PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value amounts)

(Unaudited)


			June 30, 2019				December 31, 2018
													June 30, 2020			December 31, 2019
ASSETS	ASSETS											ASSETS
Current assets:	Current assets:											Current assets:
		Cash and cash equivalents	$	12,885			$	15,793			Cash and cash equivalents		$	17,314		$	17,801
		Accounts receivable, net of allowances of $431 and $885	102,578				156,667				Accounts receivable, net of allowances of $2,000 and $1,143		63,090			142,804
		Income tax receivable	3,427				375				Income tax receivable		5,666			—
		Inventories	110,565				82,919				Inventories		91,328			144,944
		Prepaid expenses and other current assets	6,393				5,473				Prepaid expenses and other current assets		4,900			6,124
Total current assets	Total current assets				235,848				261,227			Total current assets				182,298			311,673

Property and equipment, net of accumulated depreciation of $13,860 and $11,844					17,714				16,118
Intangible assets, net of accumulated amortization of $87,692 and $78,627					70,542				52,054
Deferred income tax assets					15,396				19,403
Property and equipment, net of accumulated depreciation of $12,865 and $14,159									Property and equipment, net of accumulated depreciation of $12,865 and $14,159						15,926			18,019
Intangible assets, net of accumulated amortization of $101,810 and $95,632									Intangible assets, net of accumulated amortization of $101,810 and $95,632						55,061			63,110
Deferred income tax assets, net									Deferred income tax assets, net						23,704			22,657
Operating lease right of use assets	Operating lease right of use assets				10,380				—			Operating lease right of use assets				10,456			9,636
Goodwill	Goodwill				43,560				27,638			Goodwill				24,920			43,569
Other assets	Other assets				1,315				1,571			Other assets				428			567
Total assets	Total assets				$	394,755			$	378,011		Total assets				$	312,793		$	469,231

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY											LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:											Current liabilities:
		Accounts payable	$	70,988			$	80,908			Accounts payable		$	44,945		$	87,303
		Sales returns liability	37,522				54,432				Income tax payable		—			5,266
		Accrued wages and wage related expenses	6,665				6,624				Sales returns liability		25,660			43,853
		Accrued liabilities	9,511				13,723				Accrued wages and wage related expenses		5,254			6,328
		Current portion of operating lease liabilities	2,154				—				Accrued liabilities		7,087			15,164
											Current portion of operating lease liabilities		2,774			2,099
Total current liabilities	Total current liabilities				126,840				155,687			Total current liabilities				85,720			160,013

Line of credit	Line of credit				95,363				58,363			Line of credit				92,040			107,140
Operating lease liabilities	Operating lease liabilities				11,889				—			Operating lease liabilities				10,631			10,599
Other long-term liabilities	Other long-term liabilities				7,913				5,470			Other long-term liabilities				9,444			—
Total liabilities	Total liabilities				242,005				219,520			Total liabilities				197,835			277,752
Commitments and contingencies (Note 1 and 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; 36,140 and 34,457 shares issued	36				34				Common stock, $0.001 par value; 100,000 shares authorized; 36,884 and 36,610 shares issued		37			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 capital	111,279				96,486				Additional paid-in capital		118,862			116,533
		Accumulated other comprehensive loss	(1,425)				(1,410)				Accumulated other comprehensive loss		(1,234)			(1,631)
		Retained earnings	93,315				113,114				Retained earnings		47,748			126,995
Total stockholders’ equity	Total stockholders’ equity				152,750				158,491			Total stockholders’ equity				114,958			191,479
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity				$	394,755			$	378,011		Total liabilities and stockholders’ equity				$	312,793		$	469,231

See accompanying notes to condensed consolidated financial statements.

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)

For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Net sales $ 106,796 $ 118,565 $ 185,546 $ 230,631
Cost of sales 69,037 80,908 123,965 155,381
Gross profit 37,759 37,657 61,581 75,250
Operating expenses:
Advertising and marketing 4,514 2,638 9,099 5,233
Selling, general and administrative 34,491 27,035 66,075 51,342
Transaction costs 374 18 621 18
Amortization of intangible assets 4,599 2,773 9,065 5,545
Total operating expenses 43,978 32,464 84,860 62,138
(Loss) income from operations (6,219) 5,193 (23,279) 13,112
Other income (expense):
Interest expense (1,103) (346) (2,113) (846)
Other income (expense) 1,192 (681) 676 (186)
Total other income (expense) 89 (1,027) (1,437) (1,032)
(Loss) income before provision for income taxes (6,130) 4,166 (24,716) 12,080
Income tax benefit (provision) 794 (950) 4,956 (1,835)
Net (loss) income $ (5,336) $ 3,216 $ (19,760) $ 10,245
(Loss) earnings per share attributable to stockholders:
Basic (loss) earnings per share $ (0.18) $ 0.11 $ (0.68) $ 0.36
Diluted (loss) earnings per share $ (0.18) $ 0.11 $ (0.68) $ 0.36


		For the Three Months Ended												For the Six Months Ended
		June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019

Net sales				$	77,117			$	106,796			$	168,098			$	185,546
Cost of sales				53,805				69,037				163,728				123,965
Gross profit				23,312				37,759				4,370				61,581

Operating expenses:
	Advertising and marketing	2,419				4,514				6,845				9,099
	Selling, general and administrative	23,743				34,483				56,336				66,069
	Transaction costs	51				374				396				621
	Impairment of goodwill	—				—				18,649				—
	Loss on disposal of intangible assets and equipment	—				8				3,683				6
	Amortization of intangible assets	3,357				4,599				6,901				9,065
Total operating expenses				29,570				43,978				92,810				84,860

Loss from operations				(6,258)				(6,219)				(88,440)				(23,279)

Other (expense) income:
	Interest expense	(956)				(1,103)				(2,490)				(2,113)
	Other income	217				1,192				219				676
Total other (expense) income				(739)				89				(2,271)				(1,437)

Loss before provision for income taxes				(6,997)				(6,130)				(90,711)				(24,716)

Income tax benefit				3,664				794				11,823				4,956

Net loss				$	(3,333)			$	(5,336)			$	(78,888)			$	(19,760)

Loss per share attributable to stockholders:
	Basic loss per share	$	(0.11)			$	(0.18)			$	(2.65)			$	(0.68)
	Diluted loss per share	$	(0.11)			$	(0.18)			$	(2.65)			$	(0.68)

See accompanying notes to condensed consolidated financial statements.

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(Amounts in thousands)

(Unaudited)


			For the Three Months Ended									For the Six Months Ended											For the Three Months Ended							For the Six Months Ended
			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018					June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019

Net (loss) income				$	(5,336)		$	3,216		$	(19,760)		$	10,245
Net loss													Net loss					$	(3,333)		$	(5,336)		$	(78,888)		$	(19,760)

Other comprehensive gain (loss), net of tax:	Other comprehensive gain (loss), net of tax:															Other comprehensive gain (loss), net of tax:
		Foreign currency translation gain (loss)	141			(969)			(15)			(680)			Foreign currency translation gain (loss)		117			141			397			(15)
Total other comprehensive income (loss)	Total other comprehensive income (loss)			141			(969)			(15)			(680)			Total other comprehensive income (loss)				117			141			397			(15)

Total comprehensive (loss) income				$	(5,195)		$	2,247		$	(19,775)		$	9,565
Total comprehensive loss													Total comprehensive loss					$	(3,216)		$	(5,195)		$	(78,491)		$	(19,775)

See accompanying notes to condensed consolidated financial statements.

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Amounts in thousands)

(Unaudited)

For the Three Months Ended June 30, 2019
Common Stock
Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Treasury Stock Retained Earnings Total Stockholders’
Equity
Balances, March 31, 2019 36,117 $ 36 $ 109,870 $ (1,566) $ (50,455) $ 98,651 $ 156,536
Net loss — — — — — (5,336) (5,336)
Other comprehensive income — — — 141 — — 141
Treasury stock purchase — — — — — — —
Restricted stock release 22 — — — — — —
Employee stock purchase plan release 1 — — — — — —
Stock-based compensation expense — — 1,475 — — — 1,475
Payment of withholding taxes on restricted stock units — — (66) — — — (66)
Shares issued as consideration for acquisition — — — — — — —
Balances, June 30, 2019 36,140 $ 36 $ 111,279 $ (1,425) $ (50,455) $ 93,315 $ 152,750
For the Six Months Ended June 30, 2019
Common Stock
Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Treasury Stock Retained Earnings Total Stockholders’
Equity
Balances, December 31, 2018 34,457 $ 34 $ 96,486 $ (1,410) $ (49,733) $ 113,114 $ 158,491
Cumulative effect of accounting change — — — — — (39) (39)
Balance after cumulative effect of accounting change 34,457 $ 34 $ 96,486 $ (1,410) $ (49,733) $ 113,075 $ 158,452
Net loss — — — — — (19,760) (19,760)
Other comprehensive income — — — (15) — — (15)
Treasury stock purchase — — — — (722) — (722)
Restricted stock release 222 — — — — — —
Employee stock purchase plan release 3 — 13 — — — 13
Stock-based compensation expense — — 2,660 — — — 2,660
Payment of withholding taxes on restricted stock units — — (848) — — — (848)
Shares issued as consideration for acquisition 1,458 $ 2 $ 12,968 $ — $ — $ — $ 12,970
Balances, June 30, 2019 36,140 $ 36 $ 111,279 $ (1,425) $ (50,455) $ 93,315 $ 152,750
















	For the Three Months Ended June 30, 2020
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders’ Equity

Balances, March 31, 2020	36,884	$	37	$	117,552	$	(1,351)	$	(50,455)	$	51,081	$	116,864
Net loss	—	—		—		—		—		(3,333)		(3,333)
Other comprehensive income	—	—		—		117		—		—		117


Stock-based compensation expense	—	—		1,310		—		—		—		1,310

Balances, June 30, 2020	36,884	$	37	$	118,862	$	(1,234)	$	(50,455)	$	47,748	$	114,958


	For the Six Months Ended June 30, 2020
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders’ Equity

Balances, December 31, 2019	36,610	$	37	$	116,533	$	(1,631)	$	(50,455)	$	126,995	$	191,479
Cumulative effect of accounting change	—	—		—		—		—		(359)		(359)
Balance after cumulative effect of accounting change	36,610	37		116,533		(1,631)		(50,455)		126,636		191,120
Net loss	—	—		—		—		—		(78,888)		(78,888)
Other comprehensive income	—	—		—		397		—		—		397
Restricted stock release	270	—		—		—		—		—		—
Employee stock purchase plan release	4	—		39		—		—		—		39
Stock-based compensation expense	—	—		2,604		—		—		—		2,604
Payment of withholding taxes on restricted stock units	—	—		(314)		—		—		—		(314)
Balances, June 30, 2020	36,884	$	37	$	118,862	$	(1,234)	$	(50,455)	$	47,748	$	114,958

See accompanying notes to condensed consolidated financial statements.

