dolar seek to certify a class of consumer nationwide and in the stated named abovevarious states who purchased mophie battery-enabled products. The complaintFAC does not specify an amount of damages claimed. Becauseclaimed, but alleges that damages will be in excess of $5,000. On July 11, 2019, mophie filed a motion to dismiss all of the complaint was filed so recentlyclaims asserted in the action. In October 2019, the court entered an order granting in part and hasdenying in part mophie's motion to dismiss. In its order, the court dismissed Young’s and Dolar’s Multi-State class of claims brought under the laws of states other than California and Florida, and the court denied the other relief requested in mophie’s motion to dismiss. The Court subsequently bifurcated discovery, permitting mophie to obtain discovery of plaintiffs’ individual claims. Plaintiffs have not yet been served onobtained any class-wide discovery. mophie mophie has not been able to fully investigate Young’s claims. Based upon information presently available to mophie, it denies that it has engaged in the alleged practices, and intendscontinues to vigorously defend the lawsuit.
SEC Investigation
Enchanted IP v. mophie, Inc., United States District Court, Central District of California, Case No. 8:19-cv-1648. On August 27, 2019, Enchanted IP LLC filed an action for patent infringement against mophie in the Central District of California, asserting U.S. Patent No. 6,194,871. This patent generally relates to a charge and discharge control circuit for an external secondary battery. The Company previously disclosedcomplaint identifies mophie’s juice pack reserve micro product as an investigation by the SEC relatedaccused product and seeks damages and injunctive relief. Enchanted IP does not appear to facts and circumstances surrounding former Chief Executive Officer Robert Pedersen’s pledge and subsequent sale of Company sharesmake or sell any products, and the fact that such pledgesasserted ‘871 patent expired in April 2020. ZAGG responded to the complaint on October 21, 2019 to formally assert its defenses and sales were not disclosedcounterclaims. On April 21, 2020, the parties finalized a confidential settlement and are in the Company’s 2011 10-Kprocess of dismissing the pending proceeding.
Shenzhen CN-iMX Technology Co., Ltd. v. Apple Electronic Products Trading (Beijing) Co., Ltd. and ZAGG (Shenzhen) Technology Development Co., Ltd. (2019) Yue 03 Pre-docketing Mediation No. 3234. In August 2019, Shenzhen CN-iMXTechnology Co., Ltd. filed on March 15,an action in Shenzhen Intermediate Court against ZAGG China and Apple, asserting infringement of Chinese Patent No. ZL 2012 or 2012 Proxy1 0335618.4 relating to a method of wireless charging. The action identifies mophie’s PowerStation wireless XL charger as an accused product and seeks damages and injunctive relief. In September 2019, ZAGG filed a separate invalidation request (Case No. 4W9507) to challenge the validity of the patent, and the action was scheduled for an oral hearing on April 27, 2012.23, 2020. On March 7, 2019,April 8, 2020, the Staffparties finalized a confidential settlement and are in the process of dismissing the SEC informed the Company that, after additional consideration and analysis, it has decided to terminate the investigation and dismiss the matter.
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pending proceedings.
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 records a liabilityestablishes reserves when a particular contingency is probable and estimable. The Company has not accrued for any lossesestimated liabilities of $750 and $750 in the condensed consolidated financial statementsbalance sheets as of March 31, 2020, and December 31, 2019, 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.respectively.
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(14) 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 three months ended March 31, 2019,2020, and 2018.2019.
As of March 31, 2019, and2020, Verizon Wireless (“Verizon”) exceeded 10% of the Company's accounts receivable. As of December 31, 2018, two separate customers were equal to or2019, Verizon and Best Buy Co., Inc. (“Best Buy”) exceeded 10% of the balance of accounts receivable. The amount of accounts receivable for each of these customers are outlined as follows:
March 31, 2019December 31, 2018
Superior Communications, Inc. (“Superior”)42%  50%  
Best Buy Co., Inc. (“Best Buy”)10%  15%  
March 31, 2020December 31, 2019
Verizon26%24%
Best Buy7%14%
NoThe Company began transitioning to a direct sales relationship with Verizon during the second half of 2018, which has continued to progress. Previous to the Company's direct sales relationship with Verizon, Verizon purchased the Company's products through Superior Communications, Inc.
Other than the customers noted in the table above, no other customer account balances were more thanexceeded 10% of accounts receivable as of March 31, 2019,2020 and December 31, 2018.2019. 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 wouldcould have a material adverse effect on the Company’s financial condition and results of operations.
Concentration of net sales
For the three months ended March 31, 2020, purchases by Verizon and Best Buy accounted for or exceeded 10% of net sales. For the three months ended March 31, 2019, purchases by Best Buy accounted for 10% of net sales, and for the three months ended March 31, 2018, Superior accounted for over 10%sales. The amount of net sales for each of these customers are outlined as follows:
For the Three Months EndedFor the Three Months Ended
March 31, 2019March 31, 2018March 31, 2020March 31, 2019
Superior6%  29%  
VerizonVerizon24%7%
Best BuyBest Buy10%  8%  Best Buy10%10%
For the three months ended March 31, 2019,2020, and 2018,2019, no other customers accounted for greater thanexceeded 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 ausing purchase order basis.orders. 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.
