What changed in this filing

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Item 1A. Risk Factors

2021-05-05 compared with 2020-11-05 · 190 added, 216 removed, 144 unchanged (74% of the section changed)

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The effects of the public health crisis caused by the COVID-19 pandemic and the measures being taken in response are uncertain and difficult to predict, but may include:

A decrease in the long-term demand and/or pricing for our products, and a global economic recession that could further reduce demand and/or pricing for our products, resulting from actions taken by governments, businesses, and/or the general public in an effort to limit exposure to and spreading of such infectious diseases, such as travel restrictions, quarantines, and business shutdowns or slowdowns;

Disruptions to our supply chain in connection with the sourcing and transportation of materials and services from geographic areas that have been impacted by COVID-19 and by efforts to contain the spread of COVID-19;

A decrease in the long-term demand and/or pricing for our products, and a global economic recession that could reduce demand and/or pricing for our products, resulting from actions taken by governments, businesses, and/or the general public in an effort to

limit exposure to and spreading of such infectious diseases, such as travel restrictions, quarantines, and business shutdowns or slowdowns;

Disruptions to our supply chain in connection with the sourcing, manufacturing and transportation of finished goods and materials, in particular, the negative impact to lead-times and availability of semiconductor components which could lead to shortages preventing us from manufacturing products in the required quantities to support demand;

Disruptions in foot traffic to brick-and-mortar retail locations of our retailers resulting from stay-at-home orders and government restrictions on retailing operations could disrupt retail customer awareness and demand for our products;

Negative impacts to our operations, including reductions in efficiency and productivity and increased costs resulting from efforts to mitigate the impact of COVID-19;

Negative impacts on our results of operations could have an adverse effect on our ability to realize deferred tax assets;

Deterioration of worldwide credit and financial markets that could limit our ability to obtain financing, result in losses due to failures of financial institutions and other parties, and cause a higher rate of losses on our accounts receivables due to defaults and bankruptcies;

Deterioration of the financial condition or liquidity, or interruptions to the operations, of our customers, including retailers and distributions, could adversely affect the distribution, availability and sales of our products.

Additionally, as a result of stay-at-home orders and government restrictions on retailing operations due to COVID-19, many of our retailers have experienced, and may continue to experience, liquidity constraints or other financial difficulties, which could lead to a reduction in the amount of merchandise purchased from us, an increase in order cancellations or the need to extend payment terms.

Deterioration of the financial condition or liquidity, or interruptions to the operations, of our suppliers and customers, including retailers and distributions, could adversely affect the distribution, availability and sales of our products.

Additionally, as a result of stay-at-home orders and government restrictions on retailing operations due to COVID-19, retailers have experienced, and may continue to experience, liquidity constraints or other financial difficulties, which could lead to a reduction in the amount of merchandise purchased from us, an increase in order cancellations or the need to extend payment terms.

Any or all of these measures could substantially reduce revenue or have a material adverse effect on our results of operations.

The resumption of normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID- 19 on our employees, suppliers, manufactures, distributors, retailers, third-party service providers, and/or customers.

We have seen an increase in demand for our products during the COVID-19 pandemic and may see a decrease in demand for our products as restrictions imposed for the pandemic are lifted and social functions and activities start returning to pre-pandemic levels.

These effects, alone or taken together, could have a material adverse effect on our business, results of operations or financial condition.

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Further, if a platform is withdrawn from the market or fails to sell, we may be forced to liquidate inventories relating to that platform or accept returns resulting in significant losses.

In 2018, the battle royale genre, with games such as Fortnite, Apex Legends and PlayerUnknown's Battlegrounds , expanded gaming markets and increased demand for our headset products.

If console and personal computer game titles that are enhanced by the use of gaming headsets decline in number, popularity, or are delayed, our revenue and profits may decrease substantially and our business may be adversely affected.

The manufacture, supply and shipment of our products are dependent upon a limited number of third parties, and our success is dependent upon the ability of these parties to manufacture, supply and ship sufficient quantities of our products to us in a timely fashion, as well as the continued viability and financial stability of these third-parties.

In addition, many of our products use components with long order lead times and constrained supply.

Any disruption in supply of these components could materially impact the ability of our 3rd party manufacturing partners to produce our products.

Our manufacturers’ and suppliers’ ability to supply products to us is also subject to a number of risks, including the availability of raw materials or components, their financial instability, the destruction of their facilities, epidemics or work stoppages.

Any shortage of raw materials or components or an inability to control costs associated with manufacturing could increase our costs or impair our ability to ship orders in a timely and cost-efficient manner.

As a result, we could experience cancellations of orders, refusal to accept deliveries or a reduction in our prices and margins, any of which could harm our financial performance and results of operations.

The outbreak of COVID-19 has led to work and travel restrictions globally which in turn has led to factory closures, interruptions in supply chains, increased regulation and workforce shortages.

These issues and others may make it difficult for our suppliers and manufacturers to source raw materials or components, manufacture finished goods and export our products.

There may be significant and material disruptions to our supply chain and operations, and delays in the manufacture and shipment of our products, which may then have a material adverse effect on our business or results of operations.

Moreover, there can be no assurance that such manufacturers and suppliers will not refuse to supply us at prices we deem acceptable, independently market their own competing products in the future, or otherwise discontinue their relationships with us.

Our failure to maintain these existing manufacturing and supplier relationships, or to establish new relationships on similar terms in the future, could have a material adverse effect on our business, results of operations, financial condition and liquidity.

In particular, certain of our products have a number of components and subassemblies produced by outside suppliers.

In addition, for certain of these items, we qualify only a single source of supply with long lead times, which can magnify the risk of shortages or result in excess supply and also decreases our ability to negotiate price with our suppliers.

Also, if we experience quality problems with suppliers, then our production schedules could be significantly delayed or costs significantly increased, which could have an adverse effect on our business, liquidity, results of operation and financial position.

In addition, the ongoing effectiveness of our supply chain is dependent on the timely performance of services by third parties shipping products and materials to and from our warehouse facilities and other locations.

If we encounter problems with these shipments, our ability to meet retailer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies could be materially adversely affected and we may be required to incur material additional costs for expedited shipping, including air freight.

We have experienced some of these problems in the past and we cannot assure you that we will not experience similar problems in the future.

Our brands face significant competition from other consumer electronics companies and this competition could have a material adverse effect on our financial condition and results of operations.

We compete with other producers of video game accessories, including the video game console manufacturers.

Our competitors may spend more money and time on developing and testing products, undertake more extensive marketing campaigns, adopt more aggressive pricing policies, pay higher fees to licensors for motion picture, television, sports, music and character properties, or develop more commercially successful products for the personal computer or video game platforms than we do.

We compete with other producers of gaming accessories, including the video game console manufacturers.

Our competitors may undertake more extensive marketing campaigns, adopt more aggressive pricing policies, or develop more commercially successful products for the personal computer or video game platforms than we do.

In addition, competitors with large product lines and popular products, in particular the video game console manufacturers, typically have greater leverage with retailers, distributors and other customers, who may be willing to promote products with less consumer appeal in return for access to those competitors’ more popular products.

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Price protection results in our issuing a credit to our customers in the amount of the price reduction for each unsold unit in that customer’s inventory.

Our price protection policies, which are customary in the industry, can have a major impact on our sales and profitability.

In addition, if console manufacturers implement new technologies, through hardware or software, which would cause our headsets to become incompatible with that hardware manufacturer’s console, there could be unanticipated delays in the release of our products as well as increases to projected development, manufacturing, marketing or distribution costs, any of which could harm our business and financial results.

Further, new and emerging technologies and alternate platforms for gaming, such as mobile devices and virtual reality devices, could make the consoles for which our headsets are designed less attractive or, in time, obsolete, which could require us to transition our business model such as to develop products for other gaming platforms.

Our price protection policies, which are customary in the industry, can have a major impact on our profitability.

The industries in which we operate are subject to competition in an environment of rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies, our revenues could be negatively affected.

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If we invest in the development of a new technology or for a new platform that does not achieve significant commercial success, our revenues from those products likely will be lower than anticipated and may not cover our costs.

Further, our competitors may adapt to an emerging technology more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.

If, on the other hand, we elect not to pursue the development of products incorporating a new technology or for new platforms that achieve significant commercial success, our revenues could also be adversely affected.

It may take significant time and resources to shift product development resources to that technology or platform and it may be more difficult to compete against existing products incorporating that technology or for that platform.

Any failure to successfully adapt to, and appropriately allocate resources among, emerging technologies could harm our competitive position, reduce our share and significantly increase the time it takes us to bring popular products to market.

Further, our competitors may develop or adapt to an emerging technology more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.

New and emerging technologies and alternate platforms for gaming, such as mobile devices and virtual reality devices, could make the consoles for which our headsets are designed less attractive or, in time, obsolete, which could require us to transition our business model such as develop products for other gaming platforms.

There are numerous steps required to develop a product from conception to commercial introduction and to ensure timely shipment to retail customers, including designing, sourcing and testing the electronic components, receiving approval of hardware and other third-party licensors, factory availability and manufacturing and designing the graphics and packaging.

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No assurances can be given that our products will be introduced in a timely fashion, and if new products are delayed, our sales and revenue growth may be limited or impaired.

Our business could be adversely affected by actions on trade by domestic and foreign governments.

government has altered its approach to international trade policy and in some cases renegotiated, or terminated, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries, including the United States- Mexico-Canada Agreement (“USMCA”).

In addition, the U.S.

government has initiated or is considering imposing tariffs on certain foreign goods, including consumer goods.

Related to this action, certain foreign governments, including China, have instituted or are considering imposing tariffs on certain U.S.

It remains unclear what the U.S.

Administration or foreign governments will or will not do with respect to tariffs, USMCA or other international trade agreements and policies.

A trade war or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S.

economy or certain sectors thereof and, thus, to adversely impact our businesses.

The majority of our production occurs in foreign jurisdictions, including China, Taiwan and Vietnam and the majority of our products are currently not subject to tariffs.

While we are exploring a further shift to manufacturing partners in jurisdictions that are not subject to U.S.

tariffs, delays related to such transitions or changes in the U.S.

tariffs could have a negative impact on our results of operations and competitive position.

Our business could be adversely affected by significant movements in foreign currency exchange rates.

We are exposed to fluctuations in foreign currency transaction exchange rates, particularly with respect to the Euro and British Pound.

Any significant change in the value of currencies of the countries in which we do business relative to the value of the U.S.

dollar could affect our ability to sell products competitively and control our cost structure.

Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S.

The translation risk is primarily concentrated in the exchange rate between the U.S.

dollar and the British Pound.

dollar fluctuates against other currencies in which we transact business, revenue and income could be impacted.

A significant portion of our revenue is derived from a few large customers, and the loss of any such customer, or a significant reduction in purchases by such customer, could have a material adverse effect on our business, financial condition and results of operations.

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In addition, financial difficulties experienced by a significant customer could increase our exposure to uncollectible receivables and the risk that losses from uncollected receivables exceed the reserves we have set aside in anticipation of this risk or limit our ability to continue to do business with such customers.

The manufacture, supply and shipment of our products are dependent upon a limited number of third parties, and our success is dependent upon the ability of these parties to manufacture, supply and ship sufficient quantities of their product components to us in a timely fashion, as well as the continued viability and financial stability of these third-parties.

Because we rely on a limited number of manufacturers and suppliers for our products, we may be materially and adversely affected by the failure of any of those manufacturers and suppliers to perform as expected or supply us with sufficient quantities of their product components to ensure consumer availability of our own products.

Our manufacturers and suppliers’ ability to supply products to us is also subject to a number of risks, including the availability of raw materials, their financial instability, the destruction of their facilities, epidemics or work stoppages.

The outbreak of COVID-19 has led to work and travel restrictions globally which in turn has led to factory closures, interruptions in supply chains, increased regulation and workforce shortages.

These issues and others, may make it difficult for our suppliers and manufacturers to source raw materials or components, manufacture finished goods and export our products.

In particular, certain of our products have a number of components and subassemblies produced by outside suppliers.

We have experienced some of these problems in the past and we cannot assure you that we will not experience similar problems in the future.

Turtle Beach relies on its partnerships with influencers, athletes and esports teams to expand our market and promote our products, which may not perform to our expectations.

If our marketing efforts do not effectively raise the recognition and reputation of our brands, we may not be able to successfully implement our gaming accessory growth strategy.

We believe that our ability to extend the recognition and favorable perception of our Turtle Beach brand, and the recently acquired ROCCAT and Neat Microphones brands, is critical to implement our gaming accessory growth strategy, which includes maintaining our strong position in console gaming headsets and building our brand recognition and product appeal in PC gaming headsets, keyboards, and mice as well as in additional new categories over time.

These efforts incur significant costs in marketing and these expenditures, however, may not result in a sufficient increase in net sales to cover such costs.

Relationships with new and established influencers, athletes and esports teams have been, and will continue to be important to our future success.

We rely on these partners to assist us in generating increased acceptance and use of our product offerings.

We have established a number of these relationships, and our growth depends in part on establishing new relationships and maintaining existing ones.

Certain partners may not view their relationships with us as significant to their own businesses, and they may reassess their commitment to us or decide to partner with our competitors in the future.

We cannot guarantee that any partner will perform their obligations as agreed or that we would be able to specifically enforce any agreement with them.

If any partner does not perform consistent with our agreements, we may be subject to reputational or social media risks.

Additionally, our failure to maintain and expand these relationships may adversely impact our future revenue.

Our net sales and operating income fluctuate on a seasonal basis and decreases in sales or margins during peak seasons could have a disproportionate effect on our overall financial condition and results of operations.

Historically, a majority of our annual revenues have been generated during the holiday season of September to December.

Historically, a significant portion of our annual revenues have been generated during the holiday season of September to December.

If we do not accurately forecast demand for particular products, we could incur additional costs or experience manufacturing delays.

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We may also have to adjust the prices of our existing products to reduce such excess inventories;

If demand for specific products increases beyond what we forecast, our suppliers and third-party manufacturers may not be able to increase production quickly enough to meet the demand.

Our failure to meet market demand may lead to missed opportunities to increase our base of gamers, damage our relationships with retailers or otherwise harm our business;

The on-going console transition increases the likelihood that we could fail to accurately forecast demand for our new generation console headsets and our existing headsets;

Rapid increases in production levels to meet unanticipated demand could result in increased manufacturing errors, as well as higher component, manufacturing and shipping costs, all of which could reduce our profit margins and harm our relationships with retailers and consumers.

If we are unable to continue to develop innovative and popular products, or if our design and marketing efforts do not effectively raise the recognition and reputation of our brands, we may not be able to successfully implement our gaming accessory growth strategy.

We believe that our ability to extend the recognition and favorable perception of our Turtle Beach brand, and the recently acquired ROCCAT brand, is critical to implement our gaming accessory growth strategy, which includes further establishing our position in existing gaming headsets, developing a strong position in new console headsets, expanding beyond existing console, PC and mobile applications to new technology applications, accelerating our international growth and expanding complementary product categories.

To extend the reach of our brands, we believe we must devote significant time and resources to product design, marketing and promotions.

These expenditures, however, may not result in a sufficient increase in net sales to cover such costs.

Transitions in console platforms may adversely affect our headset products.

When new console platforms are announced or introduced into the market, consumers have historically reduced their purchases of game console peripherals and accessories, including headsets, for old generation console platforms in anticipation of new platforms becoming available.

During these console transition periods, sales of gaming console headsets related to old generation consoles slow or decline until new platforms are introduced and achieve wide consumer acceptance, which we cannot guarantee.

This decrease or decline may not be offset by increased sales of products for the new console platforms.

Over time as the old generation platform user base declines, products for the old platforms are typically discontinued which can result in lower margins, excess inventory, excess parts, or similar costs related to end of life of a product model.

In addition, as a third party gaming headset company, we are reliant on working with the console manufacturers for our headsets to be compatible with any new console platforms, which if not done on a timely basis may adversely affect sales.

Sony and Microsoft may make changes to their platforms that impact how headsets connect with or work with the new consoles which could create a disruption to consumer buying behavior and/or product life-cycles, including if such new consoles are delayed or introduced with limited functionality or compatibility with third party accessories.

As console platforms move through their life-cycle, hardware manufacturers typically enact price reductions, and decreasing prices may put downward pressure on prices for products for such platforms.

During platform transitions, we may simultaneously incur costs both in continuing to develop and market new products for prior-generation video game platforms, which may not sell at premium prices, and also in developing products for current-generation platforms, which will not generate immediate or near-term revenue.

As a result, our operating results during platform transitions are more volatile and difficult to predict than during other times.

Further, technological and other developments may in the future accelerate the frequency of such console transitions resulting in such disruption occurring more frequently.

In addition, competing technologies such as tablet-based gaming and virtual reality may result in further disruption to the overall console gaming market.

Any acquisitions we pursue could disrupt our business and harm our financial condition and results of operations.

As part of our business strategy, we review and intend to continue to review acquisition opportunities that we believe would be advantageous or complementary to the development of our business.

During the second quarter of 2019, we acquired the business and assets of ROCCAT, and we may acquire additional businesses, assets, or technologies in the future.

If we make any acquisitions, we could take any or all of the following actions, any one of which could adversely affect our business, financial condition, results of operations or share price:

use a significant portion of our available cash;

require a significant devotion of management’s time and resources in the pursuit or consummation of such acquisition;

incur debt, which may not be available to us on favorable terms and may adversely affect our liquidity;

issue equity or equity-based securities that would dilute existing stockholders’ ownership percentage;

assume contingent and other liabilities;

take charges in connection with such acquisitions.

Acquisitions also entail numerous other risks, including, without limitation:

difficulties in assimilating acquired operations, products, technologies and personnel;

unanticipated costs;

diversion of management’s attention from existing operations;

risks of entering markets in which we have limited or no prior experience;

regulatory approvals;

unanticipated costs or liabilities;

and potential loss of key employees from either our existing business or the acquired organization.

Acquisitions may result in accounting charges for restructuring and other expenses, amortization of purchased technology and intangible assets and stock-based compensation expense, any of which could materially and adversely affect our operating results.

We may not be able to realize the anticipated synergies, innovation, operational efficiencies, benefits of or successfully integrate with our existing business the businesses, products, technologies or personnel that we acquire, and our failure to do so could harm our business and operating results.

Turtle Beach relies on its partnerships with influencers, athletes and esports teams to expand our market.

If we fail to maintain or expand these types of relationships, our business may suffer.

Relationships with new and established influencers, athletes and esports teams have been, and will continue to be critical to our future success.

We rely on these partners to assist us in generating increased acceptance and use of our product offerings.

We have established a number of these relationships, and our growth depends on establishing new relationships and maintaining existing ones.

Certain partners may not view their relationships with us as significant to their own businesses, and they may reassess their commitment to us or decide to compete directly with us in the future.

We cannot guarantee that any partner will perform their obligations as agreed or that we would be able to specifically enforce any agreement with them.

Our failure to maintain and expand these relationships may adversely impact our future revenue.

The United Kingdom’s exit of the European Union may negatively impact our operations.

The changes to the trading relationship between the United Kingdom (U.K.) and European Union resulting from the U.K.’s exit from the European Union on January 31, 2020 (“Brexit”) will likely result in increased cost of goods imported into and exported from the U.K.

and may decrease the profitability of our U.K.

and other European operations.

Additional currency volatility could result in a weaker British pound, which increases the cost of goods imported into our U.K.

operations and may decrease the profitability of our U.K.

A weaker British pound versus the Euro and U.S.

dollar also causes local currency results of our U.K.

operations to be translated into fewer U.S.

dollars during a reporting period.

is currently in a transition period until December 31, 2020, when agreements regarding tariff , trade, regulatory and other aspects of the U.K.’s future relationship with the European Union and its member status are required to be finalized.

Until such agreements are finalized, it is anticipated that there will be both political and economic uncertainty in the United Kingdom as well as the European Union.

Loss of our key management and other personnel could impact our business.

Our future success depends largely upon the continued service of our executive officers and other key management and technical personnel and on our ability to continue to attract, retain and motivate qualified personnel.

In addition, competition for skilled and non-skilled employees among companies like ours is intense, and the loss of skilled or non-skilled employees or an inability to attract, retain and motivate additional skilled and non-skilled employees required for the operation and expansion of our business could hinder our ability to conduct research activities successfully, develop new products, attract customers and meet customer shipments.

If we are unable to protect our information systems against service interruption, misappropriation of data or breaches of security, our operations could be disrupted, our reputation may be damaged, and we may be financially liable for damages.

We rely heavily on information systems to manage our operations, including a full range of retail, financial, sourcing and merchandising systems.

We regularly make investments to upgrade, enhance or replace these systems, as well as leverage new technologies to support our growth strategies.

In addition, we have implemented enterprise-wide initiatives that are intended to standardize business processes and optimize performance.

Further, while many of our employees and certain suppliers with whom we do business operate in a remote working environment during the COVID-19 pandemic, the risk of cybersecurity attacks and data breaches, particularly through phishing attempts, may be increased as we and third-parties with whom we interact leverage our IT infrastructure in unanticipated ways during the ongoing COVID-19 pandemic.

Any delays or difficulties in transitioning to new systems or integrating them with current systems or the failure to implement our initiatives in an orderly and timely fashion could result in additional investment of time and resources, which could impair our ability to improve existing operations and support future growth, and ultimately have a material adverse effect on our business.

The reliability and capacity of our information systems are critical.

Despite preventative efforts, our systems are vulnerable to damage or interruption from, among other things, natural disasters, technical malfunctions, inadequate systems capacity, human error, power outages, computer viruses and security breaches.

Any disruptions affecting our information systems could have a material adverse impact on our business.

In addition, any failure to maintain adequate system security controls to protect our computer assets and sensitive data, including associate and client data, from unauthorized access, disclosure or use could damage our reputation with our associates and our clients, exposing us to financial liability, legal proceedings (such as class action lawsuits), and regulatory action.

While we have implemented measures to prevent security breaches and cyber incidents, our preventative measures and incident response efforts may not be entirely effective.

As a result, we may not be able to immediately detect any security breaches, which may increase the losses that we would suffer.

Finally, our ability to continue to operate our business without significant interruption in the event of a disaster or other disruption depends, in part, on the ability of our information systems to operate in accordance with our disaster recovery and business continuity plans.

Our reliance on information systems and other technology also gives rise to cybersecurity risks, including security breach, espionage, system disruption, theft and inadvertent release of information.

The occurrence of any of these events could compromise our networks, and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation, which could adversely affect our business.

In addition, as security threats continue to evolve we may need to invest additional resources to protect the security of our systems.

If demand for specific products increases beyond what we forecast, our suppliers and third-party manufacturers may not be able to increase production or obtain required components quickly enough to meet the demand.

Our failure to meet market demand may lead to missed opportunities to increase our base of gamers, damage our relationships with retailers or harm our business;

The on-going transition to new console platforms increases the likelihood that we could fail to accurately forecast demand for headsets and other accessories for these platforms.

Our results of operations and financial condition may be adversely affected by global business, political, operational, financial and economic conditions.

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difficulties obtaining domestic and foreign export, import and other governmental approvals, permits and licenses, and compliance with foreign laws, which could halt, interrupt or delay our operations if we cannot obtain such approvals, permits and licenses;

compliance with anti-corruption laws, including the U.S.

Foreign Corrupt Practices Act of 1977, the U.K.

Bribery Act 2010, the European Union Anti-Corruption Act and other similar laws, or non-compliance that could subject us to trade sanctions administered by the Office of Foreign Assets Control, the U.S.

Department of Commerce and equivalent foreign entities;

difficulties encountered by our international distributors or us in staffing and managing foreign operations or international sales, including higher labor costs;

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Should we establish our own operations in international territories where we currently utilize a distributor, we will become subject to greater risks associated with operating outside of the United States.

The electronics industry in general has historically been characterized by a high degree of volatility and is subject to substantial and unpredictable variations resulting from changing business cycles.

The electronics industry in general has historically been characterized by a high degree of volatility and is subject to substantial and

unpredictable variations resulting from changing business cycles.

Our operating results will be subject to fluctuations based on general economic conditions, and in particular conditions that impact discretionary consumer spending.

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Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud.

Any inability to provide reliable financial reports or prevent fraud could harm our business.

The Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley Act"), requires, among other things, that we evaluate our systems and processes and test our internal control over financial reporting to allow management and our independent registered public accounting firm, as applicable, to report on the effectiveness of our internal control over financial reporting.

inability to provide reliable financial reports or prevent fraud could harm our business.

The Sarbanes-Oxley Act of 2002 requires, among other things, that we evaluate our systems and processes and test our internal controls over financial reporting to allow management and our independent registered public accounting firm, as applicable, to report on the effectiveness of our internal control over financial reporting.

We have reported the remediation of a material weakness related to the review of material non-routine transactions or events disclosed in our 2018 Annual Report on Form 10-K.

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There can be no assurance that we will be able to maintain a system of internal controls that fully complies with the requirements of the Sarbanes-Oxley Act of 2002 or that our management and independent registered public accounting firm will continue to conclude that our internal controls are effective.

Risks Related to our Intellectual Property and other Legal and Regulatory Matters

Risks Related to our Intellectual Property and other Legal Matters

Our competitive position will be adversely damaged if our products are found to infringe on the intellectual property rights of others.

Other companies and our competitors may currently own or obtain patents or other proprietary rights that might prevent, limit or interfere with our ability to make, use or sell our products.

Although we do not believe that our products infringe the proprietary rights of any third parties, there can be no assurance that infringement or other legal claims will not be asserted against us or that we will not be found to infringe the intellectual property rights of others.

The electronics industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, resulting in significant and often protracted and expensive litigation.

Although we do not believe that our products infringe the proprietary rights of any third parties, we have received notices of alleged infringement in the past and there can be no assurance that infringement or other legal claims will not be asserted against us in the future or that we will not be found to infringe the intellectual property rights of others.

The electronics industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, resulting in significant and often protracted and expensive litigation.

In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business and operating results could be adversely affected.

Any litigation or claims, whether or not valid, could result in substantial costs or a diversion of our resources.

An adverse result from intellectual property litigation could force us to do one or more of the following:

Any litigation or claims, whether or not valid, could result in substantial costs and diversion of our resources.

An adverse result from intellectual property litigation could cause us to do one or more of the following:

cease selling, incorporating or using products or services that incorporate the challenged intellectual property;

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redesign products or services that incorporate the disputed technology.

If we are forced to take any of the foregoing actions, we could face substantial costs and shipment delays and our business could be seriously harmed.

Although we carry general liability insurance, our insurance may not cover potential claims of this type or may be inadequate to insure us for all liability that may be imposed.

If we take any of the foregoing actions, we could face substantial costs and shipment delays and our business could be seriously harmed.

Although we carry general liability insurance, our insurance may not cover claims of this type or may be inadequate to insure us for all liability that may be imposed.

In addition, it is possible that our customers or end users may seek indemnity from us in the event that our products are found or alleged to infringe the intellectual property rights of others.

Any such claim for indemnity could result in substantial expenses to us that could harm our operating results.

Any such claim for indemnity could result in substantial costs to us that could adversely impact our operating results.

If we are unable to obtain and maintain intellectual property rights and/or enforce those rights against third parties who are violating those rights, our business could suffer.

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If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could adversely affect our financial results.

We are susceptible to counterfeiting of our products, which may harm our reputation for producing high-quality products and force us to incur expenses in enforcing our intellectual property rights.

We are susceptible to counterfeiting of our products, which may harm our reputation for producing high-quality products and force us to

incur expenses in enforcing our intellectual property rights.

Such claims and lawsuits can be expensive to resolve, require substantial management time and resources, and may not provide a satisfactory or timely result, any of which may harm our results of operations.

As some of our products are sold internationally, we are also dependent on the laws of a range of countries to protect and enforce our intellectual property rights.

As some of our products are sold internationally, we are also dependent on the laws of many countries to protect and enforce our intellectual property rights.

These laws may not protect intellectual property rights to the same extent or in the same manner as the laws of the United States.

Further, we are party to licenses that grant us rights to intellectual property, including trademarks, which are necessary or useful to our Turtle Beach business.

One or more of our licensors may allege that we have breached our license agreement with them, and seek to terminate our license.

If successful, this could result in our loss of the right to use the licensed intellectual property, which could adversely affect our ability to commercialize our technologies or products, as well as harm our competitive business position and our business prospects.

Our success also depends in part on our ability to obtain and enforce intellectual property protection of our technology, particularly our patents.

One or more of our licensors may allege that we have breached our license agreement with them, and seek to terminate

If successful, this could result in our loss of the right to use the licensed intellectual property, which could adversely affect our

ability to commercialize our technologies or products, as well as harm our competitive business position and our business prospects.

Our success also depends in part on our ability to obtain and enforce intellectual property protection of our technology, particularly our

There is no guarantee any patent be granted on any patent application that we have filed or may file.

Claims allowed from existing or pending patents may not be of sufficient scope or strength to protect the economic value of our technologies.

Further, any patent that we may obtain will expire, and it is possible that it may be challenged, invalidated or circumvented.

We may initiate claims or litigation against third parties in the future for infringement of our proprietary rights or to determine the scope and validity of our proprietary rights or the proprietary rights of our competitors.

These claims could result in costly litigation and divert the efforts of our technical and management personnel.

As a result, our operating results could suffer and our financial condition could be harmed.

Claims allowed from existing or

pending patents may not be of sufficient scope or strength to protect the economic value of our technologies.

Further, any patent that we may

obtain will expire at some point, and it is possible that it may be challenged, invalidated or circumvented even prior to expiration.

We may initiate claims or litigation against third parties in the future for infringement of our proprietary rights or to determine the scope

and validity of our proprietary rights or the proprietary rights of our competitors.

These claims could result in costly litigation and divert the

efforts of our technical and management personnel.

As a result, our operating results could be adversely affected and our financial condition could be negatively impacted.

We are dependent upon third-party intellectual property to manufacture some of our products.

The performance of certain technology used in new generation consoles, such as integrated voice and chat audio from the Xbox One, is improved by a licensed component to ensure compatibility with our products.

While we currently believe that we have the necessary licenses, or can obtain the necessary licenses, in order to produce compatible products, there is no guarantee that our licenses will be renewed or granted in the first instance.

The performance of certain technology used in new generation consoles, such as integrated voice and chat audio from the Xbox

platforms is improved by a licensed component to ensure compatibility with our products.

Moreover, if these first parties enter into license agreements with companies other than us for their “closed systems” or if we are unable to obtain sufficient quantities of these headset adapters or chips, we would be placed at a competitive disadvantage.

In order for certain of our headsets to connect to the Xbox One's advanced features and controls, a proprietary computer chip or wireless module is required.

As a result, with respect to our products designed for the Xbox One, we are currently reliant on Microsoft or their designated supplier to provide us with sufficient quantities.

If we are unable to obtain sufficient quantities of these headset adapters or chips, sales of such Xbox One headsets and consequently our revenues would be adversely affected.

We are licensed and approved by Microsoft to develop and sell Xbox One compatible audio products pursuant to a license agreement under which we have the right to manufacture (including through third party manufacturers), market and sell audio products for the Xbox One video game console.

Our Xbox One headsets are dependent on this license and headsets for future Xbox consoles may also be dependent on this license.

In order for certain of our headsets to connect to the Xbox platforms’ advanced features and controls, a proprietary computer chip or wireless module is required.

As a result, with respect to our products designed for the Xbox platforms, we are currently reliant on Microsoft or their designated supplier to provide us with sufficient quantities.

If we are unable to obtain sufficient quantities of these headset adapters or chips, sales of such Xbox platform headsets and consequently our revenues would be adversely affected.

We are licensed and approved by Microsoft to develop and sell Xbox platform compatible audio products pursuant to a license agreement under which we have the right to manufacture (including through third party manufacturers), market and sell audio products for the Xbox platform video game console.

Our current Xbox platform headsets are dependent on this license and headsets for future Xbox consoles may also be dependent on this license.

Microsoft has the right to terminate that license under certain circumstances set forth in the agreement.

Should that license be terminated, our headset offerings may be limited, thereby significantly reducing our revenues.

Should that license be terminated, our headset offerings may be limited, which could significantly reduce our revenues.

While Sony does not currently require a license for audio products to be compatible with PlayStation® consoles, they could do so in the future.

Accordingly, Microsoft, Sony and other third-party gaming platform manufacturers may control our ability to manufacture headsets compatible with their platforms, and could cause unanticipated delays in the release of our products as well as increases to projected development, manufacturing, licensing, marketing or distribution costs, any of which could negatively impact our business.

Our products may be subject to warranty claims, product liability and product recalls.

We may be subject to product liability or warranty claims that could result in significant direct or indirect costs, or we could experience greater returns from retailers than expected, which could harm our net sales.

The occurrence of any quality problems due to defects in our products could make us liable for damages and warranty claims in excess of any existing reserves.

In addition to the risk of direct costs to correct any defects, warranty claims, product recalls or other problems, any negative publicity related to the perceived quality of our products could also affect our brand image, decrease retailer and distributor demand and our operating results and financial condition could be adversely affected.

We could incur unanticipated expenses in connection with warranty or product liability claims relating to a recall of one or more of our products, which could require significant expenditures to defend.

Additionally, we may be required to comply with governmental requirements to remedy the defect and/or notify consumers of the problem that could lead to unanticipated expense, and possible product liability litigation against a customer or us.

Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.

New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or enforcement, may create uncertainty for public companies, increase our cost of doing business and restrict our ability to operate our business or execute our strategies.

This could include, among other things, compliance costs and enforcement under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

We continually evaluate and monitor developments with respect to new and proposed laws, regulations, standards and rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.

Any such new or changed laws, regulations, standards and rules may be subject to varying interpretations and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.

This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are committed to maintaining high standards of corporate governance and public disclosure.

If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and we may be harmed.

We are subject to various environmental laws and regulations that could impose substantial costs on us and may adversely affect our business, operating results and financial condition.

Our operations and some of our products are regulated under various federal, state, local and international environmental laws.

In addition, regulatory bodies in many of the jurisdictions in which we operate propose, enact and amend environmental laws and regulations on a regular basis.

If we were to violate or become liable under these environmental laws, we could be required to incur additional costs to comply with such regulations and may incur fines and civil or criminal sanctions, third-party property damage or personal injury claims, or could be required to incur substantial investigation or remediation costs.

Liability under environmental laws may be joint and several and without regard to comparative fault.

The ultimate costs under environmental laws and the timing of these costs are difficult to predict.

Although we cannot predict the ultimate impact of any new environmental laws and regulations, such laws may result in additional costs or decreased revenue, and could require that we redesign or change how we manufacture our products, any of which could have a material adverse effect on our business.

Additionally, to the extent that our competitors choose not to abide by these environmental laws and regulations, we may be at a cost disadvantage, thereby hindering our ability to effectively compete in the marketplace.

Failure to comply with the U.S.

Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.

Our products are sold in over 40 countries, including countries known to have a reputation for corruption.

We are committed to doing business in accordance with applicable anti-corruption laws.

We are subject, however, to the risk that our officers, directors, employees, agents and collaborators may take action determined to be in violation of such anti-corruption laws, including the U.S.

Foreign Corrupt Practices Act of 1977, the U.K.

Bribery Act 2010, the European Union Anti-Corruption Act and other similar laws, or that subjects us to trade sanctions administered by the Office of Foreign Assets Control and the U.S.

Department of Commerce.

Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our results of operations.

In addition, actual or alleged violations could damage our reputation and ability to do business.

We are party to ongoing stockholder litigation, and in the future could be party to additional stockholder litigation, any of which could harm our business, financial condition and operating results.

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Risks Related to Liquidity

We depend upon the availability of capital under our revolving credit facility to finance our operations.

In the past, we have depended upon the availability of capital under our revolving credit facility to finance our operations.

Any additional financing that we may need may not be available on favorable terms, or at all.

In addition to cash flow generated from operations, we finance our operations with a credit facility (the “Credit Facility”) provided by Bank of America, as Agent, Sole Lead Arranger and Sole Bookrunner.

If we are unable to comply with the financial and other covenants contained in the Credit Facility and are unable to obtain a waiver under the Credit Facility, Bank of America may declare the outstanding borrowings under the Credit Facility immediately due and payable.

Such an event would have an immediate and material adverse impact on our business, results of operations, and financial condition.

We would be required to obtain additional financing from other sources, and we cannot predict whether or on what terms, if any, additional financing might be available.

If we are required to seek additional financing and are unable to obtain it, we may have to change our business and capital expenditure plans, which may have a materially adverse effect on our business, financial condition and results of operations.

In addition, the debt under the Credit Facility could make it more difficult to obtain other debt financing in the future, which could put us at a competitive disadvantage to competitors with less debt.

The Credit Facility contains financial and other covenants that we are obligated to maintain.

The Credit Facility contain certain financial covenants and other restrictions that limit our ability, among other things, to incur certain additional indebtedness;

In addition to cash flow generated from operations, we have financed our operations with a credit facility (the “Credit Facility”) provided by Bank of America, as Agent, Sole Lead Arranger and Sole Bookrunner.

If we are unable to comply with the financial and other covenants contained in the Credit Facility and are unable to obtain a waiver under the Credit Facility, Bank of America may declare any outstanding borrowings under the Credit Facility immediately due and payable.

If we had borrowing under the Credit Facility, such an event would have an immediate and material adverse impact on our business, results of operations, and financial condition.

We could be required to obtain additional financing from other sources, and we cannot predict whether or on what terms, if any, additional financing might be available.

If we were required to seek additional financing and were unable to obtain it, we might need to change our business and capital expenditure plans, which may have a materially adverse effect on our business, financial condition and results of operations.

In addition, any debt under the Credit Facility could make it more difficult to obtain other debt financing in the future.

The Credit Facility contains certain financial covenants and other restrictions that limit our ability, among other things, to incur certain additional indebtedness;

pay dividends and repurchase stock;

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and encumber and dispose of assets.

If we violate any of these covenants, we will be in default under the Credit Facility.

If a default occurs and is not timely cured or waived, Bank of America could seek remedies against us, including termination or suspension of obligations to make loans and issue letters of credit, and acceleration of amounts due under the applicable Credit Facility.

If we violate any of these covenants, we will likely be unable to borrow under the Credit Facility.

No assurance can be given that we will be able to maintain compliance with these covenants in the future.

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In addition, we have granted the lender a first-priority lien against substantially all of our assets, including trade accounts receivable and inventories.

Failure to comply with the operating restrictions or financial covenants could result in a default which could cause the lender to accelerate the timing of payments and exercise their lien on substantially all of our assets.

If suppliers, customers, landlords, employees or other stakeholders lose confidence in our business, it may be more difficult for us to operate and may materially adversely affect our business, results of operations and financial condition.

If suppliers, customers, landlords, employees or other stakeholders have doubts regarding our ability to continue as a going concern, this could materially adversely affect our ability to operate.

Concerns about our financial condition may cause our suppliers and other counterparties to tighten credit terms or cease doing business with us altogether, which would have a material adverse effect on our business and results of operations.

Risks Related to Ownership of our Common Stock

Failure to comply with the operating restrictions or financial covenants could result in the lender terminating or suspending its obligation to make loans and issue letters of credit to us.

General Risk Factors

We rely heavily on information systems to manage our operations, including a full range of retail, financial, sourcing and merchandising systems.

We regularly make investments to upgrade, enhance or replace these systems, as well as leverage new technologies to support our growth strategies.

In addition, we have implemented enterprise-wide initiatives that are intended to standardize business processes and optimize performance.

Further, while many of our employees and certain suppliers with whom we do business operate in a remote working environment during the COVID-19 pandemic, the risk of cybersecurity attacks and data breaches, particularly through phishing attempts, may be increased as we and third-parties with whom we interact leverage our IT infrastructure in previously unanticipated ways during the ongoing COVID-19 pandemic.