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(Amounts in thousands)

(Unaudited)

For the Three Months Ended June 30, 2018
Common Stock
Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Treasury Stock Retained Earnings Total Stockholders’
Equity
Balances, March 31, 2018 34,416 $ 34 $ 94,134 $ (59) $ (37,637) $ 80,954 $ 137,426
Net income — — — — — 3,216 3,216
Other comprehensive loss — — — (969) — — (969)
Treasury stock purchase — — — — (3,006) — (3,006)
Restricted stock release 7 — — — — — —
Employee stock purchase plan release — — 55 — — — 55
Stock-based compensation expense — — 807 — — — 807
Payment of withholding taxes on restricted stock units — — (19) — — — (19)
Balances, June 30, 2018 34,423 $ 34 $ 94,977 $ (1,028) $ (40,643) $ 84,170 $ 137,510
For the Six Months Ended June 30, 2018
Common Stock
Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Treasury Stock Retained Earnings Total Stockholders’
Equity
Balances, December 31, 2017 34,104 $ 34 $ 96,145 $ (348) $ (37,637) $ 77,805 $ 135,999
Cumulative effect of accounting change — — — — — (3,880) (3,880)
Balance after cumulative effect of accounting change 34,104 $ 34 $ 96,145 $ (348) $ (37,637) $ 73,925 $ 132,119
Net income — — — — — 10,245 10,245
Other comprehensive loss — — — (680) — — (680)
Treasury stock purchase — — — — (3,006) — (3,006)
Restricted stock release 318 — — — — — —
Employee stock purchase plan release 1 — 55 — — — 55
Stock-based compensation expense — — 1,408 — — — 1,408
Payment of withholding taxes on restricted stock units — — (2,631) — — — (2,631)
Balances, June 30, 2018 34,423 $ 34 $ 94,977 $ (1,028) $ (40,643) $ 84,170 $ 137,510
















	For the Three Months Ended June 30, 2019
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders’ Equity

Balances, March 31, 2019	36,117	$	36	$	109,870	$	(1,566)	$	(50,455)	$	98,651	$	156,536
Net loss	—	—		—		—		—		(5,336)		(5,336)
Other comprehensive income	—	—		—		141		—		—		141
Restricted stock release	22	—		—		—		—		—		—
Employee stock purchase plan release	1	—		—		—		—		—		—
Stock-based compensation expense	—	—		1,475		—		—		—		1,475
Payment of withholding taxes on restricted stock units	—	—		(66)		—		—		—		(66)
Balances, June 30, 2019	36,140	$	36	$	111,279	$	(1,425)	$	(50,455)	$	93,315	$	152,750


	For the Six Months Ended June 30, 2019
	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders’ Equity

Balances, December 31, 2018	34,457	$	34	$	96,486	$	(1,410)	$	(49,733)	$	113,114	$	158,491
Cumulative effect of accounting change	—	—		—		—		—		(39)		(39)
Balance after cumulative effect of accounting change	34,457	34		96,486		(1,410)		(49,733)		113,075		158,452
Net loss	—	—		—		—		—		(19,760)		(19,760)
Other comprehensive loss	—	—		—		(15)		—		—		(15)
Treasury stock purchase	—	—		—		—		(722)		—		(722)
Restricted stock release	222	—		—		—		—		—		—
Employee stock purchase plan release	3	—		13		—		—		—		13
Stock-based compensation expense	—	—		2,660		—		—		—		2,660
Payment of withholding taxes on restricted stock units	—	—		(848)		—		—		—		(848)
Shares issued as consideration for acquisition	1,458	2		12,968		—		—		—		12,970
Balances, June 30, 2019	36,140	$	36	$	111,279	$	(1,425)	$	(50,455)	$	93,315	$	152,750

See accompanying notes to condensed consolidated financial statements.

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


					For the Six Months Ended													For the Six Months Ended
					June 30, 2019		June 30, 2018										June 30, 2020	June 30, 2019

Cash flows from operating activities:	Cash flows from operating activities:															Cash flows from operating activities:
		Net (loss) income					$	(19,760)			$	10,245			Net loss					$	(78,888)		$	(19,760)
		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 expense			2,660			1,408						Stock-based compensation expense			2,604		2,660
			Depreciation and amortization			12,256			9,230						Depreciation and amortization			10,345		12,256
			Deferred income tax assets			(2,169)			481						Deferred income tax assets			(1,043)		(2,169)
			Loss on disposal of property and equipment			6			9						Loss on disposal of intangible assets and equipment			3,683		6
			Loss on deferred loan costs with debt modification			—			243						Amortization of deferred loan costs			302		101
			Amortization of deferred loan costs			101			106						Impairment of goodwill			18,649		—
			Amortization of right of use assets			1,066			—						Right of use asset expenses			1,321		1,066
			Changes in operating assets and liabilities:												Changes in operating assets and liabilities:
				Accounts receivable, net	55,006		37,318								Accounts receivable, net		79,162	55,006
				Inventories	(24,313)		5,080								Inventories		53,566	(24,313)
				Prepaid expenses and other current assets	396		503								Prepaid expenses and other current assets		1,175	396
				Other assets	179		(563)								Other assets		148	179
				Accounts payable	(12,654)		(34,480)								Accounts payable		(43,131)	(12,654)
				Income tax receivable	(3,555)		(3,512)								Income tax payable		(10,938)	(3,555)
				Sales returns liability	(19,627)		(5,092)								Sales returns liability		(18,170)	(19,627)
				Accrued wages and wage related expenses	(360)		153								Accrued wages and wage related expenses		(1,070)	(360)
				Accrued liabilities	(1,904)		(1,404)								Accrued liabilities		(8,033)	(1,904)
				Lease liabilities	(1,134)		—								Lease liabilities		(1,586)	(1,134)
				Other	79		232								Other		373	79
Net cash (used in) provided by operating activities									(13,727)				19,957
Net cash provided by (used in) operating activities									Net cash provided by (used in) operating activities										8,469			(13,727)

Cash flows from investing activities:	Cash flows from investing activities:															Cash flows from investing activities:
		Purchase of property and equipment					(4,213)				(2,701)				Purchase of property and equipment					(2,790)			(4,213)
		Proceeds from disposal of equipment					2				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 activities	Net cash used in investing activities								(24,579)				(2,675)			Net cash used in investing activities							(2,790)		(24,579)

Cash flows from financing activities:	Cash flows from financing activities:															Cash flows from financing activities:
		Proceeds from revolving credit facility					176,566				198,761				Proceeds from revolving credit facility					63,580			176,566
		Payments on revolving credit facility					(139,566)				(214,215)				Payments on revolving credit facility					(78,680)			(139,566)
		Payments on term loan facility					—				(2,084)				Proceeds from the paycheck protection program loan					9,444			—
		Purchase of treasury stock					(722)				(3,006)				Purchase of treasury stock					—			(722)
		Payment of withholding on restricted stock units					(782)				(2,610)				Payment of withholding on restricted stock units					(314)			(782)
		Payment of deferred loan costs					—				(294)				Payment of debt issuance costs					(257)			—
		Proceeds from issuance of stock under employee stock purchase plan					13				55				Proceeds from issuance of stock under employee stock purchase plan					39			13
Net cash provided by (used in) financing activities									35,509				(23,393)
Net cash (used in) provided by financing activities									Net cash (used in) provided by financing activities										(6,188)			35,509

Effect of foreign currency exchange rates on cash equivalents	Effect of foreign currency exchange rates on cash equivalents								(111)				(296)			Effect of foreign currency exchange rates on cash equivalents							22		(111)

Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents								(2,908)				(6,407)			Net decrease in cash and cash equivalents							(487)		(2,908)

Cash and cash equivalents at beginning of the period	Cash and cash equivalents at beginning of the period								15,793				24,989			Cash and cash equivalents at beginning of the period							17,801		15,793
Cash and cash equivalents at end of the period	Cash and cash equivalents at end of the period								$	12,885			$	18,582		Cash and cash equivalents at end of the period							$	17,314	$	12,885

See accompanying notes to condensed consolidated financial statements.

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)


			For the Six Months Ended								For the Six Months Ended
			June 30, 2019		June 30, 2018				June 30, 2020		June 30, 2019

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:							Supplemental disclosure of cash flow information:
		Cash paid during the period for interest	$	1,998	$	926	Cash paid during the period for interest		$	2,190	$	1,998
		Cash paid during the period for income taxes, net	629		4,683		Cash paid during the period for income taxes, net		157		629
		Cash paid during the period for rent expenses included in the measurement of lease liabilities	1,453		—		Cash paid during the period for rent expenses included in the measurement of lease liabilities		1,889		1,453

Supplemental disclosure of non-cash investing and financing activities:	Supplemental disclosure of non-cash investing and financing activities:							Supplemental disclosure of non-cash investing and financing activities:
		Purchase of property and equipment financed through accounts payable	$	451	$	541	Purchase of property and equipment financed through accounts payable		$	1,391	$	451
		Withholding tax on restricted stock units recorded in accrued wages and wage related expenses	66		21		Withholding tax on restricted stock units recorded in accrued wages and wage related expenses		—		66
		Purchase of HALO through amounts due to seller, contingent payments and common stock	16,985		—		Purchase of HALO through amounts due to seller, contingent payments and common stock		—		16,985
		Modification of debt that resulted in payment of existing term loan balance	—		11,991		Noncash change in lease asset and operating liabilities from reassessment of existing leases and addition of new leases		2,142		1,856
		Noncash change in lease asset and operating liabilities from remeasurement of existing leases and addition of new leases	1,856		—

See accompanying notes to condensed consolidated financial statements.

ZAGG INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars, units, and shares in thousands, except per share amounts)

(Unaudited)

(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION

ZAGG Inc and its subsidiaries (the “Company”) are innovation leaders in mobile tech accessories for smartphones and tablets. For over 15 years, the Company has developed creative product solutions that enhance and protect mobile devices for consumers around the world. The Company has an award-winning product portfolio that includes screen protection, power ~~cases, power~~ management, wireless charging, audio, mobile keyboards, protective cases, and other mobile accessories sold under the ZAGG^®, InvisibleShield^®, mophie^®, IFROGZ^®~~, BRAVEN~~^®, Gear4^®, and HALO^® brands.

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~accounting principles~~United States generally accepted ~~in the United States of America~~accounting 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~~recommends that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (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.

Coronavirus Outbreak and Company Impact

In December 2019, a mutated strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China. The outbreak, which had previously been concentrated in China, has largely spread through the U.S. and the world. The recent COVID-19 pandemic has materially impacted the Company's financial condition and results of operations. The Company recommends that the condensed consolidated financial statements and notes thereto in this Quarterly Report on Form 10-Q be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I to this Quarterly Report on Form 10-Q, and the Company's Risk Factors in Item 1A of Part II to this Quarterly Report on Form 10-Q for further information.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1 to the Company’s consolidated financial statements included in the ~~2018~~2019 Form 10-K. Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements.

Adoption of Accounting Standards Codification (“ASC”) Topic ~~842, “Leases” (In thousands, except lease terms and discount rates)~~326, “Financial Instruments - Credit Losses”

The Company adopted ASC Topic ~~842~~326,“~~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 ~~leases~~estimating 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 the~~326 prospectively with recording a cumulative effect ~~of adopting the new standard being recognized~~adjustment in retained earnings atbeginning January 1, ~~2019,~~2020, which allows for the application of the standard solely to the transition period in ~~2019~~2020 but does not require application to prior fiscal comparative periods presented. Therefore, the prior period comparative information has not been adjusted and continues to be reported under the previous ~~ASC Topic 840,~~ ~~“Leases”~~ ~~(“Topic 840”) standard. The Company also elected the package of available practical expedients allowable under Topic 842 guidelines in its adoption approach.~~incurred loss impairment methodology.

The adoption of Topic ~~842~~326 resulted in an increase in long-term lease liabilities of $10,684 which was included in operating lease liabilities; an increase in short-term lease liabilities of $2,362 which was included in current portion of operating lease liabilities; an initial recognition of right of use (“ROU”) assets of $8,842 which was included in operating lease right of use assets; an increase of deferred tax assets, net of $1,424; a derecognition of $3,346 related to lease liabilities under Topic 840 which was included in accrued liabilities; a decrease in deferred rent of $819 which was included in accrued liabilities; and a decrease of ~~$39~~$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 June 30, 2019. Under Topic 840, operating leases were not included on the condensed consolidated balance sheets, whereas under Topic 842, ROU assets and lease liabilities are calculated and recorded on the lease commencement date. The standard had a material impact in the Company’s consolidated balance sheets ~~but did not have a significant impact in its~~or condensed consolidated statements of operations. In addition, the adoption of Topic ~~842~~326 had no impact to cash provided by or used in operating, financing, or investing on the condensed consolidated statements of cash flows.

~~Lease~~

Allowance for credit losses accounting policy

The Company ~~determines if~~estimates the allowance for credit losses in relation to accounts receivable based on relevant qualitative and quantitative information about historical events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported accounts receivable. Topic 326 permits different methods to calculate the estimate for the allowance for credit losses. The Company started with its historical loss experience as suggested by Topic 326 and evaluated its previous method of estimating the allowance for credit losses. The Company determined that its previous method of using an ~~arrangement~~aging schedule to develop historical credit loss percentages, which is allowed under Topic 326, is appropriate. The historical credit loss percentages are developed for each aging category based on eight quarters of credit loss history and the Company determined that its customers in each of these aging categories share similar risk characteristics.

Additionally, as required by Topic 326, the Company adjusts the historical credit loss percentage by current and forecasted economic conditions. Due to the short-term nature of its accounts receivable and that it carries credit insurance on a ~~lease at contract inception~~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 ~~then determines if such qualifying lease~~future economic conditions. Such baseline credit loss is ~~classified as an operating lease or a finance lease.~~ adjusted when changes in the economic environment change the Company's expectation for future credit losses.

As of June 30, ~~2019,~~2020, the Company ~~only has operating leases. For operating leases,~~determined the ~~Company measures lease liabilities based on~~baseline of credit loss percentage should be increased in response to the ~~present value of~~COVID-19 pandemic and estimated the future minimum lease payments over the lease term at commencement date. As most of its leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on relevant information available at each leases' commencement date in determining the present value of future paymentsallowance for each individual lease. ROU assets are measured as the sum of the amount of the initial measurement of the lease liability, plus any prepaid lease payments made minus any lease incentives received, and any initial direct costs incurred. The Company’s lease terms may include optionscredit losses to ~~extend or terminate leases that will~~ be ~~recognized when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term.~~

The Company has lease agreements with lease and non-lease components under the definition of Topic 842. Upon adoption of Topic 842, the Company elected a practical expedient not to separate the lease and non-lease components for its leases for physical space and equipment and accounts for them as a single lease component.

~~Lease information~~

The Company has operating leases for offices, retail stores, and warehouse space that expire through 2027. The Company’s leases have remaining lease terms of 7 months to 9 years, some of which include options to extend the leases up to 10 years. The following summarizes the activities in the Company’s ROU assets and lease liabilities for the six months ended June 30, 2019:

Beginning Balance as of January 1, 2019 Adoption of Topic 842 Additions Amortization Ending Balance as of June 30, 2019
ROU assets $ — $ 8,842 $ 2,604 $ (1,066) $ 10,380
Lease liabilities — 13,046 2,131 (1,134) 14,043

For the three and six months ended June 30, 2019, the rent expense was $799 and $1,652, respectively. For the three and six months ended June 30, 2018, the rent expense was $818 and $1,546, respectively. Rent expense was recognized on a basis which approximates straight-line over the lease term and was recorded as a component of selling, general and administrative expense on the condensed consolidated statement of operations. As of June 30, 2019, the Company had a weighted-average remaining lease term of 5.4 years and a weighted-average discount rate used to calculate the lease liability of 4.42%.

~~Future maturities of lease liabilities as of June 30, 2019 were as follows:~~

Remaining 2019 $ 1,801
2020 3,199
2021 2,718
2022 2,738
2023 2,203
Thereafter 3,144
Total lease payments $ 15,803
Less: imputed interest (1,760)
Lease liabilities $ 14,043

~~No other leases have been entered into under which the Company has significant rights and obligations as the lessee except those noted above.~~

~~Minimum rental payments for operating leases required under Topic 840 as of December 31, 2018 are as follows:~~

2019 $ 3,198
2020 2,842
2021 2,457
2022 2,517
2023 1,976
Thereafter 2,098
Total operating lease commitments $ 15,088

$2,000.

(2) REVENUE

Disaggregation of revenue from contracts with customers

In the following tables, revenue from contracts with customers are disaggregated by key product lines, key distribution channels, and key geographic regions.

The percentage of net sales related to the Company’s key product lines for the three and six months ended June 30, ~~2019~~2020, and ~~2018,~~2019, was approximately as follows:


		For the Three Months Ended			For the Six Months Ended				For the Three Months Ended		For the Six Months Ended
		June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018		June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019

Protection (screen protection and cases)	Protection (screen protection and cases)	54%	55%	56%	52%	Protection (screen protection and cases)	47%	54%	58%	56%
Power (power management and power cases)	Power (power management and power cases)	34%	34%	32%	36%	Power (power management and power cases)	36%	34%	30%	32%
Productivity (keyboards and other)						Productivity (keyboards and other)	15%	9%	10%	8%
Audio	Audio	3%	4%	4%	5%	Audio	2%	3%	2%	4%
Productivity (keyboards and other)		9%	7%	8%	7%

During the three and six months ended June 30, 2020, the Company revised the online channel to include sales to a key direct-to-consumer customer whose sales were included within the indirect channel in prior periods. The Company also made the same change to 2019 net sales by key distribution channels to make the net sales comparable. The percentage of net sales related to the Company’s key distribution channels for the three and six months ended June 30, ~~2019~~2020, and ~~2018,~~2019, was approximately as follows:


		For the Three Months Ended			For the Six Months Ended				For the Three Months Ended		For the Six Months Ended
		June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018		June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019

Indirect channel	Indirect channel	85%	88%	82%	88%	Indirect channel	75%	81%	80%	79%
Website		10%	8%	12%	8%
Online						Online	22%	14%	16%	15%
Franchisees	Franchisees	5%	4%	6%	4%	Franchisees	3%	5%	4%	6%

The percentage of net sales related to the Company’s key geographic regions for the three and six months ended June 30, ~~2019~~2020, and ~~2018,~~2019, was approximately as follows:

For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
United States 74% 85% 72% 83%
Europe 15% 10% 14% 10%
Other 11% 5% 14% 7%


	For the Three Months Ended			For the Six Months Ended
	June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019

United States	85%	74%	80%	72%
Europe	12%	15%	14%	14%
Other	3%	11%	6%	14%

Contract Balances

Timing of revenue recognition may differ from timing of invoicing to customers or timing of consideration received. The following table provides information about receivables, right of return assets, contract liabilities, refund liabilities, and warranty liabilities from the Company’s contracts with customers as of June 30, ~~2019~~2020, and December 31, ~~2018:~~2019:


		June 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019

Receivables, which comprises the balance in accounts receivable, net of allowances	Receivables, which comprises the balance in accounts receivable, net of allowances	$	102,578	$	156,667	Receivables, which comprises the balance in accounts receivable, net of allowances	$	63,090	$	142,804
Right of return assets, which are included in prepaid expenses and other current assets	Right of return assets, which are included in prepaid expenses and other current assets	706		999		Right of return assets, which are included in prepaid expenses and other current assets	291		2,177
Refund liabilities, which are included in sales return liability	Refund liabilities, which are included in sales return liability	33,904		49,786		Refund liabilities, which are included in sales return liability	23,203		39,790
Warranty liabilities, which are included in sales return liability	Warranty liabilities, which are included in sales return liability	3,618		4,646		Warranty liabilities, which are included in sales return liability	2,457		4,063
Contract liabilities, which are included in accrued liabilities	Contract liabilities, which are included in accrued liabilities	60		96		Contract liabilities, which are included in accrued liabilities	35		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 and six months ended June 30, 2019, revenue recognized that was included in the contract liability balance as of December 31, 2018, was $25 and $36, respectively.~~

The following table summarizes the activities in the Company’s warranty liabilities for the six months ended June 30, 2020, and 2019:


~~Balance as of December 31, 2018~~	$	~~4,646~~
~~Additions~~	~~4,744~~
~~Warranty claims charged~~	~~(5,772)~~
~~Balance as of June 30, 2019~~	$	~~3,618~~


	For the Six Months Ended
	June 30, 2020		June 30, 2019

Balance at beginning of period	$	4,063	$	4,646
Accrual for product warranty	1,902		4,744
Warranty claims charged	(3,507)		(5,772)
Foreign currency translation gain	(1)		—
Balance at end of period	$	2,457	$	3,618

(3) ~~ACQUISITIONS~~

~~Acquisition of~~ACQUISITION OF HALO

On January 3, 2019, ~~(the “HALO Acquisition Date”),~~ ZAGG Hampton LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, entered into a membership interest purchase agreement ~~(the “Purchase Agreement”)~~ with Halo2Cloud, LLC (“HALO”) and its equity owners to acquire all of the outstanding equity interests of HALO (the “HALO Acquisition”). HALO is a leading direct-to-consumer mobile accessories company with an extensive intellectual property portfolio that specializes in wireless charging, car and wall chargers, portable power, and other accessories. The Company acquired HALO primarily to enter into new distribution channels and to expand its product and intellectual property ~~portfolio, and to enter into new distribution channels.~~

The total purchase consideration for the HALO Acquisition was $23,943 in cash, 1,458 shares of the Company’s common stock valued at $12,968, and contingent consideration estimated at $1,593 (the “HALO Earnout Consideration”). The initial purchase price was subject to adjustment within 90 days of the HALO Acquisition Date based upon the final determination of HALO’s (i) working capital, (ii) indebtedness, and (iii) transaction expenses as set forth in the Purchase Agreement.

As agreed in the Purchase Agreement, the Company retained $2,424 from the cash due to the sellers and will hold this amount for 18 months following the HALO Acquisition Date as security for HALO’s indemnification obligations. The $2,424 retained by the Company that is due HALO is recorded in other long-term liabilities in the condensed consolidated balance sheets.

HALO is also entitled to the HALO Earnout Consideration from the Company if HALO achieves the target Adjusted EBITDA set forth in the Purchase Agreement for the year ending December 31, 2019. If, however, HALO’s actual Adjusted EBITDA is less than the target Adjusted EBITDA for the year ending December 31, 2019, the HALO Earnout Consideration will be reduced by the difference between the actual Adjusted EBITDA and the target Adjusted EBITDA.

portfolio.

1110

~~The following summarizes the components of the purchase consideration for HALO:~~(4) INVENTORIES


~~Cash consideration~~	$	~~23,943~~
~~Company common stock~~	~~12,968~~
~~Contingent consideration~~	~~1,593~~
~~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 receivable~~	~~2,436~~
~~Inventory~~	~~2,889~~
~~Inventory step up~~	~~494~~
~~Prepaid expenses and other assets~~	~~1,310~~
~~Property and equipment~~	~~627~~
~~Amortizable identifiable intangible assets~~	~~27,554~~
~~Goodwill~~	~~15,922~~
~~Operating lease right of use assets~~	~~748~~
~~Accounts payable~~	~~(2,867)~~
~~Income tax payable~~	~~(501)~~
~~Accrued expenses~~	~~(255)~~
~~Accrued wages and wage related expenses~~	~~(324)~~
~~Sales return liability~~	~~(2,728)~~
~~Deferred tax liability~~	~~(6,177)~~
~~Lease liabilities~~	~~(1,775)~~
~~Total~~	$	~~38,504~~

The Company is still finalizing the fair value measurements of the assets acquired and liabilities assumed, and therefore, the Company’s fair value estimates for the assets acquired and liabilities assumed are preliminary and may change during the allowable measurement period. The allowable measurement period continues to the date the Company obtains and analyzes all relevant information that existed as of the HALO Acquisition Date necessary to determine the fair values of the assets acquired and liabilities assumed, but in no case is to exceed more than one year from the HALO Acquisition Date. The Company is analyzing information to verify assets acquired and liabilities assumed.

