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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to           

 

Commission File Number: 001-35465

 

TURTLE BEACH CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada

27-2767540

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

11011 Via Frontera, Suite A/B

San Diego, California

92127

(Address of principal executive offices)

(Zip Code)

 

(888) 496-8001

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbols

Name of each exchange on which registered

Common Stock, par value $0.001

HEAR

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No

The number of shares of the registrant’s Common Stock, par value $0.001 per share, outstanding on July 31, 2020 was 14,594,759.

 

 

 


 

INDEX

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (unaudited)

3

 

 

 

 

  Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

3

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

6

 

 

 

 

Condensed Consolidated Statement of Stockholder's Equity (Deficit) for the Three and Six Months Ended June 30, 2020 and 2019

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

26

 

 

 

Item 4.

Controls and Procedures

26

 

 

 

PART II. OTHER INFORMATION

28

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

 

 

 

Item 5.

Other Information

39

 

 

 

Item 6.

Exhibits

40

 

 

SIGNATURES

41

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Turtle Beach Corporation

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

(in thousands, except par value and share amounts)

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,206

 

 

$

8,249

 

Accounts receivable, net

 

 

37,007

 

 

 

44,530

 

Inventories

 

 

44,953

 

 

 

45,711

 

Prepaid expenses and other current assets

 

 

10,233

 

 

 

4,057

 

Total Current Assets

 

 

113,399

 

 

 

102,547

 

Property and equipment, net

 

 

4,366

 

 

 

3,962

 

Deferred income taxes

 

 

6,664

 

 

 

7,439

 

Goodwill

 

 

8,178

 

 

 

8,515

 

Intangible assets, net

 

 

5,518

 

 

 

6,011

 

Other assets

 

 

2,370

 

 

 

2,877

 

Total Assets

 

$

140,495

 

 

$

131,351

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

 

 

$

15,655

 

Accounts payable

 

 

41,694

 

 

 

22,511

 

Other current liabilities

 

 

26,331

 

 

 

26,422

 

Total Current Liabilities

 

 

68,025

 

 

 

64,588

 

Deferred income taxes

 

 

140

 

 

 

153

 

Other liabilities

 

 

2,869

 

 

 

3,223

 

Total Liabilities

 

 

71,034

 

 

 

67,964

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value - 25,000,000 shares authorized; 14,594,731 and 14,488,182 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

 

 

15

 

 

 

14

 

Additional paid-in capital

 

 

179,132

 

 

 

176,776

 

Accumulated deficit

 

 

(108,870

)

 

 

(113,519

)

Accumulated other comprehensive income (loss)

 

 

(816

)

 

 

116

 

Total Stockholders’ Equity

 

 

69,461

 

 

 

63,387

 

Total Liabilities and Stockholders’ Equity

 

$

140,495

 

 

$

131,351

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

3


 

Turtle Beach Corporation

Condensed Consolidated Statements of Operations

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands, except per-share data)

 

Net revenue

 

$

79,680

 

 

$

41,330

 

 

$

114,687

 

 

$

86,176

 

Cost of revenue

 

 

50,453

 

 

 

28,159

 

 

 

74,675

 

 

 

58,218

 

Gross profit

 

 

29,227

 

 

 

13,171

 

 

 

40,012

 

 

 

27,958

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

9,559

 

 

 

7,550

 

 

 

17,207

 

 

 

14,431

 

Research and development

 

 

3,001

 

 

 

1,734

 

 

 

5,428

 

 

 

3,190

 

General and administrative

 

 

6,710

 

 

 

6,194

 

 

 

12,433

 

 

 

10,843

 

Total operating expenses

 

 

19,270

 

 

 

15,478

 

 

 

35,068

 

 

 

28,464

 

Operating income (loss)

 

 

9,957

 

 

 

(2,307

)

 

 

4,944

 

 

 

(506

)

Interest expense

 

 

83

 

 

 

111

 

 

 

252

 

 

 

355

 

Other non-operating expense (income), net

 

 

(1,616

)

 

 

(70

)

 

 

(1,419

)

 

 

(1,732

)

Income (loss) before income tax

 

 

11,490

 

 

 

(2,348

)

 

 

6,111

 

 

 

871

 

Income tax expense

 

 

3,286

 

 

 

25

 

 

 

1,462

 

 

 

189

 

Net income (loss)

 

$

8,204

 

 

$

(2,373

)

 

$

4,649

 

 

$

682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.56

 

 

$

(0.16

)

 

$

0.32

 

 

$

0.05

 

Diluted

 

$

0.51

 

 

$

(0.16

)

 

$

0.30

 

 

$

(0.06

)

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,581

 

 

 

14,586

 

 

 

14,538

 

 

 

14,462

 

Diluted

 

 

16,229

 

 

 

14,586

 

 

 

15,363

 

 

 

15,699

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

4


 

Turtle Beach Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

2020

 

 

June 30,

2019

 

 

June 30,

2020

 

 

June 30,

2019

 

 

 

(in thousands)

 

Net income (loss)

 

$

8,204

 

 

$

(2,373

)

 

$

4,649

 

 

$

682

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(113

)

 

 

(158

)

 

 

(932

)

 

 

7

 

Other comprehensive income (loss)

 

 

(113

)

 

 

(158

)

 

 

(932

)

 

 

7

 

Comprehensive income (loss)

 

$

8,091

 

 

$

(2,531

)

 

$

3,717

 

 

$

689

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

5


 

Turtle Beach Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

 

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

4,649

 

 

$

682

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,061

 

 

 

2,180

 

Amortization of intangible assets

 

 

443

 

 

 

221

 

Amortization of debt financing costs

 

 

94

 

 

 

94

 

Stock-based compensation

 

 

2,405

 

 

 

1,525

 

Deferred income taxes

 

 

761

 

 

 

 

Reversal of sales returns reserve

 

 

(1,207

)

 

 

(5,166

)

Provision for obsolete inventory

 

 

1,493

 

 

 

1,602

 

Unrealized gain on financial instrument obligation

 

 

 

 

 

(1,601

)

Increase in fair value of contingent consideration

 

 

335

 

 

 

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

8,730

 

 

 

40,979

 

Inventories

 

 

(734

)

 

 

4,461

 

Accounts payable

 

 

19,020

 

 

 

(1,066

)

Prepaid expenses and other assets

 

 

(6,124

)

 

 

(950

)

Income taxes payable

 

 

135

 

 

 

(405

)

Other liabilities

 

 

(219

)

 

 

(4,384

)

Net cash provided by operating activities

 

 

31,842

 

 

 

38,172

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,303

)

 

 

(1,007

)

Acquisition of a business, net of cash acquired

 

 

-

 

 

 

(12,667

)

Net cash used for investing activities

 

 

(2,303

)

 

 

(13,674

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Borrowings on revolving credit facilities

 

 

48,426

 

 

 

99,453

 

Repayment of revolving credit facilities

 

 

(64,081

)

 

 

(126,036

)

Proceeds from exercise of stock options and warrants

 

 

59

 

 

 

94

 

Repurchase of common stock

 

 

-

 

 

 

(1,499

)

Repurchase of common stock to satisfy employee tax withholding obligations

 

 

(108

)

 

 

(145

)

Net cash used for financing activities

 

 

(15,704

)

 

 

(28,133

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(878

)

 

 

3

 

Net increase in cash and cash equivalents

 

 

12,957

 

 

 

(3,632

)

Cash and cash equivalents - beginning of period

 

 

8,249

 

 

 

7,078

 

Cash and cash equivalents - end of period

 

$

21,206

 

 

$

3,446

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

198

 

 

$

308

 

Cash paid for income taxes

 

$

44

 

 

$

447

 

Reclassification of financial instrument obligation

 

$

 

 

$

6,248

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

6


 

Turtle Beach Corporation

Condensed Consolidated Statement of Stockholders Equity (Deficit)

(unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2019

 

 

14,488

 

 

$

14

 

 

$

176,776

 

 

$

(113,519

)

 

$

116

 

 

$

63,387

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,555

)

 

 

 

 

 

(3,555

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(819

)

 

 

(819

)

Issuance of restricted stock

 

 

19

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Repurchase of common stock and retirement of related treasury shares

 

 

(7

)

 

 

 

 

 

(48

)

 

 

 

 

 

 

 

 

(48

)

Stock options exercised

 

 

6

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Stock-based compensation

 

 

 

 

 

 

 

 

999

 

 

 

 

 

 

 

 

 

999

 

Balance at March 31, 2020

 

 

14,506

 

 

$

15

 

 

$

177,745

 

 

$

(117,074

)

 

$

(703

)

 

$

59,983

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,204

 

 

 

 

 

 

8,204

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(113

)

 

 

(113

)

Issuance of restricted stock

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock and retirement of related treasury shares

 

 

(6

)

 

 

 

 

 

(60

)

 

 

 

 

 

 

 

 

(60

)

Stock options exercised

 

 

9

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

41

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,406

 

 

 

 

 

 

 

 

 

1,406

 

Balance at June 30, 2020

 

 

14,594

 

 

 

15

 

 

 

179,132

 

 

 

(108,870

)

 

 

(816

)

 

 

69,461

 

 

 

 

Common Stock

 

 

 

 

Additional

Paid-In

 

 

 

 

Accumulated

 

 

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

Amount

 

 

 

 

Capital

 

 

 

 

Deficit

 

 

 

 

Income (Loss)

 

 

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2018

 

 

14,268

 

 

 

 

$

14

 

 

 

 

$

169,421

 

 

 

 

$

(131,463

)

 

 

 

$

(476

)

 

 

 

$

37,496

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,055

 

 

 

 

 

 

 

 

 

 

3,055

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

165

 

 

 

 

 

165

 

Reclassification of financial instrument obligation

 

 

 

 

 

 

 

 

 

 

 

 

6,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,248

 

Issuance of restricted stock

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock and retirement of related treasury shares

 

 

(6

)

 

 

 

 

 

 

 

 

 

(101

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101

)

Issuance of common stock upon exercise of warrants

 

 

295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

6

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

522

 

Balance at March 31, 2019

 

 

14,575

 

 

 

 

$

14

 

 

 

 

$

176,113

 

 

 

 

$

(128,408

)

 

 

 

$

(311

)

 

 

 

$

47,408

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,373

)

 

 

 

 

 

 

 

 

 

(2,373

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

(158

)

 

 

 

 

(158

)

Issuance of restricted stock

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Repurchase of common stock and retirement of related treasury shares

 

 

(4

)

 

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

Common stock buyback

 

 

(156

)

 

 

 

 

 

 

 

 

 

(1,499

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,499

)

Stock options exercised

 

 

22

 

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

1,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,003

 

Balance at June 30, 2019

 

 

14,493

 

 

 

 

 

14

 

 

 

 

 

175,644

 

 

 

 

 

(130,781

)

 

 

 

 

(469

)

 

 

 

 

44,408

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited)

7


 

Turtle Beach Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 1. Background and Basis of Presentation

Organization

 

Turtle Beach Corporation (“Turtle Beach” or the “Company”), headquartered in San Diego, California and incorporated in the state of Nevada in 2010, is a premier audio and gaming technology company with expertise and experience in developing, commercializing and marketing innovative products across a range of large addressable markets under the Turtle Beach® and ROCCAT® brands. Turtle Beach is a worldwide leader of feature-rich headset solutions for use across multiple platforms, including video game and entertainment consoles, handheld consoles, personal computers (“PC”), tablets and mobile devices. ROCCAT is a gaming keyboards, mice and other accessories brand focused in the PC peripherals market.

 

VTB Holdings, Inc. (“VTBH”), a wholly-owned subsidiary of Turtle Beach and the owner of Voyetra Turtle Beach, Inc. (“VTB”), was incorporated in the state of Delaware in 2010. VTB, the owner of Turtle Beach Europe Limited (“TB Europe”), was incorporated in the state of Delaware in 1975 with operations principally located in Valhalla, New York.

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire fiscal year.

The December 31, 2019 Condensed Consolidated Balance Sheet has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 13, 2020 (“Annual Report”).

These financial statements should be read in conjunction with the annual financial statements and the notes thereto included in the Annual Report that contains information useful to understanding the Company's businesses and financial statement presentations.

Use of estimates: The preparation of accompanying unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates may change, as new events occur and additional information is obtained, and will be recognized in the consolidated financial statements in the period in which such changes occur. Future actual results could differ materially from these estimates. The novel coronavirus (“COVID-19”) pandemic has disrupted worldwide economic markets and the extent to which COVID-19 continues 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. During the first half of 2020, we experienced a significant increase in demand for our products due to the COVID-19-related stay-at-home orders, which resulted in increased revenue. Nonetheless, we continue to actively monitor and assess the impact of the pandemic on our business, operations, and financial condition.

 

Note 2. Summary of Significant Accounting Policies

The preparation of consolidated annual and quarterly financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. The Company can give no assurance that actual results will not differ from those estimates.

There have been no material changes to the critical accounting policies and estimates from the information provided in Note 1 of the notes to our consolidated financial statements in our Annual Report.

8


 

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies how an entity is required to test goodwill for impairment. A goodwill impairment will be measured by the amount by which a reporting unit’s carrying value exceeds its fair value, with the amount of impairment not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, and must be adopted on a prospective basis. The Company adopted the ASU prospectively on January 1, 2020, which did not have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC Topic 740 by removing certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The pronouncement is effective for fiscal years beginning after December 15, 2020, or for any interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2020 and does not expect the adoption of this guidance to have a material impact on its financial statements.

 

 

Note 3. Acquisitions

 

ROCCAT

 

On May 31, 2019, the Company completed its acquisition of the business and assets of ROCCAT, a provider of gaming keyboards, mice and other accessories for a purchase price of approximately $12.7 million at the closing and up to $3.4 million in potential earn-outs based on revenues for the years ending December 31, 2019 and 2020, as provided in the asset purchase agreement. The purchase price was paid in cash at closing and was funded by the Company’s cash reserves and additional borrowings under its credit facility. In addition, business transaction costs incurred in connection with the acquisition totaled $3.9 million, of which $0.1 million and $0.3 million was recorded as a component of “General and administrative” expenses in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020, re