UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark one)ýý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015or¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 001-35465 TURTLE BEACH CORPORATION(Exact name of registrant as specified in its charter)Nevada27-2767540(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification Number)12220 Scripps Summit Drive, Suite 100San Diego, California 92131(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:Common Stock, par value $0.001(Title of Class)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes ý NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes ý NoIndicate 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 12months (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. ý Yes ¨ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted 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 andpost such files). ý Yes ¨ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ý Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý NoThe aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant as of June 30, 2015 was $28,386,531.The number of shares of Common Stock, $0.001 par value, outstanding on February 29, 2016 was 49,229,502.DOCUMENTS INCORPORATED BY REFERENCEThe information required by Part III of this Report is incorporated herein by reference from the registrant’s definitive proxy statement relating to its 2015 annual meeting ofstockholders or annual report on Form 10-K/A, to be filed with the Securities and Exchange Commission within 120 days after the close of the registrant’s fiscal year. INDEX PagePART I. Item 1.Business Overview2Item 1A.Risk Factors8Item 1B.Unresolved Staff Comments19Item 2.Properties19 Item 3.Legal Proceedings20Item 4.Mine Safety Disclosures 20 PART II. Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities21Item 6.Selected Financial Data23Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations24Item 7A.Quantitative and Qualitative Disclosures About Market Risk38Item 8.Financial Statements and Supplementary Data39Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure74Item 9A.Controls and Procedures74Item 9B.Other Information75 PART III. Item 10.Directors, Executive Officers and Corporate Governance75Item 11.Executive Compensation75Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters76Item 13.Certain Relationships and Related Transactions, and Director Independence76Item 14.Principal Accounting Fees and Services76 PART IV. Item 15.Exhibits and Financial Statement Schedules76 SIGNATURES77EXHIBIT INDEX781 PART IStatement Regarding Forward-Looking DisclosuresThis Annual Report on Form 10-K (this “Report”) includes, and incorporates by reference, certain forward-looking statements within the meaning of thefederal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward looking statements.Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “will,” “would,” “should,” “expect,”“plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “contemplate,” “potential” or “continue” and similar expressions. These forward-looking statements reflect the current expectations of Turtle Beach Corporation concerning future events and actual results may differ materially from currentexpectations or historical results. Any such forward-looking statements are subject to various risks and uncertainties, including without limitation thosediscussed in the sections of this Report entitled “Business Overview,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Conditionand Results of Operations.”Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs andassumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, amongothers, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timingand cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained inany forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Annual Report onForm 10-K, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control orpredict. Such factors include, but are not limited to, the following:•The availability of capital under our revolving credit facility and term loan:•Current and future transitions in video gaming console platforms and the potential impact on our business;•Continued relationships with our largest customers;•Our ability to adapt to new technologies and introduce new products on a timely basis;•The impact of competitive products, technologies and pricing;•The impact of seasonality on our business;•Manufacturing capacity constraints and difficulties;•The scope of protection we are able to establish and maintain for intellectual property rights covering our technology;•Our ability to forecast demand for our products;•Estimates of our future revenues, expenses, capital requirements and our needs for additional financing;•Our success at managing the risks involved in the foregoing items;•Our financial performance; and•Other factors discussed under Item 1A - Risk Factors or elsewhere in this Report.Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and ExchangeCommission (“SEC”), we undertake no obligation to publicly update or revise any forward-looking statements after we file this Annual Report on Form 10-K,whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the abovementioned factors carefully in evaluating the forward‑looking statements and are cautioned not to place undue reliance on such forward‑looking statements.Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.Unless the context indicates otherwise, all references in this Report to “we,” “our,” “us,” “the Company,” and “Turtle Beach” refer to Turtle BeachCorporation and its wholly-owned subsidiaries.2 Item 1 - Business OverviewTurtle Beach Corporation, headquartered in San Diego, California and incorporated in the state of Nevada in 2010, is a premier audio technologycompany with expertise and experience in developing, commercializing and marketing innovative products across a range of large addressable markets underthe Turtle Beach® and HyperSound® brands. Turtle Beach is a worldwide leading provider of feature-rich headset solutions for use across multiple platforms,including video game and entertainment consoles, handheld consoles, personal computers, tablets and mobile devices. HyperSound technology is aninnovative patent-protected sound technology that delivers immersive, directional audio offering unique potential benefits in a variety of commercialsettings and consumer devices, including improved clarity and comprehension for listeners with hearing loss.VTB Holdings, Inc. (“VTBH”), the parent holding company of the historical headset business, was incorporated in the state of Delaware in 2010 withoperations principally located in Valhalla, New York. Voyetra Turtle Beach, Inc. (“VTB”) was incorporated in the state of Delaware in 1975.The Company's stock is traded on NASDAQ under the symbol HEAR.Headset BusinessTurtle Beach launched its first gaming headset in 2005 and has grown to be the leading brand in gaming audio, and designs and markets premium audioperipherals for video game consoles, personal computers and mobile devices, including headsets for PlayStation®4 consoles and officially-licensed headsetsfor the Xbox One consoles. Turtle Beach branded headsets are distributed internationally across North America, South America, Europe, the Middle East,Africa, Australia, and Asia, and sold at thousands of storefronts, including major retailers such as Amazon, Argos, Best Buy, GameStop, HMV, Sainsbury,Target, Tesco and Walmart.We offer a variety of headsets, spanning multiple wired and wireless retail price points ranging from $25 to $300 and have offerings across all majorgaming platforms. Our price tiers correspond to customer profiles, beginning with “Entry-Level” gamers and progressing through “Casual,” “Enthusiast” and“Core.” Each successive price tier incorporates a higher level of finishing, features and technology, progressing from passive mono to amplified stereo,surround sound, and programmable surround sound. Premium headsets have padded leather headbands, accent stitching, and noise-isolating memory foamear cups. Other features in certain of our premium headsets include removable microphones, breakaway cables and “charge-and-play” batteries that allowgamers to continue playing even as they recharge their batteries. As gaming consoles have evolved from dedicated video game platforms to homeentertainment hubs, and as mobile devices have become platforms for entertainment, we have continued to evolve our headsets to reflect how content isconsumed.Each headset model is designed for a “primary” platform, such as a specific console or for the PC platform, though many can be used with multipleplatforms, and most are compatible with mobile devices. A primary platform and unique packaging often results in the products being represented in theapplicable platform area by retailers, increasing the prominence of Turtle Beach products in physical retail locations and online catalogs.Turtle Beach was the leading console gaming headset manufacturer in the U.S. with a 42% dollar share of the market, as noted by the January 2016 salestracking data from The NPD Group, Inc, driven by the top selling 3rd party headset for both the Xbox One and PlayStation®4.Our 2015 was highlighted by:•Surpassed $1 billion in lifetime global revenue generated from our gaming headset business.•Completely transitioned portfolio to new-generation headsets with eight Xbox One and six PlayStation®4 compatible headsets available atretail.•Introduced the first true multiplatform headset that works with PlayStation®4, Xbox One, PC, Mac and mobile/tablet devices.HyperSound BusinessHyperSound is a pioneering audio solution that provides an effective means of projecting sound in a highly directional manner, without use of largespeaker arrays, to a specific location creating a precise audio zone. HyperSound technology's ability to beam, focus and control sound empowers solutions forhearing health care such as home entertainment listening systems/solutions, commercial applications such as digital signage and kiosks and, consumer audio.Our products are designed to deliver controlled audible sound along a tightly formed beam. If the listener is standing outside the path of the beam, thesound is barely audible. This delivery mechanism also maintains sonic clarity and3 intelligibility over longer distances than traditional speakers. We believe our technology offers a number of advantages over regular audio speakers,including:•ability to create a beam of sound and place it where it is intended•ability to deliver a beam of sound over longer distances•ability to penetrate other competing ambient sounds to more effectively communicate•ability to directly deliver left and right audio channels to each ear from across the roomThese advantages enable us to create products across a wide variety of applications including:•products for individuals with hearing loss that enable better sound clarity without a body-worn device•products that create dedicated sound zones for use in retail and commercial environments•products that enable headphone-like surround sound without requiring 5 or 7 separate speakersHyperSound Clear™ 500P, a medical device launched in November 2015 that received 510(k) clearance permitting over-the-counter (“OTC”)commercial distribution from the Food and Drug Administration (“FDA”), is a first-of-its-kind directed audio solution for individuals with hearing loss thathas been shown to improve sound clarity and speech intelligibility for people with hearing loss for a crisp, clear home entertainment listening experience.HyperSound Clear 500P works in parallel with the audio from the television or home theater system, so an individual with hearing loss experiencesimmersive, 3D audio when sitting in the highly directional, narrow beam of audio, while the room hears audio from the traditional speakers or home theatersystem at normal volumes.In addition the Company has a secondary product that utilizes the technology, HyperSound Professional Audio Solutions, which is being purchased forcommercial retail environments where a targeted zone of sound is desired. In the future, the Company expects to introduce additional products including forconsumer use outside of individuals with hearing loss.Industry OverviewGaming Headset MarketSales in the gaming accessories market, which includes headsets and other peripherals such as gamepads, specialty controllers, adapters, batteries,memory and interactive gaming toys are heavily dependent on the global video game industry. In 2013, the gaming industry experienced a cyclical event asMicrosoft and Sony each announced new consoles for the first time in eight years, and the consumer response to the Xbox One and PlayStation®4 (the “newgeneration” or “new-gen” consoles) has been overwhelmingly positive, creating a growing installed base of gamers and a market for new-gen headsets.Despite industry analysts' prior expectations that Microsoft and Sony would continue to support their sixth- and seventh-generation of gamingconsoles, which include the Xbox 360 and Playstation®3 (the “old generation” or “old-gen” consoles) over the next few years, in 2015 the market for oldgeneration consoles declined at a more rapid pace than expected. As a result, we anticipate that in 2016, old-gen headsets will take a final, large drop as themarket completes the transition to new-gen compatible headsets.The May 2015 Intelligence: Worldwide Console Forecast report by DFC Intelligence Forecasts, or “DFC,” estimated that cumulative new generationconsoles will exceed $65 billion by 2018, and sales tracking data from The NPD Group, Inc. indicated that console gaming headset sales in the U.S. in 2015were nearly $400 million with the market expected to continue to grow at a steady rate.HyperSound MarketsWe are focusing our product development efforts for HyperSound-based products in three areas: health care, commercial and consumer applications.Additionally, we may explore licensing opportunities.Hearing Health Care. Gradual hearing loss can affect individuals of all ages, varying from mild to profound and is a growing, widespread issue. In theUnited States, there are nearly 50 million people with some degree of hearing loss significant enough to require a hearing aid. HyperSound technology offers a fundamentally new way to deliver sound, and research indicates that it improves sound clarity and speechintelligibility, particularly for those with hearing loss. We believe that a large percentage of persons with hearing loss may be able to use HyperSound Clear500P to improve their listening experiences from sources such as TV, CD/DVD players and stereo systems.4 Commercial. We are currently marketing our HyperSound technology to retailers and audio-visual integrators for use in settings where directed audioand sound zones are beneficial, such as digital signage and interactive retail displays. Convenience retailers and fast moving consumer good brands faceever-greater challenges as competition for customers intensifies, and as shoppers increasingly rely on in-store cues. As a result, digital signage is a growingform of direct advertising, capturing an increasing share of advertising spending as restaurants, banks, retail outlets, museums and other outlets andorganizations employ commercial displays to communicate with patrons.Consumer Applications. Our HyperSound technology has the potential to be developed into consumer products for various applications, includingcomputers, video game consoles, televisions, home theater and home audio. With the advent of flat panel displays for use in televisions and mobile devices,manufacturers have been focused on creating thinner products often at the expense of sound quality. We believe that our ability to create a 3D sound imagefrom two thin emitters, compared to a five- or seven-speaker surround sound set-up using conventional speakers can deliver a compelling and enhancedaudio experience.Business StrategyWe intend to build upon the Turtle Beach brand awareness, sophisticated audio technology and high quality products to grow the core console andcasual gaming business to increase sales and profitability and as HyperSound’s healthcare business scales, we will begin to look at other market opportunitiesfor our unique directed audio technology.•Console Headset Market Share Growth. We have largely completed the transition of our headset portfolio from old generation to new generation withinnovative console gaming headsets in every category. We believe that our brand's image among consumers is a competitive advantage and that oursuccess is attributable to our emphasis on delivering the most innovative and advanced headsets.To maintain our competitive position in our markets, we are focused on the following:•continuing to deliver innovative, high quality console gaming headsets that incorporate advanced audio and wireless technology;•growing our gaming headset business in all areas including personal computer headsets;•maintaining our strategic relationships that provide our brand a larger presence with consumers and create opportunities for retailers to carry ourproducts;•continuing to improve our cost position through increased global sourcing and expanded points of distribution.•HyperSound Healthcare Business Growth. We have built the infrastructure to commercialize the HyperSound Clear 500P product for the hearinghealthcare audio business, including channel relationships that give us access to 5,600+ prospective hearing health offices and retail locations in theUnited States. Our goal is to grow a substantial customer base, including internationally, through key channel partners and continued productdevelopment.•Accelerate International Expansion. We have a strong gaming headset market position in North America, United Kingdom, Germany and Australia, andbelieve there are additional long-term growth opportunities in Latin America and Asia. In particular in China, where in connection with increasedconsole sales following the Chinese government lifting its ban on video game consoles, we intend to begin our sales efforts of our officially-licensedXbox One headsets under a Chinese language version of the Turtle Beach brand and logo, phonetically pronounced “Huan Jing” (translates as “FantasySpace.”)•Expand Our Product Lines. We intend to increase our sales by continuing to develop internally, or through potential acquisitions, products that weoffer to our customers. We are investing the resources necessary to maintain and expand our technical capability to manufacture multiple product linesthat incorporate the latest technologies.Product DevelopmentWe continue to innovate, make improvements to our technology and develop new products, and anticipate that we will continue to devote substantialresources to research and development in the near future. Our product management team takes a disciplined approach to product design that balancesiteration, incremental improvement and innovation to achieve a blend of differentiated technology designed to attract customers, maintain product designcontinuity and exceed expectations as to quality, reliability and profitability. For the year ended December 31, 2015, we invested $11.6 million in productdevelopment efforts to commercialize the HyperSound Clear 500P product as well as complete our new generation headset portfolio with the5 launch of five new gaming headset models. For the years ended December 31, 2014 and 2013, we expended $9.4 million and $4.9 million, respectively.Intellectual PropertyWe operate in industries where innovations, investment in new ideas and protection of resulting intellectual property rights are critical to success. Wehave a substantial base of intellectual property assets to protect our current and future product development, such as key innovations in gaming headsets aswell as all of the core technology areas behind HyperSound, and intend to vigorously enforce such rights.As a third-party gaming headset company certain technology used in the new generation of consoles, such as integrated voice and chat audio from theXbox One, requires a license to enable products to connect to that platform. While Playstation®4 does not require any license to produce headsets that canconnect, certain connections on the Xbox One require the purchase of proprietary chips to integrate into the locked chat audio.While we currently believe that we have the necessary licenses, or can obtain the necessary licenses to produce compatible products, there is noguarantee that licenses will be renewed or granted. Moreover, if these licensing parties enter into exclusive license agreements with companies other than usfor their “closed systems” or if we are unable to obtain sufficient quantities of these headset adapters or chips, we would be placed at a competitivedisadvantage.Supply Chain and OperationsWe have a global network of suppliers that manufacture products to meet our cost objectives and quality standards sought by our customers. We haveworked closely with component, manufacturing and global logistic partners to build a supply chain that we consider predictable, scalable and consistent toprovide high-quality, reliable products and leading cost management practices. The use of outsourced manufacturing facilities is designed to take advantageof specific expertise and allow for flexibility and scalability to respond to seasonality and changing demands for our products.In anticipation of new product development and incremental growth, we made additional investments with a focus on making advancements to ourplanning systems and reconfiguring our supply chain. In connection with our initiative to improve our operating efficiency and reduce costs, we havecontinued efforts to focus on company-wide overhead and operating expense cost reduction activities including consolidation of warehouses with our globallogistics partnership with Keuhne + Nagel and the transition of certain headset models to the world's largest contract manufacturer, Foxconn.We believe we have solid relationships with our suppliers and that, subject to the discussion in “Risk Factors” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations - Liquidity and Capital Resources,” we will continue to have a sufficient supply of qualityproducts on satisfactory terms.Retail DistributionOur headsets are sold in over 40 countries, by retailers such as Amazon, Argos, Best Buy, Carrefour, GameStop, HMV, Sainsbury, Target, Tesco andWalmart. We often have a broader assortment and more shelf space than competitors at video game and electronics retailers such as GameStop and Best Buywhich we believe reinforces the brand’s authenticity with gaming enthusiasts, and our presence in mass channel retailers such as Walmart and Target enablesthe brand to reach a wider audience of casual gamers. Our established presence on Amazon.com and other online retail sites, and positive consumer productratings on those sites, increases the search visibility of our products and helps to influence both online and in-store sales. We also have exclusive licensingand sponsorship relationships with some of the biggest players in competitive gaming, including Twitch, the world's leading broadcast platform andcommunity for video game enthusiasts.TB Europe serves as a sales office and primary warehouse for sales to the European market, and has strengthened Turtle Beach’s European operationswith support for sales, marketing, customer service and distribution.TurtleBeach.com is an important focal point for our marketing efforts serving as a destination for paid and earned media. Earned media is favorablepublicity gained through promotional efforts other than advertising, as compared with paid media, which refers to publicity gained through advertising. Thewebsite acts as a hub for both online and offline activity, and provides a direct sales channel for new and refurbished products.6 CustomersThe following tables show net revenues by product type: December 31, 2015 2014 2013Net Revenues (in thousands)Headset $161,835 $185,469 $178,470HyperSound (1) 912 707 —Total $162,747 $186,176 $178,470(1) Business acquired in January 2014.The Headset business customer base is comprised primarily of large retailers and distributors, both domestic and international. In 2015, net sales to ourmajor market channels consisted of $97.5 million to domestic retail customers, $45.6 million to international retail customers, $13.6 million to domesticdistributors and $5.1 million to other customers.Our three largest individual customers accounted for approximately 47% of our gross sales in 2015, 45% of our gross sales in 2014 and 45% of ourgross sales in 2013. During 2015, our three largest customers, Best Buy, Walmart and Game Stop each accounted for between 14% to 18% of ourconsolidated net sales.Geographic InformationIn addition to the traditional markets of the United States and United Kingdom, we have pursued growth in countries such as Germany and France andbelieve that additional long-term growth opportunities exist in Asia Pacific and Latin America. The following table presents total net revenues, andpercentage of total, based on where customers are physically located for each of the three years ended December 31, 2015: 2015 2014 2013 (in thousands) North America$117,52672.2% $123,90866.6% $123,22469.0%United Kingdom20,88112.8% 29,42515.8% 26,43914.8%Europe17,32910.6% 24,08212.9% 18,56510.4%Other7,0114.4% 8,7614.7% 10,2425.8%Total revenues$162,747 $186,176 $178,470 Long-lived assets are largely held in the United States, refer to Note 12, “Geographic Information” in the Notes to the Consolidated FinancialStatements.SeasonalityOur gaming headset business is seasonal with a significant portion of sales and profits typically occurring around the holiday period. Historically, morethan 50% of headset business revenues are generated during the period from September through December as new headsets are introduced and consumersengage in holiday shopping. In addition, launches of major new online multiplayer games and specific retailer purchasing behavior can drive significantrevenue shifts between months and quarters in a given year.EmployeesAs of December 31, 2015, Turtle Beach had approximately 221 employees, of which 181 were full-time salaried employees. None of our employees arerepresented by a labor union. We believe that our relationship with our employees is good.Available InformationWe make available free of charge on or through our website, http://corp.turtlebeach.com, our Annual Report on Form 10-K, Quarterly Reports on Form10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with orfurnished to the Securities and Exchange Commission. Information contained on our website is not incorporated by reference unless specifically statedtherein.7 In addition, the public may read or copy any materials filed with the SEC at the SEC’s Public Reference Room located at 100 F Street NE, Washington,D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These reportsand other information are also available, free of charge, at www.sec.gov.Item 1A - Risk FactorsSet forth below is a summary of certain material risks related to an investment in our securities, which should be considered carefully in evaluatingsuch an investment. Our business, financial condition, operating results and cash flows can be affected by a number of factors, whether currently known orunknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual results ofoperations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. Any of thesefactors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations, cash flows andcommon stock price. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our businessoperations.Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financialperformance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate resultsor trends in future periods. Please also see “Statement Regarding Forward-Looking Disclosures” in the section immediately preceding Item 1 of this Report.Risks Related to LiquidityWe depend upon the availability of capital under our revolving credit facility and term loan to finance our operations. Any additional financing that wemay need may not be available on favorable terms or at all.In addition to cash flow generated from sales, we finance our operations with a revolving credit facility (the “Credit Facility”) provided by Bank ofAmerica, N.A, (“BofA”), as Agent, Sole Lead Arranger and Sole Bookrunner and our term loan (the “Term Loan Due 2019”) provided by Crystal FinancialLLC (“Crystal”), as Agent, Sole Lead Arranger and Sole Bookrunner. If we are unable to comply with the financial and other covenants contained in theCredit Facility or the Term Loan Due 2019 (the “Loan Documents”) and are unable to obtain a waiver under the applicable Loan Documents, for example, aswe secured to avoid a default as of the period ending September 30, 2015, BofA or Crystal, as applicable, may declare the outstanding borrowings under theapplicable Loan Documents immediately due and payable. Such an event would have an immediate and material adverse impact on our business, results ofoperations and financial condition. We would be required to obtain additional financing from other sources, and we cannot predict whether or on what terms,if any, additional financing might be available. If we are required to seek additional financing and are unable to obtain it, we may have to change ourbusiness and capital expenditure plans, which may have a materially adverse effect on our business, financial condition and results of operations. In addition,the debt under the Loan Documents could make it more difficult to obtain other debt financing in the future, which could put us at a competitivedisadvantage to competitors with less debt.The Loan Documents contain financial and other covenants that we are obligated to maintain. If we violate any of these covenants, we will be in defaultunder the applicable Loan Documents. These covenants include restrictions that prohibit or otherwise limit our ability to pay dividends, incur additionalindebtedness, acquire assets or engage in certain other types of transactions, and also require that we maintain certain financial ratios and EBITDA levelsduring specified periods. If a default occurs and is not timely cured or waived, BofA 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 LoanDocuments. 