~~Identifiable Intangible Assets~~

Classes of acquired intangible assets include technologies, trade names, and customer relationships. 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 Class~~		~~Weighted Average Amortization Period~~

~~Technologies~~	$	~~14,187~~	~~8.9 years~~
~~Trade names~~	~~4,409~~		~~10.0 years~~
~~Customer relationships~~	~~8,958~~		~~8.0 years~~
~~Total~~	~~27,554~~

~~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 goodwill recognized are the significant growth opportunities and expected synergies of the combined entity.

~~Acquisition Costs~~

As part of the HALO Acquisition, the Company incurred legal, accounting, and other due diligence fees that were expensed when incurred. Total fees incurred related to the HALO Acquisition for the three and six months ended June 30, 2019 was $36 and $283, respectively, which were included as a component of operating expenses on the consolidated statements of operations.

~~Results of Operations~~

The results of operations of HALO were included in the Company’s results of operations beginning on January 4, 2019. For HALO’s results of operations from January 4, 2019 through June 30, 2019, HALO generated net sales of $5,198 and had a net loss before tax of $3,761.

~~Acquisition of Gear4~~

On November 30, 2018, Patriot Corporation Unlimited Company, an entity registered and incorporated in Ireland and a wholly-owned subsidiary of the Company, entered into a share purchase agreement with STRAX Holding GmbH, an entity registered and incorporated in Germany (“STRAX”), and Gear4 HK Limited, an entity registered and incorporated in Hong Kong and a wholly-owned subsidiary of STRAX (“Gear4”), to acquire from STRAX all of the issued and outstanding equity securities of Gear4 (the “Gear4 Acquisition”).

~~Pro Forma Results of Operations for HALO and Gear4~~

~~The following pro-forma results of operations for the three months ended June 30, 2018, and for~~During the six months ended June 30, ~~2019,~~2020, as a result of current and ~~2018, give pro forma effect as if the acquisitions of HALO and Gear4~~ ~~and the related borrowings used to finance the acquisition~~ had occurred on January 1, 2018, after giving effect to certain adjustments including the amortization of intangible assets, interest expense, tax adjustments, specific transaction related expenses incurred priorexpected 2020 demand reductions due to the ~~execution date,~~COVID-19 pandemic, the Company reassessed the (1) long-term profitability of all brands and ~~assumes~~product lines, and (2) the ~~purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date~~recoverability of ~~purchase.~~

For the Three Months Ended For the Six Months Ended
June 30, 2018 June 30, 2019 June 30, 2018
Net sales $ 123,245 $ 185,546 $ 239,373
Net (loss) income $ (97) $ (18,538) $ 1,745
Basic (loss) earnings per share $ (0.01) $ (0.64) $ 0.06
Diluted (loss) earnings per share $ — $ (0.64) $ 0.06

~~The pro forma information is presented for illustrative purposes only and is not necessarily indicative~~inventory on-hand (the “Strategic Review”). As a result of the ~~operating results that would have occurred had~~Strategic Review, the ~~transaction been consummated as~~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 six months ended June 30, 2020 of ~~January 1, 2018. Furthermore, such pro forma information is not necessarily indicative~~$44,833, which was included in the cost of ~~future operating results~~sales in the condensed consolidated statements of the combined companies, due to changes in operating activities following the purchase, and should not be construed as representative of the operating results of the combined companies for any future dates or periods.

~~The nonrecurring pro forma adjustments attributable to the pro forma results of operations are as follows:~~

For the Three Months Ended For the Six Months Ended
June 30, 2018 June 30, 2019 June 30, 2018
Amortization expense $ 1,667 $ 59 $ 3,333
Transaction costs $ 327 $ (283) $ 606
Amortization of fair value adjustment to inventory $ 198 $ (494) $ 589
Interest from the amended credit facility and amortization of debt issuance costs $ 433 $ — $ 866

The pro forma results do not reflect events that either have occurred or may occur after the HALO Acquisition and Gear4 Acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods.

~~(4) INVENTORIES~~operations.

Inventories consisted of the following as of June 30, ~~2019,~~2020, and December 31, ~~2018:~~2019:


		June 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019

Finished goods	Finished goods	$	108,781	$	81,397	Finished goods	$	89,435	$	142,054
Raw materials	Raw materials	1,784		1,522		Raw materials	1,893		2,890
Total inventories	Total inventories	$	110,565	$	82,919	Total inventories	$	91,328	$	144,944

Included in prepaid expenses and other current assets were inventory deposits with third-party manufacturers of ~~$382~~$2,176 and ~~$382~~$148 as of June 30, ~~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 during the six months ended June 30, 2020. These write-offs were 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 June 30, 2020, and December 31, 2019:


	Useful Lives	June 30, 2020		December 31, 2019

Equipment and molds	3 to 10 years	$	15,399	$	18,851
Leasehold improvements	1 to 9 years	7,085		7,710
Building and improvements	40 years	2,429		2,429
Computer equipment and software	3 to 5 years	2,037		1,237
Furniture and fixtures	7 years	1,806		1,876
Automobiles	5 years	35		75
Property and equipment, gross		28,791		32,178
Less accumulated depreciation and amortization		(12,865)		(14,159)
Property and equipment, net		$	15,926	$	18,019

For the six months ended June 30, 2020, and 2019, depreciation expenses were $3,444 and $3,191, respectively, which were included as a component of selling, general and administrative expense in the condensed consolidated statements of operations.

(6) GOODWILL AND INTANGIBLE ASSETS

There was no0 change in goodwill during the three months ended June 30, 2020. There was an $18,649 impairment to goodwill during the six months ended June 30, 2020, 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 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. This adjustment was recorded during the first quarter of 2020.

There was 0 change in goodwill during the three months ended June 30, 2019. During the six months ended June 30, 2019, goodwill was increased by $15,922 in connection with the HALO Acquisition.

The following table summarizes the changes in goodwill during the six months ended June 30, 2020, and the twelve months ended December 31, 2019:


~~Balance as of December 31, 2018~~	$	~~27,638~~
~~Increase in connection with HALO Acquisition~~	~~15,922~~
~~Balance as of June 30, 2019~~	$	~~43,560~~


	For the Six Months Ended		For the Twelve Months Ended
	June 30, 2020		December 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

There ~~was no change in goodwill~~were 0 additions to intangible assets during the three and six months ended June 30, ~~2018.~~2020.

There were no0 additions to intangible assets for the three months ended June 30, 2019. ~~In connection with~~For the six months ended June 30, 2019, as a consequence of the HALO Acquisition, intangible assets increased $27,554 for patents and technology, trade names, ~~and~~ customer relationships, ~~for~~net of unfavorable leases obtained. During the six months ended June 30, ~~2019. There were no additions~~2020, 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 ~~for~~and was included in loss on disposal of intangible assets and equipment in the ~~three and six months ended June 30, 2018. Additionally, there were no impairments~~condensed consolidated statements of operations. This adjustment was recorded during the first quarter of 2020. There was 0 impairment of intangible assets for the three and six months ended June 30, ~~2019,~~2020, and ~~2018.~~

2019.

Intangible assets, net of accumulated amortization as of June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, were as follows:


		June 30, 2019		December 31, 2018			June 30, 2020		Weighted Average Amortization Period	December 31, 2019		Weighted Average Amortization Period

Trade names	Trade names	$	28,634	$	26,988	Trade names	$	22,665	9.7 years	$	25,871	9.7 years
Customer relationships						Customer relationships	18,999		7.7 years	21,514		7.7 years
Patents and technology	Patents and technology	20,281		8,723		Patents and technology	13,158		8.4 years	15,306		8.3 years
Customer relationships		21,027		15,560
Non-compete agreements	Non-compete agreements	599		778		Non-compete agreements	239		4.9 years	419		4.9 years
Other		1		5
Total intangible assets, net of accumulated amortization	Total intangible assets, net of accumulated amortization	$	70,542	$	52,054	Total intangible assets, net of accumulated amortization	$	55,061	8.3 years	$	63,110	8.3 years

~~The total weighted average useful lives of intangible assets as of June 30, 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 six months ended June 30, 2020, was limited to the expected annual tax benefit for the year ended December 31, 2020. The ~~Company's~~Company’s effective tax rate was 52% and 13% for the three and six months ended June 30, 2020, respectively. The Company’s effective tax rate was 13% and 20% for the three and six months ended June 30, 2019, ~~was 13% and 20%,~~ respectively. ~~The Company’s effective tax rate for the three and six months ended June 30, 2018, was 23% and 15%, respectively.~~ The change in the effective tax rate for the three months ended June 30, ~~2019,~~2020, compared to the three months ended June 30, ~~2018, was primarily due to the impact of a discrete item for restricted stock unit awards~~ ~~relative to pre-tax book income for the period. The change in the effective tax rate for~~2019, as well as the six months ended June 30, ~~2019,~~2020, compared to the six months ended June 30, ~~2018,~~2019, was primarily due to ~~several factors including but not limited to a difference~~the impact of the methodology used in the ~~amount of the discrete item for restricted~~ ~~stock unit awards,~~tax provision calculation described above as well as an ~~increase~~inclusion of an additional benefit related to the projected carryback of the net operating loss (“NOL”). Under the CARES Act, a temporary five-year NOL carryback enables most corporate taxpayers to offset 2015 income taxed at 35% by 2020 income taxed at 21%. This projected benefit is included in the ~~amounts disallowed under §162(m) of~~effective tax rate for the ~~Internal Revenue Code.~~period. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items including amounts disallowed under §162(m) of the Internal Revenue Code, the Company’s global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.

(8) LONG-TERM DEBT

Long-term debt, net as of June 30, 2020 and December 31, 2019, was as follows:


	June 30, 2020		December 31, 2019

Line of credit	$	92,040	$	107,140
PPP Loan	9,444		—
Total long-term debt outstanding	$	101,484	$	107,140

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, a second amendment agreement dated as of August 30, 2019, a third amendment agreement dated as of December 4, 2019, and a fourth amendment agreement dated as of April 13, 2020 (the “Fourth Amendment Agreement”). The maturity date of the 2018 Credit and Security Agreement, as amended, is April 11, 2023.

The Fourth Amendment Agreement temporarily increased the revolving credit amount from $125,000 to $144,800 from April 13, 2020, through March 31, 2021. Under the Fourth Amendment Agreement, interest rates were revised to add an additional 50 basis points to the prior rates; the applicable interest rates are 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.

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 U.S. Small Business Administration (the “SBA”), 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 COVID-19 pandemic. Under the Paycheck Protection Program, the Company's PPP Loan is fully forgivable if the Company meets certain requirements and receives formal approval, as defined by the CARES Act, subject to an audit by the SBA. The Company intends to seek partial or full forgiveness of the PPP Loan; however, there can be no assurance that the Company will obtain forgiveness of all or part of the PPP Loan amount. The interest rate for the PPP Loan is 1% per annum, and all required payments are deferred for six months from the Disbursement Date (interest will accrue over this six-month deferral period). Unless the PPP Loan is fully or partially forgiven, the Company must pay $525 of the principal every month once the deferral period is over, as well as accumulated interest, until the maturity date which is two years from the Disbursement Date.

As of June 30, 2020, there were 0 letters of credit issued, and $52,760 was available to be issued for letters of credit under the terms of the 2018 Credit and Security Agreement, as amended.

