What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-06 · 94 added, 77 removed, 135 unchanged (56% of the section changed)

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Forward-looking statements are based on the beliefs, as well as assumptions made by, and information currently available to, the Company's management and are made only as of the date hereof.

The Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

The Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws.

In addition, forward-looking statements are subject to certain risks and uncertainties, including those described elsewhere in this Quarterly Report on Form 10-Q (including the effects related to the coronavirus ( “ COVID-19 ” ) pandemic) that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections.

Business Overview

Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in San Diego, California and incorporated in the state of Nevada in 2010, is a premier audio and gaming technology company with expertise and experience in developing, commercializing and marketing innovative products across a range of large addressable markets under the Turtle Beach® and ROCCAT® brands.

Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in White Plains, New York and incorporated in the state of Nevada in 2010, is a premier audio and gaming technology company with expertise and experience in developing, commercializing and marketing innovative products across a range of large addressable markets under the Turtle Beach® and ROCCAT® brands.

Turtle Beach is a worldwide leader of feature-rich headset solutions for use across multiple platforms, including video game and entertainment consoles, handheld consoles, personal computers (“PC”), tablets and mobile devices.

ROCCAT is a gaming keyboards, mice and other accessories brand focused in the PC peripherals market.

ROCCAT is a gaming keyboards, mice and other accessories brand focused on the PC peripherals market.

Business Trends

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The global gaming audience now exceeds global cinema and music markets with over 2.5 billion active gamers worldwide.

Gaming peripherals, such as headsets, are likely to grow from a $4.1 billion to a $4.3 billion business globally with over 65% of that market in the Americas and Europe where the Company’s business is focused.

Gaming peripherals, such as headsets, are expected to grow to a $5.1 billion business globally with over 75% of that market in the Americas and Europe, where the Company’s business is focused.

Gaming headsets represent more than a $3.2 billion global market, or more than 60% of the total gaming peripherals market.

Competitive esports is a global phenomenon where professional gamers train and compete to win prize money, partner with major

brands, and attract/gain dedicated fans – similar to traditional professional sports.

There were approximately 443 million esports viewers in

2019, and that is expected to surge to roughly 495 million viewers in 2020 (11.7% YOY), according to a report from Newzoo.

million projected viewers, 272 million will identify as “occasional viewers” and 223 million will consider themselves “esports enthusiasts.”

Competitive esports is a global phenomenon where professional gamers train and compete to win prize money, partner with major brands, and attract/gain dedicated fans – similar to traditional professional sports.

There were approximately 443 million esports viewers in 2019, and that is expected to surge to roughly 495 million viewers in 2020 (11.7% YOY), according to a report from Newzoo.

Of those 495 million projected viewers, 272 million will identify as “occasional viewers” and 223 million will consider themselves “esports enthusiasts.”

Many gamers play online, where a gaming headset (which typically includes a microphone and allows players to communicate in real-time) provides a more immersive experience in the industry’s most popular games and franchises.

Xbox and PlayStation® consoles are still the dominant gaming platforms in North America and Europe;

however, Nintendo’s Switch™

console continues to perform well three years into its lifecycle.

however, Nintendo’s Switch™ console continues to perform well three years into its lifecycle.

In addition to consoles, personal computers are a popular gaming platform where players utilize a similar style headset.

Gaming on mobile/tablet devices represents about a third of the global gaming market, and while

headsets can be used for mobile gaming, console and PC gaming are by far the largest drivers of gaming headset use.

Historically, Microsoft and Sony have gone through cycles where their respective consoles changed significantly or updated to

a new version.

When Microsoft and Sony launched Pro versions of their existing consoles in 2016 and 2017, respectively, that did not

result in the same levels of disruption as previous cycles in the gaming headset business.

Turtle Beach believes this is a good indication that

any potential future console transitions will not be as disruptive.

In 2019, Microsoft and Sony confirmed plans to release their next generation

consoles, Xbox Series X and PlayStation®5, respectively, in late 2020.

Gaming on mobile/tablet devices represents about a third of the global gaming market, and while headsets can be used for mobile gaming, console and PC gaming are by far the largest drivers of gaming headset use.

Historically, Microsoft and Sony have gone through cycles where their respective consoles changed significantly or were updated to a new version.

When Microsoft and Sony launched Pro versions of their existing consoles in 2016 and 2017, respectively, that did not result in the same levels of disruption as previous cycles in the gaming headset business.

Turtle Beach believes this is a good indication that any potential future console transitions will not be as disruptive.

In 2019, Microsoft and Sony confirmed plans to release their next generation consoles, Xbox Series X and PlayStation®5, respectively, in late 2020.

Further, industry guidance suggests that with the launch of the new systems, and continued sales of the current consoles, combined console hardware sales will drive market growth in 2021 and 2022.

In 2019, the Nintendo Switch™ completed its second full year in the market with more than 52 million units sold through the end of

December 2019, during which there has been an expanding library of games and an increased number of multiplayer chat-enabled games.

addition, Nintendo launched a follow-on product, the Nintendo Switch™ Lite, which is the handheld-only version of their popular gaming console.

In addition to console sales, we believe the Xbox, PlayStation ® , Nintendo, and PC gaming markets are driven by major game launches

and franchises that encourage players to buy equipment and accessories.

On Xbox and PlayStation ® , flagship games like Call of Duty ® ,

Destiny, Star Wars:

Battlefront, Battlefield, Grand Theft Auto , and battle royale games like Fortnite, Apex Legends and PlayerUnkn own’s

Battlegrounds , are examples of major franchises that prominently feature online multiplayer modes which encourage communication and tend

to drive increased gaming headset sales.

Many of these established franchises launch new titles annually leading into the holidays and as a

result, the gaming headset business tends to be highly seasonal, often with approximately 36% - 43% of retail sell through occurring primarily in the fourth quarter.

In 2019, the Nintendo Switch™ completed its second full year in the market with more than 52 million units sold through the end of December 2019, during which there has been an expanding library of games and an increased number of multiplayer chat-enabled games.

In addition, Nintendo launched a follow-on product, the Nintendo Switch™ Lite, which is the handheld-only version of their popular gaming console.

In addition to console sales, we believe the Xbox, PlayStation ® , Nintendo, and PC gaming markets are driven by major game launches and franchises that encourage players to buy equipment and accessories.

On Xbox and PlayStation ® , flagship games like Call of Duty ® , Destiny, Star Wars:

Battlefront, Battlefield, Grand Theft Auto , and battle royale games like Fortnite, Apex Legends and PlayerUnknown’s Battlegrounds , are examples of major franchises that prominently feature online multiplayer modes which encourage communication and tend to drive increased gaming headset sales.

Many of these established franchises launch new titles annually leading into the holidays and as a result, more than 45% of headset business revenues are generated during the period from September through December.

PC Accessories Market

PC gaming in the U.S.

has seen a resurgence in popularity the past few years as it continues to be a main gaming platform

internationally, driven by big AAA game launches, PC-specific esports leagues, teams and players, content creators and influencers, cross-platform play, and more.

has seen a resurgence in popularity the past few years as it continues to be a main gaming platform internationally, driven by big AAA game launches, PC-specific esports leagues, teams and players, content creators and influencers, cross-platform play, and more.

While most games are available on multiple platforms, gaming on PC offers advantages that included improved graphics, increased speed and precision of mouse/keyboard controls, and more.

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The effects of the global pandemic and the measures being taken in response are uncertain and difficult to predict.

As a result of government mandated stay-at-home orders, the Company’s March through June 2020 revenues have exceeded historical levels as the overall gaming and headset markets have experienced an unprecedented surge in demand.

As a result of government mandated stay-at-home orders, the Company’s March through September 2020 revenues have exceeded historical levels as the overall gaming and headset markets have experienced an unprecedented surge in demand.

However, the risk of a global economic recession may adversely impact the long-term demand and/or pricing for our products, constrain retail sales of our products, constrain supply of our products, or delay the launch or supply at launch of the next generation Xbox and PlayStation consoles.

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Cash Margin is defined as gross margin excluding depreciation and amortization, and stock-based compensation.

Adjusted EBITDA (and a reconciliation to Net income, the nearest GAAP financial measure) for the three and six months ended June 30, 2020 and 2019 , are as follows:

Adjusted EBITDA (and a reconciliation to Net income, the nearest GAAP financial measure) for the three and nine months ended September 30, 2020 and 2019 , are as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Adjusted EBITDA

Comparison of the Three Months Ended June 30, 2020 to the Three Months Ended June 30, 2019

Net income for the three months ended June 30, 2020 was $8.2 million with Adjusted EBITDA of $12.9 million, compared to net loss of $2.4 million with Adjusted EBITDA of $1.6 million for the prior year, due to higher revenue as consumer demand for gaming accessories increased as a result of state and local stay-at-home orders related to COVID-19.

Comparison of the Six Months Ended June 30, 2020 to the Six Months Ended June 30, 2019

Net income for the six months ended June 30, 2020 was $4.6 million with an adjusted EBITDA of $10.2 million compared to net income of $0.7 million with adjusted EBITDA of $5.9 million in the prior year period, due to higher revenue as consumer demand for gaming accessories increased as a result of state and local stay-at-home orders related to COVID-19.

Comparison of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019

Net income for the three months ended September 30, 2020 was $17.8 million with Adjusted EBITDA of $27.6 million, compared to net loss of $3.1 million with Adjusted EBITDA of $0.3 million for the prior year, due to higher revenue and favorable business mix as consumer demand for gaming accessories increased as a result of state and local stay-at-home orders related to COVID-19.

Comparison of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019

Net income for the nine months ended September 30, 2020 was $22.4 million with an adjusted EBITDA of $37.8 million compared to net loss of $2.4 million with adjusted EBITDA of $6.2 million in the prior year period, due to higher revenue and favorable business mix as consumer demand for gaming accessories increased as a result of state and local stay-at-home orders related to COVID-19.

Results of Operations

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Nine Months Ended

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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(1) Excludes depreciation and amortization, and stock-based compensation

Comparison of the Three Months Ended June 30, 2020 to the Three Months Ended June 30, 2019

Net revenue for the three months ended June 30, 2020 was $79.7 million, a $38.4 million increase from $41.3 million in the comparable prior year period.

The overall gaming accessories market continued to accelerate across our major geographic channels due to the pandemic-related stay-at-home orders, which resulted in increased revenue.

For the three months ended June 30, 2020, gross profit as a percentage of net revenue increased to 36.7% from 31.9% in the comparable prior year period.

Margins were positively impacted by favorable business mix, increased volume-based fixed costs leveraging and lower promotional activity, partially offset by air freight usage necessary to replenish channel supply.

Comparison of the Six Months Ended June 30, 2020 to the Six Months Ended June 30, 2019

Net revenue for the six months ended June 30, 2020 was $114.7 million, a $28.5 million increase from $86.2 million in the comparable prior year period.

Comparison of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019

Net revenue for the three months ended September 30, 2020 was $112.5 million, a $65.8 million increase from $46.7 million in the comparable prior year period due to increased demand from a continued surge in gaming activity resulting from stay-at-home orders and, the success of the Recon 70 series wired headsets, plus our newly revealed Gen 2 Stealth 600 and Stealth 700 headsets.

For the three months ended September 30, 2020, gross profit as a percentage of net revenue increased to 41.0% from 32.2% in the comparable prior year period.

Margins were positively impacted by volume-driven fixed cost leverage, lower than normal promotional activity given surging demand and favorable business mix, partially offset by higher freight costs to replenish channel supply and facilitate new product introductions.

Comparison of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019

Net revenue for the nine months ended September 30, 2020 was $227.2 million, a $94.3 million increase from $132.9 million in the comparable prior year period.

This is due to a surge in gaming activity, including an influx of new gamers, returning gamers and non-gaming headset use, ignited by state and local stay-at-home orders in place for a significant part of 2020.

For the six months ended June 30, 2020, gross profit as a percentage of net revenue increased to 34.9% from 32.4% in the comparable prior year period.

Margins were positively impacted by favorable business mix and increased volume-based fixed costs leveraging, partially offset by higher air freight and tariffs charges.

For the nine months ended September 30, 2020, gross profit as a percentage of net revenue increased to 37.9% from 32.4% in the comparable prior year period.

Margins were positively impacted by favorable business mix, volume-driven fixed costs leverage and lower promotional activity, partially offset by certain air freight to enable retail supply and higher tariffs costs.

Operating Expenses

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Selling and Marketing

Selling and marketing expenses for the three and six months ended June 30, 2020 totaled $9.6 million and $17.2 million, respectively, compared to $7.6 million and $14.4 million for the three and six months ended June 30, 2019.

This increase was primarily due to the inclusion of acquired ROCCAT-related headcount, and volume-based direct sales related fees and commissions, partially offset by decreases in retail marketing initiatives and advertising display depreciation.

Selling and marketing expenses for the three months ended September 30, 2020 totaled $11.9 million compared to $10.2 million for the three months ended September 30, 2019.

This increase was primarily due to volume-based direct sales related fees and commissions, partially offset by lower marketing event spend.

Selling and marketing expenses for the nine months ended September 30, 2020 totaled $29.1 million compared to $24.6 million for the nine months ended September 30, 2019.

This increase was primarily due to the inclusion of acquired ROCCAT-related headcount, volume-based direct sales related fees and commissions, and increased media spend, partially offset by decreases in marketing event spend, retail marketing initiatives and advertising display depreciation.

Research and Development

Research and development costs for the three and six months ended June 30, 2020 were $3.0 million and $5.4 million, respectively, compared to $1.7 million and $3.2 million for the three and six months ended June 30, 2019, respectively.

Research and development costs for the three and nine months ended September 30, 2020 were $3.3 million and $8.7 million, respectively, compared to $2.2 million and $5.4 million for the three and nine months ended September 30, 2019, respectively.

The year-over-year increases were primarily due to the expansion of PC accessories development and patent transition expenses.

General and Administrative

General and administrative expenses for the three months ended June 30, 2020 totaled $6.7 million compared to $6.2 million for the three months ended June 30, 2019.

Excluding the acquisition integration costs of $1.6 million in the prior year, the year-over-year increase was primarily due to the inclusion of acquired ROCCAT-related expenses, higher variable compensation costs, and increased professional and legal costs, partially offset by lower business transaction costs.

General and administrative expenses for the six months ended June 30, 2020 totaled $12.4 million compared to $10.8 million for the six months ended June 30, 2019.

Excluding the acquisition integration costs of $2.3 million in the prior year, the year-over-year increase was primarily due to the inclusion of acquired ROCCAT-related expenses, higher variable compensation costs and increased professional and legal services.

General and administrative expenses for the three months ended September 30, 2020 totaled $6.8 million compared to $5.2 million for the three months ended September 30, 2019.

Excluding the acquisition integration costs of $0.6 million in the prior year, the year-over-year increase was primarily due to certain legal settlements and higher variable compensation costs.

General and administrative expenses for the nine months ended September 30, 2020 totaled $19.2 million compared to $16.1 million for the nine months ended September 30, 2019.

Excluding the acquisition integration costs of $3.0 million in the prior year, the year-over-year increase was primarily due to the inclusion of acquired ROCCAT-related expenses, certain legal settlements, higher variable compensation costs and, increased professional and legal services.

Other Non-Operating Expense (Income)

Other non-operating income totaled $1.4 million for the six months ended June 30, 2020, which included a $1.7 million acquisition-related settlement gain partially offset by a $0.3 million in contingent consideration revaluation, compared to other non-operating income of $1.7 million for the six months ended June 30, 2019 that included a $1.6 million unrealized gain related to the change in fair value of a financial instrument obligation.

Income tax benefit for the three and six months ended June 30, 2020 was $3.3 million at an effective rate of 28.6% and $1.5 million at an effective tax rate of 23.9%, respectively.

Income tax expense for the three and six months ended June 30, 2019 was $25 thousand at an effective tax rate of (1.1%) and $0.2 million at an effective tax rate of 21.7%, respectively.

The effective tax rate for the three and six months ended June 30, 2020 was primarily impacted by permanent items including global intangible low income taxed income and executive compensation, and certain state tax expense.

Other non-operating income totaled $1.5 million for the nine months ended September 30, 2020, which included a $1.7 million acquisition-related settlement gain partially offset by a $0.5 million in contingent consideration revaluation, compared to other non-operating income of $1.4 million for the nine months ended September 30, 2019, which included a $1.6 million unrealized gain related to the change in fair value of a financial instrument obligation.

Income tax expense for the three and nine months ended September 30, 2020 was $6.4 million at an effective rate of 26.5% and $7.9 million at an effective tax rate of 26.0%, respectively.

Income tax expense for the three and nine months ended September 30, 2019 was $0.1 million at an effective tax rate of (2.1%) and $0.3 million at an effective tax rate of (11.5%), respectively.

The effective tax rate for the three and nine months ended September 30, 2020 was primarily impacted by permanent items including global intangible low income taxed income and executive compensation, and certain state tax expense.

Liquidity and Capital Resources

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The following table summarizes our sources and uses of cash:

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Operating activities

Cash provided by operating activities for the six months ended June 30, 2020 was $31.8 million, a decrease of $6.3 million as compared to $38.2 million for the six months ended June 30, 2019.

The decrease is primarily the result of the inclusion of ROCCAT-related expenses and higher air freight costs in order to replenish channel supply, partially offset by higher gross receipts.

Cash provided by operating activities for the nine months ended September 30, 2020 was $32.6 million, an increase of $5.3 million as compared to $27.3 million for the nine months ended September 30, 2019.

The increase is primarily the result of higher gross receipts, partially offset by increased product purchases, and related air freight costs, to align inventory levels with elevated consumer demand.

Investing activities

Cash used for investing activities was $2.3 million for the six months ended June 30, 2020 related to certain capital investments compared to $13.7 million for the six months ended June 30, 2019, which included the $12.7 million ROCCAT acquisition.

Cash used for investing activities was $3.9 million for the nine months ended September 30, 2020 related to certain capital investments compared to $14.3 million for the nine months ended September 30, 2019, which included the $12.7 million ROCCAT acquisition.

Financing activities

Net cash used for financing activities was $15.7 million during the six months ended June 30, 2020 compared to $28.1 million during the six months ended June 30, 2019.

Financing activities during the six months ended June 30, 2020 consisted of net repayments on our revolving credit facility of $15.7 million compared to net repayments of $26.6 million and $1.5 million of common stock repurchases during the six months ended June 30, 2019.

Net cash used for financing activities was $9.3 million during the nine months ended September 30, 2020 compared to $12.8 million during the nine months ended September 30, 2019.

Financing activities during the nine months ended September 30, 2020 consisted of net repayments on our revolving credit facility of $15.7 million, equity sales totaling $4.4 million under our existing at-the-market program and stock option exercise proceeds of $2.2 million.

Financing activities during the nine months ended September 30, 2019 consisted of net repayments on our revolving credit facility of $10.8 million and $1.9 million of common stock repurchases.

Management assessment of liquidity

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Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements.

Foreign cash balances at June 30, 2020 and December 31, 2019 were $3.6 million and $5.9 million, respectively.

