Based on the closing sales price of the voting and non-voting common equity held by non-affiliates as of June 29, 2018,28, 2019, the last business day of the Registrant's second fiscal quarter, the aggregate market value on the Nasdaq Stock Market of the voting and non-voting common equity held by non-affiliates was approximately $239,702,802.$197,841,738. For purposes of the foregoing calculation only, directors and executive officers and holders of 10% or more of the issuer’s common capital stock have been deemed affiliates.

The number of shares of the Registrant’s common stock outstanding as of March 12, 2019,13, 2020, was 28,932,923.29,756,911.

Documents incorporated by reference. Portions of the Registrant's Definitive Proxy Statement for the Registrant's 20192020 Annual Meeting of Stockholders are incorporated by reference in Part III of this report. The Definitive Proxy Statement or an amendment to this Form 10-K will be filed with the Securities and Exchange Commission within 120 days after the Registrant's fiscal year end.

Information included or incorporated by reference in this report, including Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”, contains 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. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of ZAGG Inc and its subsidiaries (collectively “we”, “us”, “our”, “ZAGG”, or the “Company”), and such forward-looking statements are covered by the safe-harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements may contain the words “believes”, “project”, “expects”, “anticipates”, “estimates”, “forecasts”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”, and similar expressions, and are subject to numerous known and unknown risks and uncertainties. Additionally, statements relating to implementation of business strategy, future financial performance, acquisition strategies, capital raising transactions, performance of contractual obligations, and similar statements may contain forward-looking statements. In evaluating such statements, prospective investors and shareholders should carefully review various risks and uncertainties identified in this report, including the matters set forth under the captions “Risk Factors” and in our other Securities and Exchange Commission (“SEC”) filings. These risks and uncertainties could cause our actual results to differ materially from those indicated in the forward-looking statements. We disclaim any obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risk Factors” below, as well as those discussed elsewhere in this report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

We disclaim any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Reportannual report on Form 10-K, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

These Corporate Objectives are intended to align our functional teams’ goals and execution. Every one of our employees is trained to understand his or her role in executing these objectives. Each core valueCore Value and Cultural Belief acts as a key component in working toward our corporate objectivesCorporate Objectives of providing creative product solutions,Creative Product Solutions, executing targeted global distribution,Targeted Global Distribution, achieving operational excellence,Operational Excellence, and being the preferred brandThe Preferred Brand for our customers.

Our innovative products are included in the following general categories:

These productsfour general product categories are broken down by brand as follows:

We have maintained the leading market share in screen protection in the United States (“U.S.”), and have maintained that leading positionthe 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 technological productstechnology and consumer needs in the market.

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

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

We believe that products under the acquisition of HALO brand will enable uscontinue to offer, at scale,provide the most innovative mobile lifestyle solutions available on the market today and that these products will continue to be better positioned to address the evolving needs of consumers around the world.

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.

We continue to innovate and expand our headphone and earbud product lines under the IFROGZ brand to include offerings for all ages under both the EarPollutionIFROGZ and Sound HubEarPollution product lines.

We anticipate that the combination of high audio quality, ease of use, and superior features will enable us to developcontinue to expand the BRAVEN brand into one of the fastest growing wireless audio brands in the industry.brand.

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.

We continue to innovate and expand our wireless keyboard product lines as end users’ requirements evolve in this rapidly changing market.

The focus of our business is to (1) design creative product solutions for users of mobile devices, (2) sell these products to consumers through targeted global distribution partners, retail partners, televised home shopping channels, and online, (3) drive operational excellence across the organization, and (4) become the preferred brand through emphasizing innovation and product-quality,product quality, providing excellent customer service, and focusing on the end-users’ experience with our products. We focus our corporate, team, and individual goals to accomplish these overall corporate objectives.

We plan to continue to expand our product offerings, including competing in new product categories and entering new domestic and global markets that we believe will be consistent with our overall corporate strategy. We believe that by innovating withwithin existing product categories, entering new geographic markets, and competing in new product categories, we can achieve our stated objectives and meet our strategic goals.

We design our InvisibleShield Film and Glass products for application on thousands of specific electronic devices. Our logistics partners acquire precision-cut raw materials from exclusive third-party suppliers. These precision-cut InvisibleShield Film and Glass products either use the EZ Apply tabs installation or are packaged with an installation kit consisting of a moisture adhesive-activating solution, a squeegee, and instructions for application on specific electronic devices. We have established relationships with package assembly, shipping, and logistics companies worldwide that we expect will allow us to expand production and shipping capacity for InvisibleShield Film and Glass production as we continue to grow existing markets and enter new markets.

We also customize each InvisibleShield Film cut design for the specific electronic device and currently have thousands of unique designs. Each cut design is developed internally and is owned exclusively by us. We do not own the patent for the raw materials, which is held by our exclusive supplier. Our InvisibleShield Film supplier has contractually agreed to not sell the base materials to any of our competitors. We believe that our relationship with the manufacturer of the raw material is on excellent terms and anticipate no interruption in our ability to acquire adequate supplies of raw materials and produce products.

For all our products, we design the exterior packaging to ensure it is consistent with theour overall marketing strategy and is consistent with the desires of our major retailer partners. We have designed the hard plastic and cardboard box packaging to be informative and attractive for point-of-sale displays.displays, and continue to make significant progress in making our packaging and products more environmentally sustainable. We outsource the production of packaging to various independent third parties.third-parties.

Portable electronic devices, notably handheld devices, continue to advance in performance and functionality. Furthermore, the market is expanding as evidenced by continued innovative new product releases, particularly in smartphones and tablets. Correspondingly, the aesthetics of such devices are increasingly important as buyers typically consider the look and feel of such devices, as much as performance, in making their purchasing decisions.

With thousands of InvisibleShield products/product configurations available, we have a protective covering available for all major market segments of handheld electronic devices, including smartphones, tablets, notebook computers, laptops, gaming devices, smartwatches, and similar devices and surfaces. We intend to continue to configure the InvisibleShield product for use in newly developed consumer devices. The InvisibleShield can be quickly configured, packaged, and shipped to customers for new devices as they enter the consumer marketplace, making our InvisibleShield products available for purchase at the time of or within days of the launch of new electronic devices. Equally important, ISOD, our solution used to cut an InvisibleShield for virtually any mobile device in seconds, makes it possible for retailers to have an InvisibleShield available on the launch date for all device releases.

With our acquisition of BRAVEN Audio, we are able to offer outdoor enthusiasts the toughest audio products with high-end sound quality to outdoor enthusiasts who now can enjoy an incredible audio experience virtually anywhere they go. Such high quality audio products, together with our existing global distribution channel,channels, will enable us to increase our visibility in this particular market.

With the addition of Gear4 to our portfolio of brands, we are better enabled to provide top-of-the-line and modern case protection using D3O technology to protect and accessorize today's mobile devices used by consumers around the world.

HALO adds new distribution channels to our portfolio, including HALO's strong relationship with QVC, a global leader in televised home shopping and e-commerce. By adding HALO to itsour portfolio of brands, we will be unique at offering, at scale, HALO's innovative products and be better positioned to address the evolving needs of consumers around the world.

As sales of consumer electronics continue to grow, we anticipate that sales of our complementary accessory products will also continue to grow. One of our largest areas of market opportunity relates to the sale of our products in conjunction with the release of new smartphones and tablets.

Management believes that we are positioned to serve market needs within this industry with our multiple product lines that include screen protection, power cases, power management, wireless charging, audio, mobile keyboards, protective cases, and other mobile accessories.

Domestically, we sell our products on our websites,website, to big box electronics retailers, to wireless retailers, on televised home shopping channels, to other product distributors and retailers, and to franchisees that operate cellphone repair locations, kiosks, and ZAGG-branded stores in shopping malls and retail centers. In addition, our products are available for sale worldwide through our websiteswebsite as well as through non-U.S. retailers and distributors we have partnered with fromvia our subsidiaries in Ireland, China, and other international locations. Currently, we advertise our products primarily on the internet, on television through QVC and HSN spotlights, through print advertisements in conjunction with our retail partners, and through point of sale displays at retail locations. We intend to continue to strategically expand our advertising activities in 2019,2020, particularly through point of sales displays within retailers,at retailer locations, social media campaigns on the internet, and on QVC.QVC and HSN. We are also seeking to create and improve strategic partnerships with makers of smartphones and tablets, electronic accessories, and mobile content providers to enhance our product offerings.

We sell our products through indirect channels, including big box retailers, wireless retailers, domestic and international distributors, independent Apple retailers, university bookstores, and small independently owned consumer electronics stores. For the year ended December 31, 2018,2019, we sold $473,923$453,655 of product, or approximately 88%87% of our overall net sales, through this channel. We enter into reseller agreements with many of our indirect channel partners.

We continue to sell directly to retailers or through distributors to market and place our products for sale in the U.S. and non-U.S. markets. We have entered into distribution agreements with partners throughout the world for the marketing, distribution and sale of our products.

For the year ended December 31, 2018,2019, we sold $42,685$42,387 of product, or approximately 8% of our overall net sales, through our websites.website.

In addition to operating a corporate ZAGG-branded store, we sell our products to third-party franchisees that operate cellphone repair locations, kiosks, and ZAGG-branded stores in shopping malls and retail centers. We enter into agreements with third-party franchisees who then purchase our products and resell them to consumers. As part of the standard franchise agreement, franchisees are charged an up-front fee that is recognized into revenue over the life of the franchise term on a straight-line basis.

For the year ended December 31, 2018,2019, we sold $21,623$25,880 of product, or approximately 4%5% of our overall net sales, throughto franchisees and via our corporate owned store.

We do not directly manufacture any of our products, rather we employ various third-party manufacturing partners in the U.S. and Asia to perform these services on our behalf. The services employedprovided by these third partiesthird-parties include the selection of sub-suppliers that provide raw materials and other components used in the manufacturing process. We have endeavored to use common components and readily available raw materials in the design of our products that can be sourced from multiple sub-suppliers. However, raw film used in our InvisibleShield Film and ISOD products has been produced by a single supplier for the last 10 years. Our InvisibleShield Filmfilm supplier has contractually agreed to not sell the raw materials to any of our competitors.

Below is a high-level summary by product category of the manufacturing sources used by us:we use:

Our product and operations teams work closely with suppliers from initial product development and throughout the manufacturing process to ensure that (1) the supplier understands and will build according to product specifications, (2) appropriate quality is maintained for the finished goods and for all sub-components, and (3) the supplier can meet our supply needs.

We own utility and design patents in the U.S. and in various foreign countries which correspond to a number of our products, including patents with claims focused on certain features of our InvisibleShield screen protection for electronic devices. Although we develop a portion of our IP through internal innovation, IP is also obtained through strategic acquisitions. We continue to actively pursue additional IP for our developing product portfolio, including patents and applications for our InvisibleShield screen protection and associated methods in the U.S. and in foreign countries, having filedby filing patent applications for (i) both wet and dry application processes for securing protective InvisibleShield Filmfilm products to consumer electronic devices; (ii) dry-application protective InvisibleShield Filmfilm products; and (iii) on-demand production of electronic device accessories, including InvisibleShiled FilmInvisibleShield film products. In addition, we have filed applications, and in some instances secured patents, for a variety of our battery cases, mobile power, wireless charging, keyboard, audio and protective case products. We have additional patents pending in the U.S. and internationally for a variety of current and expected products.

We own thousands of InvisibleShield Film designs for protecting a variety of consumer electronic devices. New designs are routinely added to our portfolio to accommodate the newest electronic devices on the market. Additionally, we are the owner of numerous trademarks for use in connection with our goods and services. We have acquired many trademarks through our strategic acquisitions, have filed formal applications for a variety of trademarks, and have further secured trademark registrations for many of our trademarks in both the U.S. and in foreign countries.

We have strategically developed relationships, and in some cases, exclusive agreements, with third-party vendors and suppliers. Our long-standing relationships with raw material suppliers and manufacturers expand the scope of potential IP protection available to us, including development of innovative solutions for protective films and glass. These relationships also provide us with a reasonable expectation that we will be able to supply customers with products long into the future.

Our InvisibleShield Film,film, VisionGuard, and D3O suppliers retain the patents and IP rights for products developed on our behalf, though these suppliers have contractually agreed to not sell the raw materials to any of our competitors. IP protection held by us varies in effectiveness in preventing certain aspects of competition. Although we believe IP protection is an important factor in our business and that our success does depend in part on the ownership thereof, or exclusive rights thereto, we view the following as our keys to past and future success: (1) our distribution relationships with customers, (2) the speed with which we can bring a product to market, and (3) our ability to effectively launch a product into market to generate maximum sales. We also believe our success is based upon creative product solutions, establishing the preferred brand among both retailers and consumers, targeted global distribution and operational excellence.

Protection of IP is important to us and we protect IP when appropriate; however, we do not view IP in our industry as the key barrier to entry because of our rapidly changing industry. Often, by the time we receive patent or other IP protection on a product that would serve as a barrier to entry, the market has moved on to new technologies or products. Given this, we are selective in the IP we pursue, measuring the cost to protect certain aspects of IP against the potential benefit.

Due to our close partnership with global suppliers, in Asia, our third-party logistics partner, and the manufacturer of the raw film used in our InvisibleShield and ISOD products, our product development teams work directly with these partners in the development of products. OurWe enter into contractual agreements with some of our global suppliers to leverage IP technology and patents of these partners and suppliers. For the other key global suppliers, in Asiawe have contractually agreed that we will retain all patents and IP rights to products that arise through our relationship, including design changes and innovations regardless of who instigates the product development change.

As of December 31, 2018,2019, we had 618628 full-time and part-time employees, including our management team. 491479 of our employees are located in the U.S. and support our domestic operations, while 127149 employees are located outside the U.S. to support our international operations. No employee is represented by a labor union, and we have never suffered an interruption of business caused bydue to labor disputes. We believe our relationship with our employees is good and have made efforts to ensure fair compensation, competitive benefits, and a positive working environment.

We are innovation leaders in mobile tech accessories for smartphones, tablets, smartwatches, and other mobile technology. For over 10 years, we have developed creative product solutions that enhance and protect mobile devices for consumers around the world. We have 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.