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(15) SUBSEQUENT EVENT
Fourth amendment agreement to the 2018 Credit and Security Agreement
On April 13, 2020 (the “Amendment Date”), the Company entered into a fourth amendment agreement (the “Fourth Amendment Agreement”) with KeyBank, Zions Bancorporation, N.A. dba Zions First National Bank, and MUFG Union Bank, N.A. as the lenders, and KeyBank as the administrative agent to amend the 2018 Credit and Security Agreement, as amended by the First Amendment Agreement, the Second Amendment Agreement, and the Third Amendment Agreement, to temporarily increase the revolving credit amount from $125,000 to $144,800 from the Amendment Date through March 31, 2021. Under the Fourth Amendment Agreement, interest rates have been revised to add an additional 50 basis points to the prior rates set forth in the 2018 Credit and Security Agreement, and the applicable interest rate is based on the Company's leverage ratio as defined in the Fourth Amendment Agreement.
In connection with the Fourth Amendment Agreement, the Company paid approximately $257 in debt issuance costs.
Small Business Administration loan under the CARES Act
On April 13, 2020, the Company entered into a loan agreement with KeyBank as the lender under the Paycheck Protection Program of the CARES Act administered by Small Business Administration, and on April 17, 2020 (the “Disbursement Date”), received a loan in the amount of $9,444 (the “PPP Loan”) to help sustain its employee payroll costs, rent, and utilities due to the impact of the recent COVID-19 pandemic. The interest rate for the PPP Loan is 1% per annum, and all required payments are deferred for six months from the PPP Loan Disbursement Date (the interest will continue to accrue over this six-month deferral period). Once the deferral period is over, the Company must pay $525 of the principal every month, as well as accumulated interest, until the PPP Loan's maturity date of two years from the PPP Loan Disbursement Date. The Company may also potentially obtain loan forgiveness for the PPP Loan if the Company meets certain requirements, as defined by the CARES Act. There can be no assurance that the Company will obtain forgiveness of the PPP Loan.
Company's operational response to COVID-19
In December 2019, a mutated strain of coronavirus was reported to have surfaced in Wuhan, China. The outbreak, which had previously been concentrated in China, has largely spread through the world, including the United States. The pandemic has resulted in federal, state, and local restrictions, requiring or recommending social distancing, travel bans, quarantines and other restrictions. Additionally, concerns regarding the spread and ultimate human and economic impacts have caused significant downturns in global economic activity. In response to such conditions, in addition to the increase in the borrowing capacity under the 2018 Credit and Security Agreement and the funds received from the PPP Loan discussed above, the Company took the following additional proactive measures after March 31, 2020 to provide enhanced financial flexibility:
•Implemented furloughs or lay-offs of approximately 20% of U.S. employees and reduced our Europe and Asia Pacific staff, excluding China, by approximately 20%. Employees on furlough retain their health insurance coverage throughout the furlough;
•Temporarily reduced salaries, including a 15% reduction for its Chief Executive Officer, 10% reductions for the rest of the executive team and 5% reductions for senior management;
•Temporarily reduced the cash portion of the Board of Directors’ compensation by 15% and replaced such compensation with stock-based compensation;
•Significantly reduced marketing spend throughout the remainder of 2020;
•Deferred or cancelled spending on all non-essential projects;
•Delayed or cancelled certain purchase orders to align with our adjusted demand forecast; and
•Limited travel of employees internationally and domestically throughout the remainder of 2020.
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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, pandemic and other health-related events, 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 global innovation leaders in accessories and technologies that empower mobile lifestyles, with a commitment to enhance every aspect of performance, productivity, and durability in mobile devices with our creative product solutions. Our business was initially created from the concept of using a clear film originally designed to protect the 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 enable the optimal mobile lifestyle through the use of our products.
In addition to our home-grown brands, weWe 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 and better empower a mobile lifestyle. We have an award-winning product portfolio that includes screen protection, powerprotective 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.
We maintain our corporate headquarters at 910 West Legacy Center Way, Suite 500, Midvale, Utah, 84047. Our telephone number is (801) 263-0699,801-263-0699, and our website addresses areaddress is www.ZAGG.com,  www.mophie.com, www.gear4.com, and www.halo2cloud.com (the URLs areURL is included here as an inactive textual references,reference, and information contained on, or accessible through, our websiteswebsite is not a part of, and is not incorporated by reference into, this report).
We have established four corporate objectivesCorporate Objectives and seven core valuesfour Core Values to act as a foundation for our corporate culture and guide us daily:culture:
zagg-20190331_g1.jpgzagg-20200331_g1.jpg

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Corporate ObjectivesCore Values
The Preferred BrandIntegrity
Creative Product SolutionsIntegrityPassion
Targeted Global DistributionOwnershipCare for People
Operational ExcellenceCare for People
The Preferred BrandPassion
Continuous Improvement
Performance
Sense of Urgency
The corporate objectivesTo better implement our Corporate Objectives and Core Values, we have also adopted six Cultural Beliefs that guide us daily:
•Be Brave - I respectfully listen, speak candidly, consistently exchange feedback and communicate broadly.