Foreign cash balances at September 30, 2020 and December 31, 2019 were $5.5 million and $5.9 million, respectively.

At-the-Market Common Stock Issuance

On August 7, 2020, the Company entered into an ATM Equity Offering Sales Agreement (the “Sales Agreement”) with BofA Securities, Inc.

(the “Sales Agent”).

Pursuant to the terms of the Sales Agreement, the Company may sell from time to time through the Sales Agent shares of the Company’s common stock, par value $0.001 per share, having an aggregate offering price of up to $30 million.

The Company intends to use the net proceeds from the offering, after deducting the Sales Agent’s commissions and the Company’s offering expenses, to support its strategic growth plans, as well as for general corporate purposes.

During the three months ended September 30, 2020, the Company sold a total of 237,813 shares of its common stock under the Sales Agreement in the open market at an average gross selling price of $18.39 per share for net proceeds of $4.4 million.

Revolving Credit Facility

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In addition, Turtle Beach is required to pay a commitment fee on the unused revolving loan commitment at a rate ranging from 0.25% to 0.50% and letter of credit fees and agent fees.

As of June 30, 2020, interest rates for outstanding borrowings were 3.75% for base rate loans and 3.00% for LIBOR rate loans.

As of September 30, 2020, interest rates for outstanding borrowings were 3.75% for base rate loans and 3.00% for LIBOR rate loans.

The Company is subject to quarterly financial covenant testing if certain availability thresholds are not met or certain other events occur (as defined in the Credit Facility).

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Obligations under the Credit Facility are secured by a security interest and lien upon substantially all of the Company’s assets.

As of June 30, 2020 , the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $48.0 million .

As of September 30, 2020, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately $79.8 million.

Critical Accounting Estimates

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The Company has used derivative financial instruments, specifically foreign currency forward and option contracts, to manage exposure to foreign currency risks, by hedging a portion of its forecasted expenses denominated in British Pounds expected to occur within a year.

effect of exchange rate changes on foreign currency forward and option contracts is expected to offset the effect of exchange rate changes on the underlying hedged item.

The effect of exchange rate changes on foreign currency forward and option contracts is expected to offset the effect of exchange rate changes on the underlying hedged item.

The Company does not use derivative financial instruments for speculative or trading purposes.

As of June 30, 2020 and December 31, 2019, we did not have any derivative financial instruments.

As of September 30, 2020 and December 31, 2019, we did not have any derivative financial instruments.

Foreign Currency Exchange Risk

The Company has exchange rate exposure primarily with respect to the British Pound.

As of June 30, 2020 and December 31, 2019, our monetary assets and liabilities that are subject to this exposure are immaterial, therefore the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency exchange rates would not be expected to have a material impact on our earnings or cash flows.

As of September 30, 2020 and December 31, 2019, our monetary assets and liabilities that are subject to this exposure are immaterial, therefore the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency exchange rates would not be expected to have a material impact on our earnings or cash flows.

This sensitivity analysis assumes an unfavorable 10% fluctuation in the exchange rates affecting the foreign currencies in which monetary assets and liabilities are denominated and does not take into account the offsetting effect of such a change on our foreign currency denominated revenues.

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Although the Company does not believe that inflation has had a material impact on its financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on the Company’s ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenue if the selling prices of products do not increase with these increased costs.

Item 4 - Control s and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are designed to ensure that (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms;

and (2) that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.

At the conclusion of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision of our Chief Executive Officer (our principal executive officer, or PEO) and our Chief Financial Officer (our principal financial officer, or PFO), of the effectiveness of the design and operation of our disclosure controls and procedures.

Based upon that evaluation, our PEO and PFO concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, were effective as of September 30, 2020.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.

Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

OTHER INFORMATION

Item 1 - Legal Proceedings

Please refer to Note 14, “Commitments and Contingencies” in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report on Form 10-Q, which is incorporated into this item by reference.

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 2. Management’s Discussion and Analysis