In June 2011, we acquired IFROGZ, an audio company, which expanded our product lines beyond screen protection and keyboards.

In March 2016, we acquired mophie, a leader in the power management and power case categories. This acquisition further diversified our product lines into key growth product categories. The results of operations of mophie are included in our results of operations beginning on March 3, 2016.

In July 2018, we acquired BRAVEN, a rugged Bluetooth speakers and earbuds provider, which offers a high quality audio experience for outdoor adventurers. This new product line and brand enables us to reach new markets and customer demographics. The results of operations of BRAVEN are included in our results of operations beginning on July 20, 2018.

In November 2018, we acquired Gear4, one of the top selling smartphone case brands in the U.K., for its stylish phone cases which are designedmanufactured with D3O technology. D3O technologyshock absorbing materials can provide incrediblesignificant protection to smartphones and other electronic devices by using shock absorbing materials.devices. We believe this acquisition will expandexpands our product offering to better meet the needs of our smartphone consumers for innovative case protection. The results of operations of Gear4 are included in our results of operations beginning on December 1, 2018.

In January 2019, we acquired HALO, a leading direct-to-consumer accessories company with an extensive IP portfolio. HALO designs, develops and markets innovative technology products to make consumers' lives easier. This acquisition will enableenables us to enter new distribution channels, and to leverage new technology to enter into new consumer markets. The results of operations of HALO are not included in our results of operations as the acquisition closed inbeginning on January 4, 2019.

We have historically been positively impacted near the time of major device launches by Apple, Samsung, Google, and other device manufacturers, particularly when there is a change in form factor. We expect major device launches to continue to positively impact our operations during 20192020 and beyond. Further, as our products are sold through traditional retail, online, and through home shopping channels, we experience a natural uplift during the fourth quarter due to the holidays.

Because of the following factors, as well as other factors affecting the Company’sour financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

On April 12, 2018, we 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, and a third amendment agreement dated December 4, 2019 (as amended, the “2018 Credit and Security Agreement”). The 2018 Credit and Security Agreement provides ana $125,000 ( “Maximum Revolver Amount” ) revolving credit commitment (the “2018 Revolver”) which is not subject to borrowing base limitations. The third amendment agreement temporarily increased the Maximum Revolver Amount to $144,300 through February 28, 2020. In addition, at our option, (i) up to $40,000 of the 2018 Revolver may be made available for the issuance of letters of credit, and (ii) we may obtain a term loan or increase the Maximum Revolver Amount of the 2018 Revolver by another $25,000 within a specified period defined in the 2018 Credit and Security Agreement. Borrowings and repayments under the 2018 Revolver may occur from time to time in our ordinary course of business through the maturity date of April 11, 2023, at which time any amounts outstanding are to be paid in full (60-month term). Interest on the 2018 Revolver accrues either at the base rate plus a margin of 0.250% to 1.375% or Eurodollar rate plus a margin of 1.250% to 2.375%, in each case, based on the Leverage Ratio (as defined in the 2018 Credit and Security Agreement). The 2018 Credit and Security Agreement also requires us to pay a monthly commitment fee with a rate that can fluctuate between 0.175% and 0.275% based on the Leverage Ratio as defined in the 2018 Credit and Security Agreement.Ratio. Payments on the monthly commitment fee are payable quarterly in arrears, commencing on July 1, 2018, and continuing on each regularly scheduled payment date thereafter.

The 2018 Credit and Security Agreement contains a number of financial and non-financial debt covenants. If we are not compliant with the covenants or fail to fulfill our payment obligation,obligations, our ability to access the 2018 Revolver will be limited. In such event, our short-term cash requirements may exceed available cash on hand resulting in material adverse consequences to our business. If we need to obtain additional funds as a result of the termination of the 2018 Credit and Security Agreement or the acceleration of amounts due thereunder, there can be no assurance that alternative financing can be obtained on substantially similar or acceptable terms, or at all. Our failure to promptly obtain alternate financing could limit our ability to implement our business plan and have an immediate, severe and adverse impact on our business, results of operations, financial condition and liquidity. In the event that no alternative financing is available, we would be forced to drastically curtail operations, dispose of assets, or cease operations altogether.

Our obligations under the 2018 Credit and Security Agreement are secured by substantially all of our assets. Under the 2018 Credit and Security Agreement, we are subject to specified affirmative and negative covenants customary for loans of this type.

Failure to comply with the restrictive covenants could accelerate the repayment of any debt outstanding under the 2018 Credit and Security Agreement. Additionally, asIn addition, restrictive covenants under the 2018 Credit and Security Agreement prohibit the repurchase of ZAGG Inc common stock or the issuance of dividends if over $100,000 has been drawn on the line of credit. Until our current borrowings are paid down below $100,000, we will not be able to take advantage of potential opportunities to repurchase ZAGG Inc common stock or issue dividends.

As a result of these restrictive covenants, we may be at a disadvantage compared to our competitors that have greater operating and financing flexibility than we do.

The 2018 Credit and Security Agreement requires us to pay a variable rate of interest, which will increase or decrease based on variations in interest rates. Additionally, fluctuations in interest rates can significantly decrease our profits. We do not have any hedge or similar contracts that would protect us against changes in interest rates.

The amount of our indebtedness could have important consequences for us, including the following:

We may not generate sufficient cash flows from operations to service and repay our debt and related obligations and have sufficient remaining funds to achieve or sustain profitability in our operations, meet our working capital and capital expenditure needs or compete successfully in our industry, which would have a material adverse effect on our operations.

As of December 31, 2018,2019, we had $58,363$107,140 of debt outstanding which was subject to variable interest rates. This variable rate debt had a total weighted average interest rate of approximately 4.03%4.64% per annum as of December 31, 2018.2019. Increases in interest rates on this variable rate debt would increase our interest expense, which could harm our cash flows.

The consumer and mobile electronics accessory industries are subject to constant and rapidly changing consumer preferences based on performance features and industry trends. We generate all of our sales from our consumer and mobile electronics accessories business. We cannot assure our stakeholders that we will be able to grow the revenues of our business or maintain profitability. Our consumer accessories business depends, to a large extent, on the introduction and availability of innovative products and technologies. We believe that our future success depends, in large part, upon our ability to enhance our existing products and to develop, introduce, and market new products and improvements to our existing products.

However, if we are not able to continually innovate and introduce new products that achieve consumer acceptance, our sales and profit margins may decline. Our revenues and profitability will depend on our ability to maintain existing and generate additional customers and develop new products. A reduction in demand for our existing products would have a material adverse effect on our business. The sustainability of current levels of our business and the future growth of such revenues, if any, depends on, among other factors:

We cannot provide assurance that we will maintain or increase our current level of revenues or profits in future periods.

While we are pursuing and will continue to pursue product development opportunities, there can be no assurance that such products will come to fruition or become successful. Furthermore, while a number of those products are being tested, we cannot provide any definite date by which they will be commercially available or financially viable. We may experience operational problems with such products after commercial introduction that could delay or defeat the ability of such products to generate revenue or operating profits. Future operational problems could increase our costs, delay our plans, or adversely affect our reputation or our sales of other products which, in turn, could have a material adverse effect on our success and our ability to satisfy our obligations. We cannot predict which of the many possible future products will meet evolving industry standards and consumer demands. We cannot provide assurance that we will be able to adapt to such technological changes, offer such products on a timely basis or establish or maintain a competitive position.

Part of our current business model includes indirectly selling our products through third-party retailers. These third-party retailers operate physical brick-and-mortar locations to sell our products to our end customers. The current shift in purchasing demographics due to the changing preferences of customers who are moving from in-store purchases of goods to the convenience of online purchases creates additional risks of current revenue streams being impacted negatively and an overall decrease of market share.

Our market is highly competitive with numerous competitors. Some of our competitors may have substantially greater financial, technical, marketing, and other resources than we possess, which may afford them competitive advantages over us. As a result, our competitors may introduce products that have advantages over our products in terms of features, functionality, ease of use, and revenue producing potential. They may also have more fully developed sales channels for consumer sales including large retail seller arrangements and international distribution capabilities.

In addition, new companies may enter the markets in which we compete, further increasing competition in the consumer electronics accessories industry. Increased competition may result in price reductions, reduced profit margins, loss of market share, and an inability to generate cash flows that are sufficient to maintain or expand our development and marketing of new products, which would adversely impact our financial performance.

We do not manufacture any of our products; rather, we employ various third partythird-party manufacturing partners to perform these services on our behalf. The services employed by these third partiesthird-parties include the selection of sub-suppliers that provide raw materials and other components used in the manufacturing process. Our manufacturing partners acquire substantially all of the raw materials that we use in our products from a variety of suppliers. We can give no assurance that:

Our inability to procure sufficient quality and quantities of products that are in demand could reduce our profitability and have a negative effect on our relationships with our customers. If any of our supplier relationships are terminated or interrupted, we could experience an immediate or long-term supply shortage, which would have a negative effect on our business.

Although protection of IP is important to us and we protect IP when appropriate, we do not view IP in our industry as an effective barrier to entry because of the rapidly changing industry in which we operate. Very often, by the time we receive patent or other IP protection on a product that would serve as a barrier to entry, the market has moved on to new technologies or products. Given this, we are very selective in what we decide to protect, measuring the cost to protect certain aspects of IP against the potential benefit.

Due to our close partnership with suppliers in Asia, our third-party partners, and the manufacturer of the raw film used in our InvisibleShield Film and ISOD products, alongside our partnerships for D3O and VisionGuard raw materials, our product development teams work directly with these partners in the development of products. Our key suppliers in Asia have contractually agreed that we will retain all patents and IP rights to products that arise through our relationship, including design changes and innovations regardless of who instigates the product development change. These suppliers retain the patents and IP rights for products it develops on our behalf, though has contractually agreed to not sell the raw materials to any of our competitors. As we do not own the IP for raw materials, including the InvisibleShield Film, D3O, VisionGuard, and VisionGuardanti-microbial products, we cannot provide assurance that we will be able to source technologically advanced products in the future in order to remain competitive. Furthermore, the introduction or expected introduction of new products or technologies may depress sales of existing products and technologies. This may result in declining profit margins and inventory obsolescence. Because we maintain a substantial investment in product inventory, declining prices and inventory obsolescence could have a material adverse effect on our business and financial results.

Although we do not own the patent for the film, D3O, VisionGuard, and VisionGuardanti-microbial raw materials, which is held by our exclusive suppliers, these suppliers have contractually agreed to not sell the raw materials to any of our competitors. We believe that our relationship with the manufacturer of the raw material is on excellent terms and anticipate no interruption in our ability to acquire adequate supplies of raw materials and produce products.

Our estimates of excess and obsolete inventory may prove to be inaccurate, in which case the net realizable value for excess and obsolete inventory may be understated or overstated. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in technology or demand could have a significant impact on the value of our inventory and operating results.

Although we anticipate expanding into additional complementary product categories to provide support to our strategy to provide creative product solutions to mobile device users, there can be no guarantee that we will be successful in innovating and expanding into additional product categories. Numerous factors, including market acceptance, finding and retaining contract partners that are acceptable to us, and general market and economic conditions, could prevent us from participating in these complementary product categories, which could limit our ability to implement our business strategy.

Similarly, although we intend to continue to configure the screen protection, keyboards, audio, battery cases, power management, wireless charging, cases, and other product categories for new products and devices, there can be no guarantee that we will be able to either match the current demand for our products as new devices and products are introduced, or that purchasers of such devices and products will want to purchase our products for use in connection with them. Any limitation in our ability to match demand or gain market acceptance of our products in connection with new devices and products could have a material adverse effect on our business.

Our business requires that we use and store customer, employee and business partner personally identifiable information (“PII”), which may include, among other information, names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers, and payment account information. We require user names and passwords in order to access our information technology systems. We also use encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to our data or accounts. These security measures are subject to the risk of third-party security breaches, employee error, malfeasance, faulty password management, or other irregularities. For example, third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access our information technology systems. To help protect customer and vendor information and our own information, we monitor accounts and systems for unusual activity and may freeze accounts under suspicious circumstances, which may result in the delay or loss of customer orders.

In May 2018, the European Union (“EU”) adopted a regulation to protect personal data for all individuals within the EU and the European Economic Area (“GDPR”), which also covers personal data that is exported outside the EU and EEA areas. We conduct our business worldwide and therefore, we are subject to GDPR standards. Additionally, in June 2018, the California Consumer Privacy Act (“CCPA”) was enacted and effective beginning January 1, 2020, to enhance privacy rights and consumer protection for residents of California, U.S. CCPA requires companies conducting businesses in California to disclose their data collection, use and sharing practices, and allow consumers to opt out of certain data sharing with third parties. In order to comply with GDPR and CCPA, we may incur additional costs to amend certain of our business practices and systems. In addition, we may be susceptible to investigations, enforcement actions, regulatory penalties or significant legal liability if we violate any regulations related to data security incidents or privacy. In an event of such violation, we could be impacted adversely in our business, operating results and financial performance.

We devote significant resources to network security, data encryption and other security measures to protect our systems and data, but these security measures cannot provide absolute security. To the extent we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and curtail or otherwise adversely impact access to online stores and services. Moreover, if a computer security breach affects our systems or results in the unauthorized release of PII, our reputation and brand could be materially damaged, use of our products and services could decrease, and we could be exposed to risks of loss or litigation and possible liability. While we maintain insurance coverage that, subject to policy terms and conditions and subject to a significant self-insured retention, is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.

We produce our key products prior to the time we receive customers’ purchase orders. We do this to minimize purchasing costs, the time necessary to fill customer orders, and the risk of non-delivery. However, we may be unable to sell the products we have produced in advance. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have a material adverse effect on our operating results and financial condition. Conversely, if we underestimate demand for our products or if we fail to produce the quality products that we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact distributor relationships, and diminish brand loyalty.

Mobile electronic devices typically have relatively short life cycles. We may be left with obsolete inventory if we do not accurately project the life cycle of different mobile electronic devices. The charges associated with reserving slow-moving or obsolete inventory as a result of not accurately estimating the useful life of mobile electronics could negatively impact the value of our inventory and operating results.

We seek to continue our expansion into new markets, including additional international markets. As we expand into new international markets through distributors, new indirect customers, and existing relationships with current indirect customers, it is possible that this expansion will adversely impact our consolidated gross profit margins. Accordingly, there is no assurance that we will continue to recognize similar gross profit margins in the future to those currently being realized.

We anticipate expanding into additional complementary product categories or in expanding our footprint in current product categories to support our strategies to provide creative product solutions to mobile device users and to diversify our product portfolio. However, there can be no guarantee that this expansion will occur at or above the gross profit margins we have historically realized. Accordingly, there is no assurance that we will continue to recognize similar gross profit margins in the future to those currently being realized.

Our success depends on the skills, experience and performance of key members of our management team including Chris Ahern, our chief executive officer (“CEO”), Brian Stech, our president, Bradley J. Holiday,Taylor D. Smith, our chief financial officer (“CFO”), and Jim Kearns, our chief operating officer.officer (“COO”). Although we have employment agreements with these individuals, were we to unexpectedly lose one or more of these key executive officers, we could be forced to expend significant time and money in the pursuit of a replacement, which could result in both a delay in the implementation of our business plan and the diversion of working capital. Thus, our board of directors has implemented succession plans for each of these roles, and systematically monitors the development and progression of each employee who has been identified as a possible future candidate for such roles.

For the year ended December 31, 2018, Superior Communications, Inc.2019, Verizon Wireless (“Superior”Verizon”) and Best Buy Co., Inc. (“Best Buy”) were our largest customersexceeded 10% of net sales. For the year ended December 31, 2018, Superior Communications, Inc. (“Superior”) and accounted for 10% or greater thanBest Buy exceeded 10% of net sales. For the year ended December 31, 2017, Superior was our largest customer. For the year ended December 31, 2016, Superior, Best Buy, and GENCO Distribution Systems, Inc. (“GENCO”) were our largest customers.exceeded 10% of net sales. The amount of net sales for each of these customers was as follows:

DuringWe began transitioning to a direct sales relationship with Verizon during the years ended December 31,second half of 2018, 2017, and 2016,which has continued to progress throughout 2019. Previous to our direct sales relationship with Verizon, Verizon purchased our products through Superior.

Other than the customers noted in the table above, no other customers accounted for 10% or greater than 10% of net sales.sales during the years ended December 31, 2019, 2018, and 2017.

Although we have contracts in place governing our relationships with customers, the contracts are not long-term and all of our retailers generally purchase from us on a purchase order basis. As a result, these retailers generally may, with little or no notice or penalty, cease ordering and selling our products, or materially reduce their orders. If any of these retailers cease selling our products, slow their rate of purchase of our products, or decrease the number of products they purchase, our results of operations could be adversely affected.

If we lose one or more of our significant customers, it would have a material adverse effect on our financial condition, results of operations, and cash flows.

Some of our retailers and distributors have experienced financial difficulties in the past. A retailer or distributor experiencing such difficulties will generally not purchase and sell as many of our products as it would under normal circumstances and may cancel orders. In addition, a retailer or distributor experiencing financial difficulties generally increases our exposure to uncollectible receivables. We extend credit to our retailers and distributors based on our assessment of their financial condition, without requiring collateral. While such credit losses have historically been within our estimated reserves for allowances for bad debts, we cannot assure that this will continue to be the case. Financial difficulties on the part of our retailers or distributors could have a material adverse effect on our results of operations and financial condition.

As of December 31, 2019, Verizon and Best Buy exceeded 10% of our accounts receivable. As of December 31, 2018, and 2017, the balance of accounts receivable from two separate customers exceeded 10%: Superior and Best Buy.Buy exceeded 10% of our accounts receivable. The amount of accounts receivable for each of these customers is was as follows:

NoOther than the customers noted in the table above, no other customer account balances were more than 10% of accounts receivable as of December 31, 2018 or 2017.2019 and 2018. If one or more of our significant customers were to become insolvent or were otherwise unable to pay for the products provided, it would have a material adverse effect on our financial condition and results of operations.

Our success depends to a significant degree upon our ability to attract, retain and motivate skilled and qualified personnel. Failure to attract and retain necessary technical personnel, sales and marketing personnel, and skilled management could adversely affect our business. If we fail to attract, train, and retain sufficient numbers of these highly qualified people, our prospects, business, financial condition, and results of operations may be materially and adversely affected.

Some of our products may contain undetected defects due to imperfections in the underlying base materials used in production or manufacturing defects. The occurrence of defects or malfunctions could result in financial losses for our customers and in turn increase warranty claims from our customers and diversion of our resources. Any of these occurrences could also result in the loss of or delay in market acceptance of our products due to damaged brand reputation and may result in the loss of sales.

Our quarterly results may fluctuate quarter to quarter as a result of market acceptance of our products, the sales mix, changes in pricing, the timing of inventory write downs, changes in the cost of materials, the use of airfreight to transport products, the impact of global health issues such as the impact of the recent coronavirus outbreak, and incurring other operating costs and factors beyond our control, such as general economic conditions and actions of competitors. We are also affected by seasonal buying cycles of consumers, such as the holiday season, and the introduction of popular consumer electronics, such as a new introduction of products from Apple, Samsung, Microsoft, HTC, Google, and others. Accordingly, the results of operations in any quarter will not necessarily be indicative of the results that may be achieved for a full fiscal year or any future quarter.

We do not own proprietary rights with respect to the film we use in our InvisibleShield products.products and the VisionGuard, and D3O technology. However, we have protected key proprietary design and utility elements of other products through patents. In addition, we own and keep confidential the design configurations of the InvisibleShield film and the product cut designs which are our copyrights. We seek to protect our IP rights through confidentiality agreements with our employees, consultants and partners, and domestic and foreign patent prosecution and similar means. However, no assurance can be given that such measures will be sufficient to protect our IP rights or that the IP rights that we have are sufficient to protect other persons from creating and marketing substantially similar products. If we cannot protect our rights, we may lose our competitive advantage. Moreover, if it is determined that our products infringe on the IP rights of third parties,third-parties, we may be prevented from marketing our products.

Claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result in costly litigation, divert management’s attention and resources, or require us to either enter into royalty or license agreements which are not advantageous to us or pay material amounts of damages. In addition, parties making these claims may be able to obtain an injunction, which could prevent us from selling our products.

Consumer spending patterns, especially discretionary spending for products such as mobile, consumer, and accessory electronics, are affected by, among other things, prevailing economic conditions, energy costs, raw material costs, wage rates, inflation, interest rates, consumer debt, consumer confidence, global health concerns, including the current coronavirus outbreak, and consumer perception of economic conditions. A general slowdown in the U.S. and certain international economies, or an uncertain economic outlook or market volatility could have a material adverse effect on our sales and operating results.

The disruptions in the national and international economies due to market volatility and uncertainty could depress consumer confidence and spending. If such conditions persist, consumer spending will likely decline further and this would have an adverse effect on our business and our results of operations.