~~(7)~~(9) STOCK-BASED COMPENSATION

The grant of restricted stock units with respective weighted-average fair value per share for the three and six months ended June 30, ~~2019,~~2020, and ~~2018,~~2019, is summarized as follows:


		For the Three Months Ended						For the Six Months Ended							For the Three Months Ended				For the Six Months Ended
		June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018			June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019

Granted		—		197		643		278
Units Granted										Units Granted	107		—		727		643
Weighted average fair value per share	Weighted average fair value per share	$	—	$	11.65	$	9.82	$	12.48	Weighted average fair value per share	$	3.47	$	—	$	6.90	$	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-month (annual board of directors’ grant) to a three-year vesting term, depending on the terms of the individual grant.

As part of the ~~643~~727 and ~~278~~643 restricted stock units granted during the six months ended June 30, 2020, and 2019, ~~and 2018,~~respectively, the Company granted ~~287~~417 and ~~167~~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, ~~and/or~~and other specific net sales and profitability goals, ~~for the individual executive,~~ and (2) continued employment through the applicable vesting date.

Table of ~~common stock were not considered in calculating diluted earnings per share as their effect would have been anti-dilutive.~~Contents

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 and six months ended June 30, 2020, and 2019, ~~and 2018,~~respectively, which are included as a component of selling, general, and administrative expense on the condensed consolidated statement of operations:

For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Stock-based compensation expense related to restricted stock units $ 1,475 $ 807 $ 2,660 $ 1,408


	For the Three Months Ended						For the Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019

Stock-based compensation expense	$	1,310	$	1,475	$	2,604	$	2,660

~~During the six months ended June 30, 2019, and 2018, certain~~Certain 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. ~~This~~These elections have resulted in the Company recording ~~$848~~$314 and ~~$2,631~~$848 reflected as a reduction of additional paid-in capital during the six months ended June 30, 2020, and 2019, respectively. All of the $314 recorded as a reduction of additional paid-in capital was paid as of June 30, 2020. Of the $848 recorded as a reduction of additional paid-in capital, $66 was included in accrued wages and wage related expenses as of June 30, 2019.

~~(8) EARNINGS (LOSS)~~(10) LOSS PER ~~SHARE:~~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.

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 and six months ended June 30, ~~2019,~~2020, and ~~2018:~~2019:


		For the Three Months Ended						For the Six Months Ended							For the Three Months Ended				For the Six Months Ended
		June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018			June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019

Net (loss) income		$	(5,336)	$	3,216	$	(19,760)	$	10,245
Net loss										Net loss	$	(3,333)	$	(5,336)	$	(78,888)	$	(19,760)
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	29,064		28,299		28,974		28,254		Basic	29,814		29,064		29,779		28,974
Dilutive effect of restricted stock units	Dilutive effect of restricted stock units	—		367		—		425		Dilutive effect of restricted stock units	—		—		—		—
Diluted	Diluted	29,064		28,666		28,974		28,679		Diluted	29,814		29,064		29,779		28,974
Earnings (loss) per share:
Loss per share:										Loss per share:
Basic	Basic	$	(0.18)	$	0.11	$	(0.68)	$	0.36	Basic	$	(0.11)	$	(0.18)	$	(2.65)	$	(0.68)
Diluted	Diluted	$	(0.18)	$	0.11	$	(0.68)	$	0.36	Diluted	$	(0.11)	$	(0.18)	$	(2.65)	$	(0.68)

For the three and six months ended June 30, 2020, 1,240 restricted stock units were not considered in calculating diluted loss per share because the Company was in a loss position and, therefore, the effect would have been anti-dilutive. For the three and six months ended June 30, 2019, 966 restricted stock units were not considered in calculating diluted loss per share because the Company was in a loss position and, therefore, the effect would have been anti-dilutive.

~~For the three and six months ended June 30, 2018, 114 restricted stock units used to purchase shares~~

~~(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, the Company's board of directors authorized the cancellation of the 2015 ~~stock repurchase program,~~Stock Repurchase Program, and authorized a new stock repurchase program of up to $20,000 of the Company's outstanding common ~~stock.~~stock (the “2019 Stock Repurchase Program”).

~~As of June 30, 2019, and December 31, 2018, a total of $20,000 and $5,462 remained authorized under the respective stock repurchase programs.~~

~~The Company repurchased shares for~~During the three and six months ended June 30, 2020, the Company did 0t purchase any shares of the Company's common stock. During the three months ended June 30, 2019, the Company did 0t purchase any shares of the Company's common stock. During the six months ended June 30, 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 per share, which included commissions and ~~2018, as follows:~~

For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Shares repurchased — 182 72 182
Cash consideration paid $ — $ 3,006 $ 722 $ 3,006
Commissions to brokers included in cash consideration paid $ — $ 7 $ 2 $ 7
Weighted average price per share repurchased $ — $ 16.49 $ 10.00 $ 16.49
processing fees totaling $2. As of June 30, 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.

~~(10)~~(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 2 months to 7.5 years, some of which include options to extend the leases up to 10 years. For the three and six months ended June 30, 2020, rent expense was $907 and $2,019, respectively. For the three and six months ended June 30, 2019, rent expense was $799 and $1,652, 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 June 30, 2020, the Company had a weighted-average remaining lease term of 4.7 years and a weighted-average discount rate used to calculate the lease liability of 4.37%.

Future maturities of lease liabilities as of June 30, 2020, were as follows:


Remaining of 2020	$	1,761
2021	3,312
2022	3,215
2023	2,789
2024	1,850
Thereafter	1,971
Total lease payments	14,898
Less: imputed interest	(1,493)
Lease liabilities	$	13,405

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, ZAGG and mophie filed the Anker Lawsuit alleging that Anker Technology Co. Ltd. (“Anker”) and Fantasia Trading LLC (“Fantasia”) infringe U.S. Patent Nos. 8,971,039, 9,077,013, 9,088,028, 9,088,029, 9,172,070, and 9,406,913 in connection with protective battery cases for smartphones. The Anker products accused of infringement include Anker’s Ultra Slim Extended Battery Case for iPhone® 6 / 6s (4.7 inch) with 2850mAh capacity; Premium Extended Battery Case for iPhone 6 / 6s (4.7 inch) with 3100mAh Capacity; PowerCore Case for iPhone 7 (4.7 inch), 80% Extra Battery; 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 ZAGG and mophie seeks monetary damages and an injunction against Anker. On March 12, 2018, Anker and Fantasia filed answers and counterclaims in the lawsuit. In their answers, Anker and Fantasia denied infringement of any valid claim and asserted counterclaims for non-infringement and invalidity of the patents at issue. The parties have reached a confidential settlement, and Anker and Fantasia have ceased sales of the battery cases accused of infringement. The Anker Lawsuit was dismissed in June 2019.

~~Best Case and Accessories, Inc. v. Zagg, Inc. United States District Court for the Eastern District of New York, Case No. 1:18-CV-04048-LDH-RML~~. On July 13, 2018, Best Case and Accessories, Inc. filed a complaint against the Company. The Company had previously sent a letter to Best Case and Accessories, Inc. 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 and Accessories, Inc. alleges that it does not infringe the Company's trade dress and that the Company tortuously interfered with Best Case and Accessories, Inc.'s business relationships, which the Company disputes. On February 8, 2019, the Company filed a Complaint for trade dress infringement against Best Case and Accessories, Inc. in the United States District Court for the District of Utah, Case No. 2:19-CV-00090-PMW, in order to respond to the allegations 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, ~~Dan~~ Dolar ~~(“Dolar”)~~ filed a complaint against mophie inc. (“mophie”) alleging, among other things, violation of California Consumers Legal Remedies Act, California False Advertising Law, breach of express warranty, violation of the Magnuson-Moss Warranty Act, violation of California Unfair Competition Law, and violation of state Consumer Protection Statutes. The complaint alleged that mophie mischaracterizes the mAh ratings of the batteries in its products, and asked the court to certify a class of Californians who purchased mophie battery-enabled products. On June 14, 2019, the court dismissed the complaint without prejudice at Dolar’s request so that Dolar’s claims could be pursued in the ~~United States~~U.S. District Court in the case of Young v. ~~Mophie~~mophie Inc., Case No. 8:19-cv-00827-JVS-DFM, discussed below.

1715

Michael Young and Dan Dolar, individually and on behalf of other similarly situated individuals, Plaintiff, v. ~~Mophie~~mophie Inc., Defendant, ~~United States~~U.S. District Court, Central District of California,, Case No. 8:19-cv-00827-JVS-DFM. This action started with a complaint filed by Young against mophie ~~inc. (“mophie”)~~ on May 2, 2019. On June 13, 2019, Young and Dolar joined together as plaintiffs and filed a first amended complaint (the “FAC”). In the FAC, Young and Dolar allege, among other things, that mophie has engaged in unfair and deceptive acts and practices in violation of ~~the~~ California ~~Consumer Legal Remedies Act, violation of California’s False Advertising Law, violation of California’s Unfair Competition Law, violation of the~~and Florida ~~Deceptive and Unfair Trade Practices Act,~~laws, violation of purportedly material identical state consumer protection statutes in various other states, violation of the Magnuson-Moss Warranty Act, breach of express warranty, and unjust enrichment. The FAC is based on Young’s and Dolar’s allegation that mophie mischaracterizes the mAh ratings of the batteries in certain of its products. Young and Dolar seek to certify a class of ~~consumer~~consumers nationwide and in various states who purchased mophie battery-enabled products. The FAC does not specify an amount of damages claimed, but alleges that damages will be in excess of $5,000. ~~On July 11, 2019, mophie filed a motion to dismiss all of the claims asserted in the action.~~ mophie denies that it has engaged in the alleged practices, and intends to vigorously defend the lawsuit. On July 15, 2020, the parties gave joint notice to the court that they had reached a tentativesettlement of this action, subject to the parties executing a written settlement agreement, and on July 16, 2020, the court entered an order dismissing the action without prejudice to reopening the case if settlement is not consummated within 45 days.

~~SEC Investigation~~

Enchanted IP v. mophie, Inc., U.S. 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 disclosed~~complaint identifies mophie’s juice pack reserve micro product as an ~~investigation by the SEC related~~accused 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 shares~~make or sell any products, and the ~~fact that such pledges~~asserted ‘871 patent expired in April 2020. ZAGG responded to the complaint on October 21, 2019 to formally assert its defenses and ~~sales were not disclosed~~counterclaims. On April 21, 2020, the parties finalized a confidential settlement, and on June 1, 2020, the court dismissed the action with prejudice.

Shenzhen CN-iMX Technology Co., Ltd. v. Apple Electronic Products Trading (Beijing) Co., Ltd. and ZAGG (Shenzhen) Technology Development Co., Ltd. (2020) Yue 03 No. 774. In August 2019, Shenzhen CN-iMXTechnology Co., Ltd. filed an action in Shenzhen Intermediate Court against ZAGG China and Apple, asserting infringement of Chinese Patent No. ZL 2012 1 0335618.4 relating to a method of wireless charging. The action identified mophie’s PowerStation wireless XL charger as an accused product and sought damages and injunctive relief. In September 2019, ZAGG filed a separate invalidation request (Case No. 4W9507) with the ~~Company’s 2011 10-K filed on March 15, 2012, or 2012 Proxy filed on April 27, 2012. On March 7, 2019,~~Chinese National Intellectual Property Administration to challenge the ~~Staff~~validity of the ~~SEC informed~~patent. On April 8, 2020, the ~~Company that, after additional consideration and analysis, it has decided~~parties finalized a confidential settlement to ~~terminate~~resolve the ~~investigation and dismiss~~matter. On April 20, 2020, ZAGG’s invalidation request was formally withdrawn. On June 5, 2020, the ~~matter.~~Shenzhen Intermediate Court issued a Mediation Paper confirming dismissal of the infringement action.