•Be Accountable - I see it, own it, solve it and do it.
•Be Better - I relentlessly pursue opportunities to improve.
•Reach Out - I reach across all boundaries to collaborate and create alignment.
•Take Charge - I make decisions, take the necessary risks and act with no fear of failure.
•ZOOM! - I learn fast, move fast, and deliver.
These Corporate Objectives are intended to align our functional teams’team goals and execution. Every one of our employees is trained to understand his or her role in executing these objectives. Each core valueCore Value and Cultural Belief acts as a key component in working toward our corporate objectivesCorporate Objectives of providing creative product solutions,Creative Product Solutions, executing targeted global distribution,Targeted Global Distribution, achieving operational excellence,Operational Excellence, and being the preferred brandThe Preferred Brand for our customers.
Our Products
Our innovative products are included in the following general categories:
•Protection (screen protection and protective cases)
•Power (power stations and wireless chargers, and power cases)chargers)
•Audio (earbuds headphones, and speakers)headphones)
•Productivity and Other (keyboards and other mobile accessory products)
These productsfour general product categories are broken down by brand as follows:
InvisibleShield Products
InvisibleShield products, including InvisibleShield Film, InvisibleShield Glass, and theour 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 enjoy their mobile devices without the inconvenience of a shattered, cracked, or scratched screen. Our protective InvisibleShield Film and InvisibleShield Glass products offer consumers a wide array of protection types and features, all with a limited lifetime warranty.
InvisibleShield Film was originally developed to protect the leading edge of rotary blades on military helicopters. Through constant innovation, we continue to formulate new film that is designed to offer the highest standards in self-healing scratch and impact protection. Additionally, we provide custom-fit screen protection for thousands of device types through our automated 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 compatible touch sensitivity. During 2018,Beside these basic protection functions from impacts and scratches, we launchedalso provide the following add-on features:
•VisionGuard™ - InvisibleShield Glass + VisionGuard™ for Apple® iPhone® smartphones, Apple iPad® tablets and Google® Pixel® smartphones, which featuresproducts feature 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 addition,
•Anti-Microbial Technology - InvisibleShield Glass with anti-microbial technology promotes digital wellness by eliminating 99.99% of harmful bacteria on the device screen. As the anti-microbial properties are infused in 2019 we introduced InvisibleShield Ultra Clear™ for selected smartphone models that offers maximum clarity and shatter protection with an advanced glass-like surface that feels as smooth as the smartphone’s original screen.glass, they will not wear away over time.
We have maintained the leading market share in screen protection in the United States (“U.S.”) and the 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.
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Gear4 Products
Gear4 HK Limited (“Gear4”)is a leader in smartphone cases with unique and stylish case designs, unparalleled protection, and proven durability. With Gear4's beginnings in the U.K., isGear4 grew to be one of the top selling U.K. smartphone case brands in the United Kingdom (“U.K.”).and now has a global market for its products. 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,state, D3O materials can flow freely when manipulated slowly, but onupon shock, lockthe material locks 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. In early 2020, we also expanded Gear4's product lineup to bring the D3O technology to cases for the Apple iPad.
With D3O technology and our expansive global distribution channels, we believe Gear4 cases willcan 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® 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. Currently, theThe mophie ecosystem of mobile accessories provides both power and protection for virtually any mobile device. With groundbreaking battery cases, wireless charging, universal batteries, cables, adapters, and docks, mophie products represent innovation at the forefront of design and development.
mophie’s innovative universal wireless charging pads are designed to provide an optimized charging experience with the latest Qi® wireless charging technology for universal compatibility. During 2018, newcompatibility and its charge stream powerstation® products were launchedare made to ensure consumers have access to easy, fast, and convenient wireless charging anywhere and anytime for Apple, Samsung®, Google, and other Qi-enabled mobile devices.
In early 2019,2020, we launchedunveiled the new juice pack accessmophie powerstation go™ universal battery cases to provide advanced impact protection for Apple’s latest smartphones that feature extrawhich utilizes HALO's portable car jump starter technology; the lightweight and portable battery life,can jump start sport utility vehicles or full-sized cars and is also equipped with USB-A ports, an AC power outlet, and Qi wireless charging for mobile devices and full accesslaptops.
In response to the iPhone Lightning® port.COVID-19 pandemic, we implemented plans to simplify our business and focus on profitable growth (the “Strategic Review”). As part of the Strategic Review, we determined to discontinue participation in the battery case category and to reduce our mobile power offerings under our power station product line.
We continue to innovate and expand our mobile power case and power managementwireless charging product lines under the mophie brand to provide new product experiences that are pleasing to consumers.
HALO Products
Halo2Cloud, LLC (“HALO”) leadsHALO is a leader in providing direct-to-consumer accessories backed by an extensive intellectual property portfolio. HALO designs, develops, and markets innovative technology productsportfolio designed to make consumers' lives easier through empowering mobile lifestyles. HALO products are at the nexus of fashion and function to power consumers' lives. With a rich history of innovation that includes wireless charging, car and wall chargers, portable power, and power wallets, and 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.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.
The recently launched AIRTIME™ Truly Wireless Earbuds include quick-charging and auto-pair technology that seamlessly connects both earbuds to any Bluetooth® device. Shortly following the launch of the AIRTIME Truly Wireless Earbuds, we launched AIRTIME PRO™ Truly Wireless Earbuds with the latest audio technology features, enabling consumers to enjoy audio streaming and hands-free calling free from wires.
In early 2020, we unveiled the AIRTIME VIBE™ active noise cancellation headphones which reduce ambient noise by approximately twenty decibels at the push of a button, as well as the IPX5 water-resistant AIRTIME SPORT™ Truly Wireless Earbuds with around-the-ear sport wings and IPX5 water resistance built for an active lifestyle.
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In connection with the Strategic Review, we determined to reduce our IFROGZ EarPollution® product line of earbuds and headphones specifically target a younger demographic while still appealingaudio offerings to a wide spectrum of consumers. During 2018, we introducedfocus on the Sound Hub™ wireless earbud family. With this new line of wireless audio, consumers have more customized options for their wireless audio as its Bluetooth® receiver turns any device with a 3.5mm jack (such as headphones, earbuds, and speakers) into a wireless audio device.
We continue to innovate and expand our headphone and earbud product lines under the IFROGZ brand to include offerings for all ages under both the EarPollution and Sound Hub product lines.HSN channel.
BRAVEN Products
BRAVEN products innovateIn connection with the rugged Bluetooth audio category by combining unparalleled design with cutting-edge technologyStrategic Review, we decided 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 developdiscontinue the BRAVEN brand into one of the fastest growing wireless audio brands in the industry.
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brand.
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 we 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 and cases, are designed to free consumers from the confines of the traditional workplace. We believe “getting away” shouldn’t mean being disconnected. As 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 support the communicators, commuters, creators, and closers who live a mobile lifestyle. With the right ZAGG mobile accessories, we believe no one ever needs to feel tethered or held back.
In connection with the Strategic Review, we determined to reduce our ZAGG keyboards are designedkeyboard offerings 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 devicesfocus only on active tablets released by Apple, Microsoft®, and Samsung, as well as other leading mobile device 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. During 2018, we expanded our keyboard lineup with the Flex® universal keyboard and stand, which features a slim and portable design. The Flex universal keyboard can work with any Bluetooth device and make data entry fast and easy by eliminating hunt-and-peck typing. In early 2019, we unveiled the Slim Book™ Go, Rugged Book™ Go, and Messenger Folio™ keyboards for iPad and iPad Pro models which feature a protective, yet lightweight design that boasts backlit, laptop-style keys for ultimate productivity in today’s on-the-go world.
We continue to innovate and expand our wireless keyboard product lines as end users’ requirements evolve in this rapidly changing market.Apple.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires that we make estimates and judgments 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 are believed to be 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 20182019 Form 10-K. There have been no material changes to the critical accounting policies or estimates previously disclosed in that 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 March 31, 20192020, and 20182019
For the Three Months Ended
March 31, 2020March 31, 2019
Amount% of Net SalesAmount% of Net Sales
Net sales$90,981  100.0 %$78,750  100.0 %
Gross (loss) profit(18,942) (20.8)%23,822  30.3 %
Operating expenses63,240  69.5 %40,882  51.9 %
Other expense, net(1,532) (1.7)%(1,526) (1.9)%
Income tax benefit8,159  9.0 %4,162  5.3 %
Net loss(75,555) (83.0)%(14,424) (18.3)%
Net sales
Net sales for the three months ended March 31, 2019,2020, were $78,750,$90,981, compared to net sales of $112,066 for the three months ended March 31, 2018, a decrease of $33,316 or 30%. The $33,316 decrease in net sales was primarily attributable to (1) decreased sales of wireless charging accessories due to challenging sell-in comparisons from the initial product launch in 2017 that extended into the first quarter of 2018 and (2) a decrease in sales of screen protection products and wireless charging accessories due to a pull forward of shipments into the fourth quarter of 2018 ahead of a potential tariff increase. These decreases were partially offset by increased sales of power cases driven from the launch of the new juice pack access and initial sales from our newly acquired brands: Gear4, HALO, and BRAVEN.
Gross profit
Gross profit$78,750 for the three months ended March 31, 2019, an increase of $12,231 or 16%. The $12,231 increase in net sales was $23,822primarily attributable to (1) an increase in sales of screen protection products and (2) an increase in sales of power management driven primarily by HALO and mophie wireless power. This was partially offset by lost sales of approximately $9,000 due to the impact of COVID-19.
Gross (loss) profit
Gross loss for the three months ended March 31, 2020, was $(18,942) or approximately 30%(21)% of net sales, compared to $37,592gross profit of $23,822 or approximately 34%30% of net sales for the three months ended March 31, 2018.2019. The decrease in gross profit marginprofit/(loss) was primarily attributable to (1) the mixMarch 2020 inventory write-downs of curved glass screen protection$44,833 primarily linked to the discontinuation of certain brands and product lines resulting from the Strategic Review combined with decreased demand due to the effects of COVID-19, (2) an increase in duty rates as a result of higher tariffs on products which are at comparatively lower marginssourced from China, and (3) an increase of expedited freight and higher overall freight rates due to Chinese factories coming back online later than our flat glass products and which sales increased duringplanned following the Chinese New Year due to COVID-19. Excluding the impact from the inventory write-downs, gross profit margin was 28% for the three months ended March 31, 20192020, compared to 30% for the same period last year, and (2) a decrease in sales of our wireless charging products compared to the same period last year.three months ended March 31, 2019.