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 andcan 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. As of the date of this Report, we were in compliance with our covenantsunder the Loan Documents.The Credit Facility provides our lenders with a first-priority lien against substantially all of our working capital assets, including trade accountsreceivable, inventories, and intellectual property and contains certain restrictions on our ability to take certain actions.The Credit Facility contains certain financial covenants and other restrictions that limit our ability, among other things, to incur certain additionalindebtedness; pay dividends and repurchase stock; make certain investments and other payments; enter into certain mergers or consolidations; engage in saleand leaseback transactions and transactions with affiliates; and encumber and dispose of assets.8 In addition, we have granted the lenders a first-priority lien against substantially all of our working capital assets, including trade accounts receivable,inventories and our intellectual property. Failure to comply with the operating restrictions or financial covenants in the Credit Facility could result in adefault which could cause the lenders to accelerate the timing of payments and exercise their lien on substantially all of our working capital assets.If suppliers, customers, landlords, employees or other stakeholders lose confidence in our business, it may be more difficult for us to operate and maymaterially adversely affect our business, results of operations and financial condition.Doubts regarding our ability to continue as a going concern could result in further loss of confidence by our customers, suppliers, landlords, employeesand other stakeholders, which, in turn, could materially adversely affect our ability to operate. Concerns about our financial condition may cause oursuppliers and other counterparties to tighten credit terms or cease doing business with us altogether, which would have a material adverse effect on ourbusiness and results of operations.Risks Related to Our OperationsWe depend upon the success and availability of third-party gaming platforms and software 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 Xbox consoles andSony's PlayStation® consoles, as well as video games developed by such manufacturers and other third-party publishers. Our business could suffer if any ofthese parties fail to continue to drive the success of these platforms, develop new or enhanced videogame platforms, develop popular game and entertainmenttitles for current or future generation platforms or produce and timely release sufficient quantities of such consoles. If a platform is withdrawn from the marketor fails to sell, we may be forced to liquidate inventories relating to that platform or accept returns resulting in significant losses.In order for our headsets to connect to the Xbox One advanced features and controls, a proprietary computer chip is required. As a result, with respect toour products designed for the Xbox One, we are currently reliant on Microsoft or their designated supplier to provide us with sufficient quantities of thechips. If we are unable to obtain sufficient quantities of these headset adapters or chips, sales of our Xbox One headsets and consequently our revenues wouldbe 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 underwhich we have the right to manufacture (through third party manufacturers), market and sell audio products for the Xbox One video game console (the “XboxOne Agreement”). Our Xbox One headsets are dependent on this license. Microsoft has the right to terminate the Xbox One Agreement under certaincircumstances set forth in the agreement. Should the Xbox One Agreement be terminated, our headset offerings may be limited, thereby significantlyreducing our revenues.Accordingly, Microsoft, Sony and other third-party gaming platform manufacturers may control our ability to manufacture headsets compatible withtheir 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, has a history of operating losses, expects additional losses and may not achieve orsustain profitability.Our HyperSound business has incurred operating losses since the spin-off of Parametric Sound Corporation from LRAD Corporation in 2010, and weexpect additional losses in the near-term as we continue to expend significant resources on personnel, consultants, intellectual property protection, researchand development, marketing, production and administration. Our ability to achieve future profitability is dependent on a variety of factors, many of whichare outside our control. Failure to achieve profitability or sustain profitability, if achieved, may require us to continue to make additional capital investmentsin our HyperSound business which could materially impact our results of operations.Substantially all our HyperSound revenues to date have been derived from sales of a limited number of products to a limited number of customers, andwe cannot guarantee that we will be able to develop a larger customer base, introduce new products to generate additional revenues or obtain and fulfillincreased orders from both existing and new customers. Further, even if we continue to retain existing customers and obtain new customers, we cannotguarantee that those customers will purchase sufficient quantities of our HyperSound products at prices that will enable us to recover our costs in acquiringthose customers and fulfilling orders. We also cannot guarantee that we will be able to generate any future license revenues. Our ability to increase sales ofour HyperSound products or generate license revenues depends on a number of factors, including:•our ability to rapidly scale the number of offices that can productively sell the product;9 •our ability to generate additional new sales channels in the United States and Europe•our ability to maintain relationships with new customers that drive sales of our HyperSound products;•our ability to develop and expand into new markets for our HyperSound audio products and technology; and•our ability to develop international product distribution or licensing directly or through partners.Our Turtle Beach brand faces significant competition from other consumer electronics companies and this competition could have a material adverseeffect on our financial condition and results of operations.We compete with other producers of personal computers and video game console headsets, including the video game console manufacturers. Ourcompetitors may spend more money and time on developing and testing products, undertake more extensive marketing campaigns, adopt more aggressivepricing policies, pay higher fees to licensors for motion picture, television, sports, music and character properties, or develop more commercially successfulproducts for the personal computer or video game platforms than we do. In addition, competitors with large product lines and popular products, in particularthe video game console manufacturers, typically have greater leverage with retailers, distributors and other customers, who may be willing to promoteproducts 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 lowerprices, we may be required to “price protect” products that remain unsold in our customers’ inventories at the time of the price reduction. Price protectionresults 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 protectionpolicies, which are customary in the industry, can have a major impact on our sales and profitability.In addition, if console manufacturers implement new technologies, through hardware or software, which would cause our headsets to becomeincompatible with that hardware manufacturer’s console, there could be unanticipated delays in the release of our products as well as increases to projecteddevelopment, manufacturing, marketing or distribution costs, any of which could harm our business and financial results.The industries in which we operate are subject to competition in an environment of rapid technological change, and if we do not adapt to, andappropriately 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 marketchanges in the gaming industry. We must anticipate and adapt our products to emerging technologies in order to keep those products competitive. When wechoose 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 asubstantial 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 notachieve significant commercial success, our revenues from those products likely will be lower than anticipated and may not cover our costs.Further, our competitors may adapt to an emerging technology more quickly or effectively than we do, creating products that are technologicallysuperior to ours, more appealing to consumers, or both. If, on the other hand, we elect not to pursue the development of products incorporating a newtechnology or for new platforms that achieve significant commercial success, our revenues could also be adversely affected. It may take significant time andresources to shift product development resources to that technology or platform and it may be more difficult to compete against existing productsincorporating that technology or for that platform. Any failure to successfully adapt to, and appropriately allocate resources among, emerging technologiescould harm our competitive position, reduce our share and significantly increase the time it takes us to bring popular products to market.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 andmanufacturing and designing the graphics and packaging. Any difficulties or delays in the product development process will likely result in delays in thecontemplated product introduction schedule. It is common in new product introductions or product updates to encounter technical and other difficultiesaffecting manufacturing efficiency and, at times, the ability to manufacture the product at all. Although these difficulties can be corrected or improved overtime with continued manufacturing experience and engineering efforts, if one or more aspects necessary for the introduction of products are not completed asscheduled, or if technical difficulties take longer than anticipated to overcome, the product introductions will be delayed, or in some cases may beterminated. No assurances can be given that our products will be introduced in a timely fashion, and if new products are delayed, our sales and revenuegrowth may be limited or impaired.10 A deterioration in future expected profitability or cash flows could result in a further impairment of our recorded goodwill and other intangibles.At December 31, 2015, we had recorded goodwill of $31.2 million associated with our HyperSound reporting unit. Under US GAAP, the Companyreviews its goodwill and intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.Additionally, goodwill and indefinite lived intangible assets are required to be tested for impairment at least annually. The valuations used to determine thefair values used to test goodwill or intangible assets are dependent upon various assumptions and reflect management’s best estimates. Net sales growth,discount rates, earnings multiples and future cash flows are critical assumptions used to determine these fair values. Slower net sales growth rates in thehearing healthcare industry, an increase in discount rates, unfavorable changes in earnings multiples or a decline in future cash flows, among other factors,may cause a change in circumstances indicating that the carrying value of the Company’s goodwill or intangible assets may not be recoverable. TheCompany may be required to record a significant charge to earnings in the financial statements during the period in which any impairment of the Company’sgoodwill or intangible assets is determined.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 significantchange 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 productscompetitively and control our cost structure. Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreigncurrencies 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 andthe British Pound. As the U.S. dollar fluctuates against other currencies in which we transact business, revenue and income can be impacted.A significant portion of our revenue is derived from a few large customers, and the loss of any such customer, or a significant reduction in purchases bysuch customer, could have a material adverse effect on our business, financial condition and results of operations.During 2015, our three largest individual customers accounted for approximately 47% of our gross sales in the aggregate. The loss of, or financialdifficulties 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 materialadverse effect on our business, results of operations, financial condition and liquidity. We do not have long-term agreements with these or other significantcustomers and our agreements with these customers do not require them to purchase any specific amount of products. All of our customers generally purchasefrom 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 thatthey will maintain their historical levels of business. In addition, the uncertainty of product orders can make it difficult to forecast our sales and allocate ourresources in a manner consistent with actual sales, and our expense levels are based in part on our expectations of future sales. If our expectations regardingfuture sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls. In addition, financial difficulties experienced bya significant customer could increase our exposure to uncollectible receivables and the risk that losses from uncollected receivables exceed the reserves wehave set aside in anticipation of this risk.The manufacture, supply and shipment of our products are dependent upon a limited number of third parties, and our success is dependent upon the abilityof these parties to manufacture, supply and ship sufficient quantities of their product components to us in a timely fashion, as well as the continuedviability and financial stability of these third-parties.Because we rely on a limited number of manufacturers and suppliers for our products, we may be materially and adversely affected by the failure of anyof those manufacturers and suppliers to perform as expected or supply us with sufficient quantities of their product components to ensure consumeravailability of our own products. Our suppliers’ ability to supply products to us is also subject to a number of risks, including the availability of rawmaterials, their financial instability, the destruction of their facilities, or work stoppages. Any shortage of raw materials or components or an inability tocontrol 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, wecould experience cancellations of orders, refusal to accept deliveries or a reduction in our prices and margins, any of which could harm our financialperformance 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, independentlymarket their own competing products in the future, or otherwise discontinue their relationships with or support of us. Our failure to maintain these existingmanufacturing 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.11 In particular, certain of our products have a number of components and subassemblies produced by outside suppliers. In addition, for certain of theseitems, 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 decreasesour ability to negotiate price with our suppliers. For example, in our HyperSound commercial product we depend on one piezo-film supplier to provideexpertise and materials used in our proprietary emitters and one supplier for a majority of our plastic and metal parts. For our HyperSound Clear™ 500Pmedical product we rely on a single supplier for emitter materials and to contract manufacture our product and are subject to commitments required on factorycapacity and materials, some of which have very long lead times, to build units. If shortages occur we could lose sales or if we purchase excess inventory, wecould be subject to loss from lack of sales or if models change. Also, if we experience quality problems with suppliers, then our production schedules couldbe significantly delayed or costs significantly increased, which could have an adverse effect on our business, liquidity, results of operation and financialposition.In addition, the ongoing effectiveness of our supply chain is dependent on the timely performance of services by third parties shipping products andmaterials 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 ofthese problems in the past and we cannot assure you that we will not experience similar problems in the future. Our net sales and operating income fluctuate on a seasonal basis and decreases in sales or margins during peak seasons could have a disproportionateeffect on our overall financial condition and results of operations.Historically, a majority of our annual revenues have been generated during the holiday season of September to December. If we do not accuratelyforecast demand for particular products, we could incur additional costs or experience manufacturing delays. Any shortfall in net sales during this periodwould 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 relatedcontent, 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 whichcould 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 allowancesor 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 excessinventories.•If demand for specific products increases beyond what we forecast, our suppliers and third-party manufacturers may not be able to increaseproduction rapidly enough to meet the demand. Our failure to meet market demand may lead to missed opportunities to increase our base of gamers,damage our relationships with retailers or harm our business.•The on-going console transition increases the likelihood that we could fail to accurately forecast demand for our new generation console headsetsand our existing headsets.•Rapid increases in production levels to meet unanticipated demand could result in increased manufacturing errors, as well as higher component,manufacturing and shipping costs, all of which could reduce our profit margins and harm our relationships with retailers and consumers.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 ourability to continue to attract, retain and motivate qualified personnel. In addition, competition for skilled and non-skilled employees among companies likeours is intense, and the loss of skilled or non-skilled employees or an inability to attract, retain and motivate additional skilled and non-skilled employeesrequired for the operation and expansion of our business could hinder our ability to conduct research activities successfully, develop new products, attractcustomers 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 therecognition 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 growthstrategy, which includes further establishing our position in existing gaming headsets, developing a strong position in new console headsets, expandingbeyond existing console, PC and mobile applications to new technology applications, accelerating our international growth and expanding complementaryproduct categories. To extend the reach of our Turtle Beach brand, we believe we must devote significant time and resources to headset product design,12 marketing and promotions. These expenditures, however, may not result in a sufficient increase in net sales to cover such expenses.The on-going console platform transition has adversely affected, and future transitions in console platforms may adversely affect, our headset business.In 2005, Microsoft released the Xbox 360; in 2006, Sony introduced the PlayStation®3; and in 2012, Nintendo introduced the Wii U. Sony launchedits new generation console, PlayStation®4, on November 15, 2013, and Microsoft launched its new generation console, Xbox One, on November 22, 2013.When new console platforms are announced or introduced into the market, consumers have historically reduced their purchases of game console peripheralsand accessories, including headsets, for old generation console platforms in anticipation of new platforms becoming available. During these consoletransition periods, sales of gaming console headsets such as those sold by us, related to old generation consoles slow or decline until new platforms areintroduced and achieve wide consumer acceptance, which we cannot guarantee. This decrease or decline may not be offset by increased sales of products forthe new console platforms. Over time as the old generation platform user base declines, products for the old platforms are typically discontinued which canresult 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 headsetcompany, 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 atimely basis may adversely affect sales. Sony and Microsoft may make changes to their platforms that impact how headset connect with or work with the newconsoles 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 downwardpressure on prices for products for such platforms. During platform transitions, we may simultaneously incur costs both in continuing to develop and marketnew products for prior-generation video game platforms, which may not sell at premium prices, and also in developing products for current-generationplatforms, which will not generate immediate or near-term revenue. As a result, our operating results during platform transitions are more volatile and moredifficult to predict than during other times.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 ourstock 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 ourbusiness and otherwise result in unexpected and substantial expenses that would adversely and materially impact our business, financial condition andoperating results. For example, and as further described in Item 3, “Legal Proceedings” and Note 13, “Commitments and Contingencies,” we are involved inlegal proceedings related to the merger of VTBH and Paris Acquisition Corp. involving certain of our stockholders, including the holder of VTBH’s Series BRedeemable Preferred Stock, (the “Series B Holder”), filing a complaint in Delaware Chancery Court alleging breach of contract against VTBH andrequesting a declaratory judgment that he is entitled to damages, including the redemption of his stock. The redemption value of VTBH’s Series BRedeemable Preferred Stock was $16.1 million as of December 31, 2015.If we are unable to protect our information systems against service interruption, misappropriation of data or breaches of security, our operations could bedisrupted, our reputation may be damaged, and we may be financially liable for damages.We rely heavily on information systems to manage our operations, including a full range of retail, financial, sourcing and merchandising systems. Weregularly 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. Any delays or difficulties intransitioning to new systems or integrating them with current systems or the failure to implement our initiatives in an orderly and timely fashion could resultin additional investment of time and resources, which could impair our ability to improve existing operations and support future growth, and ultimately havea material adverse effect on our business.The reliability and capacity of our information systems are critical. Despite preventative efforts, our systems are vulnerable from time-to-time to damageor interruption from, among other things, natural disasters, technical malfunctions, inadequate systems capacity, human error, power outages, computerviruses and security breaches. Any disruptions affecting our information systems could have a material adverse impact on our business. In addition, anyfailure to maintain adequate system security controls to protect our computer assets and sensitive data, including associate and client data, from unauthorizedaccess, disclosure or use could damage our reputation with our associates and our clients. While we have implemented measures to prevent security breachesand cyber incidents, our preventative measures and incident response efforts may not be entirely effective. Finally, our ability to13 continue to operate our business without significant interruption in the event of a disaster or other disruption depends, in part, on the ability of ourinformation 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, systemdisruption, theft and inadvertent release of information. 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:•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 of our Turtle Beach products are manufactured, which could force us to seek alternate manufacturing sources orincrease our expenses;•difficulties obtaining domestic and foreign export, import and other governmental approvals, permits and licenses, and compliance with foreignlaws, which could halt, interrupt or delay our operations if we cannot obtain such approvals, permits and licenses;•difficulties encountered by our international distributors or us in staffing and managing foreign operations or international sales, including higherlabor costs;•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, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions, any ofwhich could materially and adversely affect our net sales and results of operations; 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 ourown operations in international territories where we currently utilize a distributor, we will become subject to greater risks associated with operating outside ofthe United States.The electronics industry in general has historically been characterized by a high degree of volatility and is subject to substantial and unpredictablevariations resulting from changing business cycles. Our operating results will be subject to fluctuations based on general economic conditions, in particularconditions that impact discretionary consumer spending. The audio products sector of the electronics industry has and may continue to experience aslowdown in sales, which adversely impacts our ability to generate revenues and impacts the results of our future operations. A lack of available credit infinancial markets may adversely affect the ability of our commercial customers to finance purchases and operations and could result in an absence of orders orspending for our products as well as create supplier disruptions. We are unable to predict the likely duration and severity of any adverse economic conditionsand disruptions in financial markets and the effects they will have on our business and its financial condition.Further, Turtle Beach products are manufactured in China and Mexico for export to the United States and worldwide. As a result of opposition topolicies of the Chinese government and China’s growing trade surpluses with the United States, there has been, and in the future may be, opposition to theextension of normal trade relations (“NTR”) status for China. The loss of NTR status for China, changes in current tariff structures or adoption in the UnitedStates of other trade policies adverse to China could increase our manufacturing expenses and make it more difficult for us to manufacture our products inChina.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 havean 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 providereliable financial reports or prevent fraud could harm our business. The Sarbanes-Oxley Act requires, among other things, that we perform system and processevaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm, asapplicable, to report on the effectiveness of our internal control over financial reporting. If we are not able to comply with the requirements of Section 404 ofthe Sarbanes-Oxley Act, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reportingthat are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of ourcommon stock could decline and we could be subject to sanctions, investigations by NASDAQ, the SEC or other regulatory authorities, or shareholderlitigation.14 In addition, failure to maintain effective internal controls could result in financial statements that do not accurately reflect our financial condition orresults 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 theSarbanes-Oxley Act of 2002 or that our management and independent registered public accounting firm will continue to conclude that our internal controlsare effective.If we are unable to successfully remediate the existing material weaknesses in our internal control over financial reporting, the accuracy and timing of ourfinancial reporting may be adversely affected. In connection with the audit of our consolidated financial statements for the year ended December 31, 2015, our management identified controldeficiencies in our internal control over financial reporting that constitute material weaknesses in our internal control over financial reporting. As such, ourcontrols over financial reporting were not designed or operating effectively, and as a result there were adjustments required, including with respect togoodwill impairments, in connection with preparing our consolidated financial statements for the year ended December 31, 2015. These control deficienciesresulted in more than a remote likelihood that a material misstatement of our annual and interim financial statements would not be prevented or detected. We are currently taking steps in an effort to remediate our material weakness, but there can be no assurance that we will be successful in pursuing thesemeasures or that these measures will significantly improve or remediate the material weaknesses described above. There is also no assurance that we haveidentified all of our material weaknesses or that we will not in the future have additional material weaknesses. There is no assurance that we will be able toremediate the material weaknesses in a timely manner, or at all, or that in the future, additional material weaknesses will not exist or otherwise be discovered.If our efforts to remediate the material weaknesses identified are not successful, or if other material weaknesses or other deficiencies occur, our ability toaccurately and timely report our financial position could be impaired, which could result in late filings of our annual and quarterly reports under theSecurities Exchange Act of 1934, as amended ("Exchange Act"), restatements of our consolidated financial statements, a decline in our stock price orsuspension or delisting of our common stock from the NASDAQ Market.Risks Related to our Intellectual Property and other Legal and Regulatory MattersOur competitive position will be seriously 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 ourability to make, use or sell our products. Although we do not believe that our products infringe the proprietary rights of any third parties, there can be noassurance that infringement or other legal claims will not be asserted against us or that we will not be found to infringe the intellectual property rights ofothers. The electronics industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, resulting in significant andoften protracted and expensive litigation. In the event of a successful claim of infringement against us and our failure or inability to license the infringedtechnology, our business and operating results could be adversely affected. Any litigation or claims, whether or not valid, could result in substantial costs ora diversion of our resources. An adverse result from intellectual property litigation could force 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 thatmay 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 theintellectual property rights of others. Any such claim for indemnity could result in substantial expenses to us that could harm 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, ourbusiness 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 HyperSound15 technology. Although we have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosureagreements with selected parties with whom we conduct business to limit access to and disclosure of our proprietary information, these contractualarrangements and the other steps we have taken to protect our intellectual property may not prevent misappropriation of that intellectual property or deterindependent third-party development of similar technologies. Monitoring the unauthorized use of proprietary technology and trademarks is costly, and anydispute or other litigation, regardless of outcome, may be costly and time consuming and may divert the attention of management and key personnel from ourbusiness operations. The steps taken by us may not prevent unauthorized use of proprietary technology or trademarks. Many features of our products are notprotected by patents; and as a consequence, we may not have the legal right to prevent others from reverse engineering or otherwise copying and using thesefeatures in competitive products. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, whichcould 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 expensesin enforcing our intellectual property rights. Such claims and lawsuits can be expensive to resolve, require substantial management time and resources, andmay 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 alsodependent on the laws of a range of countries to protect and enforce our intellectual property rights. These laws may not protect intellectual property rights tothe 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 Beachbusiness. For example, we license the right to market certain products with the trade names and imagery of brands such as Disney and Major League Gaming.