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 liability~~establishes reserves when a particular contingency is probable and estimable. The Company has ~~not~~ accrued ~~for any losses~~estimated liabilities of $900 and $750 in the ~~condensed~~ consolidated ~~financial statements~~balance sheets as of June 30, 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.

~~(11)~~(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 customarily exceed federally insured limits. The Company has not experienced any losses in cash accounts for the six months ended June 30, ~~2019,~~2020, and ~~2018.~~2019.

As of June 30, ~~2019,~~2020, Verizon Wireless (“Verizon”) and Amazon.com (“Amazon”) exceeded 10% of the Company's accounts receivable. As of December 31, ~~2018, three~~2019, Verizon and ~~two separate customers were equal to or~~Best Buy Co., Inc. (“Best Buy”) exceeded 10% of the balance of accounts receivable. The amount of accounts receivable ~~respectively,~~for each of these customers are outlined as follows:

June 30, 2019 December 31, 2018
Superior Communications, Inc. (“Superior”) 19% 50%
Best Buy Co., Inc. (“Best Buy”) 11% 15%
Verizon Wireless ("Verizon") 19% 1%


	June 30, 2020	December 31, 2019

Verizon	17%	24%
Amazon	11%	3%
Best Buy	8%	14%

~~The Company established a direct sales relationship with Verizon during~~

Other than the ~~second half of 2018. Previous to~~customers noted in the ~~Company's direct sales relationship with Verizon, Verizon purchased the Company's products through Superior. No~~table above, no other customer account balances ~~were more than~~exceeded 10% of accounts receivable as of June 30, ~~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 ~~would~~could have a material adverse effect on the Company’s financial condition and results of operations.

Concentration of net sales

For the three months ended June 30, 2019, Verizon accounted for over 10% of net sales, and for the three and six months ended June 30, 2018, Superior and Best Buy accounted for over 10% of net sales, as follows:

For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Superior 5% 34% 6% 31%
Best Buy 9% 11% 9% 10%
Verizon 13% —% 9% —%

For the three and six months ended June 30, 2020, purchases by Verizon exceeded 10% of net sales. For the three months ended June 30, 2019, purchases by Verizon exceeded 10% of net sales. The amount of net sales for each of these customers are outlined as follows:

For the Three Months Ended

For the Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Verizon

15%

13%

20%

For the three and ~~2018,~~six months ended June 30, 2020, and 2019, no other customers ~~accounted for greater than~~exceeded 10% of net sales.

Although the Company has contracts in place governing the relationships with its retail distribution customers (“~~retailers”~~Retailers”), the contracts are not long-term and all the retailers generally purchase from the Company ~~on a~~using purchase ~~order basis.~~orders. As a result, these ~~retailers~~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~~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.

(15) SUBSEQUENT EVENTS

In July 2020, the U.S. Trade Representative published a Notice of Product Exclusion Amendments affecting certain products imported from China on dates between September 24, 2018 and August 7, 2020. The Company is currently evaluating duties paid during that date range that may be subject to refund.

1917

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, we~~We have created a platform to combine category-creating and innovative brands that we have acquired with our existing house of brands to address specific consumer needs and better empower a mobile lifestyle. We have an award-winning product portfolio that includes screen protection, ~~power~~protective 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 are~~address is www.ZAGG.com, ~~www.mophie.com~~, ~~www.gear4.com, and~~ ~~www.BestHALO.com~~ (the ~~URLs are~~URL is included here as an inactive textual ~~references,~~reference, and information contained on, or accessible through, our ~~websites~~website is not a part of, and is not incorporated by reference into, this report).

We have established four ~~corporate objectives~~Corporate Objectives and ~~seven core values~~four Core Values to act as a foundation for our corporate ~~culture and guide us daily:~~culture:

2018


Corporate Objectives						Core Values
The Preferred Brand						Integrity
Creative Product Solutions						~~Integrity~~Passion
Targeted Global Distribution						~~Ownership~~Care for People
Operational Excellence						~~Care for People~~
~~The Preferred Brand~~						~~Passion~~
						~~Continuous Improvement~~
						Performance
						~~Sense of Urgency~~

~~The corporate objectives~~To 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 value~~Core Value and Cultural Belief acts as a key component in working toward our ~~corporate objectives~~Corporate 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 brand~~The 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)~~

•~~Audio (earbuds, headphones, and speakers)~~chargers)

•Productivity and Other (keyboards and other mobile accessory products)

•Audio (earbuds and headphones)

These ~~products~~four general product categories are broken down by brand as follows:

InvisibleShield Products

InvisibleShield products, including InvisibleShield Film, InvisibleShield Glass, and ~~the~~our 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.~~helicopters in harsh environments. 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 ~~launched~~also provide the following add-on features:

•VisionGuard™ - InvisibleShield Glass ~~+ VisionGuard™ for Apple~~^® ~~iPhone~~^® ~~smartphones, Apple iPad~~^® ~~tablets and Google~~^® ~~Pixel~~^® ~~smartphones, which features~~VisionGuard products 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.

•Anti-Microbial Technology - InvisibleShield Glass with anti-microbial technology promotes physical wellness by eliminating 99.99% of harmful bacteria on the device screen. As the anti-microbial properties are infused in the glass, they will not wear away over time.

In ~~2019~~the second quarter of 2020, we ~~introduced~~launched the InvisibleShield ~~Ultra VisionGuard™~~UV Sanitizer, an ultraviolet light that penetrates cracks and ~~Ultra Clear™ for select smartphone models that offer maximum clarity~~crevices of handheld items, which is designed to kill 99.99% of the most common surface bacteria found on mobile devices, keys, credit cards, earbuds, and ~~shatter protection with an advanced glass-like surface that feels as smooth as the smartphone’s original screen.~~more.

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.

Gear4 Products

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., Gear4 grew to be one of the top selling U.K. smartphone case brands ~~in the 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, ~~lock~~the 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.

With D3O technology and our expansive global distribution channels, we believe Gear4 cases ~~will~~can offer the best mobile device protection experience for our customers and provide us with meaningful growth opportunities in our protection product line.

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~~mobile device power and charging limitations ~~of mobile devices by providing~~to provide 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. The 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, new~~compatibility, and its charge stream powerstation^®products ~~were launched~~are 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 ~~2019,~~the first quarter of 2020, we unveiled the mophie powerstation go™ universal battery which utilizes HALO's portable car jump starter technology; the lightweight and portable battery 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 laptops. In addition, in the second quarter of 2020, we launched mophie UV Sanitizer, an ultraviolet light that penetrates cracks and crevices of handheld items, which is designed to kill 99.99% of the ~~following products:~~

•most common surface bacteria found on mobile devices, keys, credit cards, earbuds, and more. While sanitizing a mobile device and small personal items, the ~~new juice pack access battery cases to provide advanced impact protection for Apple’s latest smartphones that feature extra battery life,~~mophie UV Sanitizer can simultaneously charge the mobile device through a Qi-enabled wireless charging ~~and full access~~lid.

In response to the ~~iPhone Lightning~~^® ~~port;~~

•~~a new line~~COVID-19 pandemic, we implemented plans to simplify our business and focus on profitable growth (the “Strategic Review”). As part of ~~universal batteries with four capacities, featuring multiple charging ports including a shared USB-C input~~the Strategic Review, we determined to discontinue participation in the battery case category and ~~output port, and the powerstation hub portable battery with convenient foldable AC~~to reduce our mobile power ~~prongs that can be used as a wall outlet hub or as a portable battery; and~~

•~~new charging accessories, including a new wireless charging pad, two car chargers and a variety of USB cables for Apple products.~~offerings under our power station product line.

We continue to innovate and expand our mobile power ~~case~~ and ~~power management~~wireless charging product lines under the mophie brand to provide new product experiences that are pleasing to consumers.

HALO Products

HALO is a leader in providing direct-to-consumer accessories backed by an extensive intellectual property portfolio designed to make consumers' lives easier through empowering mobile lifestyles. ~~Driven by innovative styling and technology, HALO products are at the nexus of fashion and function.~~ With a rich history of innovation that includes wireless charging, car and wall chargers, portable power, and power wallets, 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 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.

~~IFROGZ EarPollution~~^®~~product line of earbuds and headphones specifically target a younger demographic while still appealing to a wide spectrum of consumers. In the first half of 2019, we~~The recently launched ~~the AIRTIME~~^TMAIRTIME™ Truly Wireless Earbuds ~~which~~ include quick-charging and an auto-pair technology that seamlessly connects both earbuds to any Bluetooth® ~~device seamlessly.~~

~~We continue~~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 ~~innovate~~enjoy audio streaming and ~~expand our headphone and earbud product lines under the IFROGZ brand to include offerings for all ages under both the iFrogz and EarPollution product lines.~~

~~BRAVEN Products~~

BRAVEN products innovate the rugged Bluetooth audio category by combining unparalleled design with cutting-edge technology to produce premium Bluetooth audio solutions for the outdoor adventurer and modern audio enthusiast. BRAVEN’s intelligently designed products include robust craftsmanship and world-class engineering to create a thrilling audio experience.

~~We anticipate that the combination of high audio quality, ease of use, and superior features will enable us to continue to expand the BRAVEN brand.~~

hands-free calling free from wires.

2220

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.

In connection with the Strategic Review, we determined to reduce our IFROGZ audio offerings to focus on the HSN channel.

BRAVEN Products

In connection with the Strategic Review, we decided to discontinue the BRAVEN audio 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 designed~~keyboard 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. 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 ~~2018~~2019 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.

Table of ~~Gear4 cases, and (2) a reduction of credits and discounts.~~Contents

Results of Operations

(Amounts in thousands, except per share data)

Three months ended June 30, ~~2019~~2020, and ~~2018~~2019


		For the Three Months Ended															For the Three Months Ended
		June 30, 2019						June 30, 2018							June 30, 2020				June 30, 2019
		Amount		% of Net Sales		Amount		% of Net Sales			Amount		% of Net Sales		Amount		% of Net Sales

Net sales	Net sales	$	106,796	100.0	%	$	118,565	100.0	%	Net sales	$	77,117	100.0	%	$	106,796	100.0	%
Gross profit	Gross profit	37,759		35.4	%	37,657		31.8	%	Gross profit	23,312		30.2	%	37,759		35.4	%
Operating expenses	Operating expenses	43,978		41.2	%	32,464		27.4	%	Operating expenses	29,570		38.3	%	43,978		41.2	%
Other income (expense), net		89		0.1	%	(1,027)		(0.9)	%
Income tax benefit (provision)		794		0.7	%	(950)		(0.8)	%
Net (loss) income		(5,336)		(5.0)	%	3,216		2.7	%

Other (expense) income, net										Other (expense) income, net	(739)		(1.0)	%	89		0.1	%
Income tax benefit										Income tax benefit	3,664		4.8	%	794		0.7	%
Net loss										Net loss	(3,333)		(4.3)	%	(5,336)		(5.0)	%

Net sales

Net sales for the three months ended June 30, ~~2019,~~2020, were ~~$106,796,~~$77,117, compared to net sales of ~~$118,565~~$106,796 for the three months ended June 30, ~~2018,~~2019, a decrease of ~~$11,769~~$29,679 or ~~10%~~28%. The ~~$11,769~~$29,679 decrease in net sales was primarily attributable to ~~(1) a decrease in sales of screen protection products~~ retail store closures and related demand reductions due to ~~a pull forward of shipments into~~ the fourth quarter of 2018 ahead of a potential tariff increase and (2) decreased sales of mophie power management due to challenging sell-in comparisons during the second quarter of 2019 compared to the same period last year. ~~Decreases in~~ ~~mophie~~ ~~power management were offset by HALO product sales. In addition, decreases in net sales were~~global COVID-19 pandemic. This decrease was partially offset by ~~(1) increased sales~~an increase in direct-to-consumer sales.

Gross profit

Gross profit for the three months ended June 30, ~~2019,~~2020, was ~~$37,759~~$23,312 or approximately ~~35%~~30% of net sales, compared to ~~$37,657~~$37,759 or approximately ~~32%~~35% of net sales for the three months ended June 30, ~~2018.~~2019. The ~~increase~~decrease in gross profit margin percentage was primarily attributable to ~~an increase in sales~~(1) increased duty rates for products sourced from China, (2) increased freight rates, and (3) the sale of ~~Gear4 brand cases, HALO branded power products, and InvisibleShield VisionGuard products, all which have a higher margin~~excess inventory at margins lower than our historical ~~averages.~~average.

Operating expenses

Total operating expenses for the three months ended June 30, ~~2019,~~2020, were ~~$43,978,~~$29,570, compared to operating expenses of ~~$32,464~~$43,978 for the three months ended June 30, ~~2018, an increase~~2019, a decrease of ~~$11,514~~$14,408 or ~~35%~~33%. The ~~$11,514 increase~~$14,408 decrease in operating expenses was primarily attributable to cost reduction initiatives in response to COVID-19, including (1) ~~additional selling, general~~a decrease in salaries and ~~administrative expense associated with~~related expenses from the ~~newly acquired BRAVEN, Gear4~~furlough of certain employees, elimination of bonuses in the second quarter of 2020, and ~~HALO brands,~~ reductions in salary of executives and senior management, (2) ~~increased~~reduced in-channel marketing ~~investments to support our growing portfolio~~spend, and (3) the elimination of brands and products, (3) increased selling, general and administrative expense to support online channel and international geographic expansion, and (4) higher amortization of long-lived intangibles related to the BRAVEN, Gear4 and HALO acquisitions.global discretionary spend.

Other (expense) income, ~~(expense),~~ net

For the three months ended June 30, ~~2019,~~2020, total other expense, net was $739 compared to total other income, net ~~was~~of $89 ~~compared to total other expense, net of $(1,027)~~ for the three months ended June 30, ~~2018.~~2019. The ~~increase~~change in other (expense) income, ~~(expense)~~net is primarily attributable to a gain recorded on settlement of liabilities ~~and a gain on foreign exchange transactions; partially offset by an increase of interest expense due to higher amounts of debt.~~during the three months ended June 30, 2019.

Income tax benefit ~~(provision)~~

We recognized an income tax benefit of $3,664 for the three months ended June 30, 2020, compared to an income tax benefit of $794 for the three months ended June 30, ~~2019, compared to an income~~2019. Our effective tax ~~provision of $(950)~~rate was 52% and 13% for the three months ended June 30, ~~2018. Our effective tax rate was 13%~~2020, and ~~23% for the three months ended June 30,~~ 2019, ~~and 2018,~~ respectively. The change in the effective tax rate for the three months endedJune 30, ~~2019~~,2020, compared to the three months endedJune 30, ~~2018,~~2019, was primarily due ~~primarily~~ to the impact of the methodology used in the current tax provision calculation above as well as an inclusion of an additional benefit related to the projected carryback of the net operating loss (“NOL”). Under the CARES Act, a ~~discrete item for restricted stock unit awards~~ temporary five-year NOL carryback enables most corporate taxpayers to offset 2015 income taxed at 35% by 2020 income taxed at 21%.~~relative to pre-tax book income~~This projected benefit is included in the effective tax rate for the ~~period. Our~~period. Due to the expected loss before taxes for the year ended December 31, 2020, the tax benefit is limited to the expected annual tax benefit for the year. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items, ~~our~~the Company’s global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.

Net loss

~~Net (loss) income~~

~~As a result of these factors, we~~We reported net loss of ~~$(5,336) or $(0.18) per share on a fully diluted basis for the three months ended June 30, 2019, compared to net income of $3,216~~$3,333 or $0.11 per share on a fully diluted basis for the three months ended June 30, ~~2018.~~2020, compared to net loss of $5,336 or $0.18 per share on a fully diluted basis for the three months ended June 30, 2019.

Six months ended June 30, ~~2019~~2020, and ~~2018~~2019


		For the Six Months Ended															For the Six Months Ended
		June 30, 2019						June 30, 2018							June 30, 2020				June 30, 2019
		Amount		% of Net Sales		Amount		% of Net Sales			Amount		% of Net Sales		Amount		% of Net Sales

Net sales	Net sales	$	185,546	100.0	%	$	230,631	100.0	%	Net sales	$	168,098	100.0	%	$	185,546	100.0	%
Gross profit	Gross profit	61,581		33.2	%	75,250		32.6	%	Gross profit	4,370		2.6	%	61,581		33.2	%
Operating expenses	Operating expenses	84,860		45.7	%	62,138		26.9	%	Operating expenses	92,810		55.2	%	84,860		45.7	%
Other expense, net	Other expense, net	(1,437)		(0.8)	%	(1,032)		(0.4)	%	Other expense, net	(2,271)		(1.4)	%	(1,437)		(0.8)	%
Income tax benefit (provision)		4,956		2.7	%	(1,835)		(0.8)	%
Net (loss) income		(19,760)		(10.6)	%	10,245		4.4	%

Income tax benefit										Income tax benefit	11,823		7.0	%	4,956		2.7	%
Net loss										Net loss	(78,888)		(46.9)	%	(19,760)		(10.6)	%

Net sales

Net sales for the six months ended June 30, ~~2019,~~2020, were ~~$185,546,~~$168,098, compared to net sales of ~~$230,631~~$185,546 for the six months ended June 30, ~~2018,~~2019, a decrease of ~~$45,085~~$17,448 or ~~20%~~9%. The ~~$45,085~~$17,448 decrease in net sales was primarily attributable to ~~(1) a decrease in sales of screen protection products~~retail store closures and related demand reductions due to ~~a pull forward of shipments into~~ the ~~fourth quarter of 2018 ahead of a then-expected tariff increase and (2) decreased sales of mophie power management due to challenging sell-in comparisons during the first half of 2019.~~ ~~Decreases in~~ ~~mophie~~ ~~power management were offset by HALO product sales. In addition, decreases in net sales were~~global COVID-19 pandemic. This decrease was partially offset by ~~increased~~(1) improved first quarter screen protection, HALO product, and mophie wireless sales and (2) an increase in second quarter direct-to-consumer sales linked to retail store closures.

Table of ~~Gear4 cases.~~Contents

Gross profit

Gross profit for the six months ended June 30, ~~2019,~~2020, was ~~$61,581~~$4,370 or approximately ~~33%~~3% of net sales, compared to ~~$75,250~~$61,581 or approximately 33% of net sales for the six months ended June 30, ~~2018.~~ ~~Gross~~2019. The decrease in gross profit ~~has not changed significantly~~margin percentage was primarily attributable to (1) the March 2020 inventory write-downs of $44,833 primarily linked to the discontinuation of certain brands and product lines resulting from our March 2020 strategic review of long-term profitability of all brands and product lines and the recoverability of inventory on-hand, combined with decreased demand due to ~~decreases in~~the effects of COVID-19, (2) increased duty rates for products sourced from China, (3) increased freight rates, and (4) the sale of excess inventory at margins lower than our ~~screen protection sales offset by (1) a reduction of credits and discounts, and (2) an increase in sales of Gear4 brand cases, HALO branded power products, and InvisibleShield VisionGuard products,~~ ~~all which have a higher~~historical average. Excluding the impact from the inventory write-downs, gross profit margin ~~than historical averages.~~was 29% for the six months ended June 30, 2020, compared to 33% for the six months ended June 30, 2019.

Operating expenses

Total operating expenses for the six months ended June 30, ~~2019,~~2020, were ~~$84,860,~~$92,810, compared to operating expenses of ~~$62,138~~$84,860 for the six months ended June 30, ~~2018,~~2019, an increase of ~~$22,722~~$7,950 or ~~37%~~9%. The ~~$22,722~~$7,950 increase in operating expenses was primarily attributable to (1) ~~additional selling, general~~an $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 associated~~product lines, (3) a $1,148 write-off recorded for the intangible assets resulting from discontinued brands and product lines, and (4) $528 incurred in connection with the ~~newly acquired BRAVEN, Gear4~~lay-off of certain employees in March 2020. These increases were partially offset by cost reduction initiatives in response to COVID-19, including (1) a decrease in salaries and ~~HALO brands,~~ related expenses from the furlough of certain employees, elimination of bonuses in the second quarter of 2020, and reductions in salary of executives and senior management, (2) ~~increased~~reduced in-channel marketing ~~investments to support our growing portfolio~~spend, and (3) the elimination of brands and products, (3) increased selling, general and administrative expense to support online channel and international geographic expansion, and (4) higher amortization of long-lived intangibles related to the BRAVEN, Gear4 and HALO acquisitions.global discretionary spend.

Other expense, net

For the six months ended June 30, ~~2019,~~2020, total other expense, net was ~~$1,437~~$2,271 compared to total other expense, net of ~~$1,032~~$1,437 for the six months ended June 30, ~~2018.~~2019. The increase in total other expense, net is primarily attributable to an increase of interest expense due to higher amounts of debt and ~~partially offset by~~ a ~~gain recorded~~decrease of gains on ~~settlement of liabilities.~~foreign exchange transactions.

Income tax benefit ~~(provision)~~

We recognized an income tax benefit of $11,823 for the six months ended June 30, 2020, compared to an income tax benefit of $4,956 for the six months ended June 30, ~~2019, compared to an income~~2019. Our effective tax ~~provision of $(1,835)~~rate was 13% and 20% for the six months ended June 30, ~~2018. Our~~2020, and 2019, respectively. The change in the effective tax rate ~~was 20% and 15%~~ for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, ~~and 2018, respectively. The increase~~was primarily due to the impact of the methodology used in the current tax provision calculation above as well as an inclusion of an additional benefit related to the projected carryback of the NOL. Under the CARES Act, a temporary five-year NOL carryback enables most corporate taxpayers to offset 2015 income taxed at 35% by 2020 income taxed at 21%.This projected benefit is included in the effective tax rate ~~was due to several factors including a difference in~~for the ~~amount of the discrete item with respect~~period. Due to the ~~restricted stock unit awards, as well as an increase in~~expected loss before taxes for the ~~amounts disallowed under §162(m) of~~year ended December 31, 2020, the ~~Internal Revenue Code. Our~~tax benefit is limited to the expected annual tax benefit for the year. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21%, due to state taxes, permanent items, ~~our~~the Company’s global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit.

Net loss

Table of ~~allowances, decreased to $102,578 on June 30, 2019,~~Contents

~~Net (loss) income~~

~~As a result of these factors, we~~We reported net loss of ~~$(19,760)~~$78,888 or ~~$(0.68)~~$2.65 per share on a fully diluted basis for the six months ended June 30, ~~2019,~~2020, compared to ~~net income of $10,245~~$19,760 or ~~$0.36~~$0.68 per share on a fully diluted basis for the six months ended June 30, ~~2018.~~2019.

Liquidity and Capital Resources (Amounts in 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 treasury shares, and acquire businesses. As of June 30, 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 hand~~on-hand and net borrowings from ~~revolving credit facilities.~~the 2018 Revolver. Our principal uses of cash were for ~~the six months ended June 30, 2019, have been for a business acquisition, cash used in operations,~~operating activities, purchase of property and equipment, payments for the net share settlement of restricted stock ~~and~~units, purchase of treasury ~~shares.~~shares, and business acquisitions.