Operating expenses
Total operating expenses for the three months ended March 31, 2019,2020, were $40,882,$63,240, compared to operating expenses of $29,673$40,882 for the three months ended March 31, 2018,2019, an increase of $11,209$22,358 or 38%55%. The $11,209$22,358 increase in operating expenses was primarily attributable to (1) additional selling, generalan $18,649 impairment charge to goodwill resulting from the carrying value of our net assets exceeding our market capitalization, (2) a $2,535 charge from the write-off of product tooling linked to discontinued brands and administrative expense associatedproduct lines, (3) a $1,148 write-off recorded for the intangible assets resulting from discontinued brands and product lines, (4) $528 incurred in connection with the newly acquired BRAVEN, Gear4lay-off of certain employees in March 2020, and HALO brands, (2) higher amortization of long-lived intangibles(5) $1,079 related to expenses for ISOD expansion into the BRAVEN, Gear4 and HALO acquisitions, and (3) increased marketing investments to support our growing portfolio of brands and products.Latin America region. These increases were partially offset by cost reduction initiatives.
Other expense, net
For the three months ended March 31, 2019,2020, total other expense, net was $1,526$1,532 compared to total other expense, net of $5$1,526 for the three months ended March 31, 2018.2019. The increase in other expense is primarily attributable to a loss on foreign exchange transactions and an increase of interest expense due to higher carrying amounts of debt.debt, partially offset by a gain on foreign exchange transactions.
Income tax benefit (provision)
We recognized an income tax benefit of $8,159 for the three months ended March 31, 2020, compared to an income tax benefit of $4,162 for the three months ended March 31, 2019, compared to an income2019. Our effective tax provision of $885rate was 10% and 22% for the three months ended March 31, 2018. Our2020, and 2019, respectively. The decrease in the effective tax rate was 22% and 11% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, and 2018, respectively. The increasewas due primarily to the method for which the provision/benefit was calculated in the current quarter. As the projected benefit for the full year is applied to the current quarter loss, the effective tax rate wasis decreased due to several factors including but not limited to a difference in the amount ofcurrent quarter loss exceeding the discrete item with respect to the restricted stock unit awards. The majority of the Company’s restricted stock unit awards vest in the quarter. The windfall adjustment decreased significantly from the quarter of 2018 to the quarter of 2019.forecasted full year loss. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items including amounts disallowed under §162(m) of the Internal Revenue Code, ourthe Company’s global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.
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Net (loss) incomeloss
AsWe reported net loss of $75,555 or $2.54 per share on a result of these factors, we reportedfully diluted basis for the three months ended March 31, 2020, compared to net loss of $14,424 or $0.50 per share on a fully diluted basis for the three months ended March 31, 2019, compared to net income of $7,029 or $0.24 per share on a fully diluted basis for the three months ended March 31, 2018.2019.
Liquidity and Capital Resources (Amounts in thousands)thousands)
Liquidity is a measurement of our ability to generate adequate amounts of cash to meet both our current and future obligations, including ongoing commitments to fund continuing operations and capital expenditures, repay our debt, purchase of treasury shares, and acquire businesses. As of March 31, 2020, our principal sources of liquidity were cash generated by operations and cash on-hand. Our principal uses of cash were primarily for repayment of the 2018 Revolver (as defined below) and working capital needs. As of December 31, 2019, our principal sources of liquidity were cash on handon-hand and net borrowings from revolving credit facilities.the 2018 Revolver. Our principal uses of cash have beenwere for a business acquisition, cash used in operations,operating activities, purchase of property and equipment, andpayments for the net share settlement of restricted stock units, purchase of treasury shares.shares, and business acquisitions.
Cash and Cash Equivalents
Cash and cash equivalents on-hand decreased to $14,789$14,150 on March 31, 2019,2020, from $15,793$17,801 on December 31, 2018,2019, a decrease of $1,004.$3,651. The decrease in cash is largely the result of $7,600 net decreasepayments against the 2018 Revolver, partially offset by $5,759 provided by operating activities.
Cash Flows
For the Three Months Ended March 31,
20202019
Net cash flow provided by (used in):
Operating activities$5,759  $(12,137) 
Investing activities(1,275) (22,994) 
Financing activities(7,875) 34,291  
Effect of foreign currency exchange rates on cash and cash equivalents(260) (164) 
Net decrease in cash and cash equivalents$(3,651) $(1,004) 
Operating Activities
Net cash generated from operating activities was primarily attributable to (1) $20,368 net cash paid$5,759 for the HALO Acquisition, (2)three months ended March 31, 2020, compared to $12,137 of net cash used in operating activities for the three months ended March 31, 2019, a net change of $17,896. The change was primarily driven by (1) a decrease in use of cash for inventory for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, (2) a higher sales reserve estimate resulting from higher net sales for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, and (3) $2,628 paidhigher collections on accounts receivable due to a lower balance of receivables for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. These increases were partially offset by an increase in cash used to pay our vendors.
Investing Activities
Net cash used in investing activities was $1,275 for the three months ended March 31, 2020, compared to $22,994 for the three months ended March 31, 2019, a net decrease of $21,719. The decrease in net cash used in investing activities was primarily due to $20,368 of cash used in the acquisitions of HALO in 2019 and, to a lesser extent, decreased spending in purchases of property and equipment purchases, and (4) $722for the three months ended March 31, 2020.
Financing Activities
Net cash used in financing activities was $7,875 for the three months ended March 31, 2020, compared to $34,291 for the three months ended March 31, 2019, a net change of $42,166. The change was primarily due to a higher ratio of net payments for treasury stock. These expenditures are partially offset by $35,000made on the 2018 Revolver relative to net proceeds received from that revolving credit facilities.
facility for the three months ended March 31, 2020, compared to a higher ratio of net proceeds received from the 2018 Revolver relative to net payments made to that revolving credit facility for the three months ended March 31, 2019.
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Working Capital
Working capital is a non-GAAP measurement which is defined by us as current assets less current liabilities. We believe working capital is a meaningful way to measure our operational efficiency and short-term financial health. As of March 31, 2020, working capital was $94,937 compared to $151,660 as of December 31, 2019, a decrease of $56,723. The decrease in the working capital position was primarily attributable to changes in accounts receivable, inventories, including a $44,833 write-down of inventory during the three months ended March 31, 2020, and accounts payable.
Accounts receivable, net of allowances, decreased to $93,617$83,746 on March 31, 2019,2020, from $156,667$142,804 on December 31, 2018,2019, a decrease of $63,050.$59,058. The net decrease was primarily attributable to comparativelythe collection of accounts receivable balance from the prior quarter in the current quarter and lower sales for the first quarter of 20192020 in comparison to the fourth quarter of 2018, as well as strong cash collections during the three months ended March 31, 2019.
Inventories increaseddecreased to $100,226$93,556 on March 31, 2019,2020, from $82,919$144,944 on December 31, 2018, an increase2019, a decrease of $17,307.$51,388. The net increasedecrease was primarily attributable to lower salesa write-down of $44,833 of inventory due primarily by the effects of the COVID-19 pandemic and the Strategic Review conducted by Management in the first quarter of 2019, an increase in inventory levels needed to support new product launches, and an increase in inventory from the acquisition of HALO.response.
Accounts payable decreased to $55,045$50,854 on March 31, 2019,2020, from $80,908$87,303 on December 31, 2018,2019, a decrease of $25,863.$36,449. The net decrease was primarily attributable to lower sales forseasonal inventory purchases and operating activities in the first quarter of 20192020 in comparison to the fourth quarter of 20182019, and payment on accounts payable outstanding on December 31, 2018,2019, during the three months ended March 31, 2019. These decreases were partially offset by liabilities assumed in2020.
Share Repurchase Program
During the acquisitionthird quarter of HALO.
2015, our board of directors approved a stock repurchase program with no expiration date. On March 11, 2019, our board of directors authorized the cancellation of the 2015 stock repurchase program, and authorized a new stock repurchase program that grants the repurchase of up to $20,000 of our outstanding common stock. As of March 31, 2019,2020, we achievedhave $20,000 remaining under this program.
Debt and Credit Facilities
We entered into a credit and security agreement in 2018 to obtain a secured revolving credit facility (the “2018 Revolver”) and letters of credit in which we use the net borrowing for general corporate purposes, including funding for working capital, purchase of $108,309 comparedproperty and equipment, purchase of treasury shares and business acquisitions. As of March 31, 2020, we had $99,540 of the 2018 Revolver outstanding, with a weighted average interest rate of 4.0%, and $200 was issued under in letters of credit with $25,260 available to $105,540 asbe issued for letters of December 31, 2018, an increase of $2,769. The net increase in the working capital position was primarily attributablecredit. See Note 8 to the changesfinancial statements included in accounts receivable, netthis Quarterly Report for further discussion.
Company Actions Due to COVID-19 Pandemic
As a result of allowances, inventories,the COVID-19 pandemic, we have experienced a reduction in demand as over 90% of our sales occur through brick and accounts payable previously noted, as well asmortar retail or franchise locations. In order to meet short and long-term capital needs and to comply with debt covenant requirements under the 2018 Revolver throughout 2020 and beyond, we instituted a decrease innumber of global cash savings and cost cutting initiatives including the sales return liability duefollowing:
•Implemented furloughs or lay-offs of approximately 20% of U.S. employees and reduced our Europe and Asia Pacific staff, excluding China, by approximately 20%. Employees on furlough retain their health insurance coverage throughout the furlough;
•Temporarily reduced salaries, including a 15% reduction for our Chief Executive Officer, 10% reductions for the rest of the executive team and 5% reductions for senior management;
•Temporarily reduced the cash portion of the Board of Directors’ compensation by 15% and replaced such compensation with stock-based compensation;
•Significantly reduced marketing spend throughout the remainder of 2020;
•Deferred or cancelled spending on all non-essential projects;
•Delayed or cancelled certain purchase orders to decreased sales duringalign with our adjusted demand forecast;
•Limited travel of employees internationally and domestically throughout the three months ended March 31, 2019remainder of 2020;
•Discontinued the BRAVEN audio brand;
•Discontinued the battery case product category; and an increase in income tax receivable
•Simplified our iFrogz audio, ZAGG keyboard and mophie power station businesses, including reducing SKU counts and discontinuing certain product lines.
The Company continues to evaluate this evolving business environment due to the loss recordedCOVID-19 pandemic and may institute additional cash savings and cost cutting initiatives in future periods.
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In addition to the cash savings and cost cutting initiatives, we closed on an amendment to the 2018 Revolver to increase our line of credit capacity by $19,800 through March 31, 2021. In addition, on April 13, 2020, we entered into a loan agreement with KeyBank as the lender under the Paycheck Protection Program of the CARES Act administered by Small Business Administration, and subsequently received a loan in the amount of $9,444 (the “PPP Loan”) to help sustain our employee payroll costs, rent, and utilities due to the severe impact of the recent COVID-19 pandemic. We are required to pay $525 every month with required payments to be deferred for six months from the PPP Loan disbursement date of April 17, 2020. We may also potentially obtain loan forgiveness for the three months ended March 31, 2019.PPP Loan if we meet certain requirements for eligible employees, as defined by the CARES Act. There can be no assurance that the Company will obtain forgiveness of the PPP Loan.
Based on the current level of operations, weWe believe that the combination of the (1) cash savings and cost reduction initiatives, (2) expansion of the capacity under the 2018 Revolver, (3) the proceeds of the PPP Loan, and (4) cash on hand and available borrowings under our current credit arrangement will be adequate to fundmeet our expected capital expenditures and working capital needs for the next 12 months.months and beyond.
We believe all these measures or initiatives, as discussed above, will enable us to meet our financial obligations and continue to build our business. However, we operate in a rapidly evolving and often unpredictable business environment, which is currently exacerbated by the COVID-19 pandemic, that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, we may need to raise additional funds through the sale of equity or debt securities or from debt facilities. Additional capital, if needed, may not be available on satisfactory terms, if at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates, interest rates and interest rates.tariffs. In addition, our domestic and international operations are subject to risks related to differing economic conditions, changes in political climate,climates, differing tax structures, environmental and health risks, and other regulations and restrictions.
To date we have not utilized material derivative financial instruments or derivative commodity instruments. We invest a portion of our cash in money market funds, which are subject to minimal credit and market risk. We believe that the market risks associated with these financial instruments are immaterial, although there can be no guarantee that these market risks will be immaterial to us.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits pursuant to the Securities Exchange Act of 1934, as amended, or Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosures.
At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures in accordance with the Exchange Act requirements. Based upon that evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period of this report, our disclosure controls and procedures were effective and were designed to provide reasonable assurance that information required to be included in the reports filed or submitted under the Exchange Act of 1934 is recorded, processed, summarized, and reported as specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
The acquisition of HALO on January 3, 2019, represents a material change in internal control over financial reporting since management’s last assessment of our internal control over financial reporting which was 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, 2019.
We acquired Gear4 on November 30, 2018, and excluded 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 HALO businesses into our information and accounting systems and processes and expect that this effort will be completed in 2019.
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Other than the acquisition of HALO, thereThere were no significant changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The process for evaluating controls and procedures is continuous and encompasses constant improvement of the 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.
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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 10,13, “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 20182019 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.Report. Any of the risks described in the 20182019 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 2019 Form 10-K except as follows:
Our financial condition and results of operations in future periods have been adversely affected by the recent COVID-19 pandemic.
In December 2019, a mutated strain of coronavirus was reported to have surfaced in Wuhan, China. The outbreak, which had previously been concentrated in China, has largely spread through the world, including the United States. The pandemic has resulted in federal, state, and local restrictions, requiring or recommending social distancing, travel bans, quarantines and other restrictions. Additionally, concerns regarding the spread and ultimate human and economic impacts have caused significant downturns in global stock markets, including the U.S. stock price. For these and other reasons, future demand for our products may decline for an uncertain duration of time. Our sales are mainly concentrated through the retail sale channel, which has been impacted due to the shutdown of most brick and mortar retail stores around the current outbreak. In addition, smartphone, tablet computers, and other similar product sales are decreasing due to the current outbreak, which also has an impact on our forecasted sales. Due to these impacts on current and future demand, our revenue is likely to be adversely impacted during the duration of the outbreak, which is currently unknown and difficult to forecast. These factors will likely negatively impact our financial results and could have an impact on our ability to continue as a going concern. In addition, the coronavirus pandemic may have an impact on our supply-chain, as production is affected by current and potential future conditions, potentially forcing us to curtail, delay, or cancel product manufacturing. In response to such conditions, we have taken the following proactive measures to provide enhanced financial flexibility:
•Amended our secured revolving credit facility to increase available borrowings by $19,800 through March 2021;
•Closed on a Small Business Administration loan under the CARES Act of approximately $9,444;
•Implemented furloughs or lay-offs of approximately 20% of U.S. employees and reduced our Europe and Asia Pacific staff, excluding China, by approximately 20%. Employees on furlough retain their health insurance coverage throughout the furlough;
•Temporarily reduced salaries, including a 15% reduction for our Chief Executive Officer, 10% reductions for the rest of the executive team and 5% reductions for senior management;
•Temporarily reduced the cash portion of the Board of Directors’ compensation by 15% and replaced such compensation with stock-based compensation;
•Significantly reduced marketing spend throughout the remainder of 2020;
•Deferred or cancelled spending all non-essential projects;
•Delayed or cancelled certain purchase orders to align with our adjusted demand forecast;
•Limited travel of employees internationally and domestically throughout the remainder of 2020;
•Discontinued the BRAVEN audio brand;
•Discontinued the battery case product category; and
•Simplified our iFrogz audio, ZAGG keyboard and mophie power station businesses, including reducing SKU counts and discontinuing certain product lines.
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These practices may continue into the future while the consequences of the outbreak are uncertain. Despite our efforts to proactively respond to the COVID-19 pandemic, concerns regarding the spread and ultimate human and economic impacts may affect our ability to obtain and retain financing for future cash-flow demand, and we may see an decrease in the value of inventory due to obsolescence and/or impairment. Material impairments with respect to goodwill, intangible assets, long-lived assets, and right of use assets may also occur in the future. We anticipate there may be increases in credit losses from our customers. Our estimates around product returns may also be impacted, with potential increases in expected returns from customers.
The extent to which the coronavirus pandemic impacts our results of operations will depend on future developments, many of which are out of our control, are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the coronavirus and the actions to contain its spread or treat its impact, among others. With the uncertainty caused by this outbreak, we may not adequately quantify or qualify the longer-term ramifications of the pandemic on our business, our customers and/or our potential investors and other stakeholders. We will continue to monitor the situation and timely communicate to our investors when necessary.

If we do not qualify for retention or forgiveness of the Paycheck Protection Program loan, our financial condition may be adversely affected.

On April 13, 2020, we entered into a loan agreement with KeyBank National Association as the lender under the Paycheck Protection Program (the “PPP”) of the CARES Act administered by Small Business Administration (the “SBA”), and subsequently received a loan in the amount of $9,444 (the “PPP Loan”) to help sustain our employee payroll costs, rent, and utilities due to the severe impact of the recent COVID-19 pandemic. We made good faith certifications of our necessity for the PPP Loan, and believe that we are in full compliance with the terms and conditions outlined in the CARES Act. However, as a consequence of post-PPP Loan rulemaking by the SBA, shifting regulatory guidance and/or other factors, we may be required to return the PPP Loan before its expected maturity date. In addition, we hope to obtain forgiveness of all or a portion of the PPP Loan, as allowed under the CARES Act. As there is still substantial uncertainty about PPP forgiveness qualifications, we make no representations that we will qualify for forgiveness of all or part of the PPP Loan. Due to the incomplete and changing regulations around the PPP, new pronouncements may also change our current compliance status under the law, and any potential allowable forgiveness of the PPP Loan amount.
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. On March 11, 2019, our board of directors authorized the cancellation of the 2015 stock repurchase program, and authorized a new stock repurchase program that grants the repurchase of up to $20,000 of our outstanding common stock.
During the three months ended March 31, 2019, we repurchased 72 shares of ZAGG Inc common stock, for a total consideration of $722, which included commissions and processing fees totaling $2. As of March 31, 2019, a total of $20,000 remained authorized under the stock repurchase program.
The shares repurchased during the three months ended March 31, 2019 are as follows:
Period(a) Total Number of Shares Purchased(b) Average Price Paid per Share(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31, 201972.00 $10.00 72.00 $4,740 
February 1 - February 28, 2019— $— — $4,740 
March 1 - March 31, 2019— $— — $20,000 
Except as previously disclosed in our Current Report on Form 8-K filed on January 8, 2019 in connection with the HALO Acquisition,
there were no other unregistered sales of securities during the three months ended March 31, 2019.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
EX-101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
EX-101.SCHXBRL Taxonomy Extension Schema Document
EX-101.CALXBRL Taxonomy Extension Calculation Linkbase
EX-101.DEFXBRL Taxonomy Extension Definition Linkbase
EX-101.LABXBRL Taxonomy Extension Labels Linkbase
EX-101.PREXBRL Taxonomy Extension Presentation Linkbase
Exhibit NumberExhibit DescriptionIncorporated by ReferenceFiled or Furnished Herewith
FormFile NumberExhibitFiling Date
8-K001-3452810.104/16/2020
8-K001-3452810.204/16/2020
8-K001-3452810.304/16/2020
8-K001-3452810.404/16/2020
8-K001-3452810.504/16/2020
X
X
X
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
101.SCHInline XBRL Taxonomy Extension Schema DocumentX
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX
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: May 28, 2020By:/s/ CHRIS M. AHERN
May 8, 2019Chris M. Ahern/s/ CHRIS AHERN
Chris Ahern
Chief Executive Officer & Director
(Principal executive officer)
Dated: May 8, 201928, 2020By:/s/ TAYLOR D. SMITH
Taylor D. Smith
Chief Financial Officer
(Principal financial and accounting officer)

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