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 couldresult 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. Thereis no guarantee any patent will issue on any patent application that we have filed or may file. Claims allowed from existing or pending patents may not be ofsufficient scope or strength to protect the economic value of our technologies. Further, any patent that we may obtain will expire, and it is possible that itmay be challenged, invalidated or circumvented. If we do not secure and maintain patent protection for our HyperSound technology and products, ourcompetitive position could be significantly harmed. A competitor may independently develop or patent technologies that are substantially similar orsuperior 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 protectionprovided by our current patent applications and other intellectual property rights. In addition, if we develop new HyperSound products or enhancements toexisting 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 newHyperSound products, these patents may not provide meaningful protection, or may be too costly to enforce protection. In some countries outside of theUnited 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 intellectualproperty in these countries is difficult and our competitors may successfully sell products in these countries that have functions and features that infringe onour intellectual property.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 ofour proprietary rights or the proprietary rights of our competitors. These claims could result in costly litigation and divert the efforts of our technical andmanagement personnel. As a result, our operating results could suffer and our financial condition could be harmed.We are dependent upon third-party intellectual property to manufacture some of our products.The performance of certain technology used in new generation consoles, such as integrated voice and chat audio from the Xbox One, is improved by alicensed 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 isno guarantee that our licenses will be renewed or granted in the first instance. Moreover, if these first parties enter into license agreements with companiesother 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 acompetitive disadvantage.16 Our HyperSound technology is subject to government regulation, which could lead to unanticipated expenses and/or enforcement action against us.Under the Radiation Control for Health and Safety Act 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 report to the FDA describing the HyperSound commercial product. In September 2015 weprovided an initial product report describing the HyperSound Clear 500P product. The FDA may respond to these reports and request changes or safeguardsto 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 defectrelating 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 ispossible that we, or one of our customers, could be required to modify the technology, or a product incorporating the technology, to comply withrequirements that may be imposed by the FDA. Our HyperSound product advertising is regulated by the Federal Trade Commission (the “FTC”), whichrequires all advertising be truthful, not deceptive or unfair, and evidence based.In addition, HyperSound Clear 500P is regulated by the FDA as a medical device pursuant to the Federal Food, Drug, and Cosmetic Act, or FDCA, andimplementing regulations. HyperSound Clear 500P has received 510(k) clearance permitting over‑the‑counter (“OTC”) commercial distribution for use as agroup auditory trainer or group hearing aid. Recently, FDA exempted group hearing aids from the 510(k) requirement. Therefore, we may modifyHyperSound Clear 500P in the future without seeking additional 510(k) clearance, provided that we do not alter its intended use or incorporate afundamentally different scientific technology, either of which would require a new 510(k) clearance or premarket approval.We continue to be subject to FDA’s requirements for marketed medical devices, such as the Quality System Regulation, or QSR (which imposesprocedural, documentation and record keeping requirements regarding the manufacture of medical devices); the Medical Device Reporting regulation (whichrequires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that wouldlikely cause or contribute to a death or serious injury if it were to recur); and the Reports of Corrections and Removals regulation (which requiresmanufacturers 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 FDCAthat 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 widerange of enforcement actions, ranging from a public warning letter to more severe sanctions such as fines, penalties, suspension or withdrawal of regulatoryapprovals, product recalls, seizure of products, operating restrictions or total shutdown of production, and criminal prosecution.In the European Union we are subject to similar government regulation regarding medical device safety and effectiveness and ongoing certification andrelated costs. In the European Union and in other markets we may enter we will be subject to numerous and varying governmental requirements. The timingand expense to obtain or maintain any required clearances or approvals in foreign markets are difficult to estimate and may be significant. It may also becostly for us to comply with any applicable regulations and postmarket requirements in each country where we do business. If we fail to do so, we may besubject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions or total shutdown of production,and criminal prosecution.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 returnsfrom 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 fordamages 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 orother problems, any negative publicity related to the perceived quality of our products could also affect our brand image, decrease retailer and distributordemand and our operating results and financial condition could be adversely affected.We could incur unanticipated expenses in connection with warranty or product liability claims relating to a recall of one or more of our products,including the recent XO FOUR Stealth headset recall, which could require significant expenditures to defend. Additionally, we may be required to complywith governmental requirements to remedy the defect and/or notify consumers of the problem that could lead to unanticipated expense, and possible productliability litigation against a customer or us. As of December 31, 2015 and the date of this report, the Company has not received notice of any law suits againstthe 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 ourability 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 forpublic companies, increase our cost of doing business and restrict our ability to operate our business17 or execute our strategies. This could include, among other things, compliance costs and enforcement under the Dodd-Frank Wall Street Reform andConsumer Protection Act (the “Dodd-Frank Act”). For example, under Section 1502 of the Dodd-Frank Act, the SEC has adopted additional disclosurerequirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or productionof a product manufactured, or contracted to be manufactured, by that issuer. The metals covered by the rules include tin, tantalum, tungsten and gold. Oursuppliers may use some or all of these materials in their production processes. The rules require us to conduct a reasonable country of origin inquiry todetermine 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 theCongo 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 tobelieve that the minerals used in the production process may have originated in a covered country, we would be required to perform supply chain duediligence on members of our supply chain. Global supply chains can have multiple layers, thus the costs of complying with these new requirements could besubstantial. These new requirements may also reduce the number of suppliers who provide conflict free metals, and may affect our ability to obtain productsin sufficient quantities or at competitive prices. Compliance costs such as these could have a material adverse effect on our results of operations.We continually evaluate and monitor developments with respect to new and proposed laws, regulations, standards and rules and cannot predict orestimate 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 besubject to varying interpretations and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governingbodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure andgovernance practices. We are committed to maintaining high standards of corporate governance and public disclosure. If our efforts to comply with new orchanged laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice,regulatory authorities may initiate legal proceedings against us and we may be harmed.We are subject to various environmental laws and regulations that could impose substantial costs on us and may adversely affect our business, operatingresults and financial condition.Our operations and some of our products are regulated under various federal, state, local and international environmental laws. In addition, regulatorybodies in many of the jurisdictions in which we operate propose, enact and amend environmental laws and regulations on a regular basis. The environmentallaws and regulations applying to our business include those governing the discharge of pollutants into the air and water, the management, disposal andlabeling of, and exposure to, hazardous substances and wastes and the cleanup of contaminated sites. If we were to violate or become liable under theseenvironmental 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 environmentallaws may be joint and several and without regard to comparative fault. The ultimate costs under environmental laws and the timing of these costs are difficultto predict. Although we cannot predict the ultimate impact of any new environmental laws and regulations, such laws may result in additional costs ordecreased revenue, and could require that we redesign or change how we manufacture our products, any of which could have a material adverse effect on ourbusiness. Additionally, to the extent that our competitors choose not to abide by these environmental laws and regulations, we may be at a cost disadvantage,thereby hindering our ability to effectively compete in the marketplace.Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties andan adverse effect on our business.We operate in 44 countries, including countries known to have a reputation for corruption. We are committed to doing business in accordance withapplicable anti-corruption laws. We are subject, however, to the risk that our officers, directors, employees, agents and collaborators may take actiondetermined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010 and theEuropean Union Anti-Corruption Act, or that subjects us to trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department ofCommerce. 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.18 Risks Related to Ownership of our Common StockOwnership of our common stock is highly concentrated, and we are a “controlled company” within the meaning of the corporate governance standards ofNASDAQ 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 68% of our common stock. Accordingly, thesestockholders, acting as a group pursuant to a stockholder agreement, have substantial influence over the outcome of our corporate actions requiringstockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significantcorporate transaction. These stockholders also may exert influence in delaying or preventing a change in control of the Company, even if such change incontrol would benefit our other stockholders. In addition, the significant concentration of stock ownership may affect adversely the market value of ourcommon 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 listedcompany 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 “controlledcompany”). Certain stockholders of Turtle Beach constitute a group controlling more than 50% of the voting power of our voting stock. As a “controlledcompany,” 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 beindependent, (ii) that our compensation committee be comprised entirely of independent directors and (iii) that we establish a nominating and governancecommittee comprised entirely of independent directors, or otherwise ensure that director nominees are determined or recommended to our board by theindependent members of our board. Accordingly, our stockholders may not have the same protections afforded to stockholders of companies that are subjectto all of the corporate governance requirements of NASDAQ.If we cannot meet Nasdaq’s continuing listing requirements and Nasdaq rules, Nasdaq may delist our securities, which could negatively affect us, the priceof our securities and your ability to sell our securities.Although our shares are currently in compliance with requirements and currently listed on Nasdaq, we may not be able to meet the continued listingrequirements of Nasdaq in the future, which require, among other things, a minimum bid price of $1.00 per share for common shares listed on the exchange.While we would consider implementation of customary options, including a reverse stock split, if our common stock does not trade at the required level thatregains compliance, if our efforts are unsuccessful or we are otherwise unable to satisfy the Nasdaq criteria for maintaining our listing, our securities could besubject to delisting. As a consequence of any such delisting, our shareholders would likely find it more difficult to dispose of, or to obtain accuratequotations as to the prices of our securities. In the event of a delisting, we could face significant material adverse consequences including a limitedavailability of market quotations for our securities; a limited amount of news and analyst coverage for our company; and a decreased ability to issueadditional securities or obtain additional financing in the future.Item 1B - Unresolved Staff CommentsNone.Item 2 - PropertiesThe table below describes our principal facilities as of December 31, 2015.LocationState or CountryPrincipal Business ActivityApprox. SquareFeetOwned orExpiration Dateof LeaseSan DiegoCACorporate Headquarters30,0002020ValhallaNYAdministration21,0002019BasingstokeU.K.Administration6,8502021PowayCAAdministration2,8302016San JoseCAResearch & Development3,5002018DarlingtonU.K.Warehouse120,000201819 Item 3 - Legal Proceedings The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the amount of any liabilitythat could arise with respect to these actions cannot be determined with certainty, in the Company’s opinion, any such liability will not have a materialadverse effect on its consolidated financial position, consolidated results of operations or liquidity.On August 5, 2013, VTBH and the Company (f/k/a Parametric) announced that they had entered into the Merger Agreement pursuant to which VTBHwould acquire an approximately 80% ownership interest and existing shareholders would maintain an approximately 20% ownership interest in thecombined company. 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 aMerger that allegedly undervalued the Company. VTBH and the Company were named as defendants in these lawsuits under the theory that they had aidedand abetted the Company's Board of Directors in allegedly violating their fiduciary duties. The plaintiffs in both cases sought a preliminary injunctionseeking to enjoin closing of the Merger, which by agreement was heard by the Nevada court with the California plaintiffs invited to participate. On December26, 2013, the court in the Nevada cases denied the plaintiffs’ motion for a preliminary injunction. Following the closing of the Merger, the Nevada plaintiffsfiled a second amended complaint, which made essentially the same allegations and sought monetary damages as well as an order rescinding the Merger. TheCalifornia plaintiffs dismissed their action without prejudice, and sought to intervene in the Nevada action, which was granted. Subsequent to theintervention, 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 underreview by the Nevada Supreme Court, which held a hearing on the Company's petition for review on September 1, 2015. After the hearing, the NevadaSupreme Court requested a supplemental briefing, which the parties completed on October 13, 2015. The Nevada Supreme Court also invited the BusinessLaw Section of the Nevada State Bar to submit an amicus brief by December 3, 2015 and briefing was completed on February 23, 2016. The Companybelieves the plaintiff's claims against it are without merit.On February 18, 2015, Dr. John Bonanno, a minority shareholder of VTBH, filed a complaint in Delaware Chancery Court alleging breach of contractagainst VTBH. According to the complaint, the Merger purportedly triggered a contractual obligation for VTBH to redeem Dr. Bonanno's stock. Dr. Bonannorequests a declaratory judgment stating that he is entitled damages including a redemption of his stock for the redemption value of $15.1 million (equal tothe original issue price of his stock plus accrued dividends) as well as other costs and expenses. On February 8, 2016, the Delaware Chancery Court grantedVTBH's motion to dismiss for improper venue, and Dr. Bonnano's complaint was dismissed without prejudice. VTBH maintains that the Merger did nottrigger any obligation to redeem Dr. Bonanno's stock.The Company will continue to vigorously defend itself in the foregoing 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 December 31, 2015 for contingentlosses associated with these matters based on its belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonablyestimated 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, whilethere 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 ofoperations, financial condition or cash flows.Item 4 - Mine Safety DisclosuresNot applicable.20 PART IIItem 5 - Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesThe Company's stock is traded on NASDAQ under the symbol “HEAR” and prior to April 14, 2014 traded under the symbol “PAMT.” The following tablesets forth the high and low sale prices per share of our common stock on the NASDAQ for the period indicated: High LowFiscal Year 2015 First Quarter$3.27 $1.85Second Quarter3.29 1.75Third Quarter3.19 1.91Fourth Quarter3.72 1.86 Market Price High LowFiscal Year 2014 First Quarter$16.36 $11.82Second Quarter14.75 7.58Third Quarter9.67 6.54Fourth Quarter7.62 2.75The closing price of our common stock on February 29, 2016 was $1.01 per share. The number of holders of record of common stock at February 29,2016 was 957.Stock Performance GraphNotwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the priceperformance of our common stock shall not be deemed to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, asamended (the “Exchange Act”), to be “soliciting material” or subject to Rule 14A of the Exchange Act, or to be incorporated by reference into any of ourfilings under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act whether made before or after the date of this Report, exceptto the extent we specifically incorporate it by reference into such filing.The following graph shows a comparison from January 15, 2014 (the date following the reverse acquisition) through December 31, 2015 of the cumulativetotal return assuming a $100 investment in our common stock, the S&P 500 Index and the S&P 500 Consumer Durables Index. In accordance with the rules ofthe Securities and Exchange Commission, the returns are indexed to a value of $100 at December 31, 2013 and assume that all dividends, if any, werereinvested. The comparisons in this graph below are based on historical data and are not intended to forecast or be indicative of future performance of ourcommon stock.21 Dividend PolicyWe have not paid regular cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Any futuredetermination to pay cash dividends will be at the discretion of our board of directors and will depend on our financial condition, operating results, capitalrequirements and such other factors as our board of directors deems relevant.Unregistered Sale of Equity Securities and Issuer Purchases of Equity SecuritiesWe did not sell any unregistered equity securities or purchase any of our securities during the period ended December 31, 2015.Securities Authorized for Issuance under Equity Compensation PlansSee Part III, Item 12 of this annual report for disclosure relating to our equity compensation plans. Such information will be included in our Proxy Statement,which is incorporated herein by reference.22 Item 6 - Selected Financial DataThe merger (the “Merger”) between VTB Holdings, Inc. and Parametric Sound Corporation (“Parametric”) was treated as a “reverse acquisition” withVTBH considered the accounting acquirer. Accordingly, VTBH's historical results of operations on a stand-alone basis replace Parametric’s historicalresults of operations for all periods on or prior to January 15, 2014, and for all periods following the Merger, the results of operations of both companieshave been included.The following table sets forth selected consolidated financial data for each of the five years ended December 31, 2015. This selected financial data should beread in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financialstatements and the notes thereto included in this Report. Year Ended December 31, 2015 (2) 2014 (1) 2013 2012 2011 (in thousands, except per share data)Net Revenue$162,747 $186,176 $178,470 $207,136 $166,121Cost of Revenue122,056 135,509 128,141 132,795 96,536Gross Profit40,691 50,667 50,329 74,341 69,585Gross Margin25.0 % 27.2 % 28.2% 35.9% 41.9%Operating income (loss)(74,399) (13,825) 1,598 42,910 38,268Operating Margin(45.7)% (7.4)% 0.9% 20.7% 23.0%Net income (loss)$(82,907) $(15,486) $(6,163) $26,460 $21,554 Net earnings (loss) per share: Basic$(1.96) $(0.39) $(0.49) $0.13 $1.70Diluted$(1.96) $(0.39) $(0.49) $0.13 $1.70Weighted average number of shares: Basic42,269 39,665 12,700 12,700 12,700Diluted42,269 39,665 12,700 12,700 12,700 Balance Sheet Data Cash and cash equivalents7,114 7,908 6,509 5,219 15,942Total Assets173,851 246,968 127,307 134,195 105,165Total Debt66,197 44,555 64,578 74,250 37,200Series B Redeemable Preferred Stock16,145 14,916 13,713 12,703 13,648Series A Convertible Preferred Stock— — 24,345 24,345 24,345(1) In 2014, we completed the merger with Parametric, which contributed revenue of $0.7 million in the year and $129.1 million of total assets on date ofthe merger.(2) Includes goodwill impairment charge of $49.8 million23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion should be read in conjunction with our consolidated financial statements and the notes thereto. This discussion summarizes thesignificant factors affecting our results of operations and the financial condition of our business during each of the fiscal years in the three-year periodended December 31, 2015. On January 15, 2014 the Company completed the merger (the “Merger”) with VTB Holdings, Inc. which was treated as a “reverse acquisition” with VTBHconsidered the accounting acquirer and surviving entity, as a wholly-owned subsidiary of the Company (f/k/a Parametric Sound Corporation), a publicly-traded company. Accordingly, VTBH's historical results of operations on a stand-alone basis replace Parametric’s historical results of operations for allperiods on or prior to January 15, 2014, and for all periods following the Merger, the results of operations of both companies have been included.Turtle Beach Corporation (herein referred to as the “Company,” “we,” “us,” or “our”), headquartered in San Diego, California and incorporated in the state ofNevada in 2010, is a premier audio technology company with expertise and experience in developing, commercializing and marketing innovative productsacross a range of large addressable markets operating under two reportable segments, Turtle Beach® (“Headset“) and HyperSound®.•Turtle Beach is a worldwide leading provider of feature-rich headset solutions for use across multiple platforms, including video game andentertainment consoles, handheld consoles, personal computers, tablets and mobile devices.•HyperSound technology is an innovative patent-protected sound technology that delivers immersive, directional audio offering unique potentialbenefits in a variety of commercial settings and consumer devices. The recent launch of the HyperSound Clear™ 500P product has transitioned thebusiness to the hearing healthcare market, where we believe a large percentage of people with hearing loss could use the product to improve theirlistening experiences from sources such as TV, CD/DVD players and stereo systems.Business TrendsHeadsetSales in the gaming accessories market, which includes headsets and other peripherals such as gamepads, specialty controllers, adapters, batteries,memory and interactive gaming toys are heavily dependent on the global video game console industry. In 2013, the gaming industry experienced a cyclicalevent as Microsoft and Sony each announced new consoles for 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 growing installed base of gamers and a market for new-genheadsets. In 2016, we anticipate that Xbox 360 and Playstation®3 (the “old generation” or “old-gen” consoles) will take a final, large drop as the marketcompletes the transition to new-gen compatible headsets.Cumulative New Generation Console Sales (in millions)Source: DFC Intelligence Forecasts: Worldwide Console Forecast, May 2015.24 In 2015, new-gen active installed base surpassed old-gen active installed base with, according to May 2015 Intelligence: Worldwide ConsoleForecast report by DFC Intelligence Forecasts, or “DFC,” over 60% of cumulative new generation console sales still to come including over 30 millionconsoles expected to be sold worldwide next year. Further, DFC estimates that cumulative new generation consoles will exceed $65 billion by 2018.HyperSoundHearing Health Care. Gradual hearing loss can affect individuals of all ages, varying from mild to profound and is a growing, widespread issue. In theUnited States, there are nearly 50 million people with some degree of hearing loss significant enough to require a hearing aid. Source: World Health Organization, 2013.HyperSound technology offers a fundamentally new way to deliver sound, and our research indicates that it improves the home listening experience.We believe that a large percentage of people with hearing loss may be able to use HyperSound Clear 500P to improve their listening experiences fromsources such as TV, CD/DVD players and stereo systems.Commercial. We are currently marketing our HyperSound technology to retailers and audio-visual integrators for use in settings where directed audioand sound zones are beneficial, such as digital signage and interactive retail displays. Convenience retailers and fast moving consumer good brands faceever-greater challenges as competition for customers intensifies, and as shoppers increasingly rely on in-store cues. As a result, digital signage is a growingform of direct advertising, capturing an increasing share of advertising spending as restaurants, banks, retail outlets, museums and other outlets andorganizations employ commercial displays to communicate with patrons.Results of OperationsManagement OverviewOur net revenues, which decreased $23.4 million, or 12.6%, were impacted by several external factors, including the impact of the strong dollar on ourinternational business and a more rapid than expected decline in old-gen revenues, which were down $40 million from 2014 to end at less than 12% ofrevenues. However, we completed our new-gen headset portfolio, launching seven new models, which resulted in a $23.8 million or 23.8% increase year-over-year, and continued to execute on initiatives to drive sustained growth and improved profitability, such as our global logistics partnership with Keuhne+ Nagel and the transition of certain headset models to the world's largest contract manufacturer, Foxconn.Despite the product mix shift to higher margin new-gen headsets, gross profit as a percentage of net revenue decreased to 25.0% from 27.2% in the prioryear. In addition to lower revenues, margins were negatively impacted by higher promotional credits to clear old-gen and licensed headset inventory,incremental costs associated with our new refurbishment model, contract manufacture transition costs and higher third party licensing and royalty costsassociated with discontinued legacy license agreements. Looking ahead, we believe that margins and profitability will increase significantly as old-gen isnow expected to be well under 10% of our headset business revenues in 2016.For 2015, our reported net loss increased to $82.9 million driven largely by the Headset revenue decline, the negative non-cash impacts of the valuationallowance and goodwill impairment and, an increased investment in the HyperSound business ahead of the HyperSound Clear 500P launch. Diluted net lossper share of $1.96 was down compared to the prior year diluted net loss per share of $0.39.25 In 2016, we believe that old-gen headset sales will take a final, large drop, which we expect to be roughly offset by continued strong growth in our new-gen headset business as our new core models capture further revenue share and, the initial full year of revenues from the HyperSound Clear 500P product,which will include the launch in Europe as well as continued channel expansion.Key Performance Indicators and Non-GAAP MeasuresManagement routinely reviews key performance indicators including revenue, operating income and margins, 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 forthe following reasons: (i) it is one of the measures used by our board of directors and management team to evaluate our operating performance; (ii) it is one ofthe measures used by our management team to make day-to-day operating decisions; (iii) the adjustments made are often viewed as either non-recurring ornot reflective of ongoing financial performance or have no cash impact on operations; and (iv) it is used by securities analysts, investors and other interestedparties as a common operating performance measure to compare results across companies in our industry by backing out potential differences caused byvariations in capital structures (affecting relative interest expense), and the age and book value of facilities and equipment (affecting relative depreciationand amortization expense). These metrics, however, are not measures of financial performance under accounting principles generally accepted in the UnitedStates of America (“GAAP”) and, given the limitations of these metrics as analytical tools, should not be considered a substitute for gross profit, grossmargins, net income (loss) or other consolidated income statement data as determined in accordance with GAAP. We consider the following non-GAAPmeasure, 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 EBITDAAdjusted EBITDA (and a reconciliation to Net loss, the nearest GAAP financial measure) for the years ended December 31, 2015, 2014 and 2013 are asfollows: Year Ended December 31, 20152014 2013 (in thousands)Net loss $(82,907) $(15,486) $(6,163)Interest expense 5,099 7,209 6,626Depreciation and amortization 7,916 6,866 5,345Stock-based compensation 5,897 5,194 2,563Income tax expense (benefit) 2,393 (6,272) 1,090Impairment charge 49,822 — —Business transaction costs — 3,744 3,864Restructuring charges 399 747 —Payments to founders — — 527Adjusted EBITDA $(11,381) $2,002 $13,852Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014For the year ended December 31, 2015, Adjusted EBITDA on a consolidated basis was $(11.4) million, including investments of $13.8 million in theHyperSound business, compared to Adjusted EBITDA on a consolidated basis of $2.0 million, including investments of $10.0 million in the HyperSoundbusiness from the year ended December 31, 2014.Headset Adjusted EBITDA totaled approximately $2.4 million in the year ended December 31, 2015 compared to $12.0 million in the prior year, whichincluded the initial sell-in of the Company's and the industry’s first ever Xbox One compatible headsets.26 In addition to the lower sales volume driven primarily by the strong dollar on our international business, the current period was negatively impacted bypromotional credits to continue to clear channel inventory and higher third party licensing and royalty costs which included $1.3 million of reserves forproducts associated with certain discontinued legacy license agreements.Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013Adjusted EBITDA decreased for the year ended December 31, 2014 as compared to the year ended December 31, 2013 driven largely by our investment inthe HyperSound business and an increased net loss reflecting the negative impact of costs to package the Microsoft Xbox One Headset Chat Adapter with ourheadsets and ship them to retailers, increased air freight usage to ensure certain new headsets were in the market for the holiday and in response to the laboruncertainty at the West Coast ports, and initial costs to support being a public company.Financial ResultsThe following table sets forth the Company’s statements of operations for the periods presented: Year Ended December 31, 2015 2014 2013 (in thousands)Net Revenue$162,747 $186,176 $178,470Cost of Revenue122,056 135,509 128,141Gross Profit40,691 50,667 50,329Gross Margin25.0% 27.2% 28.2% Operating expenses115,090 64,492 48,731Operating income (loss)(74,399) (13,825) 1,598Interest expense5,099 7,209 6,626Other non-operating expense, net1,016 724 45Gain on bargain purchase from acquisition— — —Loss before income tax expense (benefit)(80,514) (21,758) (5,073)Income tax expense (benefit)2,393 (6,272) 1,090Net loss$(82,907) $(15,486) $(6,163)Net Revenue and Gross ProfitHeadset SegmentThe following table summarizes net revenue and gross profit for the periods presented: December 31, 2015 2014 2013 (in thousands)Net Revenue$161,835 $185,469 $178,470Gross Profit42,832 50,550 50,329Gross Margin26.5% 27.3% 28.2%Cash Margin (1)27.5% 27.5% 28.3%(1) Excludes non-cash charges of $1.7 million, $0.5 million and $0.2 million, respectively.Comparison of Fiscal Years 2015 and 2014Net revenues for year ended December 31, 2015, which decreased $23.4 million, or 12.6%, were negatively impacted by a more rapid than expected declinein old-gen revenues, which were down over $40 million compared to 2014 and, the strong dollar on our international business that declined 29.0% in theUnited Kingdom and 28.0% in Europe. These declines were27 offset, in part, by a 27.0% increase in new-gen revenues reflecting the continued positive consumer reaction to the XO ONE, XO FOUR Stealth and Stealth500P headsets and the strong performance of our new products as we completed our headset portfolio transition with the launch of five new headsets for theholiday season.Despite the benefit of the product mix shift to higher margin new-gen headsets during the second half of the year, for the year ended December 31, 2015,gross profit as a percentage of net revenue decreased to 26.5% from 27.3% in the prior year. The year-over-year decrease in gross margin performance wasprimarily due to higher promotion credits to clear, and subsequent excess reserves of, old-gen and licensed headsets, incremental costs associated with ourrefurbishment model and contract manufacture transitions and, higher third party licensing and royalty costs. Excluding the impact of $1.8 million previousgeneration and licensed headset charges, gross profit as a percentage of net sales would have been 27.6% driven largely by sales of higher margin headsets.Comparison of Fiscal Years 2014 and 2013In spite of challenging overall market conditions that included a rapid decline in active user bases for Xbox 360 and PlayStation®3 and a more promotionalenvironment, net revenues for year ended December 31, 2014 increased $7.7 million, or 4.3%, compared to the prior year on the strength of our newgeneration headset portfolio and the expansion of our international headset business with strong growth in several markets, including a 11.3% increase in theUnited Kingdom business and 29.7% in Europe, as well as the initial sales of our Xbox One headsets in China. Domestic sales increased 5.6% on strongconsumer response to our new more advanced headsets. These gains were offset in part by a decline in sales to our Canadian distributor as fiscal 2013included incremental initial stock orders.Our strategy to deliver innovative headsets across all price points drove a 6.6% increase in total Xbox compatible headsets sales as new generation consoleheadsets bolstered by the launch of the XO FOUR, XO SEVEN, XO ONE and Stealth 500X outpaced the decline in previous generation headset sales. Sales ofPlayStation® compatible headsets remained steady through the console transition on continued positive consumer reaction to the PX22 headset and therelease of the ELITE 800, Stealth 500P, Ear Force Stealth 400 and P12 headsets.For the year ended December 31, 2014, gross profit as a percentage of net revenue decreased to 27.2% from 28.2% in the prior year. In 2014, gross profit as apercentage of net revenue was negatively impacted by $2.5 million of incremental shipping and handling costs related to the Microsoft Xbox One HeadsetChat Adapter necessary to have our headsets in retail stores for when Microsoft turned on gaming headset audio which had been delayed at the productlaunch and $3.4 million of incremental air freight costs to get certain new products (ELITE 800, Stealth 500X and XO ONE) to market for the holiday and inresponse to abnormal West Coast port delays due to labor disputes during contract negotiations. Excluding the impact of these additional shipping costs,gross profit as a percentage of net sales would have been 30.2% driven largely by sales of higher margin headsets.HyperSound Segment December 31, 2015 2014 2013 HyperSound912 707 —Gross Profit(2,141) 117 —Gross Margin(234.8)% 16.5% —%Cash Margin(105.8)% 31.3% —%(1) Excludes non-cash charges of $1.2 million, $0.1 million and $0.0 million, respectively.Comparison of Fiscal Years 2015 and 2014Net revenues for the year ended December 31, 2015 were $0.9 million and reflect the initial sales of the HyperSound Clear 500P product that launched inNovember 2015, compared to $0.7 million in the prior year primarily from the first wide-scale deployment of the commercial product in Activision Call ofDuty® retail displays.As a result of certain start-up costs related to the HyperSound Clear 500P product, including the incremental amortization expense related to technologicalfeasibility of the purchased in-process research and development intangible asset, gross profit28 as a percentage of net revenue was negative for the year ended December 31, 2015. Excluding these costs, the cash margin was 39.8% reflecting the initialshipments of the higher margin HyperSound Clear 500P product.Operating Expenses Year Ended December 31, 2015 2014 2013 (in thousands)Selling and marketing$31,829 $33,442 $31,645Research and development11,556 9,400 4,873General and administrative21,484 17,159 8,349Business transaction costs— 3,744 3,864Goodwill impairment49,822 — —Restructuring charges399 747 —Total operating expenses$115,090 $64,492 $48,731Operating expenses increased largely due to additional costs associated with the expansion of the HyperSound business and additional headcount required ofa public company partially offset by cost reductions in marketing.Selling and MarketingSelling and marketing expense for the year ended December 31, 2015 totaled $31.8 million, or 19.6% as a percentage of net revenues, compared to $33.4million, or 18.0% as a percentage of net revenues, for the prior year. The 4.8% decrease was primarily due to lower direct media spend and licensing costs($1.5 million) and a reduction in trade show spend ($0.9 million) in connection with a strategic shift to more targeted promotional activity, partially offset byincremental marketing costs and additional sales force related to the HyperSound Clear 500P product launch.Selling and marketing expense for the year ended December 31, 2014 totaled $33.4 million, or 18.0% as a percentage of net revenues, compared to $31.6million, or 17.7% as a percentage of net revenues, for the prior year. The increase in expense was primarily due to $5.1 million of incremental costs related tothe HyperSound business and higher depreciation driven by the addition of interactive retail display kiosks into two large retailers in the fourth quarter of2013, partially offset by reduced trade show expenses ($0.7 million), direct media spend ($1.2 million) and, advertising and promotional expenses ($1.6million) related to the media series headsets post their market launch in 2013.Research and DevelopmentThe increase in research and development expenses for the year ended December 31, 2015 versus the prior year was primarily due to increased staffing levelsto support the development of the HyperSound Clear 500P product ($1.9 million) as well as new advanced audio and wireless development initiatives toexpand our Xbox One compatible headset portfolio and launch of our true multiplatform headset - the EarForce PX24 ($0.3 million).The increase in research and development expenses for the year ended December 31, 2014 versus the comparable prior year was primarily due to HyperSoundproduct development efforts ($3.6 million), increased staffing levels to support the development of technology leading headsets for the new generationconsoles and, an investment in product development for the HyperSound Clear 500P product.General and AdministrativeGeneral and administrative expenses for the year ended December 31, 2015 increased $4.3 million to $21.5 million compared to $17.2 million for the yearended December 31, 2014. The year over year increase was primarily driven by higher employee costs as a result of the full year impact of additionalheadcount required of a public company ($1.5 million), legal fees associated with recent public filings in connection with our stock option exchange andfinancing activities ($0.7 million) and higher stock compensation expense ($0.7 million).General and administrative expenses for the year ended December 31, 2014 increased $8.8 million to $17.2 million compared to $8.3 million for the yearended December 31, 2013. The year over year increase was primarily driven by increased external29 expenses to be a public company ($3.2 million), incremental costs related to HyperSound ($2.3 million), higher stock compensation expense ($1.1 million)and, additional headcount to build our internal capabilities and higher consultant fees for debt and equity capital activities ($1.4 million).Goodwill ImpairmentAs a result of our annual impairment test, we recorded a $49.8 million goodwill impairment charge in connection with the decline in implied fair value of theHyperSound reporting unit. There were no such charges in 2014 or 2013.Business TransactionBusiness transaction expenses for the year ended December 31, 2014 incurred in connection with the Merger included investment banker success fees of $2.2million payable upon the close of the merger and legal and accounting fees required to complete the transaction compared to $3.9 million for the year endedDecember 31, 2013 related to due diligence and legal costs related to the acquisition of the HyperSound business that closed in January 2014.Restructuring ChargesDuring 2014, we began to focus on company-wide overhead and operating expense cost reduction activities, such as closing excess facilities and reducingredundancies. In connection with our efforts to improve our operating efficiency and reduce costs, over the past two years, we completed the closure ofcertain warehouse operations and the production operations at one of our contract manufacturing operations in China.Interest ExpenseInterest expense decreased $2.1 million for the year ended December 31, 2015 primarily due to the write-off of $2.2 million of unamortized debt issuancecosts related to the refinancing of our credit facility in the comparable period. Excluding this item, interest expense increased $0.1 million as additionalinterest related to the issuance of the Term Loan Due 2019 and subordinated notes offset by savings associated with rate reductions and lower averageborrowings on our revolving line of credit.Interest expense increased $0.6 million for the year ended December 31, 2014 primarily due to higher deferred finance fees that included the write-off of $2.2million of unamortized debt issuance costs related to the refinancing of our credit facility on March 31, 2014 and additional interest of $0.8 million related tothe issuance of the subordinated notes. These factors were offset by rate reductions and lower average borrowings on our revolving line of credit.Income TaxesDuring 2015, as a result of cumulative losses in recent years primarily due to incremental costs associated with the console transition, acquisition costs andinitial investments in the HyperSound business, the Company concluded that a full valuation allowance is required on its net deferred tax assets.Income tax expense for the year ended December 31, 2015 was $2.4 million at an effective tax rate of (3.0)% compared to income tax benefit $6.3 million forthe year ended December 31, 2014 at an effective tax rate of 28.8%. The effective tax rate was primarily impacted by two discrete items, the release of certainreserves related to uncertain tax positions due to the closure of an IRS examination and the establishment of a valuation allowance on all of our deferred taxassets in the United States and the United KingdomIncome tax benefit for the year ended December 31, 2014 was $6.3 million at an effective tax rate of 28.8% compared to income tax expense of $1.1 millionfor the year ended December 31, 2013 at an effective tax rate of 21.5%. The Company’s effective tax rate for this year differed from the U.S. federal statutoryrate of 35% primarily due to differences in book and tax treatment of transaction costs, interest on the Series B Redeemable Preferred Stock and other non-deductible expenses.Liquidity and Capital ResourcesOur primary sources of working capital are cash flow from operations and availability of capital under our revolving credit facility. We have fundedoperations and acquisitions in recent periods with operating cash flows, and proceeds from debt and equity financings.30 The following table summarizes our sources and uses of cash: 2015 2014 2013 (in thousands)Cash and cash equivalents at beginning of period$7,908 $6,509 $5,219Net cash provided by (used for) operating activities(15,133) (14,834) 18,290Net cash provided by (used for) investing activities(6,693) 557 (6,167)Net cash provided by (used for) financing activities21,134 15,969 (11,017)Effect of foreign exchange on cash(102) (293) 184Cash and cash equivalents at end of period$7,114 $7,908 $6,509Operating activitiesCash used for operating activities for the year ended December 31, 2015 was $15.1 million, a decline of $0.3 million as compared to $14.8 million forthe year ended December 31, 2014. The year-over-year decrease is primarily the result of lower net income adjusted for non-cash expenses and higher year-over-year payments of accounts payable due to incremental expenses incurred in connection with the launch of the HyperSound Clear 500P product. Theseimpacts were offset, in part, by the valuation allowance recorded on the Company's deferred tax assets.Cash used for operating activities for the year ended December 31, 2014 was $14.8 million, a decline of $33.1 million as compared to cash provided byoperating activities of $18.3 million for the year ended December 31, 2013. The year-over-year decrease is primarily the result of lower net income adjustedfor non-cash expenses and a reduction in net working capital (defined as accounts receivable and inventories less accounts payable). The reduction in networking capital was driven by payments of accounts payable that had increased during our debt refinancing process that started in late 2013 and wascompleted in March 2014.Investing activitiesCash used for investing activities was $6.7 million during the year ended December 31, 2015 compared to cash provided by investing activities of $0.6million in 2014, which included $4.1 million of cash acquired in the Merger. Capital expenditures increased $3.2 million compared to the prior year to $6.7million primarily due to expenditures on tooling related to the expansion of our headset portfolio and the initial production line for HyperSound Clear 500Pas well as interactive display purchases in connection with our initial international headset display units.Cash provided by investing activities was $0.6 million during the year ended December 31, 2014 compared to cash used for investing activities of $6.2million during the year ended December 31, 2013, as a result of $4.1 million of cash acquired in the Merger. During 2013, we refreshed demonstration unitsat key retailers and purchased new convention booth equipment in advance of the new generation console releases, and as such capital expenditures declinedin the year ended December 31, 2014 to $3.5 million from $6.2 million in 2013.Financing activitiesNet cash provided by financing activities was $21.1 million during the year ended December 31, 2015 compared to $16.0 million and $11.0 million of cashused in financing activities during the years ended December 31, 2014 and 2013, respectively. Financing activities in 2015 included the issuance of a $15million term loan and $16.3 million principal amount of subordinated notes, partially offset by repayments of term loans and net payments on our revolvingcredit facilities of $8.8 million.Financing activities in 2014 included $37.2 million of proceeds from the sale of common stock, the issuance of $7.0 million principal amount ofsubordinated notes and a $7.7 million term loan borrowing partially offset by (i) net payments on our revolving credit facilities of $2.9 million, (ii)repayment of our $14.5 million legacy term loan and (iii) repayment of $18.5 million of outstanding subordinated notes.Net cash used in financing activities during the year ended December 31, 2013 was primarily related to net repayments of the legacy revolving line of creditand term loan, and was partially offset by the issuance of $10 million principal amount of subordinated notes.31 Management assessment of liquidityManagement believes that our current cash and cash equivalents, the amounts available under our revolving credit facility, the impact of the proceeds fromour recent term loans and subordinated notes, and equity raise and cash flows derived from operations will be sufficient to meet anticipated cash needs forworking capital and capital expenditures for at least the next 12 months. Significant assumptions underlie this belief, including, among other things, thatthere will be no material adverse developments in our business, liquidity or capital requirements.On February 5, 2016, we received approximately $6.2 million in net proceeds in connection with the successful closure of a public offering of 5.0 millionshares of common stock and a separate, concurrent, side-by-side private placement of 1.7 million shares of common stock at a price of $1.00 per share. Inaccordance with certain amendments to our Credit Facility, these proceeds were applied against the outstanding principal balance of the working capital lineof credit.We believe the combination of our revolving credit facility, long-term debt and cash flow generated by our gaming headset business will cover incrementalcosts related to the continued launch of the HyperSound Clear 500P product and provide the necessary liquidity to fund our annual working capital needs,particularly during the gaming industry’s seasonal slow period in the first half of the year.Foreign cash balances at December 31, 2015 and December 31, 2014 were $0.2 million and $2.5 million, respectively.Revolving Credit FacilityOn March 31, 2014, Turtle Beach and certain of its subsidiaries entered into a new asset-based revolving credit agreement (“Credit Facility”) with Bank ofAmerica, N.A., as Agent, Sole Lead Arranger and Sole Bookrunner, which replaced the then existing loan and security agreement. The Credit Facility, whichexpires on March 31, 2019, provides for a line of credit of up to $60 million inclusive of a sub-facility limit of $10 million for TB Europe, a wholly ownedsubsidiary of Turtle Beach. The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporatepurposes.The maximum credit availability for loans and letters of credit under the Credit Facility is governed by a borrowing base determined by the application ofspecified percentages to certain eligible assets, primarily eligible trade accounts receivable and inventories, and is subject to discretionary reserves andrevaluation adjustments.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% to 1.50% for U.S. base rate loans and between 2.00% to 2.50% for U.S. LIBOR loans and U.K. loans. As ofDecember 31, 2015, interest rates for outstanding borrowings were 5.00% for base rate loans and 2.92% for LIBOR rate loans. In addition, Turtle Beach isrequired 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 certain availability thresholds are not met, meaning that the Company does not have receivables and inventory which are eligible to borrow on under theCredit Facility in excess of amounts borrowed, the Credit Facility requires the Company and its restricted subsidiaries to maintain a fixed charge coverageratio. 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 capitalexpenditures, excluding those financed through other instruments, and cash taxes paid, and (b) Fixed Charges defined as the sum of cash interest expenseplus scheduled principal payments.The Credit Facility also contains affirmative and negative covenants that, subject to certain exceptions, limit our ability to take certain actions, including ourability 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 bya security interest and lien upon substantially all of the Company's assets.In March 2015, Bank of America notified the Company that certain events of default had occurred and were continuing under the Credit Agreement,including (i) the Company’s failure to deliver in a timely matter certain monthly financial statements in accordance with the Credit Agreement, (ii) theCompany’s failure to deliver in a timely matter certain financial projections in accordance with the Credit Agreement, (iii) the Company’s failure to repay anover-advance of approximately $100,000 that existed between March 6, 2015 and March 9, 2015, and (iv) the Company’s failure to satisfy the fixed chargecoverage ratio under the Credit Agreement for certain measurement dates during the fourth quarter of 2014 (in part as a result of certain32 retroactive changes to the calculation of such ratio pursuant to the second amendment, dated December 29, 2014) (the “Existing Events of Default”).On March 16, 2015, the Company entered into a third amendment (the “Third Amendment”) to the Credit Facility pursuant to which Bank of America andthe lenders under the Credit Facility agreed to waive the Existing Events of Default. In addition, the Third Amendment amends certain other provisions ofthe agreement and requires that we maintain an EBITDA ratio at the end of each month beginning April 30, 2015 on a cumulative basis through theremainder of 2015 and thereafter on a trailing twelve-month basis, our EBITDA (as defined under the Credit Facility) must be in an amount equal to at least75% of our monthly projected EBITDA as set forth in projections delivered pursuant to the Credit Facility. The current fixed charge coverage ratio of at least1.15 to 1.00 on the last day of each month while a Covenant Trigger Period (as defined in the agreement) is in effect will become effective again after theCompany has complied with such ratio for six consecutive months.On November 2, 2015, the Company entered into a sixth amendment to the Credit Facility that modified certain provisions to provide (i) that the Companywill make certain periodic reports with respect to certain financial metrics, (ii) that the existing financial covenants are suspended and replaced by amendedEBITDA levels during the months ended September 30, 2015 through the month ending November 30, 2015, and (iii) that the loan availability is decreasedby an additional block.On December 1, 2015, in connection with the sixth amendment, the Company further amended certain provisions of the Credit Facility to, among otherthings, amend the definition of EBITDA to exclude certain non-recurring expenses and replace certain financial covenants by amended EBITDA levels eachmonth beginning with the month ended December 31, 2015 through (and including) the month ending March 31, 2017 (with revised financial covenants tobe agreed based on new financial projections after such date) on both an overall and segment-by-segment basis.On February 1, 2016, the Company further amended certain provisions of the Credit Facility to, among other things, provide that, on or prior to February 5,2016, the Company receive net proceeds of not less than $6.0 million of additional equity capital or additional third lien debt financing and apply suchproceeds against the outstanding principal balance of the working capital line of credit, amend the definition of EBITDA to exclude certain non-recurringexpenses and replace certain financial covenants by amended EBITDA levels. The Company satisfied its paydown obligation with the proceeds from therecent offering and private placement.As of December 31, 2015, the Company was in compliance with all the amended financial covenants, and excess borrowing availability was approximately$3.8 million, net of the outstanding Term Loan Due 2018 (as defined below) that is considered to be an additional outstanding amount under the CreditFacility.Term LoansTerm Loan Due 2018On December 29, 2014, the Company amended the Credit Facility to permit the repayment of $7.7 million of existing subordinated debt and accrued interestwith the proceeds of an additional loan (the “Term Loan”). The Term Loan will result in modified financial covenants while it is outstanding, will bearinterest 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 endingon April 1, 2018. As of December 31, 2015, the outstanding principal balance was $5.8 million,Term Loan Due 2019On July 22, 2015, the Company and its subsidiaries, entered into a term loan, guaranty and security agreement (the “Term Loan Due 2019”) with CrystalFinancial LLC, as agent, sole lead arranger and sole bookrunner, Crystal Financial SPV LLC and the other persons party thereto (“Crystal”), which providesfor 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 ofthe 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 willrepay the principal in monthly payments beginning January 1, 2016, with a final payment on June 28, 2019, the maturity date.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 issubject to the first-priority lien of Bank of America , N.A., as agent, under the Credit Facility, other than with respect to equipment, fixtures, real propertyinterests, intellectual property, intercompany property, intercompany indebtedness, equity interest in their subsidiaries, and certain other assets specified inan inter-creditor agreement between Bank of America and Crystal.33 The Company and its subsidiaries are required to comply with various customary covenants including, (i) maintaining minimum EBITDA and HeadsetEBITDA (each as defined in the Term Loan Due 2019) in each trailing twelve month period beginning August 31, 2015, (ii) maintaining a ConsolidatedLeverage 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 than5.75:1 beginning December 31, 2015 with periodic step-downs to 3.00:1 on January 31, 2017, (iii) not making capital expenditures in excess of $11 millionin the year ending December 31, 2015 and in excess of $7 million in each of the years ending December 31, 2016, 2017, 2018 and 2019, (iv) restrictions onthe Company’s and its subsidiaries ability to prepay its subordinated notes, pay dividends, incur debt, create or suffer liens and engage in certainfundamental transactions and (v) an obligation to provide certain financial and other information. The agreement permits certain equity holders of theCompany 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 failureto make payments when due, breaches of covenants and representations, material impairment in the perfection of Crystal’s security interest in the collateraland events related to bankruptcy and insolvency of the Company and its subsidiaries. Upon an event of default, Crystal may declare all outstandingobligations immediately due and payable (along with a prepayment fee), a default rate of an additional 2.0% may be applied to amounts outstanding andmay take other actions including collecting or taking such other action with respect to the collateral pledged in connection with the term loan.On February 1, 2016, the Company entered into a third amendment to amend certain provisions to, among other things, provide that net proceeds fromadditional equity capital or additional third lien debt financing are applied against the outstanding principal balance of the working capital line of credit,amend the definition of EBITDA to exclude certain non-recurring expenses and replace certain financial covenants by amended EBITDA levels each monthbeginning with the month ended December 31, 2015 and on a trailing twelve-month period basis beginning with the period ending October 31, 2016,through the termination date on both an overall and segment-by-segment basis.As of December 31, 2015, the Company was in compliance with the amended financial covenants, and outstanding principal balance was $12.6 million.Subordination AgreementOn November 16, 2015, as a condition precedent to our lenders permitting certain subordinated notes, we entered into a subordinated agreement with andbetween certain parties that our obligations under any such notes would be subordinated in right of payment in full of all the Company's obligations underthe Credit Facility and Term Loan Due 2019.Subordinated Notes - Related PartyConcurrently with the completion of the Term Loan Due 2019, the Company amended and restated each of its outstanding subordinated notes (the“Amended Notes”). The $13.8 million obligation of the Company under the Amended Notes is subordinate and junior to the prior payment of amounts dueunder the Credit Facility and Term Loan Due 2019. In addition, the stated maturity date of the Amended Notes was extended to September 29, 2019, subjectto 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 LIBORplus 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 theamendment 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 arate of 15% per annum until its maturity date, which is September 29, 2019, and is subordinated to all senior debt of the Company. In connection with theNovember 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.SG VTB is an affiliate of Stripes Group LLC (“Stripes”), a private equity firm focused on internet, software, healthcare IT and branded consumer productsbusinesses. Kenneth A. Fox, one of our directors, is the managing general partner of Stripes and the sole manager of SG VTB and Ronald Doornink, ourChairman of the Board, is an operating partner of Stripes.34 Series B redeemable preferred stockIn 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 redeemthe Series B Redeemable Preferred Stock on the earlier to occur of September 28, 2030 or the occurrence of a liquidation event (as defined in VTBH'sCertificate of Incorporation) at its original issue price of $12.425371 per share plus any accrued but unpaid dividends. The redemption value was $16.1million and $14.9 million as of December 31, 2015 and December 31, 2014, respectively.Critical Accounting EstimatesOur discussion and analysis of our results of operations and capital resources are based on our condensed consolidated financial statements, which have beenprepared in conformity with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates andassumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Managementbases 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.Based on the above, we have determined that our most critical accounting policies are those related to revenue recognition and sales return reserve, inventoryvaluation, asset impairment, and income taxes.Revenue Recognition and Sales Return ReserveRevenue is recognized when products are shipped and title has been transferred to a customer, the sales price is fixed and determinable, and collection isreasonably assured. Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. Net revenue foron-line purchases is recognized when products are shipped from our distribution facilities.Provisions for cash discounts, quantity rebates, and sales returns in the period the sale is recorded, based upon our prior experience and current trends, as areduction of revenue. These revenue reductions are established based upon management’s best estimates at the time of sale following the historical trend,adjusted to reflect known changes in the factors that impact such reserves and allowances, and the terms of agreements with customers.Inventory ValuationInventories are valued at the lower of weighted average cost or market, at the individual item level. Market is determined based on the estimated netrealizable value, which is generally the selling price. Inventory levels are monitored to identify slow-moving items and markdowns are used to clear suchproduct. Physical inventory counts are performed annually in January and estimates are made for any shortage between the date of the physical inventorycount and the balance sheet date.Asset ImpairmentWe have significant long-lived tangible and intangible assets, including goodwill with indefinite lives, which are susceptible to valuation adjustments as aresult of changes in various factors or conditions. We assess the potential impairment of intangible and fixed assets whenever events or changes incircumstances indicate that full recoverability of net asset balances through future cash flows is in question. Goodwill and indefinite-lived intangible assetsare assessed at least annually, but also whenever events or changes in circumstances indicate the carrying values may not be recoverable. Factors we considerimportant, which could trigger an impairment of such assets include significant underperformance relative to historical or projected future operating results;significant changes in the manner of or use of the acquired assets or the strategy for our overall business; significant negative industry or economic trends;significant decline in our stock price for a sustained period; and a decline in our market capitalization below net book value.Management estimates future pre-tax cash flows based on historical experience, knowledge and market data. Estimates of future cash flows require that wemake assumptions and apply judgment, including forecasting future sales and expenses and estimating useful lives of the assets. These estimates can beaffected by factors such as future product development and economic conditions that can be difficult to predict, as well as other factors such as those outlinedin “Risk Factors.” If the expected future cash flows related to the long-lived assets are less than the assets’ carrying value, an impairment loss would berecognized for the difference between estimated fair value and carrying value.35 In connection with the Merger, the Company performed a valuation of the acquired goodwill and intangible assets and recorded $81.0 million of goodwillbased on the fair values of the assets acquired and liabilities assumed. The Company conducted its annual impairment assessment as of November 1, 2015,and based on the two-step impairment test, recorded a $49.8 million goodwill impairment charge, which resulted in a $31.2 million remaining carrying valueas of December 31, 2015. Refer to Note 1, “Summary of Significant Accounting Policy” for further details.Management's forecasts of planned revenue are largely dependent on the market acceptance and continued channel expansion of the Company's recentlylaunched HyperSound Clear 500P product to generate the projected revenue in subsequent years. If the performance of the Company's HyperSound Clear500P product in the hearing healthcare market does not meet expectations based on initial market data, a future impairment charge could result for a portionor all of the remaining goodwill. The amount of any impairment is dependent on the performance of the business which is dependent upon a number ofvariables which cannot be predicted with certainty.Income TaxesWe account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognizedbased on the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates and laws expected to be in effect when the differences are expected to reverse. The effect of a change in taxrates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Inherent in the measurement of thesedeferred balances are certain judgments and interpretations of existing tax law and other published guidance as applied to our operations. Our effective taxrate considers our judgment of expected tax liabilities in the various jurisdictions within which we are subject to tax.The determination of the need for a valuation allowance on deferred tax assets requires Management to make assumptions and to apply judgment, includingforecasting future earnings, taxable income, and the mix of earnings in the jurisdictions in which we operate. During 2015, as a result of cumulative losses inrecent years primarily due to incremental costs associated with the console transition, acquisition costs and initial investments in the HyperSound business,the Company concluded that a full valuation allowance is required on its net deferred tax assets.The tax effects of uncertain tax positions taken or expected to be taken in income tax returns are recognized only if they are “more likely-than-not” to besustained on examination by the taxing authorities, based on the technical merits as of the reporting date. The tax benefits recognized in the financialstatements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimatesettlement. We recognize estimated accrued interest and penalties related to uncertain tax positions in income tax expense.We are currently under examination by certain state and local taxing jurisdictions. Further, at any given time, multiple tax years may be subject toexamination by various taxing authorities. The recorded amounts of income tax are subject to adjustment upon examination, changes in interpretation andchanges in judgment utilized in determining estimates.See Note 1, “Summary of Significant Accounting Policy,” in the notes to the consolidated financial statements for a complete discussion of recent accountingpronouncements. We are currently evaluating the impact of certain recently issued guidance on our financial condition and results of operations in futureperiods.Off-Balance Sheet ArrangementsOff balance sheet arrangements are transactions, agreements, or other contractual arrangements with an unconsolidated entity for which we have anobligation to the entity that is not recorded in the consolidated financial statements. As of December 31, 2015, there are no significant off-balance sheetarrangements.36 Contractual ObligationsOur principal commitments primarily consist of obligations for minimum payment commitments to leases for office space, redeemable preferred stock and therevolving credit facility. As of December 31, 2015, the future non-cancelable minimum payments under these commitments were as follows: Payments Due by Period (in thousands) Total Less Than OneYear 1 - 3 Years 3 - 5 Years More Than FiveYearsContractual Obligations: (1) Operating lease obligations (2) $8,750 $1,608 $3,369 $2,360 1,413Series B Redeemable Preferred Stock (3) 51,928 — — — 51,928Long term debt (4) 68,079 37,267 7,705 23,107 —Interest payments on long-term debt (5) 13,386 1,449 1,810 10,127 —Total $142,143 $40,324 $12,884 $35,594 $53,341(1) Contractual obligations exclude tax liabilities of $1.5 million related to uncertain tax positions because we are unable to make a reasonably reliableestimate of the timing of settlement, if any, of these future payments.(2) Operating lease agreements represent obligations to make payments under non-cancelable lease agreements for its facilities.(3) In September 2010, VTBH issued shares of its Series B Redeemable Preferred Stock. If the Series B Redeemable Preferred Stock is still outstanding as ofOctober 2030 or if the Company experiences a liquidation event as defined in VTBH's Certification of Incorporation, the Company will be required toredeem the shares for an aggregate of $51.9 million, which is comprised of the aggregate purchase price of $12.4 million plus cumulative preferreddividends of 8.0% per annum, or $39.5 million in the aggregate. See Note 13, “Commitments and Contingencies”, for further information.(4) On March 31, 2014 the Company entered into the Credit Facility that expires March 31, 2019. However, due to certain terms of the facility, theindebtedness is required to be classified as a current liability. Long term debt includes scheduled principal payments only. See Note 7, “CreditFacilities and Long-Term Debt” for further information.(5) These amounts reflect estimated interest payments under our outstanding long-term debt agreements based on the applicable rates in effect as ofDecember 31, 2015, except for interest payments under our Credit Facility because the amount that will be borrowed in future years is uncertain.37 Item 7A - Qualitative and Quantitative Disclosures about Market Risk Market risk represents the risk of loss that may impact its financial position due to adverse changes in financial market prices and rates. The Company'smarket risk exposure is primarily a result of fluctuations in interest rates, foreign currency exchange rates and inflation.To date, the Company has used derivative financial instruments, specifically foreign currency forward and option contracts, to manage exposure to foreigncurrency risks, by hedging a portion of its forecasted expenses denominated in British Pounds expected to occur within a year. The effect of exchange ratechanges on foreign currency forward and option contracts is expected to offset the effect of exchange rate changes on the underlying hedged item. TheCompany does not use derivative financial instruments for speculative or trading purposes. As of December 31, 2015, we do not have any derivative financialinstruments.Interest Rate RiskThe Company's total variable rate debt is comprised of $32.5 million outstanding under the Credit Facility, $18.4 million presented as term loans and $14.7million of Subordinated Notes. A hypothetical 10% increase in borrowing rates at December 31, 2015 would have resulted in a $0.6 million annual increasein interest expense on the existing principal balance.Foreign Currency Exchange RiskThe Company has exchange rate exposure, primarily, with respect to the British Pound. As of December 31, 2015, 2014 and 2013, our monetary assets andliabilities which are subject to this exposure are immaterial, therefore the potential immediate loss to us that would result from a hypothetical 10% change inforeign currency exchange rates would not be expected to have a material impact on our earnings or cash flows. This sensitivity analysis assumes anunfavorable 10% fluctuation in the exchange rates affecting the foreign currencies in which monetary assets and liabilities are denominated and does nottake into account the offsetting effect of such a change on our foreign currency denominated revenues.Inflation RiskThe Company is exposed to market risk due to the possibility of inflation, such as increases in the cost of its products. Although the Company does notbelieve that inflation has had a material impact on its financial position or results of operations to date, a high rate of inflation in the future may have anadverse effect on the Company’s ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of netrevenue if the selling prices of products do not increase with these increased costs.38 Item 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReports of Independent Registered Public Accounting Firms40 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2015 and 201442Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 201343Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2014, 2013 and 201244Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 201345Consolidated Statement of Convertible Preferred Stock and Stockholders' Equity (Deficit) for the Years Ended December 31, 2015, 2014 and 201346Notes to Consolidated Financial Statements47Supplemental Schedule - Schedule II Valuation and Qualifying Accounts8339 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofTurtle Beach CorporationSan Diego, CaliforniaWe have audited the accompanying consolidated balance sheets of Turtle Beach Corporation as of December 31, 2015 and 2014 and the related consolidatedstatements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows for the years then ended. In connectionwith our audits of the financial statements, we have also audited the financial statement schedules listed in the accompanying index. These financialstatements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements andschedules based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe that ouraudits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Turtle BeachCorporation at December 31, 2015 and 2014, and the results of its operations and its cash flows for the years in the years then ended, in conformity withaccounting principles generally accepted in the United States of America.Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presentsfairly, in all material respects, the information set forth therein./s/ BDO USA, LLPStamford, ConnecticutMarch 30, 201640 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and StockholdersVTB Holdings, Inc.We have audited the accompanying consolidated statements of operations, comprehensive income (loss), convertible preferred stock and stockholders’equity (deficit), and cash flows for the year ended December 31, 2013, of VTB Holdings, Inc. Our audit also included the financial statement schedule listedin the accompanying index. These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility isto express an opinion on these consolidated financial statements and schedule based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal controlover financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinionon the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis forour opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations of VTB Holdings, Inc.and its cash flows for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also,in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.We have also audited the adjustments to the 2013 consolidated financial statements to retrospectively adjust the common shares outstanding on theconsolidated statement of convertible preferred stock and stockholders’ equity (deficit) and the net loss per share disclosure (consolidated statements ofoperations and Note 10) as a result of the all-stock merger transaction between Turtle Beach Corporation (formerly Parametric Sound Corporation) and VTBHoldings, Inc. as discussed in Notes 1 and 2 to the consolidated financial statements. Our procedures included (1) comparing the amounts shown in the netloss per share disclosures for 2013 to the Company's underlying accounting analysis, (2) comparing the previously reported shares outstanding and statementof operations amounts per the Company's accounting analysis to the previously issued consolidated financial statements, and (3) recalculating the additionalshares to give effect to the merger exchange ratio and testing the mathematical accuracy of the underlying analysis. In our opinion, such retrospectiveadjustments are appropriate and have been properly applied./s/ FREED MAXICK CPAs, P.C.Buffalo, New YorkMarch 28, 2014, except for Note 10 andSupplemental Schedule as to which the date is March 30, 201541 Turtle Beach CorporationConsolidated Balance Sheets December 31, 2015December 31, 2014ASSETS(in thousands, except par value and share amounts)Current Assets: Cash and cash equivalents$7,114$7,908Accounts receivable, less allowances for $13,829 and $9,806 in 2015 and 2014, respectively57,192 61,059Inventories26,146 38,400Deferred income taxes— 4,930Prepaid income taxes260 1,482Prepaid expenses and other current assets4,191 3,818Total Current Assets94,903 117,597Property and equipment, net6,859 6,722Goodwill31,152 80,974Intangible assets, net37,956 39,726Deferred income taxes— 1,128Other assets2,981 821Total Assets$173,851 $246,968LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Revolving credit facilities$32,453 $36,863Term loans4,814 1,923Accounts payable17,680 35,546Other current liabilities14,236 14,525Total Current Liabilities69,183 88,857Term loans, long-term portion13,5655,769Series B redeemable preferred stock16,145 14,916Deferred income taxes4 648Subordinated notes - related party15,365 —Other liabilities2,937 5,592Total Liabilities117,199 115,782Commitments and Contingencies Stockholders' Equity Common stock, $0.001 par value - 100,000,000 and 50,000,000 shares authorized; 42,529,502 and 42,027,991shares issued and outstanding as of December 31, 2015 and 2014, respectively43 42Additional paid-in capital136,693 128,084Retained earnings (accumulated deficit)(79,618) 3,289Accumulated other comprehensive loss(466) (229)Total Stockholders' Equity56,652 131,186Total Liabilities and Stockholders' Equity$173,851 $246,968See accompanying Notes to the Consolidated Financial Statements42 Turtle Beach CorporationConsolidated Statements of Operations Year Ended December 31, 2015December 31, 2014 December 31, 2013 (in thousands, except share and per share data)Net Revenue$162,747 $186,176 $178,470Cost of Revenue122,056 135,509 128,141Gross Profit40,691 50,667 50,329Operating expenses: Selling and marketing31,82933,442 31,645Research and development11,5569,400 4,873General and administrative21,48417,159 8,349Goodwill impairment49,822 — —Restructuring charges399 747 —Business transaction costs— 3,744 3,864Total operating expenses115,09064,492 48,731Operating income (loss)(74,399) (13,825) 1,598Interest expense5,099 7,209 6,626Other non-operating expense, net1,016 724 45Loss before income tax expense (benefit)(80,514) (21,758) (5,073)Income tax expense (benefit)2,393(6,272)1,090Net loss$(82,907)$(15,486) $(6,163) Net loss per share : Basic$(1.96) $(0.39) $(0.49)Diluted$(1.96) $(0.39) $(0.49)Weighted average number of shares: Basic42,269 39,665 12,700Diluted42,269 39,665 12,700 See accompanying Notes to the Consolidated Financial Statements43 Turtle Beach CorporationConsolidated Statements of Comprehensive Income (Loss) Year Ended December 31,2015 December 31,2014 December 31,2013 (in thousands)Net loss$(82,907) $(15,486) $(6,163) Other comprehensive income (loss): Foreign currency translation adjustment(237) (334) 184Other comprehensive income (loss)(237) (334) 184Comprehensive loss$(83,144) $(15,820) $(5,979)See accompanying Notes to the Consolidated Financial Statements44 Turtle Beach CorporationConsolidated Statements of Cash Flows Year Ended December 31, 2015 2014 2013CASH FLOWS FROM OPERATING ACTIVITIES(in thousands)Net loss$(82,907) $(15,486) $(6,163)Adjustments to reconcile net loss to net cash provided by (used for) operatingactivities: Depreciation and amortization5,901 5,800 4,422Amortization of intangible assets2,015 1,066 923Amortization of deferred financing costs360 2,621 1,556Stock-based compensation5,897 5,194 2,563Accrued interest on Series B redeemable preferred stock1,230 1,203 1,010Paid in kind interest947 1,138 342Deferred income taxes5,414 (9,998) 3,353Provision for (Reversal of) sales returns reserve2,113 (2,111) (1,482)Provision for (Reversal of) doubtful accounts2 37 (235)Provision for obsolete inventory1,107 532 93Loss on disposal of property and equipment76 9 108Loss on impairment of assets49,822 — —Changes in operating assets and liabilities: Accounts receivable1,752 (10,396) 18,761Inventories11,147 11,363 (9,030)Accounts payable(17,287) (10,552) 19,946Due to shareholders— (3,125) (3,125)Prepaid expenses and other assets(712) (212) (1,778)Income taxes payable(1,700) 4,704 (9,780)Other liabilities(310) 3,379 (3,194)Net cash provided by (used for) operating activities(15,133) (14,834) 18,290CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment(6,693) (3,536) (6,167)Cash acquired in business combinations— 4,093 —Net cash provided by (used for) investing activities(6,693) 557 (6,167)CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on revolving credit facilities217,644 157,982 51,250Repayment of revolving credit facilities(222,054) (160,855) (44,514)Repayment of capital leases(40) (34) —Borrowings on term loan15,110 7,692 —Repayment of term loan(4,423) (14,500) (26,750)Repayment of subordinated notes— (18,481) —Proceeds from sale of common stock, net of issuance costs— 37,230 —Proceeds from exercise of stock options731 1,618 —Debt financing costs(2,134) (1,683) (1,003)Proceeds from issuance of subordinated notes16,300 7,000 10,000Net cash provided by (used for) financing activities21,134 15,969 (11,017)Effect of exchange rate changes on cash and cash equivalents(102) (293) 184Net increase (decrease) in cash and cash equivalents(794) 1,399 1,290Cash and cash equivalents - beginning of period7,908 6,509 5,219Cash and cash equivalents - end of period$7,114 $7,908 $6,509 SUPPLEMENTAL DISCLOSURE OF INFORMATION Cash paid for interest$1,731 $3,209 $3,694Cash paid for income taxes$16 $554 $8,224Accrual for purchases of property and equipment$841 $1,420 $1,104Value of shares issued to acquire HyperSound business$— $113,782 $—Conversion of Series A Preferred Stock$— $24,345 $—Issuance of warrants$1,983 $— $— See accompanying Notes to the Consolidated Financial Statements45 Turtle Beach CorporationConsolidated Statement of Convertible Preferred Stock and Stockholders' Equity (Deficit) Series A ConvertiblePreferred Stock Common Stock AdditionalPaid-InCapital RetainedEarnings Accumulated OtherComprehensive Income(Loss) Total SharesAmount SharesAmount (in thousands)Balance at December31, 201248,690$24,345 12,700$13 $(56,594) $24,938 $(79) $(31,722)Net loss—— —— — (6,163) — (6,163)Other comprehensiveloss—— —— — — 184 184Stock-basedcompensation—— —— 2,563 — — 2,563Balance at December31, 201348,69024,345 12,70013 (54,031) 18,775 $105 (35,138)Net loss—— —— — (15,486) — (15,486)Other comprehensiveincome—— —— — — (334) (334)Adjustment forreverse merger 7,2757 113,775 — 113,782Conversion of SeriesA Preferred(48,690)(24,345) 17,52718 24,327 — 24,345Cashless exercise ofwarrants—— 24— — — — —Sale of commonstock, net ofissuance costs—— 4,0004 37,226 — — 37,230Stock optionsexercised—— 502— 1,593 — — 1,593Stock-basedcompensation—— —— 5,194 — — 5,194Balance at December31, 2014—— 42,02842 128,084 3,289 $(229) 131,186Net loss—— —— — (82,907) — (82,907)Other comprehensiveloss—— —— — — (237) (237)Stock optionsexercised—— 5021 729 — — 730Issuance of warrants—— —— 1,983 — — 1,983Stock-basedcompensation—— —— 5,897 — 5,897Balance at December31, 2015—$— 42,530$43 $136,693 $(79,618) $(466) $56,652See accompanying Notes to the Consolidated Financial Statements 46 Turtle Beach CorporationNotes to Consolidated Financial StatementsNote 1. Summary of Significant Accounting PoliciesOrganizationTurtle 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 technology company with expertise and experience in developing, commercializing and marketing innovative products across a range oflarge addressable markets under the Turtle Beach® and HyperSound® brands. Turtle Beach is a worldwide leading provider of feature-rich headset solutionsfor use across multiple platforms, including video game and entertainment consoles, handheld consoles, personal computers, tablets and mobile devices.HyperSound technology is an innovative patent-protected sound technology that delivers immersive, directional audio offering unique potential benefits ina variety of commercial settings and consumer devices, including improved clarity and comprehension for listeners with hearing loss.VTB Holdings, Inc. (“VTBH”), the parent holding company of the historical business of the headset business, was incorporated in the state of Delawarein 2010 with operations principally located in Valhalla, New York. Voyetra Turtle Beach, Inc. (“VTB”) was incorporated in the state of Delaware in 1975.In October 2012, VTB acquired Lygo International Limited (“Lygo”), a private limited company organized under the laws of England and Wales, whichwas subsequently renamed Turtle Beach Europe Limited (“TB Europe”).Basis of PresentationThe accompanying 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 presentationof the financial position, results of operations, and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated inconsolidation.On January 15, 2014 the Company completed the merger (the “Merger”) with VTB Holdings, Inc. which was treated as a “reverse acquisition” with VTBHconsidered the accounting acquirer and surviving entity, as a wholly-owned subsidiary of the Company (f/k/a Parametric Sound Corporation), a publicly-traded company. Accordingly, VTBH's historical results of operations on a stand-alone basis replace Parametric’s historical results of operations for allperiods on or prior to January 15, 2014, and for all periods following the Merger, the results of operations of both companies have been included.In connection with the Merger, Parametric issued to the former holders of VTBH common stock and Series A Preferred Stock an aggregate of 30,227,100shares of Parametric Common Stock, par value $0.001 per share (“Parametric Common Stock”). The number of shares of Parametric Common Stock issuedwas computed in accordance with a formula specified in the Merger Agreement using an exchange ratio of 0.35997 shares of Parametric Common Stock forevery one share of VTBH common stock or Series A Preferred Stock. Accordingly, all historical equity accounts and shares have been retroactively adjustedto reflect this exchange ratio.Uses of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to use estimates and assumptionsthat affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as thereported amounts of revenue and expenses during the reporting period. The significant estimates and assumptions used by management affect: sales returnreserve, allowances for cash discounts, warranty reserve, valuation of inventory, valuation of long-lived assets, goodwill and other intangible assets,depreciation and amortization of long-lived assets, valuation of deferred tax assets, determination of fair value of stock-based awards, stock warrants andshare based compensation. The Company evaluates estimates and assumptions on an ongoing basis using historical experience and other factors and adjuststhose estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual resultscould differ from these estimates, and those differences could be material to the consolidated financial statements.47 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Revenue Recognition and Sales Return ReserveNet revenue consists primarily of revenue from the sale of gaming headsets and accessories to wholesalers, retailers and to a lesser extent, on-line customers.Revenue from products is recognized when the product has been delivered to a customer, the sales price is fixed and determinable, and collection isreasonably assured. Product is considered delivered to the customer upon passage of title and risk of loss to the customer. Change in title to the product andrecognition of revenue occurs upon delivery to the customer when sales terms are free on board (“FOB”) destination and at the time of shipment when thesales terms are FOB shipping point and there is no right of return. Net revenue for on-line purchases is recognized when products are shipped from theCompany’s distribution facilities. The Company excludes sales taxes collected from customers from “Net Revenue” in its Consolidated Statements ofOperations.Provisions for cash discounts, quantity rebates, and sales returns are recognized in the period the sale is recorded, based upon our prior experience and currenttrends, as a reduction of revenue. These revenue reductions are established by the Company based upon management’s best estimates at the time of salefollowing the historical trend, adjusted to reflect known changes in the factors that impact such reserves and allowances, and the terms of agreements withcustomers.Cost of Revenue and Operating ExpensesThe following table illustrates the primary costs classified in each major expense category:Cost of Revenue Operating ExpensesCost to manufacture products; Payroll, bonus and benefit costs;Freight costs associated with moving product from suppliers todistribution center and to customers; Costs incurred in the research and development of new products andenhancements to existing products;Costs associated with the movement of merchandise through customs; Depreciation related to demonstration units;Costs associated with material handling and warehousing; Legal, finance, information systems and other corporate overheadcosts;Product royalty costs. Sales commissions, advertising and marketing costs.Product Warranty ObligationsThe Company provides for product warranties in accordance with the contract terms given to various customers by accruing estimated warranty costs at thetime of revenue recognition. Warranties are generally fulfilled by replacing defective products with new products.Marketing CostsCosts associated with the production of advertising, such as print and other costs, as well as costs associated with communicating advertising that has beenproduced, such as magazine ads, are expensed when the advertising first appears in public. Advertising costs were approximately $5.0 million, $4.8 millionand $7.7 million for the years ended December 31, 2015, 2014 and 2013.The Company also incurs co-operative advertising costs that represent reimbursements to customers for shared marketing expenses for sale of its products.These reimbursements are recorded as reductions of net revenue based on a percentage of sales for all period presented. Co-operative advertisingreimbursements were approximately $3.6 million, $6.4 million and $4.3 million for the years ended December 31, 2015, 2014 and 2013.Deferred Financing CostsDeferred financing costs represent costs incurred in conjunction with our debt financing activities and are capitalized and amortized over the life of therelated financing arrangements. If the debt is retired early, the related unamortized deferred financing costs are written off in the period the debt is retired andare recorded in the statement of operations under the caption “Interest expense.”48 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Stock-Based CompensationCompensation costs related to stock options and restricted stock grants are calculated based on the fair value of the stock-basedawards on the date of grant, net of estimated forfeitures. The grant date fair value of awards is determined using the Black-Scholes option-pricing model andthe related stock-based compensation is recognized on a straight-line basis, over the period in which an employee is required to provide service in exchangefor the award, which is generally four years.The Company estimates its forfeiture rate based on an analysis of actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based onactual forfeiture experience, analysis of employee turnover behavior, and other factors. The impact from any forfeiture rate adjustment would be recognizedin the period of adjustment and if the actual number of future forfeitures differs from estimates, the Company might be required to record adjustments tostock-based compensation expense.For stock-based awards issued to non-employees, including consultants, compensation expense is based on the fair value of theawards calculated using the Black-Scholes option-pricing model over the service performance period. The fair value of optionsgranted to non-employees for each reporting period is re-measured over the vesting period and recognized as an expense over the period the services arereceived.Exit and Disposal CostsManagement-approved restructuring activities are periodically initiated to achieve cost savings through reduced operational