Cash and Cash Equivalents

Cash and cash equivalents on-hand decreased to ~~$12,885~~$17,314 on June 30, ~~2019,~~2020, from ~~$15,793~~$17,801 on December 31, ~~2018,~~2019, a decrease of ~~$2,908.~~$487. The decrease in cash is largely the result of $15,100 net ~~decrease was primarily attributable to (1) $20,368 net cash paid for~~payments against the HALO Acquisition, (2) $13,727 used in operating activities, (3) $4,213 paid for property and equipment purchases, (4) $782 of payments for the net share settlement of restricted stock, and (5) $722 of payments for treasury stock. These expenditures are2018 Revolver, partially offset by ~~$37,000 net~~$9,444 of proceeds received from ~~revolving credit facilities.~~the PPP Loan and $8,469 provided by operating activities.

~~Accounts receivable, net~~

Cash Flows


	For the Six Months Ended June 30,
	2020		2019

Net cash flow provided by (used in):
Operating activities	$	8,469	$	(13,727)
Investing activities	(2,790)		(24,579)
Financing activities	(6,188)		35,509
Effect of foreign currency exchange rates on cash and cash equivalents	22		(111)
Net decrease in cash and cash equivalents	$	(487)	$	(2,908)

Operating Activities

Net cash provided from ~~$156,667 on December 31, 2018, a decrease of $54,089. The net decrease~~operating activities was ~~primarily attributable to lower sales~~$8,469 for ~~the second quarter of 2019 in comparison to the fourth quarter of 2018, as well as strong cash collections during~~ the six months ended June 30, ~~2019.~~

~~Inventories increased~~2020, compared to ~~$110,565 on~~$13,727 of net cash used in operating activities for the six months ended June 30, 2019, ~~from $82,919 on December 31, 2018, an increase~~a net change of ~~$27,646.~~$22,196. The ~~net increase~~change was primarily ~~attributable to lower sales~~driven by (1) a decrease in use of cash for inventory for the ~~first half year of 2019, an increase in inventory levels needed to support new product launches, and an increase in inventory from the acquisition of HALO.~~

~~Accounts payable decreased to $70,988 on~~six months ended June 30, ~~2019, from $80,908 on December 31, 2018, a decrease of $9,920. The net decrease was primarily attributable~~2020, compared to~~payment on accounts payable outstanding on December 31, 2018, during~~ the six months ended June 30, 2019, and (2) higher collections on accounts receivable resulting in a lower balance of receivables for ~~payments made~~the six months ended June 30, 2020, compared to ~~suppliers for inventory purchased during~~ the six months ended June 30, 2019. These ~~decreases~~increases were partially offset by ~~liabilities assumed~~an increase in cash used to pay our vendors.

Investing Activities

Net cash used in investing activities was $2,790 for the six months ended June 30, 2020, compared to $24,579 for the six months ended June 30, 2019, a net decrease of $21,789. The decrease in net cash used in investing activities was primarily due to $20,368 of cash used in the acquisition of ~~HALO. In addition, the combination of (1) certain inventory items being purchased~~HALO in ~~advance of tariff increases that went into effect in May~~ 2019 and ~~(2)~~decreased spending in purchases of property and equipment for the six months ended June 30, 2020.

Financing Activities

Net cash used in financing activities was $6,188 for the six months ended June 30, 2020, compared to $35,509 of net cash provided by financing activities for the six months ended June 30, 2019, a ~~slowdown in OEM device sales, has resulted in~~net change of $41,697. The change was primarily due to a higher ~~inventory balance.~~ratio of net payments made on the 2018 Revolver relative to net proceeds received from that revolving credit facility for the six months ended June 30, 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 six months ended June 30, 2019, partially offset by proceeds received from the PPP Loan.

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 June 30, ~~2019, we achieved~~2020, working capital ~~of $109,008~~was $96,578 compared to ~~$105,540~~$151,660 as of December 31, ~~2018, an increase~~2019, a decrease of ~~$3,468.~~$55,082. The ~~net increase~~decrease in the working capital position was primarily attributable to ~~the~~ changes in accounts receivable, inventories, including a $44,833 write-down of inventory during the six months ended March 31, 2020, and accounts payable.

Accounts receivable, net of allowances, decreased to $63,090 on June 30, 2020, from $142,804 on December 31, 2019, a decrease of $79,714. The net decrease was primarily attributable to the collection of accounts receivable since year-end combined with lower sales during the second quarter of 2020 in comparison to the fourth quarter of 2019.

Inventories decreased to $91,328 on June 30, 2020, from $144,944 on December 31, 2019, a decrease of $53,616. The net decrease was primarily attributable to a 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 response.

Accounts payable decreased to $44,945 on June 30, 2020, from $87,303 on December 31, 2019, a decrease of $42,358. The net decrease was primarily attributable to lower seasonal inventory purchases and operating activities in the ~~sales return liability due~~first half year of 2020 in comparison to ~~decreased sales~~the fourth quarter of 2019, and payment on accounts payable outstanding on December 31, 2019, during the six months ended June 30, 2020.

Share Repurchase Program

During the third quarter of 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 ~~accounts payable previously noted;~~authorized a new stock repurchase program that grants the repurchase of up to $20,000 of our outstanding common stock. As of June 30, 2020, we have $20,000 remaining under this program.

Debt and Credit Facilities

We entered into the 2018 Credit and Security Agreement, as amended, to obtain a secured revolving credit facility (the “2018 Revolver”) and letters of credit. We use the net borrowing from the 2018 Revolver for general corporate purposes, including funding for working capital, purchase of property and equipment, purchase of treasury shares and business acquisitions. As of June 30, 2020, we had $92,040 of the 2018 Revolver outstanding, with a weighted average interest rate of 2.7%. There were no letters of credit issued as of June 30, 2020 and $52,760 was available to be issued for letters of credit. In addition, we entered into a loan agreement under the Paycheck Protection Program of the CARES Act, and received a loan in the amount of $9,444. These items are further discussed in Note 8, “Long-Term Debt,” to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, and are hereby incorporated by reference.

Company Actions Due to COVID-19 Pandemic

As a result of the COVID-19 pandemic, we have experienced a reduction in demand as over 84% of our sales occur through brick and mortar 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 in the six months ended June 30, 2020 a number of global cash savings and cost-cutting initiatives including the following:

•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 during the second quarter of 2020, 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;

•Temporarily suspended our employee bonus program for the three months ended June 30, 2020;

•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;

•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.

The Company continues to evaluate this evolving business environment due to the COVID-19 pandemic and may institute additional cash savings and cost-cutting initiatives in future periods.

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 U.S. 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 COVID-19 pandemic. Under the Paycheck Protection Program, the Company's PPP Loan is fully forgivable if the Company meets certain requirements and receives formal approval, as defined by the CARES Act, subject to an audit by the SBA. The Company intends to seek partial or full forgiveness of the PPP Loan; however, there can be no assurance that the Company will obtain forgiveness of all or part of the PPP Loan amount. The interest rate for the PPP Loan is 1% per annum, and all required payments are deferred for six months from the Disbursement Date (interest will accrue over this six-month deferral period). Unless the PPP Loan is fully or partially ~~offset by accounts receivable, net~~forgiven, the Company must pay $525 of ~~allowances.~~the principal every month once the deferral period is over, as well as accumulated interest, until the maturity date which is two years from the Disbursement Date.

~~Based on the current level of operations, we~~We believe that the combination of the (1) cash savings and cost reduction initiatives, (2) expansion of the credit 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 ~~fund~~meet our expected capital expenditures and working capital needs for the next 12 ~~months.~~months and beyond.

We believe that the measures and initiatives 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, ~~changes in~~ interest rates, and ~~changes in~~ 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 believe that the market risks associated with our financial instruments are immaterial, though 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.

There 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. 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.

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(amounts in thousands)

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 ~~2018~~2019 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 ~~2018~~2019 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 ~~2018~~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 U.S. and the world. 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 U.S. stock markets. 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 previous shutdown of many 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 U.S. Small Business Administration loan under the CARES Act of approximately $9,444;

•Temporarily reduced the cash portion of the Board of Directors’ compensation by 15% and replaced such compensation with stock-based compensation;

•Temporarily suspended our employee bonus program for the three months ended June 30, 2020;

•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;

•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.

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 continued spread and ultimate human and economic impacts may affect our ability to obtain and retain financing for future cash-flow demands, and we may see a 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 events that may occur, including additional outbreaks of COVID-19 and actions taken 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 the U.S. 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 impact of the 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 rule-making by the SBA, shifting regulatory guidance and/or other factors that may be considered by the SBA during its audit process, 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 outstanding PPP Loan amount. If we are required to repay the PPP Loan, we may need to incur other indebtedness and we cannot provide assurance that we can obtain additional indebtedness with the terms and availability needed for our ongoing operations.

U.S. tariffs and international trade disputes with China and/or others could increase the cost of our products or make our products more expensive for customers.

~~On August 1,~~Between July 2018, and December 2019, the U.S. ~~Government announced~~government imposed tariffs on a variety of imports from China with rates ranging from 10 percent ~~tariff~~to 25 percent and the Chinese government retaliated with tariffs ranging from 5 percent to 10 percent on ~~an additional $300 billion worth~~U.S. imports. The U.S. and China have been engaging in ongoing trade talks in the last two years. However, significant trade war tariffs still remain in effect that adversely impact our business, with no clear future outlook if and/or when changes to tariffs may occur. In addition, tariffs may decrease and/or increase depending on ongoing trade negotiations. With the noted uncertainty of ~~Chinese imports effective September 1, 2019, which would~~future trade talks, these trade disputes may impact certain product lines that were previously not impacted by recent ~~tariffs. With this additional tariff announcement,~~tariffs and our business could be adversely affected by increased costs in importing our products. These factors could make our products less competitive and reduce consumer demand. We are uncertain of the potential future magnitude that these and other potential trade disputes and policies that may ~~occur,~~have, and these factors could materially adversely affect our business, financial condition, and operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

~~Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended~~

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 Number~~

~~Exhibit Description~~

~~Incorporated by Reference~~

~~Filed or Furnished Herewith~~

~~Form~~

~~File Number~~

~~Exhibit~~

~~Filing Date~~

~~31.1~~

~~31.2~~

~~Certification of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended~~

~~32.1~~

~~Certification of Chief Executive Officer and Chief Financial Officer pursuant to~~ ~~Rule 13a-14(b) of the Exchange Act and~~ ~~18 U.S.C. Section 1350 as~~ ~~adopted pursuant to~~ ~~Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101.INS~~

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~~Inline XBRL Taxonomy Extension Schema Document~~

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Exhibit Number

Exhibit Description

Incorporated by Reference

Filed or Furnished Herewith

Form

File Number

Exhibit

Filing Date

10.1

Cooperation Agreement, dated as of April 15, 2020, by and among the Company, Roumell Asset Management, LLC and other parties set forth therein.

8-K

001-34528

10.1

04/16/2020

10.2

Cooperation Agreement, dated as of April 15, 2020, by and among the Company, AREX Capital Management, LP and other parties set forth therein.

8-K

001-34528

10.2

04/16/2020

10.3

Fourth Amendment Agreement, dated as of April 15, 2020, by and among ZAGG Inc, as borrower, KeyBank National Association, Zions Bancorporation, N.A. dba Zions First National Bank, and MUFG Union Bank, N.A., as lenders, and KeyBank National Association, as administrative agent.

8-K

001-34528

10.3

04/16/2020

10.4

PPP Loan, dated as of April 13, 2020

8-K

001-34528

10.4

04/16/2020

10.5

ZAGG Inc Executive Severance Plan, dated as of April 15, 2020

8-K

001-34528

10.5

04/16/2020

10.6

First Amendment to the ZAGG Inc Amended and Restated 2013 Equity Incentive Plan, dated as of April 15 , 2020

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document