Note7. Revolving Credit ~~Facilities~~Facility and Long-Term Debt


	June 30, 2022		December 31, 2021
	(in thousands)
Revolving credit facility, maturing March 2024	$	15,707	$	-

September 30, 2017 December 31, 2016
(in thousands)
Revolving credit facility, maturing March 2019 $ 24,793
$ 35,905

Term Loan Due 2018 2,564
3,632
Term Loan Due 2019 10,360
10,735
Less unamortized deferred financing fees 872
1,278
Total Term Loans 12,052
13,089

Subordinated notes - related party 21,247
19,403
Less unamortized debt discount 1,196
1,522
Total Subordinated notes 20,051
17,881
Total outstanding debt 56,896
66,875
Less: current portion of revolving line of credit (24,793 ) (35,905 )
Less: current portion of term loans (4,814 ) (2,647 )
Total noncurrent portion of long-term debt $ 27,289
$ 28,323

Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was ~~$1.5~~$0.1 million and $4.2 million, respectively, for the three and nine months ended September 30, 2017 and, $1.3 million and $3.9 million, respectively, for the three and nine months ended September 30, 2016. This includes related party interest of $0.6 million and $1.8$0.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, and ~~$0.5~~$0.1 million and ~~$1.6~~$0.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively, in connection with the subordinated notes.~~

2021, respectively.

Amortization of deferred financing costs was ~~$0.4 million~~$47 thousand and ~~$1.2 million or~~$94 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively, $0.3 million~~2022 and$47 thousand and ~~$1.0 million~~$95 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, respectively.

Revolving Credit Facility

On ~~March 31, 2014,~~December 17, 2018, Turtle Beach and certain of its subsidiaries entered into ~~a new asset-based revolving credit~~an amended and restated loan, guaranty and security agreement (“Credit Facility”) with Bank of America, N.A. (“(“Bank of America”), as Agent, Sole Lead Arranger and Sole Bookrunner, which replaced the then existing asset-based revolving loan ~~and security~~ agreement. The Credit Facility, which expires on March ~~31, 2019~~5, 2024, provides for a line of credit of up to $6080 million inclusive of a sub-facility limit of ~~$10~~$12 million for TB Europe, a ~~wholly owned~~wholly-owned subsidiary of Turtle Beach. ~~The~~In addition, the Credit Facility ~~may be used~~provides for ~~working capital,~~ a $40 million accordion feature and the ~~issuance~~ability to increase the borrowing base with a “first-in, last-out” loan (a “FILO Loan”) of ~~bank guarantees,~~ ~~letters~~up to $6.8 million.

On May 31, 2019, the Company amended the Credit Facility to provide for, amongst other items, (i) the addition of ~~credit~~TBC Holding Company LLC, a wholly-owned subsidiary of VTB, as an obligor and ~~other corporate purposes.~~

(ii) the ability to make investments in TB Germany GmbH, a wholly-owned subsidiary of TB Europe, of up to $4 million in connection with the acquisition of the business of ROCCAT and up to an additional $4 million annually.

The maximum credit availability for loans and letters of credit under the Credit Facility is governed by a borrowing base determined by the application of specified percentages to certain eligible assets, primarily eligible trade accounts receivable and inventories, and is subject to discretionary reserves and revaluation adjustments.

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporate purposes. In the second quarter of 2022, the Company accessed the Credit Facility as a result of increased inventory levels driven by global supply chain delays as well as lower retail channel inventory levels.

Amounts outstanding under the Credit Facility bear interest at a rate equal to either a rate published by Bank of America or the LIBOR rate, plus in each case, an applicable margin, which is between ~~1.00%~~0.50% to~~1.50%~~1.25% for ~~U.S.~~ base rate loans and between ~~2.00%~~1.25% to~~2.50%~~2.00% for U.S. LIBOR loans and U.K. ~~loans. As ofSeptember 30, 2017, interest rates for outstanding borrowings were 6.24% for base rate~~ loans, and ~~3.21%~~between 2.00% to 2.75% for ~~LIBOR rate loans.~~the FILO Loan. In addition, Turtle Beach is required to pay a commitment fee on the unused revolving loan commitment at a rate ranging from ~~0.25%~~0.25% to ~~0.50%,~~0.50% and letter of credit fees and agent fees.

If As of June 30, 2022, interest rates for outstanding borrowings were 5.25% for base rate loans and 3.00% for LIBOR rate loans.

The Company and the administrative agent entered into an amendment to the Credit Facility (the "LIBOR Transition Amendment") to replace the LIBOR rate as a reference rate available for use in the computation of interest under the Credit Agreement in favor of (i) the Applicable Rate (as defined in the Credit Facility) plus Sterling Overnight Index Average (“SONIA”) or the Euro Interbank Offered Rate (“EURIBOR”). The Company expects to enter into an additional agreement to finalize the transition of the U.S. LIBOR rate prior its expiration on June 30, 2023.

The Company is subject to quarterly financial covenant testing if certain availability thresholds are not met ~~meaning that~~or certain other events occur (as set forth in the ~~Company does not have receivables and inventory which are eligible to borrow on under~~Credit Facility). At such times, the Credit Facility ~~in excess of amounts borrowed, the Credit Facility requires~~requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ~~ratio. The fixed charge ratio is defined as the ratio, determined~~ on a consolidated basis for the most recent four fiscal quarters, of (a) EBITDA minus capital expenditures, excluding those financed through other instruments, and cash taxes paid, and (b) Fixed Charges defined as the sum of cash interest expense plus scheduled principal payments. ~~The current fixed charge coverage~~ ratio of at least ~~1.15~~1.00 to 1.00 onas of the last day of each ~~month will become effective again after the Company has complied with such ratio for six consecutive months.~~

fiscal quarter.

The Credit Facility also contains affirmative and negative covenants that, subject to certain exceptions, limit our ability to take certain actions, including ~~our~~the Company’s ability to incur debt, pay dividends and repurchase stock, make certain investments and other payments, enter into certain mergers and consolidations, engage in sale leaseback transactions and transactions with affiliates, and encumber and dispose of assets. Obligations under the Credit Facility are secured by a security interest and lien upon substantially all of the ~~Company's~~Company’s assets.

On October 31, 2016, in connection with the HyperSound business restructuring, the Company amended certain provisions to provide, among other things, that (i) the existing loan availability blocks be permanently reduced during certain specified periods, (ii) replaced certain financial covenants determined on a segment-by-segment basis by amended EBITDA levels for the Headset business beginning with the month ended October 31, 2016, (iii) the Company maintain revised cash flow levels, in the aggregate and with respect to its HyperSound segment, during each rolling four week period beginning with the period ended October 31, 2016 through December 31, 2018 and September 30, 2017, respectively, and (iv) in the event the Company’s availability is less than certain specified amounts, obtain additional funding from the issuance of a subordinated promissory note provided by SG VTB (the “Promissory Note”).

As of ~~September~~June 30, ~~2017,~~2022, the Company was in compliance with all financial covenants under the Credit Facility, as amended, and excess borrowing availability was approximately ~~$12.5 million, net of the outstanding Term Loan Due 2018 (as defined below) that is considered to be an additional outstanding amount under the Credit Facility.~~$22.0 million.

~~Term Loans~~

~~Term Loan Due 2018~~

On December 29, 2014, the Company amended the Credit Facility with Bank of America to enter in to an additional loan (the “Term Loan Due 2018”) for the repayment of $7.7 million of then existing subordinated debt and accrued interest. The Term Loan Due 2018 resulted in modified financial covenants while it is outstanding, will bear interest at a rate of LIBOR for the applicable interest period plus 5% and will be repaid in equal monthly installments beginning on April 1, 2015 and ending on October 1, 2018, reflecting a six month waiver. Amounts so repaid are recognized by lowering the balance of the term loan tranche and increasing the lower interest rate base revolver amount, with no net impact on borrowing availability.

~~Term Loan Due 2019~~

On July 22, 2015, the Company and its subsidiaries, entered into a term loan, guaranty and security agreement (the “Term Loan Due 2019”) with Crystal Financial LLC, as agent, sole lead arranger and sole bookrunner, Crystal Financial SPV LLC and the other persons party thereto (“Crystal”), which provides for an aggregate term loan commitment of $15 million that bears interest at a rate per annum equal to the 90-day LIBOR rate plus 10.25%. Under the terms of the Term Loan Due 2019, the Company is required to make payments of interest in arrears on the first day of each month beginning August 1, 2015 and will repay the principal in monthly payments beginning January 1, 2016, inclusive of a nine month waiver, with a final payment on June 28, 2019, the maturity date.

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

The Term Loan Due 2019 is secured by a security interest in substantially all of the Company and each of its subsidiaries' working capital assets and is subject to the first-priority lien of Bank of America, as agent, under the Credit Facility, other than with respect to equipment, fixtures, real property interests, intellectual property, intercompany property, intercompany indebtedness, equity interest in their subsidiaries, and certain other assets specified in an inter-creditor agreement between Bank of America and Crystal.

The Company and its subsidiaries are required to comply with various customary covenants including, (i) maintaining minimum EBITDA (as defined in the Term Loan Due 2019) in each trailing twelve month period beginning August 31, 2015, (ii) maintaining a Consolidated Leverage Ratio (as defined in the Term Loan Due 2019) to be measured on the last day of each month while the term loans are outstanding of no more than 5.75:1 beginning December 31, 2015 with periodic step-downs to 3.00:1 on January 31, 2018, (iii) not making capital expenditures in excess of $5 million in each of the years ending December 31, 2016, 2018 and 2019 and in excess of $5.5 million in the year ending December 31, 2017, (iv) restrictions on the Company’s and its subsidiaries ability to prepay its subordinated notes, pay dividends, incur debt, create or suffer liens and engage in certain fundamental transactions and (v) an obligation to provide certain financial and other information. The agreement permits certain equity holders of the Company to contribute funds to the Company to cure certain financial covenant defaults.

The Term Loan Due 2019 contains customary representations, mandatory prepayment events and events of default, including defaults triggered by the failure to make payments when due, breaches of covenants and representations, material impairment in the perfection of Crystal’s security interest in the collateral and events related to bankruptcy and insolvency of the Company and its subsidiaries. Upon an event of default, Crystal may declare all outstanding obligations immediately due and payable (along with a prepayment fee), a default rate of an additional 2.0% may be applied to amounts outstanding and may take other actions including collecting or taking such other action with respect to the collateral pledged in connection with the term loan.

On October 31, 2016, in connection with the recently announced HyperSound business restructuring, the Company amended certain provisions to provide, among other things, that (i) the existing loan availability blocks be permanently reduced during certain specified periods, (ii) replaced certain financial covenants determined on a segment-by-segment basis by amended EBITDA levels for the Headset business beginning with the month ended October 31, 2016, (iii) the Company maintain revised cash flow levels, in the aggregate and with respect to its HyperSound segment, during each rolling four week period beginning with the period ended October 31, 2016 through December 31, 2018 and September 30, 2017, respectively, and (iv) in the event the Company’s availability is less than certain specified amounts, obtain additional funding from the issuance of a subordinated promissory note provided by SG VTB (the “Promissory Note”).

~~As of September 30, 2017, the Company was in compliance with all the amended financial covenants.~~

~~Subordination Agreement~~

On November 16, 2015, as a condition precedent to the Company's lenders permitting the Company to enter into certain subordinated notes, the Company entered into a subordination agreement with and between Bank of America and Crystal, pursuant to which the parties agreed that the Company's obligations under any such notes would be subordinate in right of payment to the payment in full of all the Company’s obligations under the Credit Facility and Term Loan Due 2019.

~~Subordinated Notes - Related Party~~

O~~n April 23, 2015, the Company issued a $5.0 million subordinated note (the “April Note”) to SG VTB Holdings, LLC, the Company’s largest stockholder (“SG VTB”). The April~~

Note was issued with an interest rate of (i) 10% per annum for the first year and (ii) 20% per annum for all periods thereafter, with interest accruing and being added to the principal amount of the note quarterly.

On May 13, 2015, the Company issued subordinated notes (the “May Notes”) with an aggregate principal amount of $3.8 million to SG VTB, and a trust affiliated with Ronald Doornink, the Chairman of the Company's board of directors (the “Board”). The May Notes were issued with an interest rate of 10% per annum until the maturity date of the May Notes (which was August 13, 2015 but could be extended up to two additional 90 day periods upon the written agreement of the Company and the noteholder), with interest accruing and being added to the principal amount of the May Notes quarterly. Following the maturity date, the interest rate would have increased to 20% per annum.

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

On June 17, 2015, the Company issued a subordinated note (the “June Note”) with an aggregate principal amount of $3.0 million to SG VTB. The June Note was issued at an interest rate of 10% per annum until the maturity date of the June Note (which was September 17, 2015 but could be extended up to two additional 90 day periods upon the written agreement of the Company and the noteholder), with interest accruing and being added to the principal amount of the June Note quarterly. Following the maturity date, the interest rate would have increased to 20% per annum. In addition, the Company had the option to request that SG VTB make, in SG VTB’s sole discretion, additional advances from time to time up to an aggregate principal amount of $15.0 million. Prior to the amendment (see below), following an additional advance of $6.0 million on July 8, 2015, $9.0 million was outstanding under the June Note.

Concurrently with the completion of the Term Loan Due 2019, the Company amended and restated each of its outstanding subordinated notes (the “Amended Notes”). The obligations of the Company under the Amended Notes are subordinate and junior to the prior payment of amounts due under the Credit Facility and Term Loan Due 2019. In addition, the stated maturity date of the Amended Notes was extended to September 29, 2019, subject to acceleration in certain circumstances, such as a change of control in the Company. The Amended Notes bear interest at a rate per annum equal to LIBOR plus 10.5% and shall be paid-in-kind by adding the amount to the principal amount due. Further, as consideration for the concessions in the Amended Notes, the Company issued warrants to purchase 1.7 million of the Company’s common stock at an exercise price of $2.54 per share.

On November 16, 2015, the Company issued a $2.5 million subordinated note (the “November Note”) to SG VTB, the proceeds of which, as set forth in the amendment to the Term Loan Due 2019, were applied against the outstanding balance of the Term Loan Due 2019. The November Note will bear interest at a rate of 15% per annum until its maturity date, which is September 29, 2019, and is subordinated to all senior debt of the Company.

In consideration of the credit extended under the November Note, VTB and VTBH entered into a Third Lien Continuing Guaranty, (as amended, the “Third Lien Guaranty”), under which they guarantee and promise to pay to Stripes, any and all obligations of the Company under the November Note. To secure our obligations under the November Note and the Third Lien Guaranty, the Company entered into a Third Lien Security Agreement, dated as of November 16, 2015, pursuant to which Stripes was granted a security interest upon all property of the VTB and VTBH until the payment in full of the Subordinated Note or the release of the guarantee or collateral, as applicable. Concurrent with entering into the November Note and Third Lien Guaranty, the Company also issued to SG VTB a warrant to purchase 1.4 million shares of the Company’s common stock at an exercise price of $2.00 per share.

On October 31, 2016, in connection with certain amendments to the Credit Facility and Term Loan Due 2019, the Company and SG VTB entered into the Promissory Note, which states that in the event the Company’s availability under the Credit Facility is less than certain specified amounts, the Company may, upon request, at any time until September 29, 2019 require that SG VTB provide a $2 million subordinated loan. Upon issuance, the loan would bear interest at a rate of either (i) LIBOR plus 10.5% per annum or (ii) 12.0%, dependent upon the Company’s compliance with certain financial covenants and would be subordinated to all senior debt of the Company.

In addition, under the terms of the Promissory Note, if and when the funding occurs, as additional consideration the Company would issue to SG VTB a warrant, exercisable for a period of ten years beginning on the date of issuance, to purchase an amount of shares of the Company’s common stock equal to 2.4% of the Company’s then fully diluted shares outstanding at an exercise price equal to the closing price on that date. The warrant would not entitle the holder to any voting rights or other rights as a stockholder of the Company prior to exercise.

SG VTB is an affiliate of Stripes Group LLC (“Stripes”), a private equity firm focused on internet, software, healthcare IT and branded consumer products businesses. Kenneth A. Fox, one of our directors, is the managing general partner of Stripes and the sole manager of SG VTB and Ronald Doornink, our Chairman of the Board, is an operating partner of Stripes.

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Note~~ 8. Income Taxes

In order to determine the quarterly provision for income taxes, ~~we use~~the Company uses an estimated annual effective tax rate, ~~(“ETR”),~~ which is based on expected annual income and statutory tax rates in the various jurisdictions. However, to the extent that application of the estimated annual effective tax rate is not representative of the quarterly portion of actual tax expense expected to be recorded for the year, ~~we determine~~ the ~~quarterly~~Company determines the provision for income taxes based on actual year-to-date income (loss). Certain significant or unusual items are separately recognized as discrete items in the ~~quarter~~period during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

The following table presents ~~our~~the Company’s income tax expense ~~(benefit)~~ and effective income tax rate:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(in thousands)
Income tax expense (benefit)	$	(4,740	)	$	(1,286	)	$	(7,379	)	$	1,480
Effective income tax rate		21.0	%		(295.6	%)		23.3	%		12.3	%

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in thousands)
Income tax expense (benefit) $ 578
$ (133 ) $ 1,098
$ (340 )
Effective income tax rate 672.1 % 0.3 % (6.7 )% 0.3 %

Income tax ~~expense~~benefit for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2022 was ~~$0.6~~$4.7 million at an effective tax rate of ~~672.1%~~21.0% and ~~$1.1~~income tax benefit for the six months ended June 30, 2022 was $7.4 million at an effective tax rate of ~~(6.7)~~23.3%~~, respectively.~~. Income tax benefit for the three ~~and nine~~ months ended ~~September~~June 30, ~~2016~~2021 was ~~$(0.1)~~$1.3 million at an effective tax rate of ~~0.3%~~(295.6%) and ~~$(0.3)~~income tax expense for the six months ended June 30, 2021 was $1.5 million at an effective tax rate of ~~0.3%, respectively.~~

12.3%. The effective tax rate for the three and six months ended June 30, 2022 was primarily impacted by the ~~full valuation allowance on domestic earnings, foreign entity~~deduction for stock option exercises, offset by certain non-deductible costs and state income tax ~~benefits and certain state tax~~ expense.