redundancies and to positionthe Company strategically in the market in response to prevailing economic conditions and associated customer demand. Costs associated with restructuringactions can include severance, infrastructure charges to vacate facilities or consolidate operations, contract termination costs and other related charges. Forinvoluntary separation plans, a liability is recognized when it is probable and reasonably estimable. For one-time termination benefits, such as additionalseverance pay or benefit payouts, and other exit costs, such as lease termination costs, the liability is measured and recognized initially at fair value in theperiod in which the liability is incurred, with subsequent changes to the liability recognized as adjustments in the period of change.Net Earnings (Loss) per Common ShareBasic earnings (loss) per share is calculated by dividing net income (loss) associated with common stockholders by the weighted average number of commonshares outstanding during the period. Diluted earnings (loss) per share assumes the issuance of additional shares of common stock by the Company uponexercise of all outstanding stock options, stock warrants and contingently issuable securities if the effect is dilutive, in accordance with the treasury stockmethod.Cash EquivalentsCash and short-term highly liquid investments with original maturity dates of three months or less at time of purchase and no redemption restrictions areconsidered cash and cash equivalents. Cash and cash equivalents consist of cash on hand and money market accounts.InventoriesInventories consist primarily of finished goods and related component parts, and are stated at the lower of weighted average cost or market value (estimatednet realizable value) using the first in, first out (“FIFO”) method. The Company maintains an inventory allowance for returned goods, slow-moving andunused inventories based on the historical trend and estimates. Inventory write-downs, once established, are not reversed as they establish a new cost basis forthe inventory. Inventory write-downs are included as a component of cost of revenues in the accompanying consolidated statements of operations.Property and Equipment, netProperty and equipment are presented at cost less accumulated depreciation and amortization. Repairs and maintenance expenditures are expensed asincurred. Depreciation and amortization are computed on a straight-line basis over the following estimated useful lives:49 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued) Estimated LifeMachinery and equipment 3 yearsSoftware and software development 2-3 yearsFurniture and fixtures 5 yearsTooling 2 yearsLeasehold improvements Term of lease or economic life of asset, if shorterDemonstration units and convention booths 2 yearsValuation of Long-Lived and Intangible Assets and GoodwillAt acquisition, we estimate and record the fair value of purchased intangible assets, which primarily consists of in-process research and development,customer relationships, trademarks and trade names, and patents. The fair values of these intangible assets are estimated based on our assessment. Goodwillis the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill and certain other intangibleassets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment. Intangible assets determined to havedefinite lives are amortized over their remaining useful lives.Long-lived and intangible assets and goodwill are assessed for the potential impairment of intangible and fixed assets whenever events or changes incircumstances indicate that full recoverability of net asset balances through future cash flows is in question. Goodwill and indefinite-lived intangible assetsare assessed at least annually, but also whenever events or changes in circumstances indicate the carrying values may not be recoverable. Factors that couldtrigger an impairment review, include (a) significant underperformance relative to historical or projected future operating results; (b) significant changes inthe manner of or use of the acquired assets or the strategy for our overall business; (c) significant negative industry or economic trends; (d) significant declinein our stock price for a sustained period; and a decline in our market capitalization below net book value.Assessment for possible impairment is based on the Company’s ability to recover the carrying value of the long-lived asset from the expected future pre-taxcash flows. The expected future pre-tax cash flows are estimated based on historical experience, knowledge and market data. Estimates of future cash flowsrequire the Company to make assumptions and to apply judgment, including forecasting future sales and expenses and estimating the useful lives of assets. Ifthe expected future cash flows related to the long-lived assets are less than the assets’ carrying value, an impairment charge is recognized for the differencebetween estimated fair value and carrying value.When performing our evaluation of goodwill for impairment, if we conclude qualitatively that it is not more likely than not that the fair value of the reportingunit is less than its carrying amount, then the two-step impairment test is not required. If we are unable to reach this conclusion, then we would perform thetwo-step impairment test. Initially, the fair value of the reporting unit is compared to its carrying amount. To the extent the carrying amount of a reportingunit exceeds the fair value of the reporting unit; we are required to perform a second step, as this is an indication that the reporting unit goodwill may beimpaired. In this step, we compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill andrecognize a charge for impairment to the extent the carrying value exceeds the implied fair value. The implied fair value of goodwill is determined byallocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to apurchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. In addition, identifiableintangible assets having indefinite lives are reviewed for impairment on an annual basis using a methodology consistent with that used to evaluate goodwill.There are inherent assumptions and estimates used in developing future cash flows requiring management judgment including projecting revenues, interestrates and the cost of capital. Many of the factors used in assessing fair value are outside our control and it is reasonably likely that assumptions and estimateswill change in future periods. These changes can result in future impairments. In the event our planning assumptions were modified resulting in impairmentto our assets, the associated expense would be included in the Consolidated Statements of Operations, which could materially impact our business, financialcondition and results of operations.In connection with the Merger, the Company performed a valuation of the acquired goodwill and intangible assets and recorded $81.0 million of goodwillbased on the fair values of the assets acquired and liabilities assumed. The Company conducted its annual impairment assessment as of November 1, 2015,and due to a shortfall in planned revenue in the fourth quarter of 2015, elected to bypass the qualitative analysis step and perform the Step 1 analysis. Step 1of the goodwill impairment test was performed with the assistance of an independent valuation specialist using the discounted cash flow method. Based onthis50 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)analysis, it was determined that the Company’s net book value exceeded its fair value thereby necessitating the performance of Step 2 of the goodwillimpairment test. As a result, the Company recorded a $49.8 million goodwill impairment charge, which resulted in a $31.2 million remaining carrying valueas of December 31, 2015. The goodwill impairment can be attributed to planned revenues reflective of certain operational decisions, including a slower roll-out to ensure customer satisfaction, an increase to the risk factor that is included in the discount rate used to calculate the discounted cash flows andcontinued deterioration of the stock price. Prior to completing the goodwill impairment test, the Company tested the recoverability of the HyperSound long-lived assets (other than goodwill) and concluded that such assets were not impaired.Management's forecasts of planned revenue are largely dependent on the market acceptance and continued channel expansion of the Company's recentlylaunched HyperSound Clear 500P product to generate the projected revenue in subsequent years. If the performance of the Company's HyperSound Clear500P product in the hearing healthcare market does not meet expectations based on initial market data, a future impairment charge could result for a portionor all of the remaining goodwill. The amount of any impairment is dependent on the performance of the business which is dependent upon a number ofvariables which cannot be predicted with certainty.Income TaxesThe Company accounts for income taxes in accordance with the asset and liability method. Under the asset and liability method, deferred tax assets andliabilities are recognized based on the differences between the financial statement carrying value of existing assets and liabilities and their respective taxbases. The Company had elected to record a “deferred charge” for basis differences relating to intra-entity profits as recognition as a deferred tax asset isprohibited.During 2015, as a result of cumulative losses in recent years primarily due to incremental costs associated with the console transition, acquisition costs andinitial investments in the HyperSound business, the Company concluded that a full valuation allowance is required on its net deferred tax assets. A valuationallowance is established for deferred tax assets when management anticipates that it is more likely than not that all, or a portion of these assets would not berealized. In determining whether a valuation allowance is warranted, all positive and negative evidence and all sources of taxable income such as priorearnings history, expected future earnings, carryback and carryforward periods and tax strategies are considered to estimate if sufficient future taxable incomewill be generated to realize the deferred tax asset. The assessment of the adequacy of a valuation allowance is based on estimates of taxable income byjurisdiction and the period over which deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or these estimates areadjusted in future periods for current trends or expected changes in assumptions, the Company may need to modify the level of valuation allowance whichcould materially impact our business, financial condition and results of operations.The tax effects of uncertain tax positions taken or expected to be taken in income tax returns are recognized only if they are “more likely-than-not” to besustained on examination by the taxing authorities, based on the technical merits as of the reporting date. The tax benefits recognized in the financialstatements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimatesettlement. The Company recognizes estimated accrued interest and penalties related to uncertain tax positions in income tax expense.The Company and its domestic subsidiaries file a consolidated federal income tax return, while the Company’s foreign subsidiary files in its respective localjurisdictions.Fair Value of Financial InstrumentsThe Company determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. The Company uses a hierarchical structure to prioritize the inputs used to measure fair value into three broad levels. Thefair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), then to quoted market prices forsimilar assets or liabilities in active or inactive markets (Level 2) and gives the lowest priority to unobservable inputs (Level 3).Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, derivative instruments, revolving line of credit and long-term debt. Cash equivalents are stated at amortized cost, which approximated fair value as of the consolidated balance sheet dates, due to the short period oftime to maturity; and accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to theexpected receipt or payment. The revolving line of credit and long-term debt are stated at the carrying value as the stated interest rate approximates marketrates currently available to the Company, which are considered Level 2 inputs.51 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)The Company did not have any non-financial assets or non-financial liabilities recognized at fair value on a recurring basis at December 31, 2015 and 2014.Foreign Currency TranslationBalance Sheet accounts of the Company’s Europe subsidiary operations are translated at the exchange rate in effect at the end of each period. Statement ofOperations accounts are translated using the weighted average of the prevailing exchange rates during each period. Gains or losses resulting from foreigncurrency transactions are included in the Company’s Consolidated Statements of Operations under the caption “Other non-operating expense, net” whereas,translation adjustments are reflected in the Consolidated Statements of Comprehensive Income (Loss) under the caption “Foreign currency translationadjustment.”Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments in cash, cash equivalents andaccounts receivables. The Company is exposed to credit risks and liquidity in the event of default by the financial institutions or issuers of investments inexcess of FDIC insured limits. The Company performs periodic evaluations of the relative credit standing of these financial institutions and limits the amountof credit exposure with any institution.Accounts receivable are unsecured and represent amounts due based on contractual obligations of customers. Our three largest individual customersaccounted for approximately 47% of our gross sales in the aggregate for the year ended December 31, 2015, or individually 18%, 15% and 14%, comparedto 15%, 15% and 15% in 2014 and 16%, 15% and 14% in 2013. In addition, two customers accounted for 19% and 24% of accounts receivable as ofDecember 31, 2015 and, 23% and 20% for December 31, 2014.Concentrations of credit risk with respect to accounts receivable are mitigated due by performing ongoing credit evaluations of customers to assess theprobability of collection based on a number of factors, including past transaction experience with the customer, evaluation of their credit history, limiting thecredit extended, and review of the invoicing terms of the contract. In addition the Company has credit insurance in place through a third party insurer againstdefaults by certain domestic and international customers, subject to policy limits. The Company generally does not require customers to provide collateral tosupport accounts receivable. The Company has recorded an allowance for doubtful accounts for those receivables that were determined not to be collectible.Foreign cash balances at December 31, 2015 and 2014 were $0.2 million and $2.5 million, respectively.Segment InformationIn 2014, following the merger, the Company aggregated its two operating segments - Voyetra Turtle Beach (“Headset”) and HyperSound. In light of thesubsequent development and launch of the HyperSound Clear 500P product, the Company evaluated whether its operating segments should continue to beaggregated for reporting purposes and determined that as a result of the new hearing healthcare product, the HyperSound operating segment will no longerhave similar economic characteristics, production processes, clients or methods of distribution. As such, the Company has disclosed the Headset andHyperSound operating segments separately. The entire business is managed by a single management team whose Chief Operating Decision Maker is theChief Executive Officer.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts withCustomers, which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount thatreflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance also requires additionaldisclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments andchanges in judgments and assets recognized from costs incurred to obtain or fulfill a contract. On July 9, 2015, the FASB agreed to a one-year deferral of theeffective date to annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods, but will permit publicbusiness entities to adopt the standard as of the original effective52 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)date (annual reporting periods beginning after December 15, 2016). The Company is currently evaluating the impact, if any, this new standard will have onits consolidated financial statements and has not yet determined the method of adoption.In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amountof that debt liability, consistent with debt discounts. ASU 2015-15 further clarified that debt issuance costs related to line-of-credit arrangements maycontinue to be presented as an asset and amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstandingborrowings on the line-of-credit arrangement. The amendment is effective for annual reporting periods beginning after December 15, 2015 and interimperiods within those annual periods with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company'sfinancial condition or results of operations.In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which states that inventory should be measured at the lower of costand “net realizable value.” Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costsof completion, disposal and transportation.” ASU 2015-11 eliminates the guidance that entities consider replacement cost or net realizable value less anapproximately normal profit margin in the subsequent measurement of inventory when cost is determined on a first-in, first-out or average cost basis.The amendment is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be appliedprospectively. Management is evaluating the provisions of this statement, including which period to adopt, and has not determined what impact the adoptionwill have on the Company's financial position or results of operations.In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement torestate prior period financial statements for measurement period adjustments related to business acquisitions. The new guidance requires that the cumulativeimpact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment isidentified. In addition, ASU 2015-16 requires that companies present separately on the face of the income statement, or disclose in the notes, the portion ofthe adjustment recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment had beenrecognized as of the acquisition date. The new standard is effective for periods beginning after December 15, 2015 and should be applied prospectively tomeasurement period adjustments that occur after the effective date. Early adoption is permitted. Upon adoption, we will apply the new standard tomeasurement period adjustments related to business acquisitions.In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred incometaxes. ASU 2015-17 provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified statement of financialposition. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. The Companyearly adopted ASU 2015-17, as permitted for any interim and annual financial statements that have not yet been issued, effective December 31, 2015,prospectively. Accordingly, the deferred tax assets for the year ended December 31, 2014 were not retrospectively adjusted for this new standard.In February 2016, the FASB issued ASU 2016-02, Leases, which amends various aspects of existing guidance for leases and requires an entity to recognizeassets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The primarydifference between previous guidance is the recognition of lease assets and lease liabilities by lessees on the balance sheet for those leases classified asoperating leases. As a result, the Company will have to recognize a liability representing its lease payments and a right-of-use asset representing its right touse the underlying asset for the lease term on the balance sheet. The new standard is effective for fiscal years beginning after December 15, 2018, with earlyadoption permitted. Management is evaluating the provisions of this statement, including which period to adopt, and has not determined what impact theadoption will have on the Company's financial position or results of operations.53 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Note 2. Business Combinations Merger with Parametric SoundOn January 15, 2014, the Company completed the Merger with and into VTBH, pursuant to which VTBH became a wholly-owned subsidiary of the Company(f/k/a Parametric), in an all-stock, tax-free reorganization. VTBH entered into the Merger to acquire and commercialize certain technology and gain access tocapital market opportunities as a public company.Business Transaction Costs Business transaction costs as a result of the merger of $3.7 million and $3.9 million were recognized for the years ended December 31, 2014 andDecember 31, 2013, respectively. The components of business transaction costs are presented below. Year Ended December 31, 2014 2013 (in thousands)Legal fees$786 $1,452Accounting fees84 2,254Advisory fees2,219 —Termination and severance450 —Other205 158Total Transaction Costs$3,744 $3,864Advisory fees include success based fees payable to investment bankers for both merger parties.Purchase Consideration and Net Assets AcquiredThe fair value of Parametric's common stock used in determining the purchase price was $14.30 per share, the closing market price on January 15, 2014. Thefair value of outstanding stock options included in the purchase consideration was determined by calculating the cumulative vesting attributable toParametric employees for periods prior to the Merger, using the Black-Scholes option pricing model. Assumptions used in Black-Scholes calculations duringsuch periods included: volatility ranging from 87% to 90%; risk-free interest rates ranging between 0.47% and 0.92%; forfeiture rates ranging from 1.1% to4.1%; and expected lives ranging from 3.28 to 4.61 years.The purchase price is as follows: (in thousands)Fair Value of Parametric shares outstanding$104,027Fair Value of Parametric stock options9,755Purchase Price$113,78254 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)The following presents the allocation of the purchase consideration to the assets acquired and liabilities assumed: (in thousands)Cash and cash equivalents$4,093Accounts receivable47Deferred tax asset6,696Other current assets710Property and equipment206Intangible assets: In-process research and development (IPR&D)27,100Developed technology8,880Customer relationships270Trade name170Goodwill80,974Accounts payable and accrued liabilities(1,769)Capital lease obligation(120)Deferred tax liabilities(13,475)Total Net Assets Acquired$113,782The acquired intangible assets relating to developed technology, customer relationships and trade name are subject to amortization. Developed technology isbeing amortized over an estimated useful life of approximately seven years with the amortization being included within cost of revenue. Customerrelationships and trade name are being amortized over an estimated useful life of two years and five years, respectively, with the amortization being includedwithin sales and marketing expense.During the year-ended December 31, 2015, the purchased in-process technology for research projects, primarily related to directed audio solutions that beamsound to a specific listening area without the ambient noise of traditional speakers, reached technological feasibility and was reclassified as an amortizablefinite-lived asset and is being amortized over an estimated useful life of approximately eight years with the amortization being included within cost ofrevenue.The excess purchase consideration over the fair values of assets acquired and liabilities assumed is recorded as goodwill. Goodwill is not amortized but testedfor impairment on an annual basis or when the indicator for impairment exists.The goodwill recorded is not tax deductible since the transaction was structured as a tax-free exchange.Note 3. Fair Value MeasurementThe Company follows a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize theuse of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:•Level 1 — Quoted prices in active markets for identical assets or liabilities.•Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs thatare observable or can be corroborated by observable market data.•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and debt instruments. As of December 31, 2015 and 2014,the Company has not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted, and therewere no outstanding financial assets and liabilities recorded at fair value on a recurring basis.55 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)The following is a summary of the carrying amounts and estimated fair values of our financial instruments at December 31, 2015 and 2014: December 31, 2015 December 31, 2014 Reported Fair Value Reported Fair Value (in thousands)Financial Assets and Liabilities: Cash and cash equivalents$7,114 $7,114 $7,908 $7,908Credit Facility32,453 32,453 36,863 36,863Term Loans18,379 18,179 7,692 7,692Subordinated Debt17,247 15,892 — —Cash equivalents are stated at amortized cost, which approximates fair value as of the consolidated balance sheet dates, due to the short period of time tomaturity; and accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expectedreceipt or payment. The Credit Facility and Term Loan Due 2018 carrying value equals fair value as the stated interest rate approximates market ratescurrently available to the Company, which are considered Level 2 inputs. The fair values of our Term Loan Due 2019 and Subordinated Debt are based uponan estimated market value calculation that factors principal, time to maturity, interest rate and current cost of debt, which is considered a Level 3 input.Note 4. Allowance for Sales ReturnsThe following table provides the changes in our sales return reserve, which is classified as a reduction of accounts receivable: Year Ended December 31, 2015 2014 2013 (in thousands)Balance, beginning of period$4,155 $6,266 $7,748Reserve accrual17,108 13,042 20,146Recoveries and deductions, net(14,995) (15,153) (21,628)Balance, end of period$6,268 $4,155 $6,266Note 5. Composition of Certain Financial Statement ItemsInventoriesInventories, net consist of the following: December 31, 2015December 31, 2014 (in thousands)Raw materials$1,481 $2,065Finished goods24,665 36,335Total inventories$26,146 $38,40056 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Property and Equipment, netProperty and equipment, net consists of the following: December 31, 2015December 31, 2014 (in thousands)Machinery and equipment$1,238 $599Software and software development1,022 847Furniture and fixtures284 226Tooling3,395 2,417Leasehold improvements1,255 104Demonstration units and convention booths16,531 13,702Total property and equipment, gross23,725 17,895Less: accumulated depreciation and amortization(16,866) (11,173)Total property and equipment, net$6,859 $6,722Depreciation and amortization expense on property and equipment, for the years ended December 31, 2015, 2014 and 2013 was $5.9 million, $5.8 millionand $4.4 million, respectively.Note 6. Goodwill and Other Intangible AssetsGoodwillChanges in the carrying values of goodwill for the year ended December 31, 2015 are as follows: (in thousands)Balance as of January 1, 2015$80,974 Impairment Charge (HyperSound)49,822Balance as of December 31, 2015$31,152Acquired Intangible AssetsAcquired identifiable intangible assets, and related accumulated amortization, as of December 31, 2015 and December 31, 2014 consist of: December 31, 2015 Gross Carrying Value Accumulated Amortization Net Book Value (in thousands)Customer relationships$5,796 $3,213 2,583Non-compete agreements177 177 —In-process Research and Development27,100 1,018 26,082Developed technology8,880 225 8,655Trade names170 67 103Patent and trademarks730 37 693Foreign Currency(463) (303) (160)Total Intangible Assets$42,390 $4,434 $37,95657 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued) December 31, 2014 Gross Carrying Value Accumulated Amortization Net Book Value (in thousands)Customer relationships$5,796 $2,458 3,338Non-compete agreements177 177 —In-process Research and Development27,100 — 27,100Developed technology8,880 104 8,776Trade names170 33 137Patent and trademarks439 — 439Foreign Currency$(205) $(141) $(64)Total Intangible Assets$42,357 $2,631 $39,726In October 2012, VTB acquired Lygo International Limited, subsequently renamed TB Europe. The acquired intangible assets relating to customerrelationships and non-compete agreements are being amortized over an estimated useful life of thirteen years and two years, respectively, with theamortization being included within sales and marketing expense.In January 2014, the merger between VTBH and Parametric was completed. The acquired intangible assets relating to developed technology, customerrelationships and trade name are subject to amortization. Developed technology is being amortized over an estimated economic useful life of approximatelyseven years with the amortization being included within cost of revenue. Customer relationships and trade name are being amortized over an estimated usefullife of two years and five years, respectively, with the amortization being included within sales and marketing expense. IPR&D is considered an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts. Accordingly, during the development period,the IPR&D was not amortized but rather subjected to impairment review.During the year-ended December 31, 2015, the purchased in-process technology for research projects, primarily related to directed audio solutions that beamsound to a specific listening area without the ambient noise of traditional speakers, reached technological feasibility and was reclassified as an amortizablefinite-lived asset and is being amortized over an estimated useful life of approximately eight years with the amortization being included within cost ofrevenue.Amortization expense related to definite lived intangible assets of $2.0 million, $1.1 million and $0.9 million for the years ended December 31, 2015, 2014and 2013, respectively.As of December 31, 2015, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows: (in thousands)2016$8,40220176,52320186,02120195,59720201,348Thereafter10,225Total$38,11658 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Note 7. Credit Facilities and Long-Term Debt December 31, 2015 December 31, 2014 (in thousands)Revolving credit facility, maturing March 2019$32,453 $36,863Term loans18,379 7,692Subordinated notes15,365 —Total outstanding debt66,197 44,555Less: current portion of revolving line of credit(32,453) (36,863)Less: current portion of term loan(4,814) (1,923)Total noncurrent portion of long-term debt$28,930 $5,769Total interest expense, inclusive of amortization of deferred financing costs, on long-term debt obligations was $3.5 million, $6.0 million and $5.6 millionfor the years ended December 31, 2015, 2014 and 2013, respectively.Amortization of deferred financing costs was $0.4 million, $2.6 million and $1.6 million for the years ended December 31, 2015, 2014 and 2013,respectively. The amount for the year ended December 31, 2014 includes the write-off of $2.2 million in deferred financing costs associated with therepayment of the Company's former loan and security agreement. In connection with the Term Loan Due 2019 and Amended Notes, the Company incurred$4.1 million of financing costs, including $2.0 million related to the fair value of the warrants issued recorded as debt discount, which has been deferred andwill be recognized over the term of the respective agreements.Revolving Credit FacilityOn March 31, 2014, Turtle Beach and certain of its subsidiaries entered into a new asset-based revolving credit agreement (“Credit Facility”) with Bank ofAmerica, N.A., as Agent, Sole Lead Arranger and Sole Bookrunner, which replaced the then existing loan and security agreement. The Credit Facility, whichexpires on March 31, 2019, provides for a line of credit of up to $60 million inclusive of a sub-facility limit of $10 million for TB Europe, a wholly ownedsubsidiary of Turtle Beach. The Credit Facility may be used for working capital, the issuance of bank guarantees, letters of credit and other corporatepurposes.The maximum credit availability for loans and letters of credit under the Credit Facility is governed by a borrowing base determined by the application ofspecified percentages to certain eligible assets, primarily eligible trade accounts receivable and inventories, and is subject to discretionary reserves andrevaluation adjustments.