We intend to grow our business through strategic acquisitions and organically by expanding our sales and product development organizations. Any growth in or expansion of our business is likely to place a strain on our management and administrative resources, infrastructure, and information systems. As with other growing businesses, we expect that we will need to refine and expand our business development capabilities, our systems and processes, and our access to financing sources. We also will need to hire, train, supervise, and manage new employees. These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. We provide no assurance that we will be able to:

We depend heavily on the expertise of our product development team. If any of our competitors copy or otherwise gains access to similar products independently, we might not be able to compete as effectively. The measures we take to protect our designs may not be adequate to prevent their unauthorized use. Further, the laws of foreign countries may provide inadequate protection of such IP rights. We have brought and in the future may need to bring legal claims to enforce or protect such IP rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources.

Our facilities could be subject to a catastrophic loss from fire, flood, earthquake, or terrorist activity. Our corporate activities, including sales and marketing, customer service, finance, and other critical business operations are in a limited number of primary locations. Our manufacturing and logistics activities are conducted at other facilities separate from our corporate headquarters. Any catastrophic loss at these facilities could disrupt our operations, delay production and revenue, and result in large expenses to repair or replace the facilities. While we maintain insurance to cover most potential losses, we cannot provide assurance that our existing insurance coverage will be adequate against all other possible losses.

We are required to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). We are likewise required, on an annual basis, to evaluate the effectiveness of our internal controls and to disclose on a quarterly basis any material changes in those internal controls.

Any failure to maintain and continue to improve our internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations or may lose confidence in our reported financial information. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and the Nasdaq Global Market, we could face severe consequences from those authorities. In either case, it could result in a material adverse effect on our business or have a negative effect on the trading price of our common stock.

Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. Our sales to customers outside the U.S. accounted for approximately 16%23% of our net sales in fiscal 2018.2019. Accordingly, our future results could be harmed by a variety of factors, including:

Our international operations are affected by global economic and political conditions, only some of which are described above. Changes in economic or political conditions in any of the countries in which we operate could result in exchange rate movement, new currency or exchange controls or other restrictions being imposed on our operations. We cannot provide assurance that such changes will not have an adverse effect on our foreign operations and our financial results.

In 2019,2020, management intends to continue expanding our advertising with additional interactive displays within retailers, further marketing efforts relating to existing products and potential new product introductions, and increased social media marketing campaigns. However, there can be no guarantee that such increased advertising or marketing efforts and strategies will result in increased sales.

The price for shares of our common stock has exhibited high levels of volatility with significant volume and price fluctuations, which may make our common stock unsuitable for some investors. For example, for the two years ended December 31, 2018,2019, the closing price of our common stock ranged from a high of $23.70$20.81 to a low of $5.90$5.26 per share. At times, the fluctuations in the price of our common stock may be unrelated to our operating performance. The price of our common stock may also be influenced by:

Based on the above, our stock price may continue to experience volatility. Therefore, we cannot guarantee that our investors will be able to resell our common stock at or above the price at which they purchased it.

Although we have no immediate plans to raise additional capital, we may at some time in the future do so. Any such issuance would likely dilute shareholders’ ownership interest in our company and may have an adverse impact on the price of our common stock. In addition, from time to time we may issue shares of common stock in connection with equity financing activities or as incentives to our employees and business partners. We may expand the number of shares available under stock incentive and option plans, or create new plans. All issuances of common stock would be dilutive to an existing investor’s holdings in us. If an investor’s holdings are diluted, the overall value of the shares may be diminished and the ability to influence shareholder voting will also be harmed.

Our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully integrate businesses we may acquire in the future. We may not realize these benefits, as rapidly as, or to the extent, anticipated by our management. There can be no assurance that we will be able to successfully integrate any acquired businesses, products or technologies without substantial expenses, delays or other operational or financial problems. Acquisitions involve a number of risks, some or all which could have a material adverse effect on any acquired businesses, products or technologies. Furthermore, there can be no assurance that any acquired business, product, or technology will be profitable or achieve anticipated revenues and income. Our failure to manage our acquisition strategy successfully could have a material adverse effect on our business, results of operations and financial condition. The process of integrating an acquired business involves risks, including but not limited to:

Failure to successfully integrate any acquired businesses in the future may result in reduced levels of anticipated revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such businesses.

In addition, any future acquisitions could result in incurring additional debt and related interest expense, contingent liabilities, and amortization expenses related to intangible assets, which could have a material adverse effect on our financial condition, operating results, and cash flows.

Short selling is the practice of selling securities that the seller does not own, but rather has borrowed from a third partythird-party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s best interests for the price of the stock to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short. These short attacks have, in the past, led to selling of shares in the market.

In the past several years, our securities have been the subject of short selling. Reports and information have been published about us which we believe are mischaracterized or incorrect, and which have occasionally been followed by a decline in our stock price.

Certain of the legal proceedings in which we are involved are discussed in Note 13,14, “Commitments and Contingencies”, to our consolidated financial statements in this report, and are hereby incorporated by reference.

Not applicable.

Our common stock is currently quoted on the Nasdaq Global Market of the Nasdaq Stock Market under the symbol ZAGG. The following table sets forth, for each full quarterly period within the two most recent fiscal years, the high and low sales prices (in dollars per share) of our common stock as reported or quoted on the Nasdaq Capital Market. On March 12, 2019,13, 2020, the closing price of our common stock was $10.83.$2.92.

On March 12, 2019,13, 2020, there were approximately 4144 registered holders or persons otherwise entitled to hold our common shares pursuant to a shareholders’ list provided by our transfer agent, Empire Stock Transfer. The number of registered shareholders excludes any estimate by us of the number of beneficial owners of common shares held in street name.

Neither our certificate of incorporation nor our bylaws restrict us from declaring dividends. The Delaware General Corporation Law and applicable case law, however, does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

We have not declared or paid cash dividends on our common stock since our inception, and our board of directors currently intends to not declare or issue cash dividends for the foreseeable future. Any future payment of dividends to holders of common stock will depend upon our results of operations, financial condition, cash requirements, and other factors deemed relevant by our board of directors.

In January 2013, our board of directors adopted and in June 2013, our shareholders approved the ZAGG Inc 2013 Equity Incentive Award Plan (the “2013 Plan”). In April 2017, the compensation committee of our board of directors adopted, and in June 2017, our shareholders approved an amendment and restatement of the 2013 Plan (the “Amended Plan”). The Amended Plan is an “omnibus plan” under which stock options, stock appreciation rights, performance share awards, restricted stock, and restricted stock units can be awarded. The Amended Plan’s initial share reservation is 5,000 shares. The term of the plan is for 10 years from the date of original adoption of the 2013 Plan. As of December 31, 2018,2019, there were approximately 2,3611,943 shares available for grant under the Amended Plan.

Except as set forth on our Current Report on 8-K filed on December 4, 2018January 8, 2019, there were no other unregistered sales of securities during the year ended December 31, 2018.2019.

The graph below compares the cumulative 5-Year total return provided shareholders on our common stock relative to the cumulative total returns of the Russell 2000 index, Russell MicroCap and a customized peer group of eight companies, whose individual companies are listed in footnote 1 below. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock, in each index and in each of the peer groups on December 31, 2013,2014, and its relative performance is tracked through December 31, 2018.2019.

The eight companies included in our customized peer group (the “Peer Group” in the chart below) are: Callaway Golf Co, Columbia Sportswear Co, Deckers Outdoor Corp, Fossil Group Inc., Garmin Ltd, Logitech International S.A., Plantronics Inc. and Vuzix Corp.

In 2016, we determined to change the comparison peer group from a self-selected group based on market capitalization to the Russell MicroCap index. We believe a change to the Russell MicroCap index will provide a better comparison to us because it is a broader base of companies with similar market cap rather than eight selected in the peer group. Furthermore, the companies we would consider peers within the industry are not public companies and would therefore not have information available to calculate a comparative five-year return. In 2018, Harmon International Industries Inc. and Sodastream International Ltd were removed from the peer group because they were acquired and no longer had discrete financial information that could be used for comparability purposes.

During the fourth quarter of 2015, our board of directors authorized the repurchase of up to $20,000 of our outstanding common stock with no expiration date. Our board of directors also authorized the use of a Rule 10b5-1 plan, which was put into place during the third quarter of 2018.

The selected historical financial data presented below are derived from our consolidated financial statements. The selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our consolidated financial statements and the notes thereto included elsewhere in this report.

The focus of our business is to (1) provide creative product solutions, (2) execute targeted global distribution, (3) achieve operational excellence, and (4) be the preferred brand for our customers. We focus our corporate, team, and individual goals to accomplish this overall corporate strategy.

We believe that mobile devices and gadgets can be best enjoyed with the right mix of protection from scratches and damage, and accessories that enhance the consumers’ electronic and mobile device experience. We believe that our full product portfolio, which includes screen protection, protective cases, power cases, power management, wireless charging, audio, mobile keyboards, protective cases, and other mobile accessories, provides consumers with unparalleled device protection and enhanced enjoyment of their mobile electronic device.

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to 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. Actual results may differ from these estimates under different assumptions or conditions. Significant items subject to such estimates include inventory realizability, variable consideration included as part of our revenue recognition accounting policy, and the fair value of assets acquired and liabilities assumed in our business combinations.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. Management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Inventories, consisting primarily of finished goods and raw materials, are valued at the lower of cost, determined on a first in, first out basis, or net realizable value. Management performs periodic assessments to determine the existence and estimated net realizable value of obsolete, slow moving, and unsaleable inventories, and records necessary write-downs in cost of sales to reduce such inventories to estimated net realizable value. Once established, the original cost of the inventory less the related inventory write down represents the new cost basis of such products.

In assessing the realizability of inventories, we are required to make judgments as to future sales prices, which are impacted by our estimates of demand requirements and current inventory levels. Our inventory requirements may change based on our projected customer demand, market conditions, technological and product life cycle changes, longer or shorter than expected usage periods, and other factors that could affect the valuation of our inventories.

Under Topic 606, has required significant changesthe variable consideration calculations related to how we recognize revenue. Updates to our accounting policies have been made as part of adoption of this new standard. These changes to our accounting policies and procedures under the new standard have most significantly impacted the estimates previously used to determine our sales returns, discounts and other credits. The new variable consideration calculations for these estimates apply assumptions required by Topic 606, whichcredits require significant judgment.judgment on assumptions. In applying these new assumptions, and in the application of Topic 606, we have determined that the updated accounting policies and estimates to ensure compliance under Topic 606 continue to be critical accounting policies and estimates.

Specifically, our sales returns and price concessions methodologies are significant estimates within the revenue recognition accounting policy. Our return policy allows end users and certain retailers rights to return purchased products. Due to the nature of the screen protection product line, end user returns for screen protection are generally not salvageable and are not included in inventory. We estimate a reserve for sales returns and record the estimated reserve amount as a reduction of sales in the consolidated statements of operations,income, and as a liability in the consolidated balance sheets. When products are returned and are expected to be resold, as is the case with returns of packaged screen protection, keyboards, audio products, cases, and power products, the impact is recorded as a reduction of revenues and cost of sales in the consolidated statements of operations,income, and as a reduction in the sales return reserve liability with an increase in the right of return asset included in prepaid expenses and other current assets in the consolidated balance sheets. The sales returns estimate requires management to make judgments regarding return rates for sales whereby historical experience and actual claims are key factors used in determining such estimated sales return reserve.

Our price concession policy estimates price concessions to be granted on goods which are sold to distributors and retailers. We estimate a reserve using historical price concession data, and record the estimated reserve amount as a reduction of revenue in the consolidated statements of operations,income, and as a liability in the consolidated balance sheets. When we issue credits to customers on actual price concessions granted, the impact is recorded as a reduction of revenues and cost of sales in the consolidated statements of operations,income, and as a reduction in the liability in the consolidated balance sheets. The price concession estimate requires management to make judgments regarding price concessions for sales whereby historical experience and actual claims are key factors used in determining such estimated price concession reserve.

We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over these fair values is recorded as goodwill. We engaged an independent third-party valuation firm to assist us in determining the fair values of certain assets acquired and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. The significant purchased classes of intangible assets recorded by us include trade names, patents and technology, customer relationships, non-compete agreements, and backlog. The fair values assigned to the identified intangible assets are discussed in Note 6 to the consolidated financial statements.

Significant estimates in valuing certain intangible assets include but are not limited to: future expected cash flows related to each individual asset, market position of the trade names and assumptions about cash flow savings from the trade names, determination of useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and thus, actual results may differ from estimates.

Corporate social responsibility has long been an integral part of our business and corporate culture. Environmental, social and governance initiatives (“ESG”) issues have been woven into our culture since our inception. As sustainability “best practices” evolve over time, so will our ESGEnvironmental, Social and Governance (“ESG”) initiatives and respective disclosures.

In 2018, we created a “Sustainability Working Group” consisting of dedicated internal resources and external advisors to address ESG factors related to us. The goal of the Sustainability Working Group is to improve our long-term performance utilizing ESG factors material to our business. Our framework for ESG factor evaluation and disclosure is informed by potential opportunities and risks for our business, views of our shareholders, leading ESG ratings agencies, and leading ESG reporting frameworks. Among the ESG reporting frameworks, we primarily utilized the Sustainability Accounting Standard Board's (“SASB”) Sustainability Accounting Standards relevant for our industry (SASB industry classification: Apparel, Accessories and Footwear and the Multiline and Specialty Retailers and Distributors). We also consider The Task Force on Climate-Related Financial Disclosures (“TCFD”) framework. We determined that many of the topics in those standards represent trends and uncertainties that may materially impact our operational performance or financial condition.

In addition to considering the ESG impacts on our business, the views of our shareholders, the leading ESG frameworks, and ESG ratings agencies, we considered the ESG perspectives of other stakeholders, including but not limited to our employees, customers, and the communities in which we operate.

Our sustainability disclosures will evolve over time as our business continues to grow. AtDuring the second quarter of 2020, we plan to launch our first Sustainability webpage to be included as part of ZAGG.com, which will provide more granular details on our ESG initiatives. For the purposes of this time,report, our board of directors, management, and Sustainability Working Group identified the following topics for high-level disclosure: Supply Chain, Products and Packaging, Cybersecurity, Employee Diversity and Inclusion, Political/Lobbying Contributions, and Employee Transportation Incentives.

We annually engage in internal verification activities to identify, assess and manage the risks of human trafficking in our product supply chain. We require each manufacturer to sign an agreement stating that it will only use subcontractors or independent contractors who are compliant with and agree to our Manufacturer’s Code of Conduct.

their behalf, to bribe foreign officials. The FCPA also requires U.S. companies and their subsidiaries to keep accurate and complete books and records and to maintain proper internal accounting controls. All of our employees are required to sign our FCPA policy and complete FCPA education.

We regularly review our product packaging for environmental impact and cost. In 2019, we made several modifications to our packaging across several brands. We plan to continue to consider packaging modifications for other product offerings and their respective environmental impacts moving forward.

In 2018, we invested in the packaging of our warranty mailer program. We offer a limited lifetime replacement program for our glass products. If the glass scratches or breaks, even through normal daily use, we will replace it for a $5.99 shipping and handling cost. The previous warranty process included a complete retail packaged glass replacement, packing slip, and return envelope, packed in a heavy card stock outbound shipping envelope. The new warranty mailer process eliminates the need for a packing slip and uses a different envelope that is 37% less paper, reducing costs as well as the environmental impact.

We continually monitor and address cybersecurity risk. We have taken action to ensure data privacy and security for our customers on our e-commerce platform as well as require regular cybersecurity training for our employees.

We continually train ourNew employees are required to complete cybersecurity training upon hire and all other employees are required to complete cybersecurity training on cybersecurity. A company-widean annual basis. The cybersecurity training program that started in the first quarter of 2018 received a 100% completion rate as of the end of the fourth quarter of 2018. The topics included theinclude GDPR requirements, email security, strong password creation and usage and phishing. The phishing training has provided tangible results. The initialOur phishing click rate was baselined at 18%. Followinghas been steady between 8.4% and 8.7%, which is industry leading and well below the training programs, the ZAGG click rate decreased to 8.4%industry average of 13%.

In 2020, we will continue to review password policies across the organization. Our IT department will begin looking into and testing passwordless policies by using FIDO2 keys and Authenticator apps to completely remove the need for employee and service passwords. This will further reduce any exposure to phishing attacks against ZAGG personnel. We recently implemented a SIEM platform, which has been instrumental in consolidating systems events and security logs. This allows for incident hunting and better security analytics to be introduced in 2019. A single platform will bolster our cybersecurity defenses.leveraged by the security team.

The tables below provide information about our gender and ethnic employee diversity. Since 2016,2017, we have increased in gender and ethnic diversity.

We have made no material political or lobbying contributions.

Corporate sustainability is an integral part of our culture. We encourage our employees to limit their carbon footprint by providing transportation incentives.

The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:

Net sales for the year ended December 31, 2018 was $538,231, compared to net sales of $519,495 for the year ended December 31, 2017, an increase of $18,736 or 4%. The year-over-year change is due primarily to (1) the increase in screen protection which was driven by the new iPhone launch, as well as the introduction of the Glass + VisionGuard screen protection products, and certain SKUs sold in to retail customers in advance of an expected increase in duties, and (2) the increase in sales of our power management products, particularly those accessories related to wireless charging. These increases were partially offset by a decrease in sales of power cases.

Gross profit for the year ended December 31, 2018 was $185,873, or approximately 35% of net sales, compared to $168,998 or approximately 33% of net sales for the year ended December 31, 2017. The increase in gross profit margin was primarily attributable to the mix of screen protection products, our highest margin product category, which increased during the year ended December 31, 2018, to approximately 57% of net sales compared to approximately 48% of net sales during the year ended December 31, 2017.

Total operating expenses for the year ended December 31, 2018 was $134,177, compared to operating expenses of $124,263 the year ended December 31, 2017, an increase of $9,914 or 8%. The increase in operating expenses was primarily attributable to (1) the $6,967 gain related to the settlement of litigation related to the disputed mophie purchase price in 2017 that did not recur in 2018, (2) increases in headcount to support the additional growth of the Company, (3) additional selling, general and administrative expense associated with the newly acquired BRAVEN and Gear4 businesses, and (4) transaction costs incurred in connection with the acquisition of BRAVEN and Gear4. These increases were partially offset by (1) a decrease in depreciation expense resulting from lower carrying amounts of property and equipment during the year ended December 31, 2018, (2) a $1,959 charge in 2017 related to the impairment of a patent that did not recur in 2018, and (3) operating expense synergies realized related to the mophie integration.

We reported income from operations of $51,696 for the year ended December 31, 2018, compared to $44,735 for the year ended December 31, 2017, an increase of $6,961. The increase in income from operations was primarily attributable to increases in net sales and gross profit, partially offset by an increase in operating expenses.

We recognized an income tax provision of $10,340 for the year ended December 31, 2018, compared to $28,252 for the year ended December 31, 2017. From 2017 to 2018, our effective tax rate decreased from 65.2% to 20.9%. During the fourth quarter of 2017, the U.S. Government passed the Tax Act, which enacted significant changes to the U.S. federal tax code, including a reduction in the federal income tax rate for corporations from 35% to 21%. The lower rate was effective for the 2018 tax year. Moreover, because of the Tax Act, we recorded a one-time charge in 2017 of $12,353, substantially all of which was non-cash, to income tax expense primarily to reflect (1) the re-measurement of deferred tax assets utilizing the lower federal income tax rate and (2) the tax on mandatory deemed repatriation of foreign earnings. The reduction in the tax rate from 2017 to 2018 is significantly attributable to the factors noted above.

As a result of these factors, we reported net income of $39,189 or $1.38 per share on a fully diluted basis for the year ended December 31, 2018, compared to $15,100 or $0.53 per share on a fully diluted basis for the year ended December 31, 2017.

ComparisonLiquidity is a measurement of the Year Endedour ability to generate adequate amounts of cash to meet both our current and future obligations, including ongoing commitments to fund continuing operations and capital expenditures, repay our debt, purchase of treasury shares, and acquire businesses. As of December 31, 2018 to 2017

Cash and cash equivalents on-hand decreasedincreased to $17,801 on December 31, 2019, from $15,793 on December 31, 2018, from $24,989 on December 31, 2017, a decreasean increase of $9,196.$2,008. The decreaseincrease in cash is largely the result of $48,777 net proceeds received from the revolving credit facilities and cash generated from our ZAGG International operations. The increase is partially offset by (1) $28,351$20,364 net payment in connection with the Gear4 acquisition of HALO, (2) $12,096 paid for the purchase of treasury shares,$16,222 used in operating activities, (3) $7,243$8,702 in purchases of property and equipment, (4) $4,451 payment in connection with the BRAVEN acquisition, and (5) $2,722$887 payments for the net share settlement of restricted stock. These expenditures are partially offset by $25,858 generated from operating activitiesstock units, and $20,825 net proceeds received from(5) $722 paid for the term and revolving credit facilities.purchase of treasury shares. Of the $15,793$17,801 cash balance onas of December 31, 2019, cash from foreign entities totaled $14,914, which constitutes 84% of the total cash and cash equivalents balance. As of December 31, 2018, cash fromand cash equivalents held by our foreign entities totaled $14,271, which constitutes 90% of the total cash and cash equivalents balance.