At December 31, 2016, the Company had $49.0 million of net operating loss carryforwards and $21.0 million of state net operating loss carryforwards, which will begin to expire in 2029. An ownership change occurred on January 15, 2014 as a result of the Merger, and $12.7 million of federal net operating losses included in the above are pre-change losses subject to Section 382 of the Internal Revenue Code of 1986, as amended. The Company believes, based on the estimated Section 382 limitation and the net operating loss carryforward period, that the pre ownership change net operating losses can be fully utilized in future years if there is sufficient taxable income in such carryforward period.

~~The Company is subject to income taxes domestically and in various foreign jurisdictions.~~ Significant judgment is required in evaluating uncertain tax positions and determining ~~its~~the provision for income taxes.

The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. Interest and penalties associated with income tax matters are included in the provision for income taxes in the condensed consolidated ~~statement~~statements of operations. As of ~~September~~June 30, ~~2017,~~2022, the Company had uncertain tax positions of ~~$2.2~~$3.8 million, inclusive of ~~$0.7~~$1.1 million of interest and penalties.

The Company has determined that a valuation allowance is not needed against the deferred tax asset as of June 30, 2022, with the exception of net operating losses for certain separate state filings. This analysis is performed on a quarterly basis and includes an evaluation of all positive and negative evidence to determine whether it is more-likely-than-not that the deferred tax assets will be realizable. This is based on generating earnings and taxable income in recent years, no tax attributes on hand that are at risk of expiring in the near future nor is there any history of expiring attributes, the cyclical nature of our business, and projections of future taxable income. In the event that actual results differ from these estimates, the Company may need to modify the level of valuation allowance which could materially impact our business, financial condition and results of operations.

The Company is subject to income taxes domestically and in various foreign jurisdictions. The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations. The federal tax years open under the statute of limitations are ~~2013~~2018 through ~~2015,~~2020, and the state tax years open under the statute of limitations are ~~2012~~2017 through ~~2015. The Company was notified by the IRS of an examination covering our fiscal year end 2015 federal income tax return, which is currently in the discovery phase.~~2020.

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Note9. Stock-Based Compensation

Total estimated stock-based compensation expense for employees and non-employees, related to all of the ~~Company's~~Company’s stock-based awards, was ~~comprised~~ as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands)
Cost of revenue	$	96	$	90	$	122	$	487
Selling and marketing		539		446		937		777
Research and development		390		348		673		597
General and administrative		1,005		1,057		1,835		1,866
Total stock-based compensation	$	2,030	$	1,941	$	3,567	$	3,727

Three Months Ended
Nine Months Ended

September 30,
September 30,

2017
2016
2017
2016

(in thousands)
Cost of revenue $ 20
$ 152
$ (66 ) $ 398
Selling and marketing 18
40
74
50
Research and development 68
138
188
424
General and administrative 264
687
991
2,350
Total stock-based compensation $ 370
$ 1,017
$ 1,187
$ 3,222

The following table presents the stock activity and the total number of shares available for grant as of ~~September~~June 30, ~~2017:~~

2022:



		(in thousands)
Balance at December 31, ~~2016~~2021	~~2,261~~		998
Options ~~granted~~Cancelled	~~(705~~	)	31
Restricted Stock ~~granted~~Granted	~~(167~~		(484	)
~~Forfeited/Expired shares added back~~ Restricted Stock Forfeited	~~1,098~~		28
Performance Shares Unearned			7
Performance Shares Granted			(167	)
Balance at ~~September~~June 30, ~~2017~~2022	~~2,487~~		413

Stock Option Activity


	Options Outstanding
	Number of Shares Underlying Outstanding Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
						(in years)
Outstanding at December 31, 2021		1,739,240		$	7.72		7.02	$	25,542,823
Options Granted		-			-
Options Exercised		(71,379	)		7.54
Options Forfeited		(31,181	)		10.28
Outstanding at June 30, 2022		1,636,680		$	7.68		6.45	$	8,417,740
Vested and expected to vest at June 30, 2022		1,621,925		$	7.74		6.44	$	8,350,391
Exercisable at June 30, 2022		1,143,564		$	7.28		5.98	$	6,537,350

Options Outstanding
Number of Shares Underlying Outstanding Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value
(In years)
Outstanding at December 31, 2016 6,381,447
1.90 7.37 20,033
Granted 704,865
0.93
Exercised —
—
Forfeited (1,053,683 ) 2.22
Outstanding at September 30, 2017 6,032,629
1.73 6.75 2,543
Vested and expected to vest at September 30, 2017 6,022,628
1.74 6.75 2,543
Exercisable at September 30, 2017 3,886,414
1.76 6.68 2,100

Stock options are time-based and the majority are exercisable within 10 years of the date of grant, but only to the extent they have vested. The options generally vest as specified in the option agreements subject to acceleration in certain circumstances. In the event participants in the ~~2013 Plan~~plan cease to be employed or engaged by the Company, ~~then~~ all ~~of the~~vested options would be forfeited if they are not exercised within 90 days. Forfeitures on option grants are estimated at ~~10%~~10% for non-executives and 0%0% for executives based on evaluation of historical and expected future turnover. Stock-based compensation expense was recorded net of estimated forfeitures, such that expense was recorded only for those stock-based awards expected to vest. The Company reviews this assumption periodically and will adjust it if it is not representative of future forfeiture data and trends within employee types (executive vs. non-executive).

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. ~~There were no option exercises during~~The aggregate intrinsic value of options exercised was $0.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

2022.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted as of the grant date. ~~The following are assumptions for the nine months ended September 30, 2017.~~



~~Expected term (in years)~~	~~6.1~~
~~Risk-free interest rate~~	~~1.9% - 2.1%~~
~~Expected volatility~~	~~40.1% - 41.1%~~
~~Dividend rate~~	0%

~~Each of these inputs is subjective and generally requires significant judgment to determine.~~

~~The weighted average grant date fair value of~~There were no new options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2017 was $0.39.~~2022. The total estimated fair value of employee options vested during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$1.2~~$3.5 million. As of ~~September~~June 30, ~~2017,~~2022, total unrecognized compensation cost related to non-vested stock options granted to employees was ~~$1.3~~$2.0 million, which is expected to be recognized over a remaining weighted average vesting period of ~~2.6~~1.6 years.

Restricted Stock Activity


	Shares			Weighted Average Grant Date Fair Value Per Share
Nonvested restricted stock at December 31, 2021		788,454		$	16.81
Granted		483,533			21.20
Vested		(258,399	)		16.31
Shares forfeited		(27,854	)		16.58
Nonvested restricted stock at June 30, 2022		985,734		$	19.10

Shares Weighted Average Grant Date Fair Value Per Share
Nonvested restricted stock at December 31, 2016 135,705
1.84
Granted 166,665
0.90
Vested (91,002 ) 2.06
Forfeited (43,903 ) 1.16
Nonvested restricted stock at September 30, 2017 167,465
0.96

As of ~~September~~June 30, ~~2017,~~2022, total unrecognized compensation ~~cost~~costs related to the nonvested restricted stock awards ~~granted to~~was $17.6 million, which will be recognized over a remaining weighted average vesting period of ~~0.5 years was minimal.~~

~~Stock Warrants~~

~~In connection with and as consideration for the concessions in the Amended Notes,~~2.5 years.

Performance-Based Restricted Share Units

As of June 30, 2022, the Company had 256,342 performance-based restricted share units outstanding, including 167,000issued ~~to SG VTB~~in 2022. The vesting of performance-based restricted share units is determined over a three-year period based on (i) the amount by which revenue growth exceeds a defined baseline market growth each year and ~~a trust affiliated with Ronald Doornink warrants to purchase 1.7 million shares~~(ii) the achievement of ~~the Company’s common stock at an exercise price~~specified tiers of $2.54 per share. The warrants are exercisable for a period of five years beginning on the date of issuance, July 22, 2015. The exercise price and the number of shares of Common Stock purchasable are subject to adjustment and do not carry any voting rights or other rightsadjusted EBITDA as a ~~stockholder~~percentage of the Company prior to exercise. The shares issuable upon exercise are also subject to the “demand” and “piggyback” registration rights set forth in the in the Company’s Stockholder Agreement, dated August 5, 2013, as amended July 10, 2014.

~~In connection~~net revenue each year, with the ~~November Note, the Company issued a warrant~~ability to ~~purchase 1.4 million shares of the Company’s common stock at an exercise price of $2.00 per~~earn and vest into such units ranging from 0% to 200%. In 2021, 37,507 performance-based restricted share to SG VTB. The exercise price and the number of shares are subject to standard anti-dilution adjustments and do not carry any voting rights as a stockholder of the Company prior to exercise. The warrant is exercisable for a period of ten years beginning on the date of issuance and does not entitle the holder to any voting rights or other rights as a stockholder of the Company prior to exercise.

The warrants entitle the holder to purchase a stated amount of shares of common stock at a fixed exercise price that are not puttable (either the warrant or the shares) to the Company or redeemable for cash, and as such are classified within equity.

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Series B Redeemable Preferred Stock~~

In September 2010, VTBH issued 1,000,000 shares of its Series B Redeemable Preferred Stock with a fair value of $12.4 million. The Series B Redeemable Preferred Stock is required to be redeemed on the earlier of September 28, 2030, or the occurrence of a liquidation event at its original issue price of $12.425371 per share plus any accrued but unpaid dividends. The redemption value was $18.5 million and $17.5 million as of September 30, 2017 and December 31, 2014, respectively.

On February 18, 2015, the holder of the Series B Redeemable Preferred Stock, filed a complaint in Delaware Chancery Court alleging breach of contract against VTBH. According to the complaint, the Merger purportedly triggered a contractual obligation for VTBH to redeem the stock. Refer to Note 12, “Commitments and Contingencies” for further information.

~~Phantom Equity Activity~~

In November 2011, VTBH adopted a 2011 Phantom Equity Appreciation Plan (the “Appreciation Plan”) that covers certain employees, consultants, and directors of VTBH (“Participants”) who are entitled to phantom units as applicable, pursuant to the provisions of their respective award agreements. The Appreciation Plan is shareholder-approved, which permits the granting of phantom units to VTBH’s Participants of up to 1,500,000 units. These units are not exercisable or convertible into shares of common stock but give the holder a right to receive a cash bonus equal to the appreciation in value between the exercise price and value of common stock at the time of a change in control event as defined in the plan.

As of September 30, 2017 and December 31, 2016, 714,347 phantom units at a weighted-average exercise price of $0.93 had been granted and were outstanding. Because these phantom units are not exercisable or convertible into common shares, said amounts and exercise prices were not subject to the exchange ratio provided by the Merger agreement. As of September 30, 2017, compensation expensevested related to the ~~Appreciation Plan units remained unrecognized because as~~Company's achievement of those dates a change in control, as defined in the plan, had not occurred and is not probable to occur. In July 2015, the Appreciation Plan was terminated as to new grants, but vested and unvested phantom units will continue.these performance measures.

Note10. Net ~~Loss~~Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net ~~loss~~income (loss) per share of common stock attributable to common stockholders:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2022			2021		2022			2021
	(in thousands, except per-share data)
Net income (loss)	$	(17,826	)	$	1,721	$	(24,302	)	$	10,559

Weighted average common shares outstanding — Basic		16,500			15,920		16,348			15,737
Plus incremental shares from assumed conversions:
Dilutive effect of restricted stock		—			421		—			469
Dilutive effect of stock options		—			1,438		—			1,448
Dilutive effect of warrants		—			550		—			550
Weighted average common shares outstanding — Diluted		16,500			18,329		16,348			18,204
Net income (loss) per share:
Basic	$	(1.08	)	$	0.11	$	(1.49	)	$	0.67
Diluted	$	(1.08	)	$	0.09	$	(1.49	)	$	0.58

Three Months Ended
Nine Months Ended
September 30,
September 30,
2017
2016
2017
2016
(in thousands, except per-share data)
Net Loss $ (492 ) $ (44,799 ) $ (17,479 ) $ (99,383 )

Weighted average common shares outstanding — Basic 49,386
49,230
49,328
48,371
Plus incremental shares from assumed conversions:
Dilutive effect of stock options —
—
—
—
Weighted average common shares outstanding — Diluted 49,386
49,230
49,328
48,371
Net loss per share:
Basic $ (0.01 ) $ (0.91 ) $ (0.35 ) $ (2.05 )
Diluted $ (0.01 ) $ (0.91 ) $ (0.35 ) $ (2.05 )

Incremental shares from stock options and restricted stock awards are computed byusing the treasury stock method. The weighted average shares listed below were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwise excluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting of restricted stock, reduced by the repurchase of shares with the proceeds from the assumed exercises and unrecognized compensation expense for outstanding ~~awards and the estimated tax benefit of the assumed exercises.~~

awards.

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands)
Stock options		1,655		77		1,672		769
Unvested restricted stock awards		963		8		915		283
Warrants		550		—		550		—
Total		3,168		85		3,137		1,052

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in thousands)
Stock options 6,133
6,758
6,287
6,321
Warrants 3,059
3,068
3,061
3,072
Unvested restricted stock awards 167
136
137
115
Total 9,359
9,962
9,485
9,508

Note11. Segment ~~and Geographic~~ Information

~~The following tables show our net revenues, operating income and total assets by our reporting segments:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017
2016
Net Revenues (in thousands)
Headset $ 35,947
$ 38,283
$ 69,291
$ 91,172
HyperSound 28
101
148
602
Total $ 35,975
$ 38,384
$ 69,439
$ 91,774

Operating Income (Loss)
Headset $ 1,819
$ 1,710
$ (9,779 ) $ (7,971 )
HyperSound 57
(44,450 ) (1,402 ) (85,026 )
Total $ 1,876
$ (42,740 ) $ (11,181 ) $ (92,997 )
Interest Expense $ 2,042
$ 1,866
$ 5,717
$ 5,331
Other non-operating expense (income), net $ (252 ) $ 326
(517 ) 1,395
Earnings (loss) before income tax $ 86
$ (44,932 ) $ (16,381 ) $ (99,723 )

September 30,
2017 December 31,
2016
Total Assets (in thousands)
Headset $ 83,029
$ 94,081
HyperSound⁽¹⁾
27,918
31,233
Eliminations (27,878 ) (30,514 )
Total $ 83,069
$ 94,800

~~(1) At September 30, 2017, HyperSound assets excluding eliminations, totaled less than $0.1 million.~~

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

The following table represents total net revenues based on where customers are physically located:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands)
North America	$	27,384	$	50,645	$	58,752	$	114,780
Europe and Middle East		9,179		19,075		21,301		45,418
Asia Pacific		4,737		8,844		7,909		11,419
Total net revenues	$	41,300	$	78,564	$	87,962	$	171,617

Three Months Ended
Nine Months Ended
September 30,
September 30,
2017
2016
2017
2016
(in thousands)
North America $ 23,320
$ 28,063
$ 47,371
$ 69,679
United Kingdom 5,204
3,142
9,182
9,073
Europe 5,947
5,477
9,884
9,326
International 1,504
1,702
3,002
3,696
Total net revenues $ 35,975
$ 38,384
$ 69,439
$ 91,774

Note12. Commitments and Contingencies

Litigation

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the amount of any liability that could arise with respect to these actions cannot be determined with certainty, in the Company’s opinion, any such liability will not have a material adverse effect on its consolidated financial position, consolidated results of operations or liquidity.

Shareholders Class ~~Action:~~Action:On August 5, 2013, VTBH and the Company (f/k/a ~~Parametric)~~Parametric Sound Corporation) announced that they had entered into the Merger Agreement pursuant to which VTBH would acquire an approximately ~~80%~~80% ownership interest and existing shareholders would maintain an approximately ~~20%~~20% ownership interest in the combined ~~company.~~company (the “Merger”). Following the announcement, several shareholders filed class action lawsuits in California and Nevada seeking to enjoin the Merger. The plaintiffs in each case alleged that members of the Company’s Board of Directors breached their fiduciary duties to the shareholders by agreeing to a ~~Merger~~merger that allegedly undervalued the Company. VTBH and the Company were named as defendants in these lawsuits under the theory that they had aided and abetted the ~~Company's~~Company’s Board of Directors in allegedly violating their fiduciary duties. The plaintiffs in both cases sought a preliminary injunction seeking to enjoin closing of the Merger, which, by agreement, was heard by the Nevada court with the California plaintiffs invited to participate. On December 26, 2013, the court in the Nevada ~~cases~~case denied the plaintiffs’ motion for a preliminary injunction. Following the closing of the Merger, the Nevada plaintiffs filed a second amended complaint, which made essentially the same allegations and sought monetary damages as well as an order rescinding the Merger. The California plaintiffs dismissed their action without prejudice, and sought to intervene in the Nevada action, which was granted. Subsequent to the intervention, the plaintiffs filed a third amended complaint, which made essentially the same allegations as prior complaints and sought monetary damages. On June 20, 2014, VTBH and the Company moved to dismiss the action, but that motion was denied on August 28, 2014. That denial is currently under review by the Nevada Supreme Court, which held a hearing on the Company's petition for review on September 1, 2015. After the hearing, the Nevada Supreme Court requested supplemental briefing, which the parties completed on October 13, 2015. The Nevada Supreme Court also invited the Business Law Section of the Nevada State Bar to submit an amicus brief by December 3, 2015 and briefing was completed on that date. On September 14, 2017, a unanimous en banc panel of the Nevada Supreme Court granted defendants’ petition for writ of mandamus and ordered the trial court to dismiss the complaint but ~~did provide~~provided a limited basis upon which plaintiffs could seek to amend their complaint. Plaintiffs amended their complaint on December 1, 2017 to assert the same claims in a derivative capacity on behalf of the Company, as a well as in a direct capacity, against VTBH, Stripes Group, LLC, SG VTB Holdings, LLC, and the former members of the Company’s Board of Directors. All defendants moved to dismiss this amended complaint on January 2, 2018, and those motions were denied on March 13, 2018. Defendants petitioned the Nevada Supreme Court to reverse this ruling on April 18, 2018. On June 15, 2018, the Nevada Supreme Court denied defendants’ writ petition without prejudice. The district court subsequently entered a pretrial schedule and set trial for ~~such amendment,~~November 2019. On January 18, 2019, the district court certified a class of shareholders of the Company as of January 15, 2014. On October 11, 2019, the parties notified the district court that they had reached a settlement that would resolve the pending action if ~~any,~~ultimately approved by the Court. On January 13, 2020, the district court preliminarily approved the settlement between the plaintiffs and all defendants. A final hearing was held on May 18, 2020, wherein the Court approved the settlement and entered final judgment. Plantiff has ~~not been set.~~

~~Dr. John Bonanno Complaint:~~ ~~On February 18, 2015, Dr. John Bonanno, a minority shareholder of VTBH,~~ filed a notice of their intent to appeal the judgment.

On May 22, 2020, PAMTP LLC, which purports to hold the claims of 8 shareholders who opted out of the class settlement described above, brought suit against the Company, the Company’s CEO, Juergen Stark, Stripes Group, LLC, SG VTB Holdings, LLC, Kenneth Fox, and former members of the Company’s Board of Directors in Nevada state court. This opt-out action asserts the same direct claims that were asserted by the class of shareholders described above. The defendants filed 2 motions to dismiss this complaint, which were heard on August 10, 2020. The Court denied those motions by order of August 20, 2020. The case was tried in ~~Delaware Chancery~~August 2021 and all defendants, including the Company, prevailed on all counts with final judgment entered in their favor on September 3, 2021.

Employment Litigation: On April 20, 2017, a former employee filed an action in the Superior Court alleging breach of contract against VTBH. According to the complaint, the Merger purportedly triggered a contractual obligation for VTBH to redeem Dr. Bonanno's stock. Dr. Bonanno requests a declaratory judgment stating that he is entitled to damages including a redemption of his stock for the ~~redemption value~~County of ~~$15.1 million (equal to~~San Diego, State of California. The complaint alleges claims including wrongful termination, retaliation and various other provisions of the ~~original issue price of his stock plus accrued dividends)~~California Labor Code. The complaint seeks unspecified economic and non-economic losses, as well as ~~other costs~~allegedly unpaid wages, unreimbursed business expenses statutory penalties, interest, punitive damages and ~~expenses.~~attorneys’ fees. The Company filed a cross-complaint against the former employee on May 25, 2017 for certain activities related to his employment with the Company. The matter was tried between September 24 and October 7, 2021. On ~~February~~October 8, ~~2016,~~2021 a jury rendered a unanimous verdict in favor of the ~~Delaware Chancery~~Company on the employment claims. The Court granted ~~VTBH's motion~~a directed verdict to ~~dismiss for improper venue, and Dr. Bonnano's complaint~~the Company on its Cross- Complaint against the former employee. Judgment was ~~dismissed without prejudice. In January of 2017, Dr. Bonanno filed a complaint~~entered in New York state court alleging breach of contract against VTBH and seeking a declaratory judgment that he is entitled to damages and specific performance, including redemption of his stock. The Company answered the complaint on March 7, 2017. At the orderfavor of the ~~Court,~~Company on October 27, 2021. On December 20, 2021, the ~~parties filed cross-motions for summary judgment on March 31, 2017, on the sole question of whether the Merger was a defined event in the~~

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

purported contract entitling Dr. Bonnano to redemption of his shares. The cross-motions for summary judgment were fully briefed and heard on July 6, 2017. On September 1, 2017, the Court denied Defendant’s motion for summary judgment and granted Plaintiff’s motion for partial summary judgment. On October 5, 2017, a status conference was held that set a pre-trial schedule such that all merits and expert discovery will conclude on May 3, 2018 and a trial readiness conference will be held on May 4, 2018. On October 11, 2017, Defendant filed a motion to reargue plaintiff’s motion for summary judgment in the trial court, specifically seeking clarification that Defendant’s affirmative defenses to liability remain available. On the same day, Defendantformer employee filed a notice of appeal of the ~~Court’s decision~~judgment.

Intellectual Property Dispute: On November 24, 2020, ABP Technology Limited (ABP) issued a claim for trademark infringement in the High Court of England and Wales against Voyetra Turtle Beach, Inc. (“VTB”) and Turtle Beach Europe Limited (“TBEU”) relating to the use by VTB and TBEU of the sign STEALTH on and in relation to gaming headsets in the UK. VTB and TBEU filed and served a Defense to the claim on February 2, 2021. On March 31, 2021, ABP filed an application for summary judgement. The summary judgment application was heard by the Court in ~~its entirety.~~November 2021 and was dismissed. The ~~plaintiff’s ability~~next stage in the main proceedings will be a Case Management Conference on November 4, 2022 at which the Court will give directions for each stage to ~~recover any damages~~trial. The trial is ~~subject~~expected to ~~certain limitations, including, but not limited to, legally available funds. VTBH maintains that the Merger did not trigger any obligation to redeem Mr. Bonanno's preferred stock.~~

~~Commercial Dispute~~be heard in April 2023.

Consumer Class Action: On ~~July 20, 2016, Bigben Interactive S.A. (“BigBen”)~~June 13, 2022, an individual filed a ~~statement of claim before the Regional Court of Berlin, Germany~~class action lawsuit against VTB ~~which statement~~in the United States District Court for the Central District of ~~claim was formally serviced upon VTB on June 28, 2017.~~California. The ~~statement of claim~~complaint alleges that ~~VTB’s termination of a distribution agreement~~VTB violated the Telephone Consumer Protection Act, 47 U.S.C. § 227(b), by and between BigBen and VTB breached the terms thereof and was invalid, and that BigBen is entitled to damages amounting to damages amounting to €5.0 million plus accrued interests thereon plus certain additional damages as a result of such invalid termination. VTB filed its statement of defense with the court on September 21, 2017. VTB maintains that its termination of the agreement was valid and that BigBen’s claims against it are without merit. VTB's statement of defense was submittedsending marketing-related text messages to the plaintiff and other members of the public who have registered their telephone numbers on the national Do-Not-Call Registry. The plaintiff seeks to represent a class of all persons in the United States whose telephone numbers were present on the national Do-Not-Call Registry and received text messages from VTB within the last four years. The complaint seeks statutory damages and an order enjoining VTB from sending further text messages to telephone numbers listed on the national Do-Not-Call Registry. VTB believes that the plaintiff consented to receive marketing-related text messages from VTB and maintains that it does not contact members of the public without their consent. VTB has filed an initial response to the complaint. The court has ~~granted the option to submit~~not yet set a ~~further written statement in reply to the statement of defense.~~

trial date for this matter.

The Company will continue to vigorously defend itself in the foregoing unresolved matters. However, litigation and investigations are inherently uncertain. Accordingly, the Company cannot predict the outcome of these matters. The Company has not recorded any accrual at ~~September~~June 30, ~~2017~~2022 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonably estimated at this time. The unfavorable resolution of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows. The Company is engaged in other legal actions, not described above, arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition, or cash flows.

Warranties

~~We warrant our~~

The Company warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. Warranties are generally fulfilled by replacing defective products with new products. The following table provides the changes in our product ~~warranties,~~warranty reserve, which are included in accrued liabilities:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(in thousands)
Warranty, beginning of period	$	789		$	1,118		$	856		$	1,039
Warranty costs accrued		72			119			193			453
Settlements of warranty claims		(143	)		(215	)		(331	)		(470	)
Warranty, end of period	$	718		$	1,022		$	718		$	1,022

Operating Leases - Right of Use Assets

The Company adopted ASU 2016-02, Leases, on January 1, 2019. The Company determines whether an arrangement is a lease at inception. The Company leases office spaces that provide for future minimum rental lease payments under non-cancelable operating leases that have remaining lease terms of one year to nine years, and do not contain any material residual value guarantees or material restrictive covenants.

The components of the right-of-use assets and lease liabilities were as follows:


	Balance Sheet Classification	June 30, 2022
		(in thousands)
Right-of-use assets	Other assets	$	7,619

Lease liability obligations, current	Other current liabilities	$	1,069
Lease liability obligations, noncurrent	Other liabilities		7,134
Total lease liability obligations		$	8,203
Weighted-average remaining lease term (in years)			5.4
Weighted-average discount rate			5.25	%

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in thousands)
Warranty, beginning of period $ 529
$ 717
$ 639
$ 580
Warranty costs accrued 59
195
173
672
Settlements of warranty claims (109 ) (162 ) (333 ) (502 )
Warranty, end of period

$ 479
$ 750
$ 479
$ 750

~~XO FOUR Stealth Product Recall:~~ I~~n August 2015,~~

During the six months ended June 30, 2022, the Company ~~received a limited number~~recognized approximately $0.7 million of ~~reports~~lease costs in operating expenses and approximately $0.5 million of operating cash flows from ~~consumers and retailers that certain EAR FORCE~~® XO FOUR Stealth headsets appeared to have a white substance or spots on the ear pads. Upon receiving the reports, the Company promptly stopped shipping any units of the XO FOUR Stealth headsets and notified our retail customers to stop sales pending the results ofoperating leases.

Approximate future minimum lease payments for the Company’s ~~investigation. An outside laboratory engaged by~~right of use assets over the ~~Company identified the substance~~remaining lease periods as ~~mold. In cooperation with the U.S. Consumer Product Safety Commission (“CPSC”), the Company is voluntarily recalling certain units~~ of ~~the headsets. As of September~~June 30, 2017 and the date of this report, the Company has not received notice of any law suits against the Company in connection with the recall and is working with the contract manufacturer to collect reimbursement for certain related costs.

On February 3, 2016, the Company notified CPSC promptly upon discovery that a vendor had mistakenly shipped certain recalled headsets to fill online orders. The Company has attempted to notify directly each of the affected purchasers to instruct them to participate in the recall. By letter dated August 23, 2017, CPSC staff notified the Company that the staff does not

~~Turtle Beach Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~2022, are as follows:


	(in thousands)
2022	$	660
2023		1,285
2024		1,306
2025		1,293
2026		1,200
Thereafter		3,674
Total minimum payments		9,418
Less: Imputed interest		(1,215	)
Total	$	8,203

~~intend to seek penalties against the Company at this time for the post-recall sale, offer for sale or distribution in commerce of recalled headsets.~~

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our operations should be read together with our unaudited condensed consolidated financial statements and the related notes included in Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~8, 2017~~2, 2022 (the "Annual Report.")

This Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this Report are indicated by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,” “projects,” “strategies” and similar ~~expressions.~~expressions or negatives thereof. Caution should be taken not to place undue reliance on any such forward-looking statements because they involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements. 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.~~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 ~~(herein referred to as~~(“Turtle Beach” or the ~~“Company,” “we,” “us,” or “our”~~“Company”), headquartered in ~~San Diego, California~~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 ~~operating~~ under ~~two reportable segments,~~the Turtle Beach® ~~(“Headset“)~~, ROCCAT® and ~~HyperSound®.~~

Neat Microphones® brands. Turtle Beach is a worldwide ~~leading provider~~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.

~~HyperSound technology~~ ROCCAT is ~~an innovative patent-protected sound technology that delivers immersive, directional audio with applications in digital signage~~a gaming headset, keyboards, mice and ~~kiosks, consumer electronics and hearing healthcare.~~

~~The Company's stock is traded on NASDAQ Global Market under the symbol HEAR.~~

~~Business Trends~~

~~Gaming Headset Market~~

~~Sales~~other accessories brand focused in the PC peripherals market. Neat Microphones is a microphones brand focused on using cutting edge technology and design to create high quality USB and analog microphones for gamers, streamers, and professionals.

Business Trends

We participate in the global software and accessories gaming ~~accessories~~ market, which ~~includes headsets~~had an estimated size of $200 billion in 2021, per updated data published by Newzoo in April 2022. The global gaming audience exceeds global cinema and ~~other~~music markets with over 3 billion active gamers worldwide. Gaming peripherals, such as ~~gamepads, specialty~~headsets, keyboards, mice, microphones, controllers, ~~adapters, batteries, memory~~ and ~~interactive~~simulation are estimated to be an over $8.5 billion business globally with over 80% of that market in the Americas and Europe where the Company’s business is focused.

Competitive esports is a global phenomenon where professional gamers train and compete to win prize money, partner with major brands, and attract dedicated fans – similar to traditional professional sports. There were approximately 490 million esports viewers in 2021, and that is expected to increase to roughly 641 million viewers by 2025, according to a report from Newzoo. Of those 641 million projected viewers, approximately 318 million are considered “esports enthusiasts.”

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

The Company’s results are ~~heavily dependent~~affected by numerous macroeconomic factors including inflation, consumer spending confidence and global supply chains. In 2022, we have experienced a higher rate of inflation than in recent years resulting in higher cost of goods, selling expenses, and general and administrative expenses. Such increases have had and may continue to have a negative impact on the Company’s profit margins if selling prices of products do not increase with the increased costs.

The COVID-19 pandemic has disrupted worldwide economic markets and the extent to which the pandemic and measures adopted in response thereto continue to affect the Company's business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict. While there were likely certain one-time purchases of our products caused by stay-at-home guidance and remote working and learning, we believe millions of new gamers have joined the market which created an ongoing, larger installed base of players.

Console Headset Market

The global ~~video game industry. In 2013, the~~market for console headsets in 2021 was approximately $1.7 billion. PlayStation® and Xbox® consoles continue to be dominant gaming ~~industry experienced~~platforms in North America and Europe for games that drive headset usage. Consistent with a ~~cyclical event as~~historical pattern of major new console launches every 7-8 years, Microsoft and Sony ~~each announced new~~released their latest next generation consoles, ~~for~~Xbox® Series and PlayStation®5 platforms just ahead of the first time in eight years, and the consumer response to the Xbox One and PlayStation®4 (the “new generation” or “new-gen” consoles) has been overwhelmingly positive, creating a new installed base of gamers and a market2020 holiday season. Demand for ~~new-gen headsets.~~

~~When new console platforms are introduced into the market, changes to their platforms impact how headset connect with or work with~~ the new consoles has continued to be very strong and such as with the most recent consoles, required a transition of console gaming headsets and consumers reduced their purchases of game console peripherals and accessories, including headsets, for old generation console platforms in anticipation of the new platforms becoming available.

~~In September 2016, Sony discontinued the original PlayStation®4 console and released a new, slimmer, and lower-priced PlayStation®4 Slim,~~exceeded supply which no longer includes an optical audio connector. Despite dropping the optical connector, we were largely able to accommodate this audio connectivity change via software updates to a small selection of our products affected by Sony's hardware change.

~~We believe this~~ is a good ~~indication that any potential future console changes are not~~indicator

of the enthusiasm for the latest consoles. The demand for gaming consoles is forecasted to continue to be strong in 2022 with the additional supply of PlayStation®5 and Xbox® Series platforms expected to ~~be nearly as disruptive as this past change as the new generation of platform uses fairly standard audio connectivity, which we believe is unlikely to change~~

and many headsets now have the capability to be updated via software upgrades. Over the long term, we expect to benefit from the extension of the new-gen cycle, driven by the recent introductions of Xbox One S, and PlayStation®VR, and the anticipated releases of PlayStation®4 Pro and Xbox One X, which is believed to result in stronger gaming engagement for the next several years.

~~While sales of the new-gen consoles have outperformed previous platforms,~~help the overall console market reach single digit percentage growth in 2022.

Nintendo has sold over 100 million units of the Nintendo Switch™ since its release in early 2017. Nintendo continues adding and expanding their library of games with an increased number of multiplayer chat-enabled games. Nintendo also sells the Nintendo Switch™ Lite, a follow-on product that offers gamers the hand-held only version of their popular gaming console.

While gaming on mobile/tablet devices represents about 51% of the global gaming market ~~uncharacteristically slowed~~and headsets can be used for mobile gaming, console and PC gaming are by-far the largest drivers of gaming headset use.

PC Accessories Market

The market for PC gaming headsets, mice, and keyboards is estimated to have grown slightly in 2021 to $3.6 billion. The same gaming, work-from-home, and school-learn-from-home factors associated with the COVID-19 pandemic that benefitted the accessories market also resulted in increased consumer demand for headsets, keyboards, mice, and other accessories developed for PC gaming in recent years.

PC gaming in the ~~2016 holiday season, leading~~U.S. has seen a resurgence in popularity the past few years and continues to ~~higher-than-normal channel inventory entering 2017, as consumer deferred purchases ahead~~be a main gaming platform internationally, driven by big AAA game launches, PC-specific esports leagues, popular teams and players, content creators and influencers and cross-platform play. While most games are available on multiple platforms, gaming on PC offers advantages including improved graphics, increased speed and precision of ~~mid-cycle console refreshes~~mouse/keyboard controls, and the ability for deeper customization. Gaming mice and keyboards are engineered to provide gamers with high-end performance and a ~~limited line up~~superior gaming experience through features such as faster response times, improved materials and build quality, programmable buttons and keys, and software suites to customize and control devices and settings.

PC gaming mice come in a variety of ~~multi-player games. By mid-year channel inventory normalized, however, retailer business model initiatives~~different ergonomic shapes and sizes, are available in both wired and wireless models, offer options for different sensors (optical and laser) and responsiveness, and often feature integrated RGB lighting and software to ~~reduce channels inventory levels have shifted~~unify with the ~~anticipated timing~~lighting on other devices for a visually consistent PC gaming appearance. Similarly, PC gaming keyboards often deliver a competitive advantage by offering options for mechanical and optical key switches that feel and sound different and offer customizable lighting.

PC and console gaming markets are also driven by major game launches and franchises that encourage players to buy equipment and accessories. On Xbox®, PlayStation®, and PC flagship games like Call of ~~revenue. We believe~~Duty®, Destiny, Star Wars: Battlefront, Battlefield, Grand Theft Auto, and battle royale games like Fortnite, Call of Duty Warzone, Apex Legends, and PlayerUnknown’s Battlegrounds, are examples of major franchises that prominently feature online multiplayer modes that encourage communication and tend to drive increased gaming headset demand. Many of these ~~actions~~established franchises launch new titles annually leading into the holidays and as a result can cause an additional boost to the normally strong holiday sales for gaming accessories.

Microphone Market

As of 2021, the microphone market is estimated to be $2.1 billion in size of which roughly an estimated $630 million is for digital USB microphones. The market for high-quality microphones, specifically digital microphones, has experienced significant growth as content creators on YouTube, Twitch and other popular platforms are ~~not~~gravitating toward using high-quality professional equipment for their workstations. Additionally, with the trend to remote work, the need for a well-performing desktop microphone has become an ~~indication~~important tool for working and learning from home, as well as staying connected with family and friends. Turtle Beach’s acquisition of ~~an overall industry decline, but will require~~Neat Microphones in 2021 expanded the Company’s reach into the global microphone market, including, in particular, the market for digital/USB microphones that are often used by gamers, streamers, and influencers with other PC accessories.

Other Gaming Accessories Market

During 2021, the Company successfully expanded into the gaming simulation and gaming controller markets with the launch of the VelocityOne Flight™ simulation control system and the Xbox® Recon Controller, respectively. These markets increased our total addressable market by $1 billion, with third-party game controllers at roughly $600 million, and PC/console flight simulation hardware at roughly $400 million.

Supply Chain and Logistic Outlook

The ongoing global economic recovery, subsequent to ~~maintain higher inventory levels~~the COVID-19 pandemic, as well as a surge in imports and high demand for electronics, has created significant challenges for global supply chains resulting in inflationary cost pressures and component shortages. We have also experienced logistical challenges related to ~~meet customer demands with shorter lead times.~~

~~The upcoming 2017 holiday outlook, according to recent data, is forecasted to outperform~~transportation delays and have incurred incremental costs for commodities and components used in our products as well as component shortages that have negatively impacted our sales and results of operations. These factors resulted in the ~~previous year with multiple game releases expected~~demand for such goods to exceed $100 million in packaged consumer sales. Additionally, both the PlayStation®4 Pro and Xbox One X have backwards compatibility marking the first time that the console video game business has seen the introduction of two new console systems with complete backward and forward compatibility. And it is the first time that both Sony and Microsoft will have a two-tier product offeringsupply chain capacity, which may allow them to offer more competitive pricing on their lower tier models and attract new gamers into the market. We believe the anticipated increased consumer purchase activity, as compared to the prior year, will benefit the gaming console headset market recovery.

~~Cumulative New Generation Console Sales (in millions)~~

~~Source: DFC Intelligence Forecasts: Worldwide Console Forecast, February 2017.~~

~~Seasonality~~

Our gaming headset business is seasonal with a significant portion of sales and profits typically occurring around the holiday period. Historically, more than 50% of headset business revenues are generated during the period from September through December as new headsets are introduced and consumers engage in holiday shopping.

~~HyperSound~~

HyperSound technology is a pioneering audio solution that provides an effective means of projecting sound in a highly directional manner, without use of large speaker arrays, to a specific location creating a precise audio zone. HyperSound directs a beam of audio to targeted listeners in a specific spot, delivering an immersive, 3D-like audio experience. Further, in June 2016, we unveiled HyperSound Glass, transparent directional speakers, and have started exploration of potential commercial licensing opportunities.

~~In the first half of 2017, we substantially completed the process of restructuring the HyperSound business in an effort to reduce~~drove costs and ~~align spending~~lead times higher. We expect that these challenges will continue

to have an impact on our businesses for the foreseeable future. As a result, we continue to take proactive steps to continue to limit the impact of these challenges and are working closely with ~~revenues, while continuing~~our suppliers to ~~pursue certain licensing opportunities for this technology. In October, the Company agreed to its initial license deal within the commercial audio field~~manage availability of ~~use.~~

products and implement other cost savings initiatives.

Key Performance Indicators and Non-GAAP Measures

~~Management~~

In evaluating our results, management routinely reviews key performance indicators, ~~including~~which include non-GAAP measures as well as the operating metrics of revenue, operating income and margins, and earnings per share, among others. In addition, we believe certain other measures provide useful information to management and investors about us and our financial condition and results of operations for the following reasons: (i) ~~it is one of the~~they are measures used by our ~~board~~Board of ~~directors~~Directors and management team to evaluate our operating performance; (ii) ~~it is one of the~~they are measures used by our management team to make day-to-day operating decisions; (iii) the adjustments made are often viewed as either non-recurring or not reflective of ongoing financial performance or have no cash impact on operations; and (iv) ~~it is~~they are used by securities analysts, investors and other interested parties as a common operating performance measure to compare results across companies in our industry by ~~backing out~~adjusting for potential differences caused by variations in capital structures (affecting relative interest expense), and the age and book value of facilities and equipment (affecting relative depreciation and amortization expense). ~~These~~We consider the following metrics, ~~however,~~which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

•

Adjusted EBITDA is a non-GAAP measure that we believe is useful to investors to measure the operational strength and performance of our business. Adjusted EBITDA is defined as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash) and certain special items that we believe are not ~~measures~~representative of core operations.

•

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

We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about our operating profitability adjusted for certain non-cash items, non-routine items that we do not expect to continue at the same level in the future, as well as other items that are not core to our operations. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures. However, Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America (“GAAP”) and, given the limitations of these metrics as analytical tools, should not be considered a substitute for gross profit, gross margins, net income (loss) or other consolidated income statement data as determined in accordance with GAAP. ~~We consider the following non-GAAP measure, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:~~

~~Adjusted EBITDA~~is defined as net income (loss) before interest, taxes, depreciation and amortization, stock-based compensation (non-cash) and, certain special items that we believe are not representative of core operations.

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

Adjusted EBITDA (and a reconciliation to Net ~~loss,~~income (loss), the nearest GAAP financial measure) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~June 30, 2021, are as follows:

Three Months Ended Nine Months Ended
September 30,
September 30,
2017
2016
2017
2016
(in thousands)
Net loss $ (492 ) $ (44,799 ) $ (17,479 ) $ (99,383 )
Interest expense 2,042
1,866
5,717
5,331
Depreciation and amortization 876
3,047
3,259
8,213
Stock-based compensation 370
1,017
1,187
3,222
Income tax expense (benefit) 578
(133 ) 1,098
(340 )
Restructuring charges 241
339
509
564
Business model transition charge (312 ) 7,079
41
7,079
Impairment charges —
32,084
—
63,236
Adjusted EBITDA $ 3,303
$ 500
$ (5,668 ) $ (12,078 )


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(in thousands)
Net income (loss)	$	(17,826	)	$	1,721		$	(24,302	)	$	10,559
Interest expense		84			73		$	193			170
Depreciation and amortization		1,577			1,430		$	3,081			2,472
Stock-based compensation		2,030			1,941		$	3,567			3,727
Income tax expense (benefit)		(4,740	)		(1,286	)	$	(7,379	)		1,480
Restructuring Expense		527			—		$	527			—
Business transaction expense		—			88			—			250
Non-recurring business costs		6,267			987		$	6,499			1,626
Adjusted EBITDA	$	(12,081	)	$	4,954		$	(17,814	)	$	20,284

Comparison of the Three Months Ended ~~September~~June 30, ~~2017~~2022 to the Three Months Ended ~~September~~June 30, ~~2016~~

2021

Net loss for the three months ended ~~September~~June 30, ~~2017~~2022 was ~~$0.5~~$17.8 million with Adjusted EBITDA of ($12.1) million, compared to a net ~~loss~~income of ~~$44.8~~$1.7 million inwith Adjusted EBITDA of $5.0 million for the prior year, ~~period, including $0.5 million and $0.3 million of net loss attributable to the Headset segment, respectively.~~

For the three months ended September 30, 2017, Adjusted EBITDA on a consolidated basis was $3.3 million, including investments of $0.2 million in the HyperSound business compared to $0.5 million, including investments of $2.9 million in the HyperSound business during the three months ended September 30, 2016.

~~Adjusted EBITDA improved for the three months ended September 30, 2017 as compared to the prior year period primarily~~ due to ~~lower HyperSound~~consumer spending caution across all major markets, reduced channel inventory levels at retailers, increased freight costs, business investment. Headset adjusted EBITDA totaled approximately $3.5 million in the three months ended September 30, 2017 compared to $3.4 million in the prior year period which excluded $1.0 million of allocated costs. The increase was primarily due to improved margins driven by productmix, and ~~logistical costs savings, certain initiatives to reduce overhead costs and a foreign exchange benefit.~~

volume-driven fixed cost deleveraging.

Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~

2021

Net loss for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$17.5~~$24.3 million with Adjusted EBITDA of ($17.8) million compared to a net ~~loss~~income of ~~$99.4~~$10.6 million inwith Adjusted EBITDA of $20.3 million for the prior ~~year~~ period ~~including $16.1 million and $14.4 million of net loss attributable~~due to ~~the Headset segment, respectively.~~

For the nine months ended September 30, 2017, Adjusted EBITDA on a consolidated basis was $(5.7) million, including investments of $1.1 million in the HyperSound business compared to $(12.1) million, including investments of $9.3 million in the HyperSound business during the nine months ended September 30, 2016. Headset adjusted EBITDA totaled approximately $(4.6) million in the nine months ended September 30, 2017 compared to $(2.8) million in the prior year period that excluded $2.9 million of allocated costs.

~~Adjusted EBITDA improved for the nine months ended September 30, 2017~~lower revenue as compared to ~~the~~ prior ~~year period, despite a challenging gaming consumer market, primarily due to lower HyperSound business investment requirements~~year's incremental stimulus check driven spending as ~~a result of the transition to a license model, certain initiatives to reduce overhead costs and improved margins due to product and logistical costs savings.~~

well as increased freight costs.

Results of Operations

The following table sets forth the Company’s ~~statement~~statements of operations for the periods presented:

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in thousands)
Net Revenue $ 35,975
$ 38,384
$ 69,439
$ 91,774
Cost of Revenue 23,437
34,457
48,384
79,372
Gross Profit 12,538
3,927
21,055
12,402
Operating expenses 10,662
46,667
32,236
105,399
Operating loss 1,876
(42,740 ) (11,181 ) (92,997 )
Interest expense 2,042
1,866
5,717
5,331
Other non-operating expense (income), net (252 ) 326
(517 ) 1,395
Earnings (loss) before income tax 86
(44,932 ) (16,381 ) (99,723 )
Income tax expense (benefit) 578
(133 ) 1,098
(340 )
Net loss $ (492 ) $ (44,799 ) $ (17,479 ) $ (99,383 )


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(in thousands)
Net revenue	$	41,300		$	78,564		$	87,962		$	171,617
Cost of revenue		33,418			49,854			66,051			108,052
Gross profit		7,882			28,710			21,911			63,565
Operating expenses		29,255			28,267			51,571			50,842
Operating income (loss)		(21,373	)		443			(29,660	)		12,723
Interest expense		84			73			193			170
Other non-operating expense, net		1,109			(65	)		1,828			514
Income (loss) before income tax		(22,566	)		435			(31,681	)		12,039
Income tax expense (benefit)		(4,740	)		(1,286	)		(7,379	)		1,480
Net income (loss)	$	(17,826	)	$	1,721		$	(24,302	)	$	10,559

Net Revenue and Gross Profit

~~Headset Segment~~

The following table summarizes net revenue and gross profit for the periods presented:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(in thousands)
Net Revenue	$	41,300		$	78,564		$	87,962		$	171,617
Gross Profit	$	7,882		$	28,710		$	21,911		$	63,565
Gross Margin		19.1	%		36.5	%		24.9	%		37.0	%
Cash Margin (1)		20.8	%		37.2	%		26.4	%		37.7	%

(1)

Excludes depreciation and amortization, and stock-based compensation

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017
2016
(in thousands)
Net Revenue $ 35,947
$ 38,283
$ 69,291
$ 91,172
Gross Profit 12,328
12,766
21,465
24,643
Gross Margin 34.3 % 33.3 % 31.0 % 27.0 %
Cash Margin (1)
34.8 % 34.0 % 31.6 % 27.9 %

(1) Excludes non-cash charges of $0.2 million and $0.2 million, respectively, for the three months ended September 30, 2017 and 2016, and $0.4 million and $0.8 million, respectively, for the nine months ended September 30, 2017 and 2016.

Comparison of the Three Months Ended ~~September~~June 30, ~~2017~~2022 to the Three Months Ended ~~September~~June 30, ~~2016~~

2021

Net ~~revenues~~revenue for the three months ended ~~September~~June 30, ~~2017 were $35.9~~2022 was $41.3 million, a ~~$2.3~~$37.3 million decrease from $78.6 million reflecting lower customer demand as ~~compared to three months ended September 30, 2016. The slight decrease, due to~~ a holiday order timing shift from certain North American retailers that pushed revenue to October, reflects recent industry data that we believe indicates a start of the gaming console headset market recovery aheadresult of a ~~solid lineup of expected new game launches~~challenging macroeconomic environment, lower channel inventory levels at retailers and ~~the holiday season that will include the release of the Xbox One X console. Additionally, our international business increased 22.6% driven by market share growth in the United Kingdom~~global supply chain issues. The comparable prior year period revenues were at elevated levels resulting from stay-at-home orders and ~~Europe.~~

government stimulus payments.

For the three months ended ~~September~~June 30, ~~2017,~~2022, gross ~~profit as a percentage of net revenue increased~~margin decreased to ~~34.3%~~19.1% from ~~33.3%~~36.5% in the comparable prior ~~year. Headset margins were positively impacted by product cost savings~~year period. The decrease was primarily due to higher promotional credits driven by ~~our supply chain and logistics teams and product~~more aggressive competitive pricing actions to reduce channel inventory levels, business mix, ~~partially offset by the loss of~~higher freight costs, volume-driven fixed cost ~~leverage.~~

deleveraging and higher warehouse costs to ensure product supply.

Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~

2021

Net ~~revenues~~revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017 decreased $21.9~~2022 was $88.0 million, ~~or 24.0%, as compared to nine~~a $83.7 million decrease from $171.6 million in the elevated comparable prior year period brought on by stay-at-home orders and government stimulus payments.

For the six months ended ~~September~~June 30, ~~2016,~~2022, gross margin decreased to 24.9% from 37.0% in the comparable prior year period. The decrease was primarily due to ~~the negative impact~~higher freight costs, a more normalized level of ~~2016 holiday channel overhang, a result of lower industry-wide demand as limited sales of marquee games disrupted holiday purchasing behavior,~~promotional credits and ~~retailer business model initiatives to reduce on-hand inventory levels.~~

For the nine months ended September 30, 2017, gross profit as a percentage of net revenue increased to 31.0% from 27.0% in the prior year. Headset margins were positively impacted by favorable product mix and lower obsolescence reserves as we reserved much of the remaining old-gen inventory, partially offset by negativevolume-driven fixed ~~costs leveraging on lower sales volumes.~~

cost deleveraging.

Operating Expenses

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in thousands)
Selling and marketing $ 5,586
$ 7,016
$ 15,564
$ 19,737
Research and development 1,336
2,637
4,423
6,701
General and administrative 3,499
4,591
11,740
15,161
Asset impairment —
32,084
—
63,236
Restructuring charges 241
339
509
564
Total operating expenses $ 10,662
$ 46,667
$ 32,236
$ 105,399

By Segment:
Headset $ 10,509
$ 11,056
$ 31,244
$ 32,613
HyperSound $ 153
$ 35,611
$ 992
$ 72,786


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands)
Selling and marketing	$	11,587	$	15,678	$	22,416	$	27,223
Research and development		5,136		4,416		10,388		8,409
General and administrative		12,532		8,173		18,767		15,210
Total operating expenses	$	29,255	$	28,267	$	51,571	$	50,842

Selling and Marketing

Selling and marketing expenses for the three and six months ended ~~September~~June 30, ~~2017~~2022 totaled ~~$5.6~~$11.6 million ~~or 15.5% as a percentage of net revenues,~~and $22.4 million, respectively, compared to ~~$7.0~~$15.7 million ~~or 18.3% as a percentage of net revenues, for the three months ended September 30, 2016. The decrease was attributable to the reduction of HyperSound business related sales force~~ and ~~marketing campaigns and, certain promotional activity that has been deferred to align with upcoming game releases.~~

~~Selling and marketing expenses for the nine months ended September 30, 2017 totaled $15.6~~$27.2 million, or 22.4% as a percentage of net revenues, compared to $19.7 million, or 21.5% as a percentage of net revenues, for the nine months ended September 30, 2016. This decrease was attributable to sales force and marketing spend reductions related to the HyperSound business transition and higher media spend in the prior year period related to certain product launch campaigns. Further, depreciation

~~expense has decreased year-over-year as certain of our major retail customers have shifted away from independent in-store displays.~~

~~Research and Development~~

~~As a result of our product development realignment in connection with the HyperSound business transition, research and development expenses decreased~~respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 versus~~2021. This decrease was primarily due to lower revenue-based expenses and scaling of marketing initiatives to the ~~comparable prior year period.~~

consumer environment.

Research and Development

Research and development costs for the three and six months ended June 30, 2022 were $5.1 million and $10.4 million, respectively, compared to $4.4 million and $8.4 million, respectively, for the three and six months ended June 30, 2021. The year-over-year increases were primarily due to the addition of resources and infrastructure to support new product development and further global expansion.

General and Administrative

General and administrative expenses for the three months ended ~~September~~June 30, ~~2017~~2022 totaled ~~$3.5~~$12.5 million ~~or 9.7% as a percentage of net revenues,~~ compared to ~~$4.6~~$8.2 million ~~or 12.0% as a percentage of net revenues,~~ for the three months ended ~~September~~June 30, ~~2016. The decrease was~~2021. Excluding certain non-recurring fees related to the proxy contest with respect to the 2022 annual meeting of stockholders and shareholder litigation costs, expenses decreased $0.8 million primarily due to lower ~~non-cash charges, legal and~~ professional ~~service fees and headcount reductions.~~

fees.

General and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 totaled ~~$11.7~~$18.8 million ~~or 16.9% as a percentage of net revenues,~~ compared to $15.2 million ~~or 16.5% as a percentage of net revenues,~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The decrease was~~2021. Excluding certain non-recurring fees related to the proxy contest with respect to the 2022 annual meeting of stockholders and shareholder litigation costs, expenses decreased $1.1 million primarily due to lower ~~non-cash charges~~professional fees and employee ~~expenses.~~

~~Restructuring Charges~~

~~Restructuring charges~~costs.

Income Taxes

Income tax benefit for the three ~~and nine~~ months ended ~~September~~June 30, 2017 and September 30, 2016 related to our continued efforts to improve our operating efficiency in our Headset business, such as closing excess facilities and reducing redundancies, and reducing HyperSound business operating expenses.

~~Interest Expense~~

For the three and nine months ended September 30, 2017, interest expense increased as compared to September 30, 2016 due to higher borrowing costs, primarily related to the subordinated notes, additional amortization related to certain amendments to our Credit Facility and the Term Loan Due 2019.

~~Income Taxes~~

~~Income tax expense for the three and nine months ended September 30, 2017~~2022 was ~~$0.6~~$4.7 million at an effective tax rate of ~~672.1%~~21.0% and ~~$1.1~~income tax benefit for the six months ended June 30, 2022 was $7.4 million at an effective tax rate of ~~(6.7)%, respectively.~~23.3%. Income tax benefit for the three ~~and nine~~ months ended ~~September~~June 30, ~~2016~~2021 was ~~$(0.1)~~$1.3 million at an effective tax rate of ~~0.3%~~(295.6%) and ~~$(0.3)~~income tax expense for the six months ended June 30, 2021 was $1.5 million at an effective tax rate of ~~0.3%, respectively.~~12.3%. The effective tax rate for the six months ended June 30, 2022 was primarily impacted by the ~~full valuation allowance on domestic earnings, foreign entity~~deduction for stock option exercises, offset by certain non-deductible costs and state income tax ~~benefits and certain state tax~~ expense.

Liquidity and Capital Resources

Our primary sources of working capital are cash ~~flow~~flows from operations and availability ~~of capital~~ under our revolving credit facility. We have funded operations and acquisitions in recent periods with operating cash flows and ~~proceeds from debt and equity financings.~~

borrowings under our revolving credit facility.

The following table summarizes our sources and uses of cash:

Nine Months Ended
September 30,
2017 2016
(in thousands)
Cash and cash equivalents at beginning of period $ 6,183
$ 7,114
Net cash provided by operating activities 9,291
3,117
Net cash used for investing activities (2,584 ) (2,260 )
Net cash used for financing activities (12,559 ) (4,632 )
Effect of foreign exchange on cash 142
(62 )
Cash and cash equivalents at end of period $ 473
$ 3,277


	Six Months Ended
	June 30,
	2022			2021
	(in thousands)
Cash and cash equivalents at beginning of period	$	37,720		$	46,681
Net cash provided by (used for) operating activities		(41,247	)		12,448
Net cash used for investing activities		(1,207	)		(5,816	)
Net cash provided by financing activities		16,245			2,799
Effect of foreign exchange on cash		(634	)		85
Cash and cash equivalents at end of period	$	10,877		$	56,197

Operating activities

Cash used for operating activities for the six months ended June 30, 2022 was $41.2 million, a decrease of $53.7 million as compared to cash provided by operating activities ~~for the nine months ended September 30, 2017 was $9.3 million, an increase~~ of ~~$6.2 million as compared to $3.1~~$12.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. The ~~increase~~decrease is primarily the result of lower ~~HyperSound business net cash burn and certain initiatives to better align cash expenditures with the seasonality of the gaming market, partially offset by lower~~ gross receipts as well as higher inventory levels due to ~~reduced sales volumes.~~

retailers compressing channel inventory and accelerated procurements to ensure product supply.

Investing activities

Cash used for investing activities was ~~$2.6~~$1.2 million for the six months ended June 30, 2022, which was related to certain capital investments, compared to $5.8 million for the six months ended June 30, 2021, which included $2.5 million related to the Neat Microphones acquisition.

Financing activities

Net cash provided by financing activities was $16.2 million during the ~~nine~~six months ended~~September~~ June 30, ~~2017~~2022 compared to ~~$2.3 million in the prior period due to an investment to refresh advertising displays at certain major customers and equipment purchases related to our recent headset launches.~~

~~Financing activities~~

~~Net cash used for financing activities was $12.6~~$2.8 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to $4.6 million during the nine months ended September 30, 2016.~~2021. Financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2017 included net payments on our~~2022 and June 30, 2021 consisted primarily of $15.7 million revolving credit facility ~~of $11.1~~borrowings and $2.8 million and term loan repayments of $1.4 million. Financing activities during the nine months ended September 30, 2016 included net payments on our revolving credit facility of $6.2 million and term loan repayments of $3.6 million with cash from operations and the issuance of common stock.

share-based activity, respectively.

Management assessment of liquidity

Management believes that our current cash and cash equivalents, the amounts available under our revolving credit facility and cash flows derived from operations will be sufficient to meet anticipated ~~cash needs~~short-term and long-term funding for working capital and capital expenditures ~~for at least~~including amounts to develop new products, fund future stock repurchases and to pursue strategic opportunities.

In addition, the ~~next 12 months.~~Company monitors the capital markets on an ongoing basis and may consider raising capital if favorable market conditions develop. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements.

We believe the combination of our revolving credit facility, long-term debt and cash flow generated by our gaming headset business and reduced costs related to the HyperSound business will provide the necessary liquidity to fund our annual working capital needs.

Foreign cash balances at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 were ~~$0.1~~$3.4 million and ~~$0.2~~$10.2 million, respectively.

At-the-Market Equity Offering Sales Agreement

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.

There was no activity under this agreement during the six months ended June 30, 2022.

Revolving Credit Facility

On ~~March 31, 2014,~~December 17, 2018, Turtle Beach and certain of its subsidiaries entered into ~~a new asset-based revolving credit~~an amended and restated loan, guaranty and security agreement (“Credit Facility”) with Bank of America, N.A. (“(“Bank of ~~America~~”America”), as Agent, Sole Lead Arranger and Sole Bookrunner, which replaced the then existing asset-based revolving loan ~~and security~~ agreement. The Credit Facility, which expires on March ~~31, 2019,~~5, 2024, provides for a line of credit of up to ~~$60~~$80 million inclusive of a sub-facility limit of ~~$10~~$12 million for TB Europe, a ~~wholly owned~~wholly-owned subsidiary of Turtle Beach. ~~The~~In addition, the Credit Facility ~~may be used~~provides for ~~working capital,~~ a $40 million accordion feature and the ~~issuance~~ability to increase the borrowing base with a “first-in, last-out” (a “FILO Loan”) of ~~bank guarantees,~~ ~~letters~~up to $6.8 million.

(ii) the ability to make investments in TB Germany GmbH, a wholly-owned subsidiary of TB Europe, of up to $4 million in connection with the acquisition of ROCCAT and up to an additional $4 million annually.

The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporate purposes.

Amounts outstanding under the Credit Facility bear interest at a rate equal to either a rate published by Bank of America or the LIBOR rate, plus in each case, an applicable margin, which is between ~~1.00%~~0.50% to~~1.50%~~ 1.25% for ~~U.S.~~ base rate loans and between 1.25% to 2.00%to~~2.50%~~ for U.S. LIBOR loans and U.K. ~~loans. As ofSeptember 30, 2017, interest rates for outstanding borrowings were 6.24% for base rate~~ loans, and ~~approximately 3.21%~~between 2.00% to 2.75% for ~~LIBOR rate loans.~~the FILO Loan. 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.

If As of June 30, 2022, interest rates for outstanding borrowings were 5.25% for base rate loans and 3.00% for LIBOR rate loans. As of June 30, 2022, there was $15.7 million in outstanding borrowings under the Credit Facility.

The Company and the administrative agent entered into an amendment to the Credit Agreement (the "LIBOR Transition Amendment") to replace the LIBOR rate as a reference rate available for use in the computation of interest under the Credit Agreement in favor of (i) the Applicable Rate (as defined in the Credit Agreement) plus Sterling Overnight Index Average (“SONIA”) or the Euro Interbank Offered Rate (“EURIBOR”). The Company expects to enter into an additional agreement to finalize the transition of the U.S. LIBOR rate prior its expiration on June 30, 2023.

The Company is subject to quarterly financial covenant testing if certain availability thresholds are not met ~~meaning that~~or certain other events occur (as defined in the ~~Company does not have receivables and inventory which are eligible to borrow on under~~Credit Facility). At such times, the Credit Facility ~~in excess of amounts borrowed, the Credit Facility requires~~requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ~~ratio. The fixed charge ratio is defined as the ratio, determined~~ on a consolidated basis for the most recent four fiscal quarters, of (a) EBITDA minus capital expenditures, excluding those financed through other instruments, and cash taxes paid, and (b) Fixed Charges defined as the sum of cash interest expense plus scheduled principal payments. ~~The current fixed charge coverage~~ ratio of at least ~~1.15~~1.00 to 1.00 onas of the last day of each ~~month will become effective again after the Company has complied with such ratio for six consecutive months.~~

fiscal quarter.

On October 31, 2016, the Company amended certain provisions to provide, among other things, that (i) the existing loan availability blocks be temporarily reduced during certain specified periods, (ii) replaced certain financial covenants determined on a segment-by-segment basis by amended EBITDA levels for the Headset business beginning with the month ended October 31, 2016, (iii) the Company maintain revised cash flow levels, in the aggregate and with respect to its HyperSound division, during each rolling four week period beginning with the period ended October 31, 2016 through December 31, 2018 and September 30, 2017, respectively, and (iv) in the event the Company’s availability is less than certain specified amounts, obtain additional funding from the issuance of a subordinated promissory note provided by SG VTB (the “Promissory Note”).

~~Term Loan Due 2018~~

On December 29, 2014, the Company amended the Credit Facility (the “December Amendment”) to permit the repayment of $7.7 million of then existing subordinated debt and accrued interest with the proceeds of an additional loan (the “Term Loan Due 2018”). The Term Loan Due 2018 resulted in modified financial covenants while it is outstanding, will bear interest at a rate of LIBOR for the applicable interest period plus 5% will be repaid in equal monthly installments beginning on April 1, 2015 and ending on October 1, 2018, reflecting a six month waiver. Amounts so repaid are recognized by lowering the balance of the term loan tranche and increasing the lower interest rate base revolver amount, with no net impact on borrowing availability.

~~Term Loan Due 2019~~

~~As of September 30, 2017, the Company was in compliance with all the amended financial covenants.~~

~~Subordinated Notes - Related Party~~

On April 23, 2015, the Company issued a $5.0 million subordinated note (the “April Note”) to SG VTB Holdings, LLC, the Company’s largest stockholder (“SG VTB”). The April Note was issued with an interest rate of (i) 10% per annum for the first year and (ii) 20% per annum for all periods thereafter, with interest accruing and being added to the principal amount of the note quarterly.

On June 17, 2015, the Company issued a subordinated note (the “June Note”) with an aggregate principal amount of $3.0 million to SG VTB. The June Note was issued at an interest rate of 10% per annum until the maturity date of the June Note (which was September 17, 2015 but could be extended up to two additional 90 day periods upon the written agreement of the Company and the noteholder), with interest accruing and being added to the principal amount of the June Note quarterly. Following the maturity date, the interest rate would have increased to 20% per annum. In addition, the Company had the option to request that SG VTB make, in SG VTB’s sole discretion, additional advances from time to time up to an aggregate principal amount of $15.0$22.0 million. ~~Prior to the amendment (see below), following an additional advance of $6.0 million on July 8, 2015, $9.0 million was outstanding under the June Note.~~

Concurrently with the completion of the Term Loan Due 2019, the Company amended and restated each of its outstanding subordinated notes (the “Amended Notes”). The obligations of the Company under the Amended Notes are subordinate and junior to the prior payment of amounts due under the Credit Facility and Term Loan Due 2019. In addition, the stated maturity date of the Amended Notes was extended to September 29, 2019, subject to acceleration in certain circumstances, such as a change of control of the Company. The Amended Notes bear interest at a rate per annum equal to LIBOR plus 10.5% and shall be paid-in-kind by adding the amount to the principal amount due.

~~Series B Redeemable Preferred Stock~~

In September 2010, VTBH issued 1,000,000 shares of its Series B Redeemable Preferred Stock with a fair value of $12.4 million. We are required to redeem the Series B Redeemable Preferred Stock on the earlier to occur of September 28, 2030 or the occurrence of a liquidation event at its original issue price of $12.425371 per share plus any accrued but unpaid dividends. The redemption value was $18.5 million and $17.5 million as of September 30, 2017 and December 31, 2016, respectively.

~~Stock Warrants~~

In connection with and as consideration for the concessions in the Amended Notes, the Company issued to SG VTB and a trust affiliated with Ronald Doornink warrants to purchase 1.7 million shares of the Company’s common stock at an exercise price of $2.54 per share. The warrants are exercisable for a period of five years beginning on the date of issuance, July 22, 2015. The exercise price and the number of shares of Common Stock purchasable are subject to adjustment and do not carry any voting rights or other rights as a stockholder of the Company prior to exercise. The shares issuable upon exercise are also subject to the “demand” and “piggyback” registration rights set forth in the in the Company’s Stockholder Agreement, dated August 5, 2013, as amended July 10, 2014.

In connection with the November Note, the Company issued a warrant to purchase 1.4 million shares of the Company’s common stock at an exercise price of $2.00 per share to SG VTB. The exercise price and the number of shares are subject to standard anti-dilution adjustments and do not carry any voting rights as a stockholder of the Company prior to exercise. The warrant is exercisable for a period of ten years beginning on the date of issuance and does not entitle the holder to any voting rights or other rights as a stockholder of the Company prior to exercise.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and capital resources are based on our ~~condensed~~ consolidated financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of these ~~condensed~~ consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,

revenue and expenses and the disclosure of contingent assets and liabilities. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances.

Different assumptions and judgments would change the estimates used in the preparation of the condensed consolidated financial statements, which, in turn, could change the results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis.

~~There have been no material changes to~~ For a discussion of the critical ~~accounting policies and~~ estimates ~~from~~that affect the ~~information provided in Note 1 of the notes to our~~condensed consolidated financial statements, see “Critical Accounting Estimates” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

See Note 2, “Summary of Significant Accounting Policies,” into the ~~Notes to the~~unaudited condensed consolidated financial statements contained herein for a complete discussion of recent accounting pronouncements. We are currently evaluating the impact of certain recently issued guidance on our financial condition and results of operations in future periods.

Item 3 - Qualitative and Quantitative Disclosures ~~about~~About Market Risk

Market risk represents the risk of loss that may impact ~~a company's~~our financial position due to adverse changes in financial market prices and rates. The ~~Company's~~Company’s market risk exposure is primarily a result of fluctuations in interest rates, ~~and~~ foreign currency exchange rates and inflation.

~~To date, the~~

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. 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 ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, we did not have any derivative financial instruments.

~~Interest Rate Risk~~

The Company's total variable rate debt is comprised of $12.9 million presented as a Term Loan and $17.9 million of Subordinated Notes. A hypothetical 10% increase in borrowing rates at September 30, 2017 would not result in a material increase in interest expense on the existing principal balances.

Foreign Currency Exchange Risk

The Company has exchange rate exposure primarily with respect to the British Pound and Euro. As of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, our monetary assets and liabilities ~~which~~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.

Inflation Risk

The Company is exposed to market risk due to ~~the possibility of inflation, such as~~inflationary pressures, including higher labor-related costs, increases in the ~~cost~~costs of ~~its products. Although~~ the ~~Company does not believe that inflation has had~~goods and services we purchase as part of the manufacture and distribution of our products, increased costs from supply chain and logistic headwinds and increased costs in our operations generally. Such inflationary pressures have been and could continue to be exacerbated by higher oil prices, geopolitical turmoil, and economic policy actions. Inflationary pressures can also have a ~~material~~negative impact on ~~its financial position~~demand for the products we sell. Reduced or ~~results of operations~~delayed discretionary spending by consumers in response to ~~date,~~inflationary pressures has reduced consumer demand for our products, resulting in reduced sales. In 2022, we have experienced a ~~high~~higher rate of inflation than in ~~the future~~recent years resulting in higher cost of

goods, selling expenses, and general and administrative expenses. Such increases have had and may continue to have ~~an adverse effect~~a negative impact on the Company’s ~~ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenue~~profit margins if ~~the~~ selling prices of products do not increase with ~~these~~the increased costs.

Item 4 - Controls 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.

We assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017. In making this assessment, we used the framework and criteria established in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment using those criteria, we concluded that, as of September 30, 2017, our internal control over financial reporting was effective.

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~~June 30, ~~2017.~~

2022.

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.

PART II. OTHER INFORMATION

~~Item 5 - Other Information~~

~~None.~~

~~PART II. OTHER INFORMATION~~

Item 1 - Legal Proceedings

Please refer to Note 12, - “Commitments and Contingencies” in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Item 1A - Risk Factors

Set forth below is a summary of certain material risks related to an investment in our securities, which should be considered carefully in evaluating such an investment. Our business, financial condition, operating results and cash flows can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations, cash flows and common stock price. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations.

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to

understanding any statement in this Form 10-Q or elsewhere. The following information should be read in conjunction with our

financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion

and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.

Because of the following factors, as well as other factors affecting the Company’s financial condition and operating

results, past financial performance should not be considered to be a reliable indicator of future performance, and investors

should not use historical trends to anticipate results or trends in future periods.

Risks Related to ~~Liquidity~~

Our Operations

The strategic alternatives review process could disrupt our business, affect our financial condition and results of operations and lead to increased volatility in the market price of our common stock.

In connection with the settlement of our engagement with The Donerail Group LP and certain of its affiliates (“Donerail”), we announced a process to review strategic alternatives. We ~~depend upon~~have incurred and may continue to incur substantial expenses associated with that process. That process may be time-consuming and disruptive to our business by diverting the attention of our management, Board of Directors and employees. In addition, we may be subject to costly and time-consuming litigation related to that process. Further, that process may result in the loss of potential business opportunities and have a negative effect on the market price and volatility of our common stock, as well as our ability to recruit and retain qualified personnel.

Our business has been and could continue to be adversely affected by inflationary pressures.

We are exposed to inflationary pressures including higher labor-related costs and potential increases in the costs of the goods and services we purchase as part of the manufacture and distribution of our products and in our operations generally. In 2021 and the first half of 2022, global supply chain constraints and the continuing effects of the COVID-19 pandemic (including government measures adopted in response thereto) have resulted in heightened inflationary cost pressures. Such inflationary pressures have also been and could continue to be exacerbated by higher oil prices, geopolitical turmoil (including the ongoing conflict in Ukraine), increased logistics costs and economic policy actions. As interest rates rise to address inflation, such increases could lead to an increase in borrowing costs over time.

Inflationary pressures can also have a negative impact on demand for the products we sell. Reduced or delayed discretionary spending by consumers, specifically for consumer electronic goods, in response to inflationary pressures has and could continue to reduce demand for our products, resulting in reduced sales. Our inability to adequately increase prices to offset increased costs associated with such inflationary pressures, or otherwise mitigate their impact, will increase our costs of doing business and reduce our margins and profitability. If such impacts are prolonged or substantial, they could have a material negative effect on our results of operations.

The manufacture, supply and shipment of our products are subject to supply chain and logistics risks that could adversely impact our financial results.

We face a number of risks related to supply chain management and logistics with respect to our products. Recently, we have experienced, and may in the future continue to experience, supply or labor shortages or other disruptions to our supply chain or logistics, which could result in shipping delays and increased costs, each of which could negatively impact our results, operations, product development, and sales. The extent and duration of the impact of these challenges are subject to numerous factors, including the continuing impact of the

COVID-19 pandemic, behavioral changes, wage and price costs, adoption of new or revised regulations, and broader macroeconomic conditions.

In 2021 and in the first half of 2022, we experienced supply chain disruptions that resulted in significant cost increases for commodities and components used in our products, as well as component shortages that have negatively affected our sales and results of operations. For example, the recent market shortage of semiconductors has caused disruptions, from both a supply and pricing standpoint. As discussed above, recent inflationary pressures have also been exacerbated by the lower availability of, ~~capital under our revolving credit facility~~ and ~~term loan to finance our operations. Any additional financing that we may need~~increased prices for, freight and logistics, including air, sea, and ground freight. We may not be ~~available on favorable terms or at all.~~

~~In addition~~able to ~~cash flow generated from sales,~~pass along these price increases to its customers. While we ~~finance~~have taken and continue to take measures implement cost saving initiatives and procure and maintain levels of inventory to prioritize product availability amidst global supply chain and logistical challenges, including by working closely with our ~~operations with a revolving credit facility (the “Credit Facility”) provided by Bank of America,~~suppliers, there can be no assurance that we will be able to continue to do so. Accordingly, any future delays, disruptions, and supply and pricing risks, such as ~~Agent, Sole Lead Arranger~~the ongoing supply chain challenges and ~~Sole Bookrunner and~~disruptions that we expect to continue during 2022, could affect our ~~term loan (the “Term Loan Due 2019”) provided by Crystal Financial LLC (“Crystal”), as Agent, Sole Lead Arranger and Sole Bookrunner. If we are unable~~ability to comply with the financial and other covenants contained in the Credit Facility or the Term Loan Due 2019 (collectively, the “Loan Documents”) and are unable to obtain a waiver under the applicable Loan Documents, Bank of America or Crystal, as applicable, may declare the outstanding borrowings under the applicable Loan Documents immediately due and payable. Such an event wouldmeet customer demand for our products, which could have an ~~immediate and material~~ adverse ~~impact~~effect on our business, results of operations and financial condition.

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 third-party manufacturing partners to produce our products.

We ~~would be required~~rely on third parties to ~~obtain additional financing from~~manufacture and manage the logistics of transporting and distributing our products, which subjects us to a number of risks that have been exacerbated as a result of the COVID-19 pandemic and the ongoing supply chain issues associated therewith. 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 continuation of stay-at-home orders and other ~~sources,~~COVID-19 pandemic related restrictions internationally has led to factory closures, interruptions in supply chains, increased regulation 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,workforce shortages, each of which may continue in the future. 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 ~~materially~~material adverse effect on our business or results of operations.

We could be negatively affected if we are not able to engage third parties with the necessary capabilities or capacity on reasonable terms, or if those we engage with fail to meet their obligations (whether due to financial difficulties, manufacturing constraints, or other reasons). 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 ~~operations.~~ operation and financial position.

In addition, the ~~debt under~~ongoing effectiveness of our supply chain is dependent on the ~~Loan Documents could make it more difficult~~timely performance of services by third parties shipping products and materials to ~~obtain other debt financing in the future, which could put us at a competitive disadvantage to competitors with less debt.~~

~~The Loan Documents contain financial~~and from our warehouse facilities and other ~~covenants that we are obligated to maintain.~~locations. If we ~~violate any of~~encounter problems with these ~~covenants, we will be in default under the applicable Loan Documents. These covenants include restrictions that prohibit or otherwise limit~~shipments, our ability to ~~pay dividends,~~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 ~~additional indebtedness, acquire assets or engage~~materially higher costs for shipping, including air freight. We have experienced some of these problems in ~~certain other types of transactions,~~the past and ~~also require that~~ we maintain certain financial ratios and EBITDA levels during specified periods. If a default occurs and is not timely cured or waived, Bank of America or Crystal, as applicable, 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 Loan Documents. No assurance can be givencannot assure you that we will ~~be able to maintain compliance with these covenants~~not experience similar problems in the future.

The Credit Facility is asset based and can only be drawn down in an amount to which eligible collateral exists and can be negatively impacted by extended collection of accounts receivable, unexpectedly high product returns and slow moving inventory, among other factors. Aseffects of the ~~date of this report, we were in compliance with our covenants under the Loan Documents.~~

The Credit Facility and Term Loans provide our lenders with a first-priority lien against substantially all of our working capital assets, including trade accounts receivable, inventories, and intellectual property and contains certain restrictions on our ability to take certain actions.

The Credit Facility and Term Loan Due 2019 contain certain financial covenants and other restrictions that limit our ability, among other things, to incur certain additional indebtedness; pay dividends and repurchase stock; make certain investments and other payments; enter into certain mergers or consolidations; engage in sale and leaseback transactions and transactions with affiliates; and encumber and dispose of assets.

In addition, we have granted the lenders a first-priority lien against substantially all of our assets, including trade accounts receivable, inventories and our intellectual property. Failure to comply with the operating restrictions or financial covenantsCOVID-19 pandemic could ~~result in a default which could cause the lenders 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~~

The effects of the public health crisis caused by the COVID-19 pandemic, its variant strains, and the measures taken in response are uncertain and difficult to predict, but may include a decrease in the demand and/or pricing for our products, disruptions to our supply chain, and a general deterioration of the global economy, among others.

Additionally, retailers have experienced, and may continue to experience, liquidity constraints or other ~~stakeholders~~financial difficulties due to COVID-19, 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 ~~doubts regarding~~a material adverse effect on our ~~ability~~results of operations.

At the beginning of the COVID-19 pandemic, we saw an increase in demand for our products due to increased gaming, work-from-home, and school-learn-from-home, however, such increased demand for our products has subsided as restrictions imposed for the pandemic are lifted and social functions and activities continue to return to pre-pandemic levels. This decrease in demand may continue as ~~a going concern, this~~further pandemic restrictions are lifted and social functions not involving the use of our products continue to return.

These effects, alone or taken together, could ~~result in further loss of confidence, which, in turn, 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~~operations or financial condition. An extended period of global supply chain and economic disruption resulting from the COVID-19 pandemic and the government measures adopted in response thereto could exacerbate the foregoing effects. In addition, the potential impacts of COVID-19 also could affect many of our risk factors included in Item 1A. of this Quarterly Report on Form 10-Q. However, as the COVID-19 situation is unprecedented and continuously evolving, the potential impacts to ~~Our Operations~~

such risk factors remain uncertain.

We depend upon the success and availability of third-party gaming platforms and ~~software~~release of certain game titles to drive sales of our headset products.

The performance of our headset business is affected by the continued success of third-party gaming platforms, such as ~~Microsoft's~~Microsoft’s Xbox® consoles and ~~Sony's~~Sony’s PlayStation® consoles, as well as video games developed by such manufacturers and other third-party publishers. Our business could suffer if any of these parties fail to continue to drive the success of these platforms, develop new or enhanced ~~videogame~~video game platforms, develop popular game and entertainment titles for current or future generation platforms or produce and timely release sufficient quantities of such consoles. For example, DFC Intelligence forecasts' estimates of future cumulative new generation console has declined since the debut of the new-gen consoles in 2013, which, if such estimates are accurate, may negatively impact our future headset sales or otherwise negatively impact our business. 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 order for certain of our headsets to connect to the Xbox One advanced features and controls, a proprietary computer chip 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 of the chips. 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.

In addition, 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 (the “Xbox One Agreement”).

Our Xbox One headsets are dependent on this license. Microsoft has the right to terminate the Xbox One Agreement under certain circumstances set forth in the agreement. Should the Xbox One Agreement be terminated, our headset offerings may be limited, thereby significantly reducing our revenues.

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 HyperSound business has not generated significant revenues and we may not be successful in implementing our strategic priorities for our HyperSound business, which may have a material adverse impact on our business and financial results.

Our HyperSound business has incurred operating losses since the spin-off of Parametric Sound Corporation from LRAD Corporation in 2010, and could incur additional losses in the near-term if we are unable to successfully complete our previously announced strategic alternative process to continue the development and commercialization of the HyperSound technology.

Substantially all of our HyperSound revenues to date have been derived from sales of a limited number of products to a limited number of customers. We cannot guarantee that we will have sufficient capital to continue development of our HyperSound products and technology, or that we will be able to develop a larger customer base and introduce new products to generate additional revenues. Further, we cannot guarantee that we will be able to generate any future license revenues.

Our ability to achieve future profitability is dependent on a variety of factors, many of which are outside our control, including, but not limited to, the outcome of our strategic review. Failure to achieve profitability or sustain profitability, if achieved, may require us to continue to make additional capital investments in, or to dispose of, our HyperSound business, either of which could materially impact our results of operations.

~~Our Turtle Beach brand faces~~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 ~~personal computers and video game console headsets,~~gaming 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~~PC and 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.

In the event that a competitor reduces prices, we could be forced to respond by lowering our prices to remain competitive. If we are forced to lower prices, we may be required to “price protect” products that remain unsold in our customers’ inventories at the time of the price reduction. 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~~profitability. Also, any actions we undertake to increase prices in response to rising inflation or other considerations may reduce demand for our product and ~~profitability.~~

~~In addition, if console manufacturers implement new technologies, through hardware~~have a material adverse effect on our business or ~~software, which would cause our headsets~~results of operations.

Conversely, any actions we undertake to ~~become incompatible with that hardware manufacturer’s console, there could be unanticipated delays~~increase prices in ~~the release of~~response to rising costs due to higher inflation levels or other considerations may reduce demand for our products ~~as well as increases to projected development, manufacturing, marketing or distribution costs, any of which could harm~~if our competitors do not follow with similar pricing actions. This may have a material adverse effect on our business ~~and financial results.~~

~~Further, new and emerging technologies and alternate platforms for gaming, such as mobile 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, develop products for other gaming platforms.~~

results of operations.

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.

We must make substantial product development and other investments to align our product portfolio and development efforts in response to market changes in the gaming industry. We must anticipate and adapt our products to emerging technologies in order to keep those products competitive. When we choose to incorporate a new technology into our products or to develop a product for a new platform or operating system, we are often required to make a substantial investment prior to the introduction of the product. 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 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. 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

New 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 and alternate platforms for gaming, such as mobile devices and virtual reality devices, could ~~harm~~make the consoles for which our ~~competitive position, reduce our share and significantly increase the~~headsets are designed less attractive or, in time, ~~it takes~~obsolete, which could require us to ~~bring popular~~transition our business model such as develop products ~~to market.~~

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. Any difficulties or delays in the product development process will likely result in delays in the contemplated product introduction schedule. It is common in new product introductions

or product updates to encounter technical and other difficulties affecting manufacturing efficiency and, at times, the ability to manufacture the product at all. Although these difficulties can be corrected or improved over time with continued manufacturing experience and engineering efforts, if one or more aspects necessary for the introduction of products are not completed as scheduled, or if technical difficulties take longer than anticipated to overcome, the product introductions will be delayed, or in some cases may be terminated. 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 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. dollar. The translation risk is primarily concentrated in the exchange rate between the U.S. dollar and the British Pound. As the U.S. dollar fluctuates against other currencies in which we transact business, revenue and income can be impacted.

~~The affirmative vote in the United Kingdom to withdraw from the European Union may adversely affect our business.~~

On June 23, 2016, the United Kingdom ("UK") held a referendum in which voters approved a potential exit from the European Union ("EU"), commonly referred to as "Brexit." As a result of the referendum, it is expected that the British

government will begin negotiating the terms of the UK’s future relationship with the EU. The Brexit vote may result in regulatory uncertainty throughout the region and could adversely affect business activity, political stability and economic conditions in the UK, the Eurozone, the EU and elsewhere. Any of these developments could have a material adverse effect on business activity in the UK, the Eurozone, or the EU.

The uncertainty concerning the timing and terms of the exit could also have a negative impact on the growth of the UK and/or EU economies and cause greater volatility in the pound sterling, euro and/or other currencies.

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.

During ~~2016,~~2021, our three largest individual customers accounted for approximately ~~49%~~41% of our gross sales in the aggregate. The loss of, or financial difficulties experienced by, any of these or any of our other significant customers, including as a result of the bankruptcy of a customer, could have a material adverse effect on our business, results of operations, financial condition and liquidity. We do not have long-term agreements with these or other significant customers and our agreements with these customers do not require them to purchase any specific amount of products. All of our customers generally purchase from us on a purchase order basis. As a result, agreements with respect to pricing, returns, cooperative advertising or special promotions, among other things, are subject to periodic negotiation with each customer. No assurance can be given that these or other customers will continue to do business with us or that they will maintain their historical levels of business. In addition, the uncertainty of product orders can make it difficult to forecast our sales and allocate our resources in a manner consistent with actual sales, and our expense levels are based in part on our expectations of future sales. If our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls. 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.~~

~~The manufacture, supply~~risk or limit our ability to continue to do business with such customers.

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

We believe that our ability to extend the recognition and favorable perception of our ~~products are dependent upon a limited number of third parties,~~Turtle Beach brand, and the ROCCAT and Neat Microphones brands, is critical to implement our ~~success is dependent upon the ability of these parties to manufacture, supply~~gaming accessory growth strategy, which includes maintaining our strong position in console gaming headsets and ~~ship sufficient quantities of their~~building our brand recognition and product ~~components to us~~appeal in ~~a timely fashion,~~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.

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

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 ~~third-parties.~~

~~Because~~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 ~~rely on a limited number of manufacturers and suppliers for~~would be able to specifically enforce any agreement with them. If any partner does not perform consistent with our ~~products,~~agreements, 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 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,~~reputational or ~~work stoppages. Any shortage of raw materials or components or an inability to control costs associated with manufacturing could increase~~social media risks. Additionally, 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.

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

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. 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.

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~~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. Any shortfall in net sales during this period would cause our annual results of operations to suffer significantly.

Demand for our products depends on many factors such as consumer preferences and the introduction or adoption of game platforms and related content and can be difficult to forecast. If we misjudge the demand for our products, we could face the following problems in our operations, each of which could harm our operating results:

•

If our forecasts of demand for products are too high, we may accumulate excess inventories of products, which could lead to markdown allowances or write-offs affecting some or all of such excess inventories. 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 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; and

•

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

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.

~~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, competitionaccessories 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 continue to develop innovative and popular headset products, or if our design and marketing efforts do not effectively raise the recognition and reputation of our Turtle Beach brand, we may not be able to successfully implement our headset growth strategy.

We believe that our ability to extend the recognition and favorable perception of our Turtle Beach brand is critical to implement our headset 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 Turtle Beach brand, we believe we must devote significant time and resources to headset product design, marketing and promotions. These expenditures, however, may not result in a sufficient increase in net sales to cover such expenses.

~~Future transitions in console platforms may adversely affect, our headset business.~~

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 such as those sold by us, 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 headset connect with or work with the new consoles which could create a disruption to consumer buying behavior and/or product life-cycles.

As console hardware moves through its 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 more 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. For example, Sony and Microsoft have announced hardware upgrades to the current console generations with the PS®4 Pro and Xbox One X, respectively. In addition, competing technologies such as tablet-based gaming and virtual reality may result in further disruption to the overall console gaming market.

~~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.~~

We have had, and may continue to have, actions brought against us by stockholders in connection with the merger, past transactions, changes in our stock price or other matters. Any such claims, whether or not resolved in our favor, could divert our management and other resources from the operation of our business and otherwise result in unexpected and substantial expenses that would adversely and materially impact our business, financial condition and operating results. For example, and as further described in Item 3, “Legal Proceedings,” and Note 12, “Commitments and Contingencies,” we are involved in legal proceedings related to the merger of VTBH and Paris Acquisition Corp. involving certain of our stockholders, including the holder of VTBH’s Series B Redeemable Preferred Stock, (the “Series B Holder”), filing a complaint in New York state court alleging breach of contract against VTBH and seeking a declaratory judgment that he is entitled to damages and specific performance, including the redemption of his stock. The redemption value of VTBH’s Series B Redeemable Preferred Stock was $18.5 million as of September 30, 2017.

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.

The reliability and capacity of our information systems are critical. Despite preventative efforts, our systems are vulnerable from time-to-time 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.

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

We face business, political, operational, financial and economic risks inherent in international business, many of which are beyond our control, including:

•

higher product component costs and higher transportation and logistics costs driven by increasing rates of inflation globally;

•

changing consumer spending and preferences driven by increasing rates of inflation;

•

trade restrictions, higher tariffs, currency fluctuations or the imposition of additional regulations relating to import or export of our products, especially in China, where ~~all~~many of our Turtle Beach products are manufactured, which could force us to seek alternate manufacturing sources or increase our ~~expenses;~~costs;

•

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, theEuropean Union Anti-Corruption Act and other similar laws, or non-compliance that could subject us to trade sanctionsadministered 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;~~costs and tightening of the overall labor markets;

•

transportation delays and difficulties of managing international distribution channels;

•

longer payment cycles for, and greater difficulty collecting, accounts receivable;

•

political and economic instability, including wars (such as the ongoing conflict in Ukraine), terrorism, political unrest, boycotts, curtailment of trade and other business restrictions, any of which could materially and adversely affect our net sales and results of operations;

•

public health issues (for example, an outbreak of a contagious disease such as COVID-19); and

•

natural disasters.

Any of these factors could reduce our net sales, decrease our gross margins, increase our expenses or reduce our profitability. 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. Our operating results will be subject to fluctuations based on general economic conditions, and in particular conditions that impact discretionary consumer spending. ~~The audio products sector of~~Downturns in the ~~electronics industry has and may continue to~~worldwide economy could adversely affect our business. We could experience a ~~slowdown~~reduction in ~~sales, which adversely impacts~~demand for our products or a lengthening of consumer replacement schedules for our products. Reduced demand for these products could result in decreases in our average selling prices and product sales. A deterioration of current conditions in worldwide credit markets could limit our ability to ~~generate revenues and impacts the results of our future operations.~~obtain financing. A lack of available credit in financial markets may adversely affect the ability of our commercial customers to finance purchases and operations and could result in an absence of orders or spending for our products as well as create supplier disruptions. We are unable to predict the likely duration and severity of any adverse economic conditions and disruptions in financial markets and the effects they will have on our business and its financial condition.

~~Further, Turtle Beach products are manufactured~~ Difficult economic conditions may also result in ~~China for export~~a higher rate of losses on our accounts receivables due to ~~the United States and worldwide.~~defaults or bankruptcies. As a result, ~~of opposition to policies of the Chinese government and China’s growing trade surpluses with the United States, there has been, and~~a downturn in the ~~future may be, opposition to the extension~~worldwide economy could have a material adverse effect on our business, results of ~~normal trade relations (“NTR”) status for China. The loss of NTR status for China, changes in current tariff structures~~operations or ~~adoption in the United States of other trade policies adverse to China could increase our manufacturing expenses and make it more difficult for us to manufacture our products in China.~~

financial condition.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report financial results or prevent fraud, which could have an adverse effect on our business and financial condition.

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 requires, among other things, that we ~~perform system~~evaluate our systems and ~~process evaluation~~processes and ~~testing of~~test our internal ~~control~~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. If we are not able to remediate any identified material weakness or otherwise comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline and we could be subject to sanctions, investigations by ~~NASDAQ,~~the Nasdaq Stock Market, LLC, the SEC or other regulatory authorities, or shareholder litigation.

In addition, failure to maintain effective internal controls could result in financial statements that do not accurately reflect our financial condition or results of operations. 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.

~~We carried out an evaluation, under~~

Our business could be negatively affected as a result of any future proxy contest or the ~~supervision~~actions of activist shareholders.

Although our engagement with certain entities affiliated with The Donerail Group LP (“Donerail”) was settled as a result of our ~~Chief Executive Officer (our principal executive officer,~~entry into a cooperation agreement, future proxy contests or ~~PEO)~~related activist activities could adversely affect our business for a number of reasons, including the fact that responding to proxy contests and ~~our Chief Financial Officer (our principal financial officer, or PFO), of~~other actions by activist shareholders can be disruptive, costly and time-consuming; can divert the ~~effectiveness of the design and operation~~attention of our ~~disclosure controls~~management, Board of Directors and ~~procedures. Based upon~~employees; and can create perceived uncertainties as to our future direction and governance that ~~evaluation,~~may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners, customers and other stakeholders important to our ~~PEO~~success. Any future proxy contest or activist activities could also cause our stock price to experience periods of volatility. Further, we have incurred and ~~PFO concluded that our disclosure controls and procedures, as defined~~may incur in ~~Rule 13a-15(e)~~the future additional expenses by retaining the services of ~~the Exchange Act, were effective as of September 30, 2017. However, because of the inherent limitations of internal control over financial reporting, including the possibility of collusion~~various professionals to advise us in engagement with activist shareholders. If a future proxy contest 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 ofrelated settlement results in additional changes in ~~conditions, or that~~ the ~~degree~~composition of ~~compliance with the policies or procedures~~our Board of Directors, it may ~~deteriorate.~~

adversely affect our ability to continue to effectively implement our business strategy and could, in certain circumstances, give third parties certain rights under our existing contractual obligations, which could adversely affect our business.

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

Our competitive position will be ~~seriously~~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, 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 orand 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~~and diversion of our resources. An adverse result from intellectual property litigation could ~~force~~cause us to do one or more of the following:

•

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

•

obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; and/or

•

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.

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~~costs to us that could ~~harm~~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.

We rely on various intellectual property rights, including patents, trademarks, trade secrets and trade dress to protect our Turtle Beach brand name, reputation, product appearance, and ~~technology and our proprietary rights in our HyperSound~~ technology. Although we have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with selected parties with whom we conduct business to limit access to and disclosure of our proprietary information, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent misappropriation of that intellectual property or deter independent third-party development of similar technologies. Monitoring the unauthorized use of proprietary technology and trademarks is costly, and any dispute or other litigation, regardless of outcome, may be costly and time consuming and may divert the attention of management and key personnel from our business operations. The steps taken by us may not prevent unauthorized use of proprietary technology or trademarks. Many features of our products are not protected by patents; ~~and as a consequence,~~ we may not have the legal right to prevent others from reverse engineering or otherwise copying and using these features in competitive products. 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. 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~~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. There is no guarantee any patent ~~will issue~~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 at some point, and it is possible that it may be challenged, invalidated or

circumvented. If we do not secure and maintain patent protection for our HyperSound technology and products, our competitive position could be significantly harmed. A competitor may independently develop or patent technologies that are substantially similar or superior circumvented even prior to ~~our HyperSound technology.~~

As we expand our HyperSound product line or develop new uses for our HyperSound technology, these products or uses may be outside the protection provided by our current patent applications and other intellectual property rights. In addition, if we develop new HyperSound products or enhancements to existing products we cannot assure you that we will be able to obtain patents to protect them. Even if we do receive patents for our existing or new HyperSound products, these patents may not provide meaningful protection, or may be too costly to enforce protection. In some countries outside of the United States where our HyperSound products may be sold or our HyperSound technology may be licensed, patent protection is not available. Moreover, some countries that do allow for the registration of patents do not provide meaningful redress for violations of patents. As a result, protecting intellectual property in these countries is difficult and our competitors may successfully sell products in these countries that have functions and features that infringe on our intellectual property.

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 ~~suffer~~be adversely affected and our financial condition could be ~~harmed.~~

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~~®

platforms are 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.~~instance in the future. 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® 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 of such chips and/or modules. If we are unable to obtain sufficient quantities of these chips and/or modules, 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 ~~HyperSound technology is subject~~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 ~~government regulation,~~terminate that license under certain circumstances set forth in the agreement. Should that license be terminated, our headset offerings may be limited, which could ~~lead~~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.

While the Company believes it currently has the necessary licenses, or can obtain the necessary licenses to produce compatible products, Microsoft, Sony and other third-party gaming platform manufacturers may control or limit our ability to manufacture headsets compatible with their platforms, and could cause unanticipated ~~expenses and/~~delays in the release of our products as well as increases to projected development, manufacturing, licensing, marketing or ~~enforcement action against us.~~

~~Under~~distribution costs, any of which could negatively impact our business.

Risks Related to Liquidity

We depend upon the ~~Radiation Control for Health and Safety Act~~availability of 1968, and the associated regulations promulgated by the Food and Drug Administration (“FDA”), HyperSound products are regulated as electrical emitters of ultrasonic vibrations. Under the terms of such regulations, in August 2012 we provided, and in January 2016 further supplemented, an abbreviated reportcapital under our revolving credit facility to the FDA describing the HyperSound commercial product. In September 2015 we provided an initial product report describing the HyperSound Clear® 500P product. The FDA may respond to these reports and request changes or safeguards tofinance our HyperSound products, but it has not done so to date. We also are required to notify the FDA in writing should a product be found to have a defect relating to safety of use due to the emission of electronic product radiation. We do not believe our technology poses any human health risks. However, it is possibleoperations. Any additional financing that we may need may not be available on favorable terms, or ~~one~~at all.

In addition to cash flow generated from operations, we have financed our operations with the Credit Facility. 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 outstanding borrowings under the Credit Facility, as we currently do, such an event would have an immediate and material adverse impact on our ~~customers,~~business, results of operations, and financial condition. We could be required to ~~modify~~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 ~~technology,~~ 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; make certain investments and other payments; enter into certain mergers

or consolidations; undergo certain changes of control of our company or board of directors; engage in sale and leaseback transactions and transactions with affiliates; and encumber and dispose of assets.

If we violate any of these covenants, we will likely be unable to borrow 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 then outstanding under the applicable Credit Facility. No assurance can be given that we will be able to maintain compliance with these covenants in the future. The Credit Facility is asset based and can only be drawn down in an amount to which eligible collateral exists and can be negatively impacted by extended collection of accounts receivable, unexpectedly high product ~~incorporating~~returns and slow-moving inventory, among other factors. In addition, we have granted the ~~technology,~~lender a first-priority lien against substantially all of our assets, including trade accounts receivable and inventories. Failure to comply with ~~requirements that~~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.

Additionally, a significant downturn in demand for our products or a reduction in gross margins could have a material impact on our result of operations, adversely affecting our ability to obtain financing.

General Risk Factors

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 ~~imposed~~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 previously 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/or 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.

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

The changes to the trading relationship between the United Kingdom (UK) and European Union resulting from the UK’s exit from the European Union on January 31, 2020 (“Brexit”) have created uncertainty around possible increased cost of goods imported into and exported from the UK and may decrease the profitability of our UK and other European operations. Additional currency volatility could drive a weaker British pound, which increases the cost of goods imported into our UK operations and may decrease the profitability of our UK operations. A weaker British pound versus the Euro and U.S. dollar also causes local currency results of our UK operations to be translated into fewer U.S. dollars during a reporting period. On December 24, 2020, the UK and the EU entered into a trade and cooperation agreement (the “Trade and Cooperation Agreement”), which was applied on a provisional basis from January 1, 2021, and entered into force on May 1, 2021. The economic integration contemplated by the ~~FDA. Our HyperSound product advertising~~Trade and Cooperation Agreement does not reach the level that existed during the time the UK was a member state of the EU, and further, while the Trade and Cooperation Agreement sets out preferential arrangements in areas such as trade in goods and in services, digital trade and intellectual property, there is ~~regulated~~still uncertainty on the application and interpretation of many of its provisions. Negotiations between the UK and the EU are expected to continue in relation to the relationship between the UK and the EU in certain other areas which are not covered by the ~~Federal~~ Trade ~~Commission (the “FTC”), which requires all advertising be truthful, not deceptive or unfair,~~ and ~~evidence based.~~

~~Our HyperSound Clear 500P~~Cooperation Agreement. The long-term effects of Brexit will depend on the effects

of the implementation and application of the Trade and Cooperation Agreement and any other relevant agreements between the UK and the ~~HyperSound Tinnitus Module are regulated~~EU.

The market price of our common stock may fluctuate significantly.

We cannot predict the prices at which our common stock may trade. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including but not limited to:

•

actual or anticipated fluctuations in our operating results due to factors related to our business;

•

success or failure of our business strategy;

•

the success of third-party gaming platforms and certain game titles to drive sales;

•

our quarterly or annual earnings, or those of other companies in our industry;

•

changes in earnings estimates by securities analysts or our ability to meet those estimates;

•

our ability to execute transformation, restructuring and realignment actions;

•

the ~~FDA as medical devices pursuant~~operating and stock price performance of other comparable companies;

•

comments by securities analysts or other third parties, including in articles, letters and other media;

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speculation in the press about the future of our company or our industry;

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overall market fluctuations; and

•

general economic conditions and other external factors.

Stock markets in general have experienced volatility that has often been unrelated to the ~~Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. HyperSound Clear 500P received 510(k) clearance permitting over -~~operating performance of a particular company. These broad market fluctuations could adversely affect the ~~- counter (“OTC”) commercial distribution for use as a group auditory trainer or group hearing aid and~~trading price of our common stock. These fluctuations may also cause short sellers to periodically enter the ~~HyperSound Tinnitus Module feature received 510(k) clearance for prescription use~~market on the belief that we may experience worse results in the ~~temporary relief~~future. We cannot predict the actions of ~~tinnitus symptoms. In~~market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

We have been party to stockholder litigation, and in the future could be party to additional stockholder litigation, which could harm our business, financial condition and operating results.

We have had, and may continue to have, actions brought against us by stockholders, including in connection with the ~~recent restructuring~~Merger, as further described in Note 12. Commitments and Contingencies, based on past transactions, changes in our stock price or other matters. Any such claims, whether or not resolved in our favor, could divert our management and other resources from the operation of our business and otherwise result in unexpected and substantial expenses that would adversely and materially impact our business, financial condition and operating results.

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

Our future success depends largely upon the ~~HyperSound business, we terminated sales~~continued service of ~~HyperSound Clear 500P products~~our executive officers and ~~in March 2017 we deactivated~~other key management and technical personnel and on our FDA listing of these devices. We also did not renew our 2017 European Union certifications for HyperSound Clear 500P devices. Any future sales of regulated products would require new registrations and certifications.

Weability 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.

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

Our business could be adversely affected by significant movements in foreign currency exchange rates. We are exposed to ~~FDA’s requirements for marketed medical devices~~fluctuations in foreign currency transaction exchange rates, particularly with respect to ~~those HyperSound Clear 500P products that have already been sold, such as~~ the ~~Quality System Regulation, or QSR (which imposes procedural, documentation~~Euro and ~~record keeping requirements regarding~~British Pound. Any significant change in the ~~manufacture~~value of ~~medical devices);~~currencies of the ~~Medical Device Reporting regulation (which requires that manufacturers report~~countries in which we do business relative to the ~~FDA if their device~~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. dollar. The translation risk is primarily concentrated in the exchange rate between the U.S. dollar and the British Pound. As the U.S. dollar fluctuates against other currencies in which we transact business, revenue and income could be impacted.

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. 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 ~~have caused~~not be available to us on favorable terms and may adversely affect our liquidity;

•

issue equity or ~~contributed to a death or serious injury or malfunctioned in a way~~equity-based securities that would ~~likely cause~~dilute existing stockholders’ ownership percentage;

•

assume contingent and other liabilities; and

•

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 ~~contribute~~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 ~~a death~~realize the anticipated synergies, innovation, operational efficiencies, benefits of or ~~serious injury if it were~~successfully integrate with our existing business the businesses, products, technologies or personnel that we acquire, and our failure to ~~recur);~~do so could harm our business and the Reports of Corrections and Removals regulation (which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may pose a risk to health). FDA enforces these requirements by inspection and market surveillance. If the FDA finds a violation, it can institute a wide range of enforcement actions, ranging from a public warning letter to more severe sanctions such as fines, penalties,

~~suspension or withdrawal of regulatory approvals, product recalls, seizure of products,~~ operating ~~restrictions or total shutdown of production, and criminal prosecution.~~

results.

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.

Changes in production levels or processes could result in increased manufacturing errors, as well as higher component, manufacturing and shipping costs, all of which could reduce our profit margins, result in prices increases and harm our relationships with retailers and consumers.

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. ~~As of December 31, 2016 and the date of this report, the Company has not received notice of any lawsuits against the Company in connection with any recall actions.~~

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”). For example, under Section 1502 of the Dodd-Frank Act, the SEC has adopted additional disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by that issuer. The metals covered by the rules include tin, tantalum, tungsten and gold. Our suppliers may use some or all of these materials in their production processes. The rules require us to conduct a reasonable country of origin inquiry to determine if we know or have reason to believe any of the minerals used in the production process may have originated from the Democratic Republic of the Congo or an adjoining country. If we are not able to determine the minerals did not originate from a covered country or conclude that there is no reason to believe that the minerals used in the production process may have originated in a covered country, we would be required to perform supply chain due diligence on members of our supply chain. Global supply chains can have multiple layers, thus the costs of complying with these new requirements could be substantial. These new requirements may also reduce the number of suppliers who provide conflict free metals, and may affect our ability to obtain products in sufficient quantities or at competitive prices. Compliance costs such as these could have a material adverse effect on our results of operations.

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.

The current administration has called for substantial change to fiscal and tax policies, which may include comprehensive tax reform and changes to the implementation of the Dodd-Frank Act and related or similar regulations. We cannot predict the impact, if any, of these changes to our business. However, it is possible that these changes could adversely affect our business. Until we know what changes are enacted, we will not know whether in total we benefit from, or are negatively affected by, the changes.

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. The environmental laws and regulations applying to our business include those governing the discharge of pollutants into the air and water, the management, disposal and labeling of, and exposure to, hazardous substances and wastes and the cleanup of contaminated sites. 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~~

Our goals and disclosures related to environmental, social and governance (“ESG”) matters have and will likely continue to result in additional costs and risks to us, which may adversely affect our reputation, employee retention, and willingness of our customers and partners to do business with us.

Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are increasingly focused on the ESG goals and practices of companies. We are frequently asked by investors and other stakeholders to set ambitious ESG goals and provide new and more robust disclosure of ESG goals, progress toward ESG goals and other matters of interest to ESG stakeholders. We are moving towards setting ESG goals and enhancing related disclosure of goals, progress, and other matters relating to ESG. Our efforts to accomplish and accurately disclose ESG-related goals and objectives present numerous operational, reputational, financial, legal, and other risks, any of which could have a negative impact on our business, reputation, and stock price.

Our ability to set and achieve ESG goals and initiatives, is subject to numerous risks, including, among others: (1) the availability and cost of limiting or eliminating our use of carbon-based energy sources and technologies, (2) evolving regulatory requirements affecting ESG standards or disclosures, (3) our ability to partner with providers that can meet our sustainability, diversity, and other standards, (4) our ability to recruit, develop, and retain diverse talent, (5) the impact of our organic growth and acquisitions or dispositions of businesses or operations on our ESG goals, and (6) customers’ actual demand for ESG-oriented product offerings, which may be more expensive and less available than other options.

The standards for tracking and reporting on ESG matters are relatively new, have not been harmonized and continue to evolve. Our selection of disclosure frameworks that seek to align with various reporting standards may change from time to time and may result in a lack of consistent or meaningful comparative data from period to period. In addition, our processes and controls may not always comply with ~~the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation~~evolving standards for identifying, measuring and reporting ESG metrics, our interpretation of reporting standards may differ from those of others and such standards may change over time, any of which could result in ~~fines, criminal penalties~~significant revisions to our ESG goals or reported progress in achieving such goals.

If our ESG practices do not meet evolving investor or other stakeholder expectations and standards or regulatory requirements, then our reputation, our ability to attract or retain employees and our attractiveness as an ~~adverse effect~~investment, business partner or acquiror could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various

reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

On April 9, 2019, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $15.0 million of its common stock. Any repurchases under the program will be made from time to time on ~~our business.~~

~~We operate in 44 countries, including countries known to have a reputation for corruption. We~~the open market at prevailing market prices and 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~~rules and ~~collaborators may take action determined to be in violation~~regulations of ~~such anti-corruption laws,~~the SEC. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including ~~the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010, the European Union Anti-Corruption Act~~price, corporate and regulatory requirements, capital availability, and other ~~similar laws, or that subjects us~~market conditions. On April 1, 2021, the Company’s Board of Directors approved an extension and expansion of this stock repurchase program to ~~trade sanctions administered by the Office~~acquire up to $25 million 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.

~~Risks Related to Ownership of our Common Stock~~

If we cannot meet Nasdaq’s continuing listing requirements and Nasdaq rules, Nasdaq may delist our securities, which could negatively affect us, the price of our securities and your ability to sell our securities.

Although our shares are currently listed on Nasdaq, we may not be able to meet the continued listing requirements of Nasdaq, which require, among other things, a minimum bid price of $1.00 per share forits common shares, ~~listed on~~expiring April 9, 2023. The following table summarizes, by month, the ~~exchange. On May 9, 2017, Turtle Beach Corporation (the “Company”) received a written notice~~repurchases made during the three months ended June 30, 2022, under the repurchase program and in connection with shares repurchased from the Listing Qualifications Department of The Nasdaq Stock Market, LLC (“Nasdaq”) indicating that the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2) because the bid price for the Company’s common stock had closed below $1.00 per share for the previous 30 consecutive business days.

While we may consider implementation of customary options, including a reverse stock split, if our common stock does not trade at the required level that regains compliance, if our efforts are unsuccessful or we are otherwise unableemployees to satisfy the Nasdaq criteria for maintaining our listing, our securities could be subject to delisting. As a consequence of any such delisting, our shareholders would likely find it more difficult to dispose of, or to obtain accurate quotations as to the prices of our securities. In the event of a delisting, we could face significant material adverse consequences including a limited availability of market quotations for our securities; a limited amount of news and analyst coverage for our company; and a decreased ability to issue additional securities or obtain additional financingtax withholding obligations in ~~the future.~~

~~In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, or until November 6, 2017, to regain compliance~~connection with the ~~minimum bid price requirement. To regain compliance,~~vesting of restricted stock awards.


	Issuer Purchases of Equity Securities
	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Period
April 1-30, 2022		—	$	—		—		—
May 1-31, 2022		—	$	—		—		—
June 1-30, 2022								17,594,289
Total		—	$	—		—

For the ~~bid price~~second quarter of ~~the Company’s~~2022, we did not repurchase any shares of common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days. Nasdaq’s written notice has no effect on the listing or trading of the Company’s common stock at this time.

Ownership of our common stock is highly concentrated, and we are a “controlled company” within the meaning of the corporate governance standards of NASDAQ and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements.

~~Certain Turtle Beach stockholders acting as a group beneficially own or control approximately 51% of our common~~ stock. Accordingly, these stockholders, acting as a group pursuant to a stockholder agreement, have substantial influence over the outcome of our corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. These stockholders also may exert influence in delaying or preventing a change in control of the Company, even if such change in control would benefit our other stockholders. In addition, the significant concentration of stock ownership may affect adversely the market value of our common stock due to investors’ perception that such conflicts of interest may exist or arise.

Additionally, we have elected to be treated as a “controlled company” under NASDAQ rules. A “controlled company” under NASDAQ rules is a listed company more than 50% of the voting power of which is held by an individual, a group or another company (and which elects to be treated as a “controlled company”). Certain stockholders of Turtle Beach constitute a

group controlling more than 50% of the voting power of our voting stock. As a “controlled company,” we are permitted to, and have, opted out of certain NASDAQ rules that would otherwise require (i) a majority of the members of our board to be independent, (ii) that our compensation committee be comprised entirely of independent directors and (iii) that we establish a nominating and governance committee comprised entirely of independent directors, or otherwise ensure that director nominees are determined or recommended to our board by the independent members of our board. Accordingly, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NASDAQ.

If the stockholder group ceases to own at least 50% of our outstanding common stock, we will no longer be eligible to be treated as a controlled company. Pursuant to NASDAQ’s listing rules, upon ceasing to be a controlled company, we would be required to regain compliance with NASDAQ’s listing standards applicable to non-controlled companies, including (i) within 90 days, reconfiguring the Nominating and Governance Committee of our board of directors such that a majority of the members of the committee would be independent and (ii) within 12 months, (x) reconfiguring our board of directors such that a majority of the directors would be independent and (y) reconfiguring the Compensation and Nominating and Governance Committees of the board of directors such that all members of such committees would be independent.

Item 5 - Other Information

None.

Item 6. Exhibits



~~31.1~~ 3.1			Articles of Incorporation of Turtle Beach Corporation, as amended (Incorporated by reference to Exhibit 3.1 to Company’s 10-Q filed August 6, 2018).

3.2			Bylaws, as amended, of Turtle Beach Corporation (Incorporated by reference to Exhibit 3.1 to Company’s 8-K filed June 20, 2019).

10.1			Cooperation Agreement, dated May 13, 2022, by and among Turtle Beach Corporation, The Donerail Group LP, and the other parties thereto (Incorporated by reference to Exhibit 10.1 to Company's 8-K filed May 17, 2022).

10.2†**			Turtle Beach Corporation 2022 Retention Plan Document

31.1 **			Certification of Juergen Stark, Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002 (filed herewith).~~2002.

31.2 **			Certification of John T. Hanson, Principal Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002 (filed herewith).~~2002.

32.1 **			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Juergen Stark, Principal Executive Officer and John Hanson, Principal Financial ~~Officer (filed herewith).~~Officer.

			Extensible Business Reporting Language (XBRL) Exhibits
~~101.INS~~
101.INS			Inline XBRL Instance Document
~~101.SCH~~
101.SCH			Inline XBRL Taxonomy Extension Schema Document
~~101.CAL~~
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
~~101.DEF~~
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
~~101.LAB~~
101.LAB			Inline XBRL Taxonomy Extension Labels Linkbase Document
~~101.PRE~~
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document

104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

** Filed herewith.

†Includes a management contract or any compensatory plan, contract or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




				TURTLE BEACH CORPORATION

Date:	~~November 2, 2017~~ August 8, 2022	~~By:~~	By:	/S/s/ JOHN T. HANSON
				John T. Hanson Chief Financial Officer, Treasurer and Secretary
				(Principal Financial and Accounting Officer)



Nevada	27-2767540
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification ~~Number)~~ No.)

~~11011 Via Frontera, Suite A/B~~ ~~San Diego, California~~ 44 South Broadway, 4th Floor White Plains, New York	~~92127~~ 10601
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, par value $0.001	HEAR	The Nasdaq Global Market


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐



		Page

PART I. FINANCIAL INFORMATION		2

Item 1.	Financial Statements (unaudited)	2

	~~Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016~~	2

	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021	3 2

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021	4 3

	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	4

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021	5

	Condensed Consolidated Statement of ~~Stockholders'~~Stockholder's Equity (Deficit) for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2022 and 2021	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23 17

Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	33 23

Item 4.	Controls and Procedures	34 24

~~Item 5.~~		~~Other Information~~	34

PART II. OTHER INFORMATION		34 25

Item 1.	Legal Proceedings	34 25

Item 1A.	Risk Factors	35 25

Item 6.2.	~~Exhibits~~Unregistered Sales of Equity Securities and Use of Proceeds	46 36

~~SIGNATURES~~ Item 5.	47Other Information	36

Item 6.	Exhibits	37

SIGNATURES		38



	September 30, 2017			December 31, 2016
ASSETS	(in thousands, except par value and share amounts)
Current Assets:
Cash and cash equivalents	$	473		$	6,183
Accounts receivable, net	24,588			54,633
Inventories	45,869			21,698
Prepaid expenses and other current assets	4,956			4,121
Total Current Assets	75,886			86,635
Property and equipment, net	4,427			4,311
Intangible assets, net	1,484			1,618
Deferred income taxes	126			543
Other assets	1,146			1,693
Total Assets	$	83,069		$	94,800
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Revolving credit facilities	$	24,793		$	35,905
Term loan	4,814			2,647
Accounts payable	29,996			11,927
Other current liabilities	12,110			16,414
Total Current Liabilities	71,713			66,893
Term loan, long-term portion	7,238			10,442
Series B redeemable preferred stock	18,547			17,480
Subordinated notes - related party	20,051			17,881
Other liabilities	2,239			2,800
Total Liabilities	119,788			115,496
Commitments and Contingencies
Stockholders' Equity (Deficit)
Common stock, $0.001 par value - 100,000,000 shares authorized; 49,386,006 and 49,251,336 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	49			49
Additional paid-in capital	147,802			146,615
Accumulated deficit	(184,279		)	(166,800		)
Accumulated other comprehensive loss	(291		)	(560		)
Total Stockholders' Equity (Deficit)	(36,719		)	(20,696		)
Total Liabilities and Stockholders' Equity (Deficit)	$	83,069		$	94,800



	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
	(in thousands, except per-share data)
Net Revenue	$	35,975		$	38,384		$	69,439		$	91,774
Cost of Revenue	23,437			34,457			48,384			79,372
Gross Profit	12,538			3,927			21,055			12,402
Operating expenses:
Selling and marketing	5,586			7,016			15,564			19,737
Research and development	1,336			2,637			4,423			6,701
General and administrative	3,499			4,591			11,740			15,161
Goodwill and intangible asset impairment	—			32,084			—			63,236
Restructuring charges	241			339			509			564
Total operating expenses	10,662			46,667			32,236			105,399
Operating income (loss)	1,876			(42,740		)	(11,181		)	(92,997		)
Interest expense	2,042			1,866			5,717			5,331
Other non-operating expense (income), net	(252		)	326			(517		)	1,395
Earnings (loss) before income tax	86			(44,932		)	(16,381		)	(99,723		)
Income tax expense (benefit)	578			(133		)	1,098			(340		)
Net loss	$	(492	)	$	(44,799	)	$	(17,479	)	$	(99,383	)

Net loss per share:
Basic	$	(0.01	)	$	(0.91	)	$	(0.35	)	$	(2.05	)
Diluted	$	(0.01	)	$	(0.91	)	$	(0.35	)	$	(2.05	)
Weighted average number of shares:
Basic	49,386			49,230			49,328			48,371
Diluted	49,386			49,230			49,328			48,371



	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
	(in thousands)
Net loss	$	(492	)	$	(44,799	)	$	(17,479	)	$	(99,383	)

Other comprehensive income (loss):
Foreign currency translation adjustment	111			1			269			(69		)
Other comprehensive income (loss)	111			1			269			(69		)
Comprehensive loss	$	(381	)	$	(44,798	)	$	(17,210	)	$	(99,452	)



	June 30,			December 31,
	2022			2021
	(unaudited)
ASSETS	(in thousands, except par value and share amounts)
Current Assets:
Cash and cash equivalents	$	10,877		$	37,720
Accounts receivable, net		8,551			35,953
Inventories		120,694			101,933
Prepaid expenses and other current assets		13,606			17,506
Total Current Assets		153,728			193,112
Property and equipment, net		6,144			6,955
Deferred income taxes		13,009			5,899
Goodwill		10,686			10,686
Intangible assets, net		5,126			5,788
Other assets		8,261			8,065
Total Assets	$	196,954		$	230,505
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Revolving credit facility	$	15,707		$	—
Accounts payable		31,030			40,475
Other current liabilities		19,456			37,693
Total Current Liabilities		66,193			78,168
Income tax payable		3,774			3,774
Other liabilities		7,334			7,194
Total Liabilities		77,301			89,136
Commitments and Contingencies
Stockholders’ Equity
Common stock, $0.001 par value - 25,000,000 shares authorized; 16,526,393 and 16,168,147 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		17			16
Additional paid-in capital		202,382			198,278
Accumulated deficit		(81,354	)		(57,052	)
Accumulated other comprehensive income (loss)		(1,392	)		127
Total Stockholders’ Equity		119,653			141,369
Total Liabilities and Stockholders’ Equity	$	196,954		$	230,505


	Six Months Ended
	June 30, 2022			June 30, 2021
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(24,302	)	$	10,559
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,458			1,847
Amortization of intangible assets		623			625
Amortization of debt financing costs		94			95
Stock-based compensation		3,567			3,727
Deferred income taxes		(7,110	)		(101	)
Change in sales returns reserve		(4,992	)		(4,186	)
Provision for obsolete inventory		(1,289	)		783
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		32,152			20,028
Inventories		(21,288	)		(11,413	)
Accounts payable		(9,914	)		4,580
Prepaid expenses and other assets		1,055			(11,299	)
Income taxes payable		1,550			(6,850	)
Other liabilities		(13,851	)		4,053
Net cash provided by (used for) operating activities		(41,247	)		12,448
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(1,207	)		(3,316	)
Acquisition of a business, net of cash acquired		—			(2,500	)
Net cash used for investing activities		(1,207	)		(5,816	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities		36,209			120,858
Repayment of revolving credit facilities		(20,502	)		(120,858	)
Proceeds from exercise of stock options and warrants		538			3,262
Repurchase of common stock to satisfy employee tax withholding obligations		—			(463	)
Net cash provided by financing activities		16,245			2,799
Effect of exchange rate changes on cash and cash equivalents		(634	)		85
Net increase (decrease) in cash and cash equivalents		(26,843	)		9,516
Cash and cash equivalents - beginning of period		37,720			46,681
Cash and cash equivalents - end of period	$	10,877		$	56,197

SUPPLEMENTAL DISCLOSURE OF INFORMATION
Cash paid for interest	$	108		$	88
Cash paid (received) for income taxes	$	(2,539	)	$	8,041



	Common Stock			Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	(in thousands)
Balance at December 31, 2016	49,251	$	49	$	146,615	$	(166,800	)	$	(560	)	$	(20,696	)
Net loss	—	—		—		(17,479		)	—			(17,479		)
Other comprehensive loss	—	—		—		—			269			269
Stock-based compensation	135	—		1,187		—			—			1,187
Balance at September 30, 2017	49,386	$	49	$	147,802	$	(184,279	)	$	(291	)	$	(36,719	)


	Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital		Deficit			Income (Loss)			Total
	(in thousands)
Balance at December 31, 2021		16,168	$	16	$	198,278	$	(57,052	)	$	127		$	141,369
Net loss		—		—		—		(6,476	)		—			(6,476	)
Other comprehensive loss, net of tax		—		—		—		—			(429	)		(429	)
Issuance of restricted stock		30		—		—		—			—			—
Stock options exercised		47		—		361		—			—			361
Stock-based compensation		—		—		1,537		—			—			1,537
Balance at March 31, 2022		16,245	$	16	$	200,176	$	(63,528	)	$	(302	)	$	136,362
Net loss		—		—		—		(17,826	)		—			(17,826	)
Other comprehensive loss, net of tax		—		—		—		—			(1,090	)		(1,090	)
Issuance of restricted stock		257		—		—		—			—			—
Stock options exercised		24		1		176		—			—			177
Stock-based compensation		—		—		2,030		—			—			2,030
Balance at June 30, 2022		16,526	$	17	$	202,382	$	(81,354	)	$	(1,392	)	$	119,653


	June 30, 2022				December 31, 2021
	Reported		Fair Value		Reported		Fair Value
	(in thousands)
Financial Assets and Liabilities:
Cash and cash equivalents	$	10,877	$	10,877	$	37,720	$	37,720
Revolving credit facility	$	15,707	$	15,707	$	—	$	—



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
	(in thousands)
Balance, beginning of period	$	2,153		$	579		$	4,591		$	6,268
Reserve accrual	2,146			2,807			4,228			7,341
Recoveries and deductions, net	(1,917		)	(2,049		)	(6,437		)	(12,272		)
Balance, end of period	$	2,382		$	1,337		$	2,382		$	1,337


	June 30, 2022
	Gross Carrying Value			Accumulated Amortization			Net Book Value
	(in thousands)
Customer relationships	$	8,355		$	6,667		$	1,688
Tradenames		3,066			884			2,182
Developed technology		1,884			574			1,310
Foreign currency		(1,363	)		(1,309	)		(54	)
Total Intangible Assets	$	11,942		$	6,816		$	5,126



	September 30, 2017
	Gross Carrying Value			Accumulated Amortization			Asset Impairment		Net Book Value
	(in thousands)
Customer relationships	$	5,796		$	4,064		$	—	$	1,732
Foreign Currency	(933		)	(685		)	—		(248		)
Total Intangible Assets	$	4,863		$	3,379		$	—	$	1,484


	December 31, 2016
	Gross Carrying Value			Accumulated Amortization			Asset Impairment		Net Book Value
	(in thousands)
Customer relationships	$	5,796		$	3,737		$	—	$	2,059
Non-compete agreements	177			177			—		—
In-process Research and Development	27,100			4,074			23,026		—
Developed technology	8,880			802			8,078		—
Trade names	170			92			78		—
Patent and trademarks	967			65			902		—
Foreign Currency	(1,294		)	(853		)	—		(441		)
Total Intangible Assets	$	41,796		$	8,094		$	32,084	$	1,618



	(in thousands)
2017	$	109
2018	366
2019	307
2020	258
2021	217
Thereafter	475
Total	$	1,732



	Options Outstanding
	Number of Shares Underlying Outstanding Options		Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
				(In years)
Outstanding at December 31, 2016	6,381,447		1.90	7.37	20,033
Granted	704,865		0.93
Exercised	—		—
Forfeited	(1,053,683	)	2.22
Outstanding at September 30, 2017	6,032,629		1.73	6.75	2,543
Vested and expected to vest at September 30, 2017	6,022,628		1.74	6.75	2,543
Exercisable at September 30, 2017	3,886,414		1.76	6.68	2,100



	Shares		Weighted Average Grant Date Fair Value Per Share
Nonvested restricted stock at December 31, 2016	135,705		1.84
Granted	166,665		0.90
Vested	(91,002	)	2.06
Forfeited	(43,903	)	1.16
Nonvested restricted stock at September 30, 2017	167,465		0.96



	September 30, 2017			December 31, 2016
Total Assets	(in thousands)
Headset	$	83,029		$	94,081
HyperSound⁽¹⁾	27,918			31,233
Eliminations	(27,878		)	(30,514		)
Total	$	83,069		$	94,800