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% to 1.50% for U.S. base rate loans and between 2.00% to 2.50% for U.S. LIBOR loans and U.K. loans. As ofDecember 31, 2015, interest rates for outstanding borrowings were 5.00% for base rate loans and 2.92% for LIBOR rate loans. In addition, Turtle Beach isrequired 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 certain availability thresholds are not met, meaning that the Company does not have receivables and inventory which are eligible to borrow on under theCredit Facility in excess of amounts borrowed, the Credit Facility requires the Company and its restricted subsidiaries to maintain a fixed charge coverageratio. 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 capitalexpenditures, excluding those financed through other instruments, and cash taxes paid, and (b) Fixed Charges defined as the sum of cash interest expenseplus scheduled principal payments.The Credit Facility also contains affirmative and negative covenants that, subject to certain exceptions, limit our ability to take certain actions, including ourability 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 bya security interest and lien upon substantially all of the Company's assets.59 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)In March 2015, Bank of America notified the Company that certain events of default had occurred and were continuing under the Credit Agreement,including (i) the Company’s failure to deliver in a timely matter certain monthly financial statements in accordance with the Credit Agreement, (ii) theCompany’s failure to deliver in a timely matter certain financial projections in accordance with the Credit Agreement, (iii) the Company’s failure to repay anover-advance of approximately $100,000 that existed between March 6, 2015 and March 9, 2015, and (iv) the Company’s failure to satisfy the fixed chargecoverage ratio under the Credit Agreement for certain measurement dates during the fourth quarter of 2014 (in part as a result of certain retroactive changes tothe calculation of such ratio pursuant to the second amendment, dated December 29, 2014) (the “Existing Events of Default”).On March 16, 2015, the Company entered into a third amendment (the “Third Amendment”) to the Credit Facility pursuant to which Bank of America andthe lenders under the Credit Facility agreed to waive the Existing Events of Default. In addition, the Third Amendment amends certain other provisions ofthe agreement and requires that we maintain an EBITDA ratio at the end of each month beginning April 30, 2015 on a cumulative basis through theremainder of 2015 and thereafter on a trailing twelve-month basis, our EBITDA (as defined under the Credit Facility) must be in an amount equal to at least75% of our monthly projected EBITDA as set forth in projections delivered pursuant to the Credit Facility. The current fixed charge coverage ratio of at least1.15 to 1.00 on the last day of each month while a Covenant Trigger Period (as defined in the agreement) is in effect will become effective again after theCompany has complied with such ratio for six consecutive months.On July 22, 2015, in connection with the Term Loan Due 2019 (as defined below), the Company and its subsidiaries entered into a fifth amendment (the‘Fifth Amendment”) to the Credit Facility that modified the borrowing base pursuant to which availability of loans under the Credit Facility is determined,provided for additional mandatory prepayment events and modified certain covenants, including to permit the Company to enter into the term loan. Inaddition, the Fifth Amendment permits certain equity holders of the Company to contribute funds to the Company to cure financial covenant defaults.The Company determined that it would not meet the existing minimum EBITDA covenants under the Term Loan Due 2019 for September 30, 2015. Based onthis determination, the Company began discussions in September 2015 with its lenders and secured an amendment dated November 2, 2015 (see below) tothe Term Loan Due 2019 and the Credit Facility to suspend testing of the existing EBITDA covenants and to add certain amended covenants for the periodfrom September 2015 through November 2015.On November 2, 2015, the Company entered into a sixth amendment to the Credit Facility that modified certain provisions to provide (i) that the Companywill make certain periodic reports with respect to certain financial metrics, (ii) that the existing financial covenants are suspended and replaced by amendedEBITDA levels during the months ended September 30, 2015 through the month ending November 30, 2015, and (iii) that the loan availability is decreasedby an additional block.On December 1, 2015, in connection with the sixth amendment, the Company further amended certain provisions of the Credit Facility to, among otherthings, provide that, prior to January 29, 2016, the Company raise additional equity capital or third lien debt financing and apply such proceeds against theoutstanding principal balance of the Credit Facility and amend the definition of EBITDA to exclude certain non-recurring expenses and replace certainfinancial covenants by amended EBITDA levels each month beginning with the month ended December 31, 2015 through (and including) the month endingMarch 31, 2017 (with revised financial covenants to be agreed based on new financial projections after such date) on both an overall and segment-by-segment basis.On February 1, 2016, the Company further amended certain provisions of the Credit Facility to, among other things, provide that, on or prior to February 5,2016, the Company receive net proceeds of not less than $6.0 million of additional equity capital or additional third lien debt financing and apply suchproceeds against the outstanding principal balance of the working capital line of credit, amend the definition of EBITDA to exclude certain non-recurringexpenses and replace certain financial covenants by amended EBITDA levels. The Company satisfied its paydown obligation with the proceeds from therecent offering and private placement. Refer to Note 15, “Equity Offering” for further details.As of December 31, 2015, the Company was in compliance with all the amended financial covenants, and excess borrowing availability was approximately$3.8 million, net of the outstanding Term Loan Due 2018 (as defined below) that is considered to be an additional outstanding amount under the CreditFacility.60 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Term LoansTerm Loan Due 2018On December 29, 2014, the Company amended the Credit Facility to permit the repayment of $7.7 million of existing subordinated debt and accrued interest(see the “January Note” below) with the proceeds of an additional loan (the “Term Loan”). The Term Loan will result in modified financial covenants while itis 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 onApril 1, 2015 and ending on April 1, 2018.Term Loan Due 2019On July 22, 2015, the Company and its subsidiaries, entered into a term loan, guaranty and security agreement (the “Term Loan Due 2019”) with CrystalFinancial LLC, as agent, sole lead arranger and sole bookrunner, Crystal Financial SPV LLC and the other persons party thereto (“Crystal”), which providesfor 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 ofthe 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 willrepay the principal in monthly payments beginning January 1, 2016, with a final payment on June 28, 2019, the maturity date.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 issubject to the first-priority lien of Bank of America , N.A., as agent, under the Credit Facility, other than with respect to equipment, fixtures, real propertyinterests, intellectual property, intercompany property, intercompany indebtedness, equity interest in their subsidiaries, and certain other assets specified inan 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 and HeadsetEBITDA (each as defined in the Term Loan Due 2019) in each trailing twelve month period beginning August 31, 2015, (ii) maintaining a ConsolidatedLeverage 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 than5.75:1 beginning December 31, 2015 with periodic step-downs to 3.00:1 on January 31, 2017, (iii) not making capital expenditures in excess of $11 millionin the year ending December 31, 2015 and in excess of $7 million in each of the years ending December 31, 2016, 2017, 2018 and 2019, (iv) restrictions onthe Company’s and its subsidiaries ability to prepay its subordinated notes, pay dividends, incur debt, create or suffer liens and engage in certainfundamental transactions and (v) an obligation to provide certain financial and other information. The agreement permits certain equity holders of theCompany 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 failureto make payments when due, breaches of covenants and representations, material impairment in the perfection of Crystal’s security interest in the collateraland events related to bankruptcy and insolvency of the Company and its subsidiaries. Upon an event of default, Crystal may declare all outstandingobligations immediately due and payable (along with a prepayment fee), a default rate of an additional 2.0% may be applied to amounts outstanding andmay take other actions including collecting or taking such other action with respect to the collateral pledged in connection with the term loan.On November 2, 2015, the Company entered into an amendment to the Term Loan Due 2019 to, among other things, provide (i) that upon receipt all theproceeds from the future issuance of subordinated notes will immediately be used to prepay outstanding principal in an amount equal to $2.5 million, (ii) thatthe Company will make certain periodic reports with respect to certain financial metrics, (iii) that the existing financial covenants are suspended and replacedby amended EBITDA levels during the months ended September 30, 2015 through the month ending November 30, 2015.On December 1, 2015, in connection with the first amendment, the Company further amended certain provisions of the Term Loan Due 2019 to, among otherthings, (i) that, prior to January 29, 2016, the Company raise additional equity capital or third lien debt financing and apply such proceeds against theoutstanding principal balance of the Credit Facility, (ii) replace certain financial covenants by amended EBITDA levels each month beginning with themonth ended December 31, 2015 through the termination date of the agreement on both an overall and segment-by-segment basis, (iii) that the testing of theconsolidated leverage ratio covenants would be suspended through April 2017 and (iv) that the existing loan availability block remain in place.61 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)On February 1, 2016, the Company entered into a third amendment to amend certain provisions to, among other things, provide that net proceeds fromadditional equity capital or additional third lien debt financing are applied against the outstanding principal balance of the working capital line of credit,amend the definition of EBITDA to exclude certain non-recurring expenses and replace certain financial covenants by amended EBITDA levels each monthbeginning with the month ended December 31, 2015 and on a trailing twelve-month period basis beginning with the period ending October 31, 2016,through the termination date on both an overall and segment-by-segment basis.Subordination AgreementOn November 16, 2015, as a condition precedent to the Company's lenders permitting us to enter into certain subordinated notes, the Company entered into asubordination agreement with and between Bank of America and Crystal, pursuant to which the parties agreed that the Company's obligations under any suchnotes 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 PartyOn 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, withinterest 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 trustaffiliated 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% perannum 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 writtenagreement of the Company and the noteholder), with interest accruing and being added to the principal amount of the May Notes quarterly. Following thematurity date, the interest rate would have increased to 20% per annum.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 Notewas 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 twoadditional 90 day periods upon the written agreement of the Company and the noteholder), with interest accruing and being added to the principal amount ofthe June Note quarterly. Following the maturity date, the interest rate would have increased to 20% per annum. In addition, the Company had the option torequest 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 tothe amendment (see below), after 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 is subordinate and junior to the prior payment of amounts due under theCredit Facility and Term Loan Due 2019. In addition, the stated maturity date of the Amended Notes was extended to September 29, 2019, subject toacceleration 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 plus10.5% 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, theCompany 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 $2.5 million subordinated note (the “November Note”) to SG VTB, the proceeds of which, as set forth in theamendment to the Term Loan Due 2019, were applied against the outstanding balance of the Term Loan Due 2019. The November Note will bear interest at arate of 15% per annum until its maturity date, which is September 29, 2019, and is subordinated to all senior debt of the Company.In consideration of the credit extended under the November Note, the Company entered into a Third Lien Continuing Guaranty, (as amended, the “Third LienGuaranty”), under which they guarantee and promise to pay to Stripes, any and all obligations of the Company under the November Note. To secure ourobligations under the November Note and the Third Lien Guaranty, the Company entered into a Third Lien Security Agreement, dated as of November 16,2015, pursuant to which Stripes was granted62 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)a security interest upon all property of the VTB and VTBH until the payment in full of the Subordinated Note or the release of the guarantee or collateral, asapplicable.SG VTB is an affiliate of Stripes Group LLC (“Stripes”), a private equity firm focused on internet, software, healthcare IT and branded consumer productsbusinesses. Kenneth A. Fox, one of our directors, is the managing general partner of Stripes and the sole manager of SG VTB and Ronald Doornink, ourChairman of the Board, is an operating partner of Stripes.Note 8. Income TaxesThe provision (benefit) for income taxes consists of the following: Year Ended December 31, 2015 2014 2013 (in thousands)Federal: Current$(3,218) $3,271 $(2,456)Deferred5,153 (9,424) 3,574Total Federal1,935 (6,153) 1,118State and Local: Current197 455 54Deferred663 (347) 190Total State and Local860 108 244Foreign Current— — 233Deferred(402) (227) (505)Total Foreign(402) (227) (272)Total$2,393 $(6,272) $1,090The reconciliation between the provision (benefit) for income taxes and the expected provision (benefit) for income taxes at the U.S. federal statutory rate of35% is as follows: Year Ended December 31, 2015 2014 2013 (in thousands)U.S. Operations$(78,643) $(21,639) $(6,026)Foreign Operations(1,871) (119) 953Income (loss) before income taxes(80,514) (21,758) (5,073)Federal statutory rate35% 35% 35%Provision for income taxes at federal statutory rate(28,180) (7,615) (1,776)State taxes, net of federal benefit805 37 158Foreign tax rate differential253 151 (282)Research credits— (728) —Change in valuation allowance8,528 — —Impairment charge17,438 — —Acquisition costs— 613 865Stock compensation3,384 — —Interest on Series B Preferred Stock430 421 353Prior year adjustment518 27 1,177Change in unrecognized tax benefits(1,024) 875 —Other241 (53) 595Provision (benefit) for income taxes$2,393 $(6,272) $1,09063 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)The income tax provision (benefit) reflects the current and deferred tax consequences of events that have been recognized in the Company’s ConsolidatedFinancial Statements or tax returns. U.S. federal income taxes are provided on unremitted foreign earnings, except those that are considered indefinitelyreinvested, which at December 31, 2015 amounted to approximately $0.4 million. However, if these earnings were not considered indefinitely reinvested, theCompany believes that it has enough foreign tax credits to offset any potential tax liability. The Company considers the earnings of certain non-U.S.subsidiaries to be indefinitely reinvested outside the United States and the current plans do not demonstrate a need to repatriate them to fund our U.S.operations.The tax effects of significant items comprising the Company’s deferred tax assets/(liabilities) are as follows: December 31, 2015 December 31, 2014 (in thousands)Deferred Tax Assets: Allowance for doubtful accounts$38 $73Inventories914 543Employee benefits2,360 3,895Net operating loss16,992 11,422Unrecognized tax benefits623 3,045Other1,672 677 22,599 19,655Valuation allowance(9,366) —Total deferred tax assets13,233 19,655 Deferred Tax Liabilities: Depreciation and amortization(151) (734)Intangible assets(13,086) (13,511)Total deferred tax liabilities(13,237) (14,245)Net deferred tax assets (liabilities)$(4) $5,410At December 31, 2015, the Company has $44.6 million of net operating loss carryforwards and $20.6 million of state net operating loss carryforwards, whichwill begin to expire in 2029. An ownership change occurred on January 15, 2014, and$12.7 million of federal net operating losses included in the above are pre-change losses subject to Section 382. The Company believes, based on theestimated Section 382 limitation and the net operating loss carryforward period, that the pre ownership change net operating losses can be fully utilized infuture years if there is sufficient taxable income in such carryforward period.The realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences aredeductible. During 2015, as a result of cumulative losses in recent years primarily due to incremental costs associated with the console transition, acquisitioncosts and initial investments in the HyperSound business, the Company concluded that a full valuation allowance is required on its net deferred tax assets.The Company recognizes windfall tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from windfall tax benefits. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: December 31, 2015 December 31, 2014 (in thousands)Gross unrecognized tax benefit, beginning of period$3,965 $1,468Additions based on tax positions related to the current year— 2,497Decreases based on tax positions in a prior period(2,497) —Gross unrecognized tax benefit, end of period$1,468 $3,965The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold, and establish tax reserves for uncertain taxpositions that do not meet this threshold. To the extent these unrecognized tax benefits are ultimately64 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)recognized, approximately $1.5 million will impact the Company’s effective tax rate in a future period. Interest and penalties associated with income taxmatters are included in the provision for income taxes. As of December 31, 2014, the Company had uncertain tax positions of $2.2 million, inclusive of $0.7million of interest and penalties.The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations. Below is a summary of the filingjurisdictions and open tax years: Open YearsU.S. Federal2012 - 2014California2011 - 2014New Jersey2011 - 2014New York2012 - 2014Pennsylvania2012 - 2014Texas2011 - 2014United Kingdom2012 - 2014Note 9. Preferred StockSeries A Convertible Preferred StockIn September 2010, VTBH issued 48,689,555 shares of its Series A Convertible Preferred Stock for aggregate proceeds of $24.3 million. In connection withthe Merger, all of the issued and outstanding Series A Convertible Preferred Stock were canceled and the former holders were issued 17,526,640 shares ofParametric Common Stock.Series B Redeemable Preferred StockIn September 2010, VTBH issued 1,000,000 shares of non-voting Series B Redeemable Preferred Stock (“Preferred Stock”) with a fair value of $12.4 million.We are required to redeem the Preferred Stock on the earlier to occur of September 28, 2030 or the occurrence of a liquidation event at its original issue priceof $12.425371 per share plus any accrued but unpaid dividends. Dividends are cumulative and accrue at a rate of 8.0% per annum, compounded quarterly,and payable as and when declared by the Board of Directors. The Preferred Stock does not contain any conversion rights.A liquidation event is defined as any acquisition of the Company by means of merger or other form of corporate reorganization in which the outstandingshares of the corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary(other than a reincorporation transaction) or a sale of all or substantially all of the assets of the corporation.For the years ended December 31, 2015, 2014, and 2013, the Company recognized $1.2 million, $1.2 million and $1.0 million, respectively, of interestexpense on the Preferred Stock. The redemption value was $16.1 million and $14.9 million as of December 31, 2015 and 2014, respectively. The Companyhas recorded the Preferred Stock as a non-current liability due to its mandatory redemption provisions for all periods presented.There were no dividends declared during the years ended December 31, 2015, 2014 and 2013.As of December 31, 2015, 2014, and 2013, 1,000,000 shares of Series B redeemable preferred stock are authorized, issued and outstanding.65 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Note 10. Net Income (Loss) Per ShareThe following table sets forth the computation of basic and diluted net loss per share of common stock attributable to common stockholders: Year Ended December 31, 20152014 2013 (in thousands, expect per-share data)Net loss$(82,907) $(15,486) $(6,163) Weighted average common shares outstanding — Basic42,269 39,665 12,700Plus incremental shares from assumed conversions: Dilutive effect of stock options, warrants, unvested awards— — —Weighted average common shares outstanding — Diluted42,269 39,665 12,700 Net loss per share : Basic$(1.96) $(0.39) $(0.49)Diluted$(1.96) $(0.39) $(0.49)As described in Note 1, historical weighted-average shares amounts reflect the application of a 0.35997 conversion ratio to historical VTBH shares andweighted-average share amounts.Incremental shares from stock options and restricted stock awards are computed by the treasury stock method. The weighted average shares listed below werenot included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented or were otherwiseexcluded under the treasury stock method. The treasury stock method calculates dilution assuming the exercise of all in-the-money options and vesting ofrestricted stock, reduced by the repurchase of shares with the proceeds from the assumed exercises, unrecognized compensation expense for outstandingawards and the estimated tax benefit of the assumed exercises. Year Ended December 31, 2015 2014 2013 (in thousands)Stock options6,260 6,081 3,961Warrants954 36 —Unvested restricted stock awards54 6 —Total7,268 6,123 3,961Note 11. Stock-Based CompensationOn October 30, 2013 the Board of Directors adopted, and on December 27, 2013 the stockholders approved, the 2013 Stock-Based Incentive CompensationPlan (the “2013 Plan”), that became effective upon consummation of the Merger on January 15, 2014. Our stock-based compensation program is a broad-based program designed to attract and retain employees while also aligning employees’ interests with the interests of our shareholders. In addition, membersof our Board of Directors participate in our stock-based compensation program in connection with their service on our board.Stock option awards outstanding under the Company’s Plans are time-based and granted at exercise prices which are equal to the market value of theCompany’s common stock on the grant date (determined in accordance with the applicable Plan), and expire no later than ten years of the date of grant, butonly to the extent they have vested. The options generally vest as specified in the option agreements subject, in some instances, to acceleration in certaincircumstances. The restrictions on66 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)restricted stock generally lapse over a three-year period from the date of the grant. In the event a participant terminates employment with the Company, anyvested stock options and any restricted stock still subject to restrictions are generally forfeited if they are not exercised within 90 days.In April 2015, the Company commenced an exchange offer (the “Exchange Offer”) to allow employees, executive officers and certain consultants theopportunity to voluntarily exchange their eligible stock options having an exercise price per share equal to or greater than $5.00 for replacementoptions having a market value exercise price and covering a smaller number of shares. Each Replacement Option has a term equal to the remainingcontractual term of the corresponding eligible stock option it replaced, and (i) with respect to the portion of the eligible stock option that had vested, aproportionate amount of the replacement option vested upon the issuance thereof and (ii) with respect to the portion of the eligible stock option that had notvested, the period over which such portion was scheduled to vest in equal installments was extended by six months. Pursuant to the Exchange Offer, eligible option holders tendered, and the Company accepted for cancellation, eligible stock options to purchase an aggregateof 4,382,918 shares of common stock and in exchange granted new options to purchase 2,624,657 shares of common stock (the “Replacement Options”). Theexercise price per share of the new options granted in the exchange offer was $1.93, the last reported sale price per share of the Company’s common stock onthe new stock option grant date, which was May 20, 2015.The exchange was treated as a modification of the terms or conditions of the existing option awards. Accordingly, the Company will recognize incrementalcompensation costs of $0.8 million ratably over the vesting period of the Replacement Options, of which $0.5 million was recognized for the year endedDecember 31, 2015 and, the remainder is expected to be recognized over a remaining weighted average vesting period of 1.7 years.In addition to reducing our equity award overhang by 1.8 million options, the exchange returned approximately 1.1 million shares related to the 2012 Plan orthe 2013 Plan shares terminated in connection with the exchange to the 2013 Plan reserve. The following table presents the stock activity and the totalnumber of shares available for grant as of December 31, 2015: (in thousands)Balance at December 31, 2014443Plan Amendment3,200Options Exchange shares returned1,111Options granted(2,480)Restricted Stock granted(66)Forfeited/Expired shares added back1,050Balance at December 31, 20153,258Total estimated stock-based compensation expense for employees and non-employees, related to all of the Company's stock-based awards, was comprised asfollows: Year Ended December 31, 2015 2014 2013 (in thousands)Cost of revenue$889 $310 $60Selling and marketing320 866 343Research and development784 846 342General and administrative3,904 3,172 1,818Total stock-basedcompensation$5,897 $5,194 $2,563Forfeitures on option grants are estimated at 10% based on evaluation of historical and expected future turnover for non-executives and 0% based forexecutives. Stock-based compensation expense was recorded net of estimated forfeitures, such67 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)that expense was recorded only for those stock-based awards that are expected to vest. The Company reviews this assumption periodically and will adjust it ifit is not representative of future forfeiture data and trends within employee types (executive vs. non-executive).The associated tax benefit recognized in the Consolidated Statements of Operations for the fiscal years ended December 31, 2015, 2014 and 2013 wasapproximately $2.1 million, $1.9 million and $0.9 million, respectively. In addition, cash flows resulting from tax deductions in excess of the cumulativecompensation cost recognized for stock-based compensation arrangements (“excess tax benefits”) are classified as financing cash flows only when realized. As such, for the fiscal year ended December 31, 2015 and 2014, excess tax benefits from stock-based compensation arrangements of $0.1 million and $0.7million, respectively, were not recognized. The Company received $0.7 million and $1.6 million in cash from the exercise of stock options during the yearsended December 31, 2015 and 2014, respectively. None of the Company's stock options were exercised for the year ended December 31, 2013.Stock Option Activity Options Outstanding Number ofSharesUnderlyingOutstandingOptions Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm AggregateIntrinsicValue (In years) Outstanding at December 31, 20146,588,097 $5.08 6.96 $1,327,366Option Exchange(1,758,261) 10.31 Granted2,480,152 2.02 Exercised(501,511) 1.46 Forfeited(1,195,093) 6.12 Outstanding at December 31, 20155,613,384 $2.19 7.89 $628,833Vested and expected to vest at December 31, 20155,408,277 $2.29 7.84 $606,304Exercisable at December 31, 20152,255,162 $2.25 6.39 $287,058Aggregate 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. The aggregate intrinsic value of options exercised was $0.4 million for the year ended December 31, 2015.As of December 31, 2015, total unrecognized compensation cost related to non-vested stock options granted to employees was $7.3 million, which isexpected to be recognized over a remaining weighted average vesting period of 2.9 years.Determination of Fair ValueOption valuation models require the input of highly subjective assumptions, including expected stock price volatility. The Black-Scholes option pricingmodel was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. The fair value ofoptions granted under the Company’s Plans was estimated on the date of grant using the Black-Scholes option pricing model with the followingassumptions:68 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued) Year Ended December 31, 2015 2014 2013 (in thousands)Expected term (in years)6.1 6.1 6.0Risk-free interest rate1.5% - 1.9% 1.8% - 2.0% 1.0% - 1.1%Expected volatility40.8% - 47.1% 47.5% - 49.8% 50.4% - 50.5%Dividend rate0% 0% 0%Each of these inputs is subjective and generally requires significant judgment to determine. The risk-free rate is based on a zero-coupon U.S. Treasury rate ineffect at the time of grant with maturity dates that coincide with the expected life of the options. The expected life of the options is based on a study ofseveral unrelated public peer companies within the Company’s industry that the Company considers to be comparable to its business and the historical dataon employee exercises and post-vesting employment termination behavior taking into account the contractual life of the award. Since the Company has alimited trading history for its common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companieswithin