What changed in this filing

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Item 1. Legal Proceedings

2021-08-03 compared with 2021-05-04 · 36 added, 33 removed, 854 unchanged (7% of the section changed)

87 unchanged sentences

Our primary competitors in the market for gaming keyboards and mice include Logitech and Razer.

Our primary competitors in the market for headset and related audio products include Logitech, Razer and Kingston through its HyperX brand.

Our primary competitors in the market for headset and related audio products include Logitech, Razer and HP through its HyperX brand.

Our primary competitors in the gamer and creator streaming gear market include Logitech, following its acquisition of Blue Microphones, and AVerMedia .

2 unchanged sentences

Our primary competitors in the market for PSUs, cooling solutions and computer cases include Cooler Master, NZXT, EVGA, Seasonic and Thermaltake.

Our primary competitors in the market for DRAM modules include G.Skill, Kingston through its HyperX brand and Micron through its Crucial division.

Our primary competitors in the market for DRAM modules include G.Skill, Kingston and Micron through its Crucial division.

Our primary competitors in the market for prebuilt gaming PCs and laptops include Dell through its Alienware brand, HP through its Omen brand, Asus and Razer.

178 unchanged sentences

A significant percentage of our net revenue is generated by sales of DRAM modules.

In particular, net revenue generated by sales of DRAM modules accounted for a total of 27.7% and 41.4% of our net revenue for the three months ended March 31, 2021 and 2020, respectively.

In particular, net revenue generated by sales of DRAM modules accounted for a total of 27.30% and 38.21% of our net revenue for the six months ended June 30, 2021 and 2020, respectively.

As a result, any significant decrease in average selling prices of our DRAM modules, whether as a result of declining market prices of DRAM ICs or for any other reason, would seriously harm our business.

1 unchanged sentence

Sales to a limited number of customers represent a significant portion of our net revenue, and the loss of one or more of our key customers may seriously harm our business.

For the three months ended March 31, 2021 and 2020, sales to Amazon accounted for 24.6% of our net revenue for both periods.

Sales to our ten largest customers accounted for 49.3% and 52.0% of our net revenue for the three months ended March 31, 2021 and 2020, respectively.

For the six months ended June 30, 2021 and 2020, sales to Amazon accounted for 24.6% and 26.8% of our net revenue, respectively.

Sales to our ten largest customers accounted for 50.0% and 52.4% of our net revenue for the six months ended June 30, 2021 and 2020, respectively.

Our customers typically do not enter into long-term agreements to purchase our gear but instead enter into purchase orders with us from time to time.

1 unchanged sentence

In addition, our customers are under no obligation to continue purchasing from us and may purchase similar products from our competitors, and some of our customer agreements contain “most favored nation” clauses.

Further, while we maintain accounts receivables insurance for many of our customers, we do not maintain such coverage for Amazon or for any customer in China.

As a result, if either Amazon or any customer in China were to default on its payment to us, we would not be covered by such insurance, and our business may be seriously harmed.

Further, while we maintain accounts receivables insurance for many of our customers, we do not maintain such coverage for Amazon and others.

As a result, if either Amazon or others were to default on its payment to us, we would not be covered by such insurance, and our business may be seriously harmed.

If the financial condition of a key customer weakens, if a key customer stops purchasing our gear, or if uncertainty regarding demand for our gear causes a key customer to reduce their orders and marketing of our gear, our business could be seriously harmed.

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Further, even if we detect any bugs or other glitches in the iCUE software or our Elgato streaming software suite we may be unable to update the affected software effectively to remediate these problems.

In addition, in order for us to stay competitive, we need to update the iCUE software, Elgato streaming software suit and any other software utilized by our gear, to incorporate innovations and other changes to address gamers and content creators’ changing needs.

In addition, in order for us to stay competitive, we need to update the iCUE software, Elgato streaming software suite and any other software utilized by our gear, to incorporate innovations and other changes to address gamers and content creators’ changing needs.

If we are unable to update the iCUE software or our Elgato streaming software suite to include such updates or address any bugs or glitches, its use to gamers and content creators may be substantially diminished, which could seriously harm our business.

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If we incur warranty or product redesign costs, institute recalls of gear or suffer damage to our reputation as a result of defective gear, our business could be seriously harmed.

While we operate a facility in Taiwan that assembles, tests and packages most of our DRAM modules and certain other products, we rely upon manufacturers in China to produce a significant portion of our other products, which exposes us to risks that may seriously harm our business.

We operate a facility in Taiwan that assembles, tests, packages and ultimately supplies nearly all of our DRAM modules and a significant portion of our cooling solutions and prebuilt and custom gaming systems.

While we operate a facility in Taiwan that assembles, tests and packages all of our DRAM modules and certain other products, we rely upon manufacturers in China and Southeast Asia to produce a significant portion of our other products, which exposes us to risks that may seriously harm our business.

We operate a facility in Taiwan that assembles, tests, packages and ultimately supplies all of our DRAM modules and a significant portion of our cooling solutions, prebuilt and custom gaming systems and custom gaming controllers.

We also assemble, test, package and ultimately supply our custom-built PCs in our U.S.

1 unchanged sentence

All of the other gear we sell, including the components used to assemble our DRAM modules, are produced at factories operated by third parties located in China, Taiwan and countries in Southeast Asia.

The fact that all of these facilities, manufacturers, suppliers and factories are concentrated in Taiwan and China exposes us to numerous risks.

We believe one of the most significant risks associated with this concentration in Taiwan and China is that production may be interrupted or limited because of labor shortages in southern China and by strains on the local infrastructure.

In addition, production at facilities located in China or Taiwan, including our own manufacturing, testing and packaging facility in Taiwan, and deliveries from those facilities, may be adversely affected by tensions, hostilities or trade disputes involving China, Taiwan, the United States or other countries.

The fact that all of these facilities, manufacturers, suppliers and factories are concentrated in China, Taiwan and countries in Southeast Asia exposes us to numerous risks.

We believe one of the most significant risks associated with this concentration is that production may be interrupted or limited because of labor shortages in southern China and by strains on the local infrastructure.

In addition, production at facilities located in China, Taiwan or Southeast Asia, including our own manufacturing, testing and packaging facility in Taiwan, and deliveries from those facilities, may be adversely affected by tensions, hostilities or trade disputes involving China, Taiwan, the United States or other countries.

There is considerable potential political instability in Taiwan related to its disputes with China.

In addition, political instability in countries in Southeast Asia where we source certain components, such as Thailand, could result in delays in shipments or our inability to source certain critical components for our products.

Although we do not do business in North Korea, any future increase in tensions between South Korea and North Korea, such as an outbreak or escalation of military hostilities, or between Taiwan and China could materially adversely affect our operations in Asia or the global economy, which in turn may seriously harm our business.

Other risks resulting from this concentration of our manufacturing facilities and our suppliers in Taiwan and China include the following:

Other risks resulting from this concentration of our manufacturing facilities and our suppliers in China, Taiwan and Southeast Asia include the following:

the interpretation and enforcement of China’s laws continues to evolve, which may make it more difficult for us to obtain a reliable supply of our gear at predictable costs;

12 unchanged sentences

As a result, our operating results can be significantly affected by changes in transportation costs.

In that regard, although we ship our DRAM modules, which have selling prices that are relatively high compared to their size and weight, by air, we generally use ocean freight to ship our other products because of their relatively low selling prices compared to their size and weight.

If we underestimate the demand for any of the products we ship by ocean freight, or if deliveries of those products to us by our manufacturers are delayed or interrupted, we may be required to ship those products by air in order to fill orders on a timely

size and weight.

Shipping larger or heavier items, such as cases or PSUs, by air is significantly more expensive than using ocean freight.

32 unchanged sentences

As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset U.S.

federal taxable income may be subject to limitations under Section 382, which could potentially result in increased future tax liability to us.

federal taxable income may be subject to limitations under Section 382, which could

potentially result in increased future tax liability to us.

In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

8 unchanged sentences

As a result, we may need to invest significant resources in research and development to maintain our market position, keep pace with technological changes and compete effectively.

Our product development expenses were $15.2 million and $11.6 million for the three months ended March 31, 2021 and 2020, respectively, representing 2.9% and 3.7% of our net revenue for these periods, respectively.

Our product development expenses were $30.7 million and $23.4 million for the six months ended June 30, 2021 and 2020, respectively, representing 3.1% and 3.4% of our net revenue for these periods, respectively.

Our failure to improve our gear, create new and relevant categories of gear and adapt to changing business models in a timely manner may seriously harm our business.

18 unchanged sentences

In that regard, rights to return products vary by customer and range from the right to return defective products to limited stock rotation rights allowing the exchange of a limited percentage of the customer’s inventory for new product purchases.

If the estimated market values of products held in our finished goods and work in process inventories at the end of any fiscal quarter are below our cost of these products, we will recognize charges to write down the carrying value of our inventories to market value.

If the estimated

market values of products held in our finished goods and work in process inventories at the end of any fiscal quarter are below our cost of these products, we will recognize charges to write down the carrying value of our inventories to market value.

In addition, we provide a variety of rebates to both customers and gamers, including instant rebates, volume incentive rebates, back end rebates and mail-in rebates.

2 unchanged sentences

The aggregate amount of charges incurred as a result of all of these rebates and other financial incentives is offset from our gross revenue.

For the three months ended March 31, 202 1 and 20 20 , our gross revenue was reduced approximately by between 6 .7 % and 6.1 % as a result of these rebates and other financial incentives.

For the six months ended June 30, 2021 and 2020, our gross revenue was reduced approximately by 7.3% and 6.4%, respectively, as a result of these rebates.

In the future, we also may be required to write down inventory or receivables due to product obsolescence or because of declines in market prices of our gear.

44 unchanged sentences

Indebtedness and the terms of our credit facilities may impair our ability to respond to changing business and economic conditions and may seriously harm our business.

We had $294.3 million of indebtedness as of March 31, 2021.

We had $270.0 million of indebtedness as of June 30, 2021.

We have incurred significant indebtedness under our credit facilities to fund working capital and other cash needs and we expect to incur additional indebtedness in the future, particularly if we use borrowings or other debt financing to finance all or a portion of any future acquisitions.

20 unchanged sentences

We must comply with covenants under our current credit facilities, one of which requires our Consolidated Total Net Leverage Ratio (as defined in our credit facilities) to be no greater than 8.0 to 1.0 if the revolving credit facility is more than 35% drawn.

Our Consolidated Total Net Leverage Ratio as of March 31, 2021 was 0.7 to 1.0.

While we were in compliance with this covenant as of March 31, 2021, there can be no assurance that we will not breach these covenants in our credit facilities in the future or other covenants in our future credit facilities.

Our Consolidated Total Net Leverage Ratio as of June 30, 2021 was 0.5 to 1.0.

While we were in compliance with this covenant as of June 30, 2021, there can be no assurance that we will not breach these covenants in our credit facilities in the future or other covenants in our future credit facilities.

Our credit facilities also include covenants that limit or restrict our ability to, among other things, incur liens on our properties, make acquisitions and other investments and sell assets, subject to specified exceptions.

10 unchanged sentences

We conduct our operations and sell our gear internationally and the effect of business, legal and political risks associated with international operations may seriously harm our business.

Sales to customers outside the United States accounted for 63.8% and 67.1% of our net revenue for the three months ended March 31, 2021 and 2020, respectively.

Sales to customers outside the United States accounted for 64.3% and 63.7% of our net revenue for the six months ended June 30, 2021 and 2020, respectively.

In addition, substantially all of the gear that we sell is manufactured at facilities in Asia.

46 unchanged sentences

These legislative proposals may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact strategies and availability of previously useful data.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, including the Payment Card Industry Data Security Standard (“ PCI DSS ”), a security standard applicable to companies that collect, store or transmit certain data regarding credit and debit cards, holders and transactions.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, including the Payment Card Industry Data Security Standard, or PCI DSS, a security standard applicable to companies that collect, store or transmit certain data regarding credit and debit cards, holders and transactions.

Any data security incidents, such as those described above, and/or other issues involving payment card information, can constitute a failure to comply with PCI DSS, which may therefore violate payment card association operating rules and the terms of our contracts with payment networks, processors and merchant banks.

66 unchanged sentences

We are required to test goodwill, intangible assets and other long-lived assets for recoverability and may be required to record charges if there are indicators of impairment, and we have in the past recognized impairment charges.

As of March 31, 2021, we had approximately $314.1 million of goodwill, $252.2 million of intangible assets and $15.3 million of other long-lived assets.

As of June 30, 2021, we had approximately $314.2 million of goodwill, $243.7 million of intangible assets and $73.9 million of other long-lived assets.

One of our strategies is to grow through acquisitions of other businesses or technologies and, if we are successful in doing so, these acquisitions may result in goodwill and other long-lived assets.

49 unchanged sentences

In addition, typhoons and other severe weather systems frequently affect Taiwan.

Most of the third-party facilities where our gear and some of the components used in our gear is manufactured are located in China, Taiwan and other areas that are known for seismic activity and other natural disasters.

Most of the third-party facilities where our gear and some of the components used in our gear is manufactured are located in China, Taiwan, Southeast Asia and other areas that are known for seismic activity and other natural disasters.

Earthquakes in any of the foregoing areas may also result in tsunamis.

29 unchanged sentences

We are controlled by EagleTree, whose interests in our business may be different than yours.

As of March 31, 2021, EagleTree beneficially owned approximately 67% of our common stock and is able to control our affairs in all cases.

As of June 30, 2021, EagleTree beneficially owned approximately 57.8% of our common stock and is able to control our affairs in all cases.

Further, pursuant to the terms of an Investor Rights Agreement between us and EagleTree, EagleTree has the right, among other things, to designate the chairman of our board of directors, as well as the right to nominate up to five out of eight directors to our board of directors as long as affiliates of EagleTree beneficially own at least 50% of our common stock, four directors as long as affiliates of EagleTree beneficially own at least 40% and less than 50% of our common stock, three directors as long as affiliates of EagleTree beneficially own at least 30% and less than 40% of our common stock, two directors as long as affiliates of EagleTree beneficially own at least 20% and less than 30% of our common stock and one director as long as affiliates of EagleTree beneficially own at least 10% and less than 20% of our common stock.

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An active, liquid and orderly market for our common stock may not be maintained.

Prior to our initial public offering, there had been no public market for shares of our common stock.

Our stock only recently began trading on Nasdaq, but we can provide no assurance that we will be able to maintain an active trading market on Nasdaq or any other exchange in the future.

If an active market for our common stock does not develop or is not maintained, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all.

If an active market for our common stock is not maintained, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all.

An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications, or technologies using our shares as consideration.

1 unchanged sentence

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public, the trading price of our common stock could decline.

Based upon the number of shares outstanding as of March 31, 2021, we had outstanding a total of 92.1 million shares of common stock.

Based upon the number of shares outstanding as of June 30, 2021, we had outstanding a total of 93.8 million shares of common stock.

Of these shares, all of the shares of our common stock sold in the initial public offering and in the secondary in January 2021, are freely tradable, without restriction, in the public market.

As of March 31, 2021 , the holders of approximately 61.9 million shares of our common stock, or approximately 67.2 % of our total outstanding common stock based upon the number of shares outstanding as of March 31, 2021 , will be entitled to rights with respect to the registration of their shares under the Securities Act.

As of June 30, 2021 , the holders of approximately 54.2 million shares of our common stock, or approximately 57.8 % of our total outstanding common stock based upon the number of shares outstanding as of June 30, 2021 , will be entitled to rights with respect to the registration of their shares under the Securities Act.

Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates.

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For instance, a director of our company who also serves as a director, officer or employee of EagleTree, or any of its respective portfolio companies, funds or other affiliates may pursue certain acquisitions or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities may not be available to us.

As of March 31, 2021, this provision of our amended and restated certificate of incorporation relates only to the EagleTree director designees.

As of June 30, 2021, this provision of our amended and restated certificate of incorporation relates only to the EagleTree director designees.

These potential conflicts of interest could seriously harm our business if attractive corporate opportunities are allocated by EagleTree to itself or its respective portfolio companies, funds or other affiliates instead of to us.

63 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings