ZAGG INC 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 theSEC . Our BusinessZAGG 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. 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, protective cases, power management, wireless charging, audio, mobile keyboards, and other mobile accessories sold under the ZAGG®, InvisibleShield®, mophie®, IFROGZ®, Gear4®, and HALO® brands. We maintain our corporate headquarters at910 West Legacy Center Way , Suite 500,Midvale, Utah , 84047. Our telephone number is 801-263-0699, and our website address is www.ZAGG.com (the URL is included here as an inactive textual reference, and information contained on, or accessible through, our website is not a part of, and is not incorporated by reference into, this report). We have established four Corporate Objectives and four Core Values to act as a foundation for our corporate culture: [[Image Removed: zagg-20200930_g1.jpg]]
18
--------------------------------------------------------------------------------
Table of Contents
Corporate Objectives Core Values
The Preferred Brand Integrity
Creative Product Solutions Passion
Targeted Global Distribution Care for People
Operational Excellence Performance
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 team goals and
execution. Every one of our employees is trained to understand his or her role
in executing these objectives. Each Core Value and Cultural Belief acts as a key
component in working toward our Corporate Objectives of providing Creative
Product Solutions, executing Targeted Global Distribution, achieving Operational
Excellence, and being 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)
•Productivity and Other (keyboards and other mobile accessory products)
•Audio (earbuds and headphones)
These four general product categories are broken down by brand as follows:
InvisibleShield Products
InvisibleShield products, including InvisibleShield Film, InvisibleShield Glass,
and 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 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. Beside
these basic protection functions from impacts and scratches, we also provide the
InvisibleShield Glass VisionGuard products feature EyeSafe® technology that
filters out portions of the high-energy visible blue light spectrum emanating
from device screens, while maintaining the superior color performance of the
device display.
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.
19
--------------------------------------------------------------------------------
Table of Contents
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 theU.K. , Gear4 grew to be one of the top sellingU.K. smartphone case brands 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 state, D3O materials can flow freely when manipulated slowly, but upon shock, the material locks together to absorb and disperse energy before instantly returning to their flexible state. With D3O technology and our expansive global distribution channels, we believe Gear4 cases 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 mobile power and wireless charging brand with award-winning products designed to liberate mobile users from mobile device power and charging limitations to provide more time to rock, talk, watch, game, surf, save, and send. 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 power for virtually any mobile device. With groundbreaking 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, and its charge stream powerstation® products 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 response to the COVID-19 pandemic, we implemented plans to simplify our business and focus on profitable growth (the "Strategic Review"). As part of the Strategic Review, we determined to discontinue participation in the fitted battery case category and to reduce our mobile power offerings under our power station product line. We continue to innovate and expand our mobile power and 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. 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. 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. In connection with the Strategic Review, we determined to reduce our IFROGZ audio offerings to focus on the HSN channel. 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, ourZAGG products 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 rightZAGG mobile accessories, we believe no one ever needs to feel tethered or held back. In connection with the Strategic Review, we determined to reduce ourZAGG keyboard offerings to focus only on active tablets released by Apple.
20
--------------------------------------------------------------------------------
Table of Contents
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 2019 Form 10-K. There have been no material changes to the critical accounting policies or estimates previously disclosed in that report. Results of Operations (Amounts in thousands, except per share data) Three months endedSeptember 30, 2020 , and 2019 For the Three Months Ended September 30, 2020 September 30, 2019 Amount % of Net Sales Amount % of Net Sales Net sales$ 115,456 100.0 %$ 146,488 100.0 % Gross profit 38,433 33.3 54,345 37.1 Operating expenses 30,496 26.4 42,687 29.1 Other expense, net (18) - (1,683) (1.1) Income tax provision (1,700) (1.5) (1,293) (0.9) Net income 6,219 5.4 8,682 5.9 Net sales Net sales for the three months endedSeptember 30, 2020 , were$115,456 , compared to net sales of$146,488 for the three months endedSeptember 30, 2019 , a decrease of$31,032 or 21%. The$31,032 decrease in net sales was primarily attributable to retail store closures and related demand reductions due to the global COVID-19 pandemic and the delay of the 2020 launch of Apple's newest iPhones into the early fourth quarter of 2020. Gross profit Gross profit for the three months endedSeptember 30, 2020 , was$38,433 or approximately 33% of net sales, compared to$54,345 or approximately 37% of net sales for the three months endedSeptember 30, 2019 . The decrease in gross profit margin percentage was primarily attributable to (1) increased freight rates and expedited freight charges as we chased demand at the end of the third quarter, and (2) the sale of excess inventory at margins lower than our historical average. The decrease was partially offset by (1) lower duty rates from the extensions of the screen protection and wireless charging exemptions to the end of 2020, and (2) the recognition of expected duty refunds partially offset by the reduction in capitalized duties which were expensed as inventory was sold during the quarter. Operating expenses Total operating expenses for the three months endedSeptember 30, 2020 , were$30,496 , compared to operating expenses of$42,687 for the three months endedSeptember 30, 2019 , a decrease of$12,191 or 29%. The$12,191 decrease in operating expenses was primarily attributable to cost reduction initiatives in response to COVID-19, including (1) a decrease in salaries and related expenses from the furlough of certain employees, (2) reduced in-channel marketing spend, and (3) the elimination of global discretionary spend. Other expense, net For the three months endedSeptember 30, 2020 , total other expense, net was$18 compared to total other expense, net of$1,683 for the three months endedSeptember 30, 2019 . The change in other expense, net is primarily attributable to an increase of gains on foreign exchange transactions.
21
--------------------------------------------------------------------------------
Table of Contents
Income tax provision We recognized an income tax provision of$1,700 for the three months endedSeptember 30, 2020 , compared to an income tax provision of$1,293 for the three months endedSeptember 30, 2019 . Our effective tax rate was 21% and 13% for the three months endedSeptember 30, 2020 , and 2019, respectively. Any change in the effective tax rate for the three months endedSeptember 30, 2020 , compared to the three months endedSeptember 30, 2019 , 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 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 effective tax rate for the period. Due to the expected loss before taxes for the year endedDecember 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 theU.S. Federal statutory rate of 21%, due to state taxes, permanent items, the Company's global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit. Net income We reported net income of$6,219 or$0.21 per share on a fully diluted basis for the three months endedSeptember 30, 2020 , compared to net income of$8,682 or$0.30 per share on a fully diluted basis for the three months endedSeptember 30, 2019 . Nine months endedSeptember 30, 2020 , and 2019 For the Nine Months Ended September 30, 2020 September 30, 2019 Amount % of Net Sales Amount % of Net Sales Net sales$ 283,554 100.0 %$ 332,034 100.0 % Gross profit 42,803 15.1 115,926 34.9 Operating expenses 123,306 43.5 127,547 38.4 Other expense, net (2,289) (0.8) (3,120) (0.9) Income tax benefit 10,123 3.6 3,663 1.1 Net loss (72,669) (25.6) (11,078) (3.3) Net sales Net sales for the nine months endedSeptember 30, 2020 , were$283,554 , compared to net sales of$332,034 for the nine months endedSeptember 30, 2019 , a decrease of$48,480 or 15%. The$48,480 decrease in net sales was primarily attributable to retail store closures and related demand reductions due to the global COVID-19 pandemic and the delay of the 2020 launch of Apple's newest iPhones into the early fourth quarter of 2020. Gross profit Gross profit for the nine months endedSeptember 30, 2020 , was$42,803 or approximately 15% of net sales, compared to$115,926 or approximately 35% of net sales for the nine months endedSeptember 30, 2019 . The decrease in gross profit margin percentage was primarily attributable to (1) theMarch 2020 inventory write-downs of$44,833 primarily linked to the discontinuation of certain brands and product lines resulting from our Strategic Review, combined with decreased demand due to the effects of COVID-19, (2) increased freight rates and expedited freight charges, and (3) the sale of excess inventory at margins lower than our historical average. Excluding the impact from the inventory write-downs, the adjusted gross profit margin was 31% for the nine months endedSeptember 30, 2020 , compared to 35% for the nine months endedSeptember 30, 2019 . Operating expenses Total operating expenses for the nine months endedSeptember 30, 2020 , were$123,306 , compared to operating expenses of$127,547 for the nine months endedSeptember 30, 2019 , a decrease of$4,241 or 3%. The$4,241 decrease in operating expenses was primarily attributable to cost reduction initiatives in response to COVID-19, including (1) a decrease in salaries and 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) reduced in-channel marketing spend, and (3) the elimination of global discretionary spend. The decrease was partially offset by (1) 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 product lines, (3) a$1,148 write-off recorded for the intangible assets resulting from discontinued brands and product lines, and (4)$786 incurred in connection with the lay-off of certain employees in 2020.
22
--------------------------------------------------------------------------------
Table of Contents
Other expense, net For the nine months endedSeptember 30, 2020 , total other expense, net was$2,289 compared to total other expense, net of$3,120 for the nine months endedSeptember 30, 2019 . The decrease in total other expense, net is primarily attributable to an increase of gains on foreign exchange transactions. Income tax provision We recognized an income tax benefit of$10,123 for the nine months endedSeptember 30, 2020 , compared to an income tax benefit of$3,663 for the nine months endedSeptember 30, 2019 . Our effective tax rate was 12% and 25% for the nine months endedSeptember 30, 2020 , and 2019, respectively. The change in the effective tax rate for the nine months endedSeptember 30, 2020 , compared to the nine months endedSeptember 30, 2019 , 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 for the period. Due to the expected loss before taxes for the year endedDecember 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 theU.S. Federal statutory rate of 21%, due to state taxes, permanent items, the Company's global tax strategy, and the inclusion of global intangible low taxed income and the corresponding foreign tax credit. Net loss We reported net loss of$72,669 or$2.44 per share on a fully diluted basis for the nine months endedSeptember 30, 2020 , compared to a net loss of$11,078 or$0.38 per share on a fully diluted basis for the nine months endedSeptember 30, 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 ofSeptember 30, 2020 , our principal sources of liquidity were cash generated by operations and proceeds received from the PPP Loan (as defined below). Our principal uses of cash were primarily for repayment of the 2018 Revolver (as defined below), contingent liability payments in connection with the acquisition of HALO, and working capital needs. As ofDecember 31, 2019 , our principal sources of liquidity was net borrowings from the 2018 Revolver. Our principal uses of cash were for operating activities, purchase of property and equipment, payments for the net share settlement of restricted stock units, purchase of treasury shares, and business acquisitions. Cash and Cash Equivalents Cash and cash equivalents on-hand decreased to$16,115 onSeptember 30, 2020 , from$17,801 onDecember 31, 2019 , a decrease of$1,686 . The decrease in cash is largely the result of$19,485 net payments against the 2018 Revolver, partially offset by$17,875 provided by operating activities and$9,444 of proceeds received from the PPP Loan to cover employee payroll costs, rent, and utilities during the initial severe impact period of the COVID-19 pandemic. Cash Flows For the Nine Months Ended September 30, 2020 2019 Net cash flow provided by (used in): Operating activities$ 17,875 $ (24,803) Investing activities (5,495) (27,364) Financing activities (14,297) 51,451
Effect of foreign currency exchange rates on cash and cash equivalents
231 (408)
Net decrease in cash and cash equivalents $ (1,686) $ (1,124)
23--------------------------------------------------------------------------------
Table of Contents
Operating Activities Net cash provided from operating activities was$17,875 for the nine months endedSeptember 30, 2020 , compared to$24,803 of net cash used in operating activities for the nine months endedSeptember 30, 2019 , a net change of$42,678 . The change was primarily due to (1) a decrease in use of cash for inventory for the nine months endedSeptember 30, 2020 , compared to the nine months endedSeptember 30, 2019 , and (2) higher collections on accounts receivable resulting in a lower balance of receivables for the nine months endedSeptember 30, 2020 , compared to the nine months endedSeptember 30, 2019 . These increases were partially offset by an increase in cash used to pay our vendors. Investing Activities Net cash used in investing activities was$5,495 for the nine months endedSeptember 30, 2020 , compared to$27,364 of net cash used in investing activities for the nine months endedSeptember 30, 2019 , a net change of$21,869 . The change was primarily due to$20,364 of cash used in the acquisition of HALO in 2019 and decreased spending in purchases of property and equipment for the nine months endedSeptember 30, 2020 . Financing Activities Net cash used in financing activities was$14,297 for the nine months endedSeptember 30, 2020 , compared to$51,451 of net cash provided by financing activities for the nine months endedSeptember 30, 2019 , a net change of$65,748 . The change was primarily due to a higher ratio of net payments made on the 2018 Revolver relative to net proceeds received from that revolving credit facility for the nine months endedSeptember 30, 2020 , compared to a higher ratio of net proceeds received from the 2018 Revolver relative to net payments made on that revolving credit facility for the nine months endedSeptember 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. As ofSeptember 30, 2020 , working capital was$102,931 compared to$151,660 as ofDecember 31, 2019 , a decrease of$48,729 . The decrease in the working capital position was primarily attributable to changes in accounts receivable, inventories, including a$44,833 write-down of inventory during the nine months endedSeptember 30, 2020 , accounts payable and sales returns liability. Accounts receivable, net of allowances, decreased to$91,196 onSeptember 30, 2020 , from$142,804 onDecember 31, 2019 , a decrease of$51,608 . The net decrease was primarily attributable to the collection of accounts receivable since year-end combined with lower sales during the third quarter of 2020 in comparison to the fourth quarter of 2019. Inventories decreased to$80,024 onSeptember 30, 2020 , from$144,944 onDecember 31, 2019 , a decrease of$64,920 . 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, and an increased focus on driving operational efficiency in inventory management. Accounts payable decreased to$60,142 onSeptember 30, 2020 , from$87,303 onDecember 31, 2019 , a decrease of$27,161 . The net decrease was primarily attributable to lower seasonal inventory purchases and operating activities in the nine months endedSeptember 30, 2020 , in comparison to the fourth quarter of 2019, and payment on accounts payable outstanding onDecember 31, 2019 , during the nine months endedSeptember 30, 2020 . In addition, in response to COVID-19 pandemic, we implemented several initiatives to control operating costs which has decreased the accounts payable balance as ofSeptember 30, 2020 . Share Repurchase Program During the third quarter of 2015, our board of directors approved a stock repurchase program with no expiration date. OnMarch 11, 2019 , our board of directors authorized the cancellation of the 2015 stock repurchase program, and authorized a new stock repurchase program that grants us the right to repurchase up to$20,000 of our outstanding common stock. As ofSeptember 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 ofSeptember 30, 2020 , we had$87,655 of the 2018 Revolver outstanding, with a weighted average interest rate of 2.8%. There were no letters of credit issued as ofSeptember 30, 2020 , and$57,145 was available to be issued for letters of credit. In addition, we entered into a loan agreement withKeyBank National Association ("KeyBank") under the Paycheck Protection Program of the CARES Act administered by theU.S. Small Business Administration (the "SBA"), and subsequently received a loan in the amount of$9,444 (the "PPP Loan").
24
--------------------------------------------------------------------------------
Table of Contents
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 a number of global cash savings and cost-cutting initiatives including the following: •Implemented furloughs or lay-offs of approximately 20% ofU.S. employees and reduced ourEurope andAsia Pacific staff, excludingChina , by approximately 20%. Employees on furlough have retained 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% in 2020 and replaced such compensation with stock-based compensation; •Temporarily suspended our employee bonus program for the three months endedJune 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 fitted 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 throughMarch 31, 2021 . In addition, we obtained the PPP Loan to help cover our employee payroll costs, rent, and utilities during the initial severe impact period of the COVID-19 pandemic. Under the Paycheck Protection Program, the 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 untilAugust 2021 (interest will accrue over this deferral period). Unless the PPP Loan is fully or partially forgiven, the Company must pay$398 of the principal and interest every month once the deferral period is over and pay a balloon payment of$6,441 on the maturity date inApril 2022 , which is two years from the Disbursement Date. 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 will be adequate to meet our expected capital expenditures and working capital needs for the next 12 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.
25
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