the Company’s industry that are considered to be comparable to the Company’s business over a period equivalent to the expected term of the stockoption grants.The weighted average grant date fair value of options granted during the years ended December 31, 2015, 2014 and 2013 was $0.88, $5.27 and $1.16,respectively. The total estimated fair value of employee options vested during the years ended December 31, 2015, 2014 and 2013 was $3.0 million, $5.5million and $2.8 million, respectively.Restricted Stock Activity Shares Weighted AverageGrant Date Fair ValuePer ShareNonvested restricted stock at December 31, 20146,396 $15.63Granted65,502 2.29Nonvested restricted stock at December 31, 201571,898 3.48As of December 31, 2015 total unrecognized compensation cost related to the nonvested restricted stock awards granted was $0.1 million, which is expectedto be recognized over a remaining weighted average vesting period of 0.4 years.Stock WarrantsIn connection with and as consideration for the concessions in the Amended Notes, the Company issued to SG VTB and a trust affiliated with RonaldDoornink 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 aperiod 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 subjectto standard anti-dilution adjustments and do not carry any voting rights or other rights as a stockholder of the Company prior to exercise. The shares issuableupon 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 asa 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 theholder to any voting rights or other rights as a stockholder of the Company prior to exercise.The warrants meet the requirements for classification within equity as warrants entitle the holder to purchase a stated amount of shares of common stock at afixed exercise price that are not puttable (either the warrant or the shares) to the Company or redeemable for cash.69 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Phantom Equity ActivityIn November 2011, VTBH adopted a 2011 Phantom Equity Appreciation Plan ("the Appreciation Plan") that covers certain employees, consultants, anddirectors of VTBH (“Participants”) who are entitled to phantom units, as applicable, pursuant to the provisions of their respective award agreements. TheAppreciation 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 notexercisable 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 theexercise price and value of common stock at the time of a change in control event as defined in the plan.As of December 31, 2015 and 2014, 714,347, and 807,578 phantom units at a weighted-average exercise price of $0.93 and $0.88 have been granted and areoutstanding. Because these phantom units are not exercisable or convertible into common shares, said amounts and exercise prices were not subject to theexchange ratio provided by the Merger agreement. As of December 31, 2015, compensation expense related to the Appreciation Plan units remainedunrecognized because a change in control, as defined in the plan, had not occurred and is not anticipated by the Company. In July 2015, the AppreciationPlan was terminated as to new grants, but vested and unvested phantom units will continue.Note 12. Segment and Geographic InformationIn 2014, following the merger, the Company aggregated its two operating segments - Voyetra Turtle Beach (“Headset”) and HyperSound. During 2015, inlight of the subsequent development and launch of the HyperSound Clear 500P product, the Company evaluated whether its operating segments shouldcontinue to be aggregated for reporting purposes and determined that as a result of the new hearing healthcare product, the HyperSound operating segmentwill no longer have similar economic characteristics, production processes, clients or methods of distribution. As such, the Company has disclosed theHeadset and HyperSound operating segments separately. The entire business is managed by a single management team whose Chief Operating DecisionMaker is the Chief Executive Officer.The following tables show net revenues, operating income and total assets by reporting segments: December 31, 2015 2014 2013Net Revenues (in thousands)Headset $161,835 $185,469 $178,470HyperSound 912 707 —Total $162,747 $186,176 $178,470 Operating Income (Loss) Headset $(8,698) $(311) $1,598HyperSound (65,701) (13,514) —Total $(74,399) $(13,825) $1,598Interest Expense $5,099 $7,209 $6,626Other non-operating expense, net $1,016 $724 $45Loss before income tax expense (benefit) $(80,514) $(21,758) $(5,073) December 31, 2015 December 31, 2014Total Assets (in thousands)Headset$62,361 $82,798HyperSound111,490 164,170Total$173,851 $246,96870 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)The following table represents total net revenue based on where customers are physically located: Year Ended December 31, 20152014 2013 (in thousands)North America$117,526 $123,908 $123,224United Kingdom20,881 29,425 26,439Europe17,329 24,082 18,565Other7,011 8,761 10,242Total net revenue$162,747 $186,176 $178,470 The following table represents property and equipment based on physical location: Year Ended December 31, 2015 2014 (in thousands)United States$5,749 $6,612International1,110 110Total$6,859 $6,722Note 13. Commitments and ContingenciesLitigationThe Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the amount of any liability thatcould arise with respect to these actions cannot be determined with certainty, in the Company’s opinion, any such liability will not have a material adverseeffect on its consolidated financial position, consolidated results of operations or liquidity.Shareholders Class Action: On August 5, 2013, VTBH and the Company (f/k/a Parametric) announced that they had entered into the Merger Agreementpursuant to which VTBH would acquire an approximately 80% ownership interest and existing shareholders would maintain an approximately 20%ownership interest in the combined company. Following the announcement, several shareholders filed class action lawsuits in California and Nevada seekingto enjoin the Merger. The plaintiffs in each case alleged that members of the Company’s Board of Directors breached their fiduciary duties to the shareholdersby agreeing to a Merger that allegedly undervalued the Company. VTBH and the Company were named as defendants in these lawsuits under the theory thatthey had aided and abetted the Company's Board of Directors in allegedly violating their fiduciary duties. The plaintiffs in both cases sought a preliminaryinjunction 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 denied the plaintiffs’ motion for a preliminary injunction. Following the closing of the Merger, theNevada plaintiffs filed a second amended complaint, which made essentially the same allegations and sought monetary damages as well as an orderrescinding 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 soughtmonetary 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 iscurrently 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, theNevada Supreme Court requested a supplemental briefing, which the parties completed on October 13, 2015. The Nevada Supreme Court also invited theBusiness Law Section of the Nevada State Bar to submit an amicus brief by December 3, 2015 and briefing was completed on February 23, 2016. TheCompany believes that the plaintiffs’ claims against it are without merit.71 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)Dr. John Bonanno Complaint: On February 18, 2015, Dr. John Bonanno, a minority shareholder of VTBH, filed a complaint in Delaware Chancery Courtalleging 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 damages including a redemption of his stock for the redemptionvalue of $15.1 million (equal to the original issue price of his stock plus accrued dividends) as well as other costs and expenses. On February 8, 2016, theDelaware Chancery Court granted VTBH's motion to dismiss for improper venue, and Dr. Bonnano's complaint was dismissed without prejudice. VTBHmaintains that the Merger did not trigger any obligation to redeem Mr. Bonanno's stock.The Company will continue to vigorously defend itself in the foregoing 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 December 31, 2015 for contingentlosses associated with these matters based on its belief that losses, while possible, are not probable. Further, any possible range of loss cannot be reasonablyestimated 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, whilethere 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 ofoperations, financial condition or cash flows.Operating LeasesThe Company leases office and warehouse spaces under operating leases that provide for future minimum rental lease payments under non-cancelableoperating leases as of December 31, 2015, are as follows: (in thousands)2016$1,60820171,70920181,66020191,5212020839Thereafter1,413Total$8,750WarrantiesThe Company warrants products against certain manufacturing and other defects. These product warranties are provided for specific periods of timedepending on the nature of the product. Warranties are generally fulfilled by replacing defective products with new products. The following table providesthe changes in our product warranties, which are included in other current liabilities: Year Ended December 31, 2015 2014 2013 (in thousands)Warranty, beginning of period$493 $139 $165Warranty costs accrued693 850 614Settlements of warranty claims(606) (496) (640)Warranty, end of period$580 $493 $139XO FOUR Stealth Product Recall: In August 2015, the Company received a limited number of reports from consumers and retailers that certain EARFORCE® XO FOUR Stealth headsets appeared to have a white substance or spots on the ear pads. Upon receiving the reports, the Company promptly stoppedshipping any units of the XO FOUR Stealth headsets and notified our retail customers to stop sales pending the results of the Company’s investigation. Anoutside laboratory engaged by the Company identified the substance 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 December 31, 2015 and the date of this report, the72 Turtle Beach CorporationNotes to Consolidated Financial Statements - (Continued)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 collectreimbursement 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 onlineorders. The Company is contacting the affected purchasers directly to instruct them to participate in the recall.Note 14. Selected Quarterly Financial Data - UnauditedFiscal 2015Quarter First Second Third Fourth (1) (in thousands, except per share data)Net Revenue$19,689 $22,612 $35,887 $84,559Gross Margin3,116 3,402 9,564 24,609Net Income (Loss)(10,593) (9,898) (15,880) (46,536)Earnings (Loss) Per Share Basic$(0.25) $(0.23) $(0.38) $(1.09)Diluted$(0.25) $(0.23) $(0.38) $(1.09)Fiscal 2014Quarter First Second Third Fourth (in thousands, except per share data)Net Revenue$38,288 $22,296 $33,325 $92,267Gross Margin12,276 4,831 7,749 25,811Net Income (Loss)(2,906) (9,302) (5,638) 2,360Earnings (Loss) Per Share Basic$(0.09) $(0.23) $(0.13) $0.06Diluted$(0.09) $(0.23) $(0.13) $0.06(1) Includes goodwill impairment charge of $49.8 millionNote 15. Equity Offering On February 2, 2016, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc., as representativeof the several other underwriters named therein, relating to an underwritten public offering (the “Offering”) of 5,000,000 shares of our common stock, at aprice to the public of $1.00 per share (the “Offering Price”). Under the terms of the Underwriting Agreement, the Company also granted the underwriters a 30-day option to purchase up to an additional 750,000 shares of common stock at the Offering Price less the underwriting discount.In addition, on February 1, 2016, the Company entered into a separate, concurrent, side-by-side private placement of 1,700,000 shares of its common stock ata price of $1.00 per share.The Company expects to receive net proceeds from the Offering and a side by side private placement of approximately $6.2 million after deducting theunderwriting discount and offering expenses. The Company will use all net proceeds from the Offering to pay down amounts outstanding under its workingcapital line of credit, which is consistent with past practice and required under the terms of our Credit Facility and Term Loan Due 2019.73 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A - Controls and Procedures Evaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file or submit under theExchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information isaccumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted anevaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act,as of the end of the period covered by this Report. This evaluation also included consideration of our internal controls and procedures for the preparation ofour financial statements as required under Section 404 of the Sarbanes-Oxley Act of 2002. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2015.Notwithstanding the material weakness discussed below, our management, including our Chief Executive Officer and our Chief Financial Officer, concludedthat the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, the Company's financial condition,results of operations and cash flows for the periods presented, in conformity with U.S. generally accepted accounting principles.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)of the Exchange Act). Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding thepreparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Because of these inherent limitations, internal control over financialreporting can provide only reasonable assurance with respect to financial statement preparation and presentation, and may not prevent or detectmisstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibilitythat a material misstatement of the Corporation's annual or interim financial statements will not be prevented or detected on a timely basis. Management hasidentified the following material weakness in the Corporation’s internal control over financial reporting.The Company did not maintain effective internal controls over the review of certain assumptions related to the annual goodwill impairment assessment for2015, which resulted in a material audit adjustment to goodwill and related disclosures in the Corporation’s consolidated financial statements for the yearended December 31, 2015. This control deficiency, if unremediated, could result in a material misstatement to the annual or interim consolidated financialstatements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a materialweakness.Because of the material weaknesses described above, our management has concluded that as of December 31, 2015, our system of internal control overfinancial reporting was not effective based on the framework and criteria established in Internal Control—Integrated Framework (2013), issued by theCommittee of Sponsoring Organizations of the Treadway Commission.Because of the material weakness, management has concluded that the Corporation's internal control over financial reporting was not effective as atDecember 31, 2015.74 Management’s Remediation PlanManagement is actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness identified above.Management intends to take the following actions to address the material weakness:Re-designing its controls, including the implementation of new controls, relating to the long-lived asset and goodwill impairment analysis, including: (i)enhancing the design and documentation of management review controls in order to enhance the precision at which management review controls operate, (ii)improving the documentation of internal control procedures, and (iii) enhancing the evaluation of the components of carrying value and comparison to therequirements of generally accepted accounting principles.We are in the process of implementing our remediation plan. However, while we expect to take the necessary steps to establish and enhance controls designedto address the material weakness in the coming year, because the internal controls relate to impairment tests, which are event-driven or annual tests, we areunable at this time to estimate when the remediation will be completed.Changes in Internal Control over Financial ReportingOther than the material weakness described above, there have been no changes in our internal control over financial reporting during the period covered thathave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls andprocedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediationof any deficiencies, which may be identified during this process.Item 9B - Other InformationNone noted.PART IIIItem 10 - Directors, Executive Officers and Corporate GovernanceThe information required by this Item is incorporated herein by reference to the information in our Definitive Proxy Statement to be filed with the SEC within120 days after the end of the Company’s fiscal year ended December 31, 2015 in connection with our 2015 Annual Meeting of Stockholders (the “2015Proxy Statement”) set forth under the captions “Election of Directors,” “Management Information,” “Corporate Governance” and “Section 16(a) BeneficialOwnership Reporting Compliance.”We have adopted a code of business conduct and ethics that applies to our Chief Executive Officer and Chief Financial Officer. This code of businessconduct and ethics is available on the Company’s website corp.turtlebeach.com. The information on our website is not a part of or incorporated by referenceinto this Report. If the Company makes any amendments to this code other than technical, administrative or other non-substantive amendments, or grants anywaivers, including implicit waivers, from a provision of this code to the Company’s Chief Executive Officer or Chief Financial Officer, the Company willdisclose the nature of the amendment or waiver, its effective date and to whom it applies by posting such information on the Company’s website atcorp.turtlebeach.com.Item 11 - Executive CompensationThe information required by this Item is incorporated herein by reference to the information in our 2016 Proxy Statement set forth under captions “CorporateGovernance,” “Executive Compensation and Related Information” and “Report of the Compensation and Management Development Committee.”Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this Item is incorporated herein by reference to the information in our 2016 Proxy Statement set forth under the captions“Executive Compensation and Related Information” and “Security Ownership of Certain Beneficial Owners and Management.”75 Item 13 - Certain Relationships and Related Transactions, and Director IndependenceThe information required by this Item is incorporated herein by reference to the information in our 2016 Proxy Statement set forth under the captions“Corporate Governance” and “Executive Compensation and Related Information.”Item 14 - Principal Accounting Fees and ServicesThe information required by this Item is incorporated herein by reference to the information in our 2016 Proxy Statement set forth under the captions “Auditand Non-Audit Fees.”PART IVItem 15. Exhibits and Financial Statement Schedulesa.List of documents filed as part of this Annual Report:1.The following Consolidated Financial Statements of the Company are filed as part of this Annual Report:Reports of Independent Registered Public Accounting Firms;Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2015, 2014 and 2013;Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended December 31, 2015, 2014 and 2013;Consolidated Balance Sheets as of December 31, 2015 and 2014;Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 31, 2015, 2014 and 2013;Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2015, 2014 and 2013; andNotes to the Consolidated Financial Statements.2.All schedules have been omitted because they are not applicable, not required or the information has been otherwise supplied in the financialstatements or notes thereto.3.The exhibits listed in the Exhibit Index attached hereto are filed as part of this Annual Report and incorporated herein by referenceb.The exhibits listed in the Exhibit Index attached hereto are filed as part of this Annual Report and incorporated herein by reference.c.Not applicable.76 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. TURTLE BEACH CORPORATION Date:March 30, 2016By:/S/ JOHN T. HANSON John T. HansonChief Financial Officer, Treasurer and Secretary (Principal Financial Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. Date:March 30, 2016/s/ JUERGEN STARK Juergen Stark, Chief Executive Officer, President and Director (Principal Executive Officer) Date:March 30, 2016/S/ JOHN T. HANSON John T. Hanson, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)Date:March 30, 2016/S/ RONALD DOORNINK Ronald Doornink, Non-Executive Chairman of the Board and DirectorDate:March 30, 2016/S/ LAUREEN DeBUONO Laureen DeBuono, DirectorDate:March 30, 2016/S/ KENNETH A. FOX Kenneth A.Fox, DirectorDate:March 30, 2016/S/ WILLIAM E. KEITEL William E. Keitel, DirectorDate:March 30, 2016/S/ ANDREW WOLFE Andrew Wolfe, Director77 Exhibits2.1*Agreement and Plan of Merger, dated August 5, 2013, among the Company, Merger Sub and VTBH (Incorporated by reference to Exhibit2.1 to the Company’s Current Report on Form 8-K originally filed with the SEC on August 5, 2013). 3.1Articles of Incorporation of Turtle Beach Corporation, as amended (Incorporated by reference to Exhibit 3.1 to the Company’s QuarterlyReport on Form 10-Q originally filed with the SEC on August 11, 2014). 3.2Bylaws, as amended, of Turtle Beach Corporation (Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form10-Q originally filed with the SEC on August 11, 2014). 3.3Third Amended and Restated Certificate of Incorporation of VTBH (Incorporated by reference to Exhibit B to Exhibit 2.1 to theCompany’s Current Report on Form 8-K originally filed with the Securities and Exchange Commission on August 5, 2013). 4.1Stockholder Agreement dated August 5, 2013 among Turtle Beach Corporation and certain of our shareholders. (Incorporated by referenceto Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 5, 2013). 4.2Amendment No. 1 to the Stockholder Agreement, dated July 10, 2014, by and among the Company and the shareholders party thereto(Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and ExchangeCommission on July 10, 2014). 4.3Form of Turtle Beach Corporation stock certificate. (Incorporated by reference to Exhibit 4.1 to the Company's Form 10/A filed with theSecurities and Exchange Commission on July 27, 2010.) 4.4Warrant, issued to SG VTB Holdings, LLC, dated July 22, 2015 (Incorporated by reference to Exhibit 4.1 to the Company’s Current Reporton Form 8-K filed with the Securities and Exchange Commission on July 23, 2015). 4.5Warrant, issued to SG VTB Holdings, LLC, dated November 16, 2016 (Incorporated by reference to Exhibit 4.1 to the Company’s CurrentReport on Form 8-K filed with the Securities and Exchange Commission on November 20, 2015). 4.6Warrant, issued to the Doornink Revocable Living Trust, originally executed December 17, 1996, as amended and restated August 6, 2013,dated July 22, 2015 (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Securities andExchange Commission on July 23, 2015). 10.1Loan, Security and Guarantee Agreement, dated as of March 31, 2014, among Parametric Sound Corporation and Voyetra Turtle Beach,Inc. as US Borrowers and UK Guarantors, Turtle Beach Europe Limited as UK Borrower, PSC Licensing Corp. and VTB Holdings, Inc. as aUS Guarantor and a UK Guarantor, and Bank of America, N.A., as Agent, Sole Lead Arranger and Sole Bookrunner (Incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1,2014). 10.2Amendment No. 2, dated December 26, 2014, to Loan, Security and Guarantee Agreement, dated as of March 31, 2014, among ParametricSound Corporation and Voyetra Turtle Beach, Inc. as US Borrowers and UK Guarantors, Turtle Beach Europe Limited as UK Borrower, PSCLicensing Corp. and VTB Holdings, Inc. as a US Guarantor and a UK Guarantor, and Bank of America, N.A., as Agent, Sole Lead Arrangerand Sole Bookrunner. (Incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed with the Securitiesand Exchange Commission on March 30, 2015) 10.3Amendment No. 3 to Loan, Security and Guarantee Agreement, dated as of March 31, 2014, among Parametric Sound Corporation andVoyetra Turtle Beach, Inc. as US Borrowers and UK Guarantors, Turtle Beach Europe Limited as UK Borrower, PSC Licensing Corp. andVTB Holdings, Inc. as a US Guarantor and a UK Guarantor, and Bank of America, N.A., as Agent, Sole Lead Arranger and Sole Bookrunner.(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and ExchangeCommission on March 20, 2015). 78 10.4**Amendment No. 4, dated April 22, 2015, to Loan, Security and Guarantee Agreement, dated as of March 31, 2014, among Parametric SoundCorporation and Voyetra Turtle Beach, Inc. as US Borrowers and UK Guarantors, Turtle Beach Europe Limited as UK Borrower, PSCLicensing Corp. and VTB Holdings, Inc. as a US Guarantor and a UK Guarantor, and Bank of America, N.A., as Agent, Sole Lead Arrangerand Sole Bookrunner. 10.5Amendment No. 5, dated July 22, 2015, to Loan, Security and Guarantee Agreement, dated as of March 31, 2014, among Parametric SoundCorporation and Voyetra Turtle Beach, Inc. as US Borrowers and UK Guarantors, Turtle Beach Europe Limited as UK Borrower, PSCLicensing Corp. and VTB Holdings, Inc. as a US Guarantor and a UK Guarantor, and Bank of America, N.A., as Agent, Sole Lead Arrangerand Sole Bookrunner (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securitiesand Exchange Commission on July 23, 2015). 10.6Amendment No. 6, dated November 2, 2015, to Loan, Security and Guarantee Agreement, dated as of March 31, 2014, among ParametricSound Corporation and Voyetra Turtle Beach, Inc. as US Borrowers and UK Guarantors, Turtle Beach Europe Limited as UK Borrower, PSCLicensing Corp. and VTB Holdings, Inc. as a US Guarantor and a UK Guarantor, and Bank of America, N.A., as Agent, Sole Lead Arrangerand Sole Bookrunner (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securitiesand Exchange Commission on November 5, 2015). 10.7Amendment No. 7, dated December 1, 2015, to Loan, Security and Guarantee Agreement, dated as of March 31, 2014, among ParametricSound Corporation and Voyetra Turtle Beach, Inc. as US Borrowers and UK Guarantors, Turtle Beach Europe Limited as UK Borrower, PSCLicensing Corp. and VTB Holdings, Inc. as a US Guarantor and a UK Guarantor, and Bank of America, N.A., as Agent, Sole Lead Arrangerand Sole Bookrunner (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securitiesand Exchange Commission on December 7, 2015). 10.8Amendment No. 8, dated February 1, 2016, to Loan, Security and Guarantee Agreement, dated as of March 31, 2014, among ParametricSound Corporation and Voyetra Turtle Beach, Inc. as US Borrowers and UK Guarantors, Turtle Beach Europe Limited as UK Borrower, PSCLicensing Corp. and VTB Holdings, Inc. as a US Guarantor and a UK Guarantor, and Bank of America, N.A., as Agent, Sole Lead Arrangerand Sole Bookrunner (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securitiesand Exchange Commission on February 1, 2016). 10.9Letter, dated June 17, 2015, from Bank of America N.A to the Company (Incorporated by reference to Exhibit 10.2 to the Company’sCurrent Report on Form 8-K filed with the Securities and Exchange Commission on June 22, 2015). 10.10Term Loan, Guaranty and Security Agreement, dated July 22, 2015, by and among the Company, Voyetra Turtle Beach, Inc. Turtle BeachEurope Limited, VTB Holdings, Inc., Crystal Financial LLC, as agent sole lead arranger and sole bookrunner and the other parties thereto(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and ExchangeCommission on July 23, 2015). 10.11Amendment No. 1, dated November 2, 2015, to Term Loan, Guaranty and Security Agreement, dated July 22, 2015, by and among theCompany, Voyetra Turtle Beach, Inc. Turtle Beach Europe Limited, VTB Holdings, Inc., Crystal Financial LLC, as agent sole lead arrangerand sole bookrunner and the other parties thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-Kfiled with the Securities and Exchange Commission on November 5, 2015). 10.12Amendment No. 2, dated December 1, 2015, to Term Loan, Guaranty and Security Agreement, dated July 22, 2015, by and among theCompany, Voyetra Turtle Beach, Inc. Turtle Beach Europe Limited, VTB Holdings, Inc., Crystal Financial LLC, as agent sole lead arrangerand sole bookrunner and the other parties thereto (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-Kfiled with the Securities and Exchange Commission on December 7, 2015). 10.13Amendment No. 3, dated February 1, 2016, to Term Loan, Guaranty and Security Agreement, dated July 22, 2015, by and among theCompany, Voyetra Turtle Beach, Inc. Turtle Beach Europe Limited, VTB Holdings, Inc., Crystal Financial LLC, as agent sole lead arrangerand sole bookrunner and the other parties thereto (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-Kfiled with the Securities and Exchange Commission on February 1, 2016). 79 10.14Amended and Restated Subordinated Promissory Note, dated July 22, 2015, originally dated April 23, 2015, by and between Turtle BeachCorporation and SG VTB Holdings, LLC (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filedwith the Securities and Exchange Commission on July 23, 2015). 10.15Amended and Restated Subordinated Promissory Note, dated July 22, 2015, originally dated May 13, 2015, by and between Turtle BeachCorporation and SG VTB Holdings, LLC (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filedwith the Securities and Exchange Commission on July 23, 2015). 10.16Amended and Restated Subordinated Promissory Note, dated July 22, 2015, originally dated June 17, 2015, by and between Turtle BeachCorporation and SG VTB Holdings, LLC (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filedwith the Securities and Exchange Commission on July 23, 2015). 10.17Amended and Restated Subordinated Promissory Note, dated July 22, 2015, originally dated May 13, 2015, by and between Turtle BeachCorporation and the Doornink Revocable Living Trust, originally executed December 17, 1996, as amended and restated August 6, 2013(Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the Securities and ExchangeCommission on July 23, 2015). 10.18Subordinated Promissory Note, dated November 16, 2015, by and between the Company and SG VTB Holdings, LLC (Incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November20, 2015). 10.19Third Lien Continuing Guaranty, dated as of November 16, 2015, by and among the Company, Voyetra Turtle Beach, Inc. and VTBHoldings, Inc. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities andExchange Commission on November 20, 2015). 10.20Third Lien Security Agreement, dated as of November 16, 2015, by and among the Company, Voyetra Turtle Beach, Inc. and VTBHoldings, Inc. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Securities andExchange Commission on November 20, 2015). 10.21Subordination Agreement, dated as of November 16, 2015, by and among Bank of America, N.A., Crystal Financial LLC, SG VTBHoldings, LLC, the Company, Voyetra Turtle Beach, Inc., Turtle Beach Europe Limited, and VTB Holdings, Inc. (Incorporated by referenceto Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 20, 2015). 10.22Common Stock Purchase Agreement, dated as of February 1, 2016, by and between the Company and SG VTB Holdings, LLC(Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Securities and ExchangeCommission on February 1, 2016). 10.23†Turtle Beach Corporation 2013 Stock-Based Incentive Compensation Plan (Incorporated by reference to Exhibit 10.5 to the Company’sQuarterly Report on Form 10-Q originally filed with the SEC on August 6, 2015). 10.24†Turtle Beach Corporation Annual Incentive Bonus Plan (Incorporated by reference to Annex F to the Company’s Definitive ProxyStatement on Schedule 14A originally filed with the SEC on December 3, 2013). 10.25†^**Master Services Agreement, dated October 6, 2015, between the Company and Hon Hai Precision Industry Co. Ltd. 10.26†VTB Holdings, Inc. 2011 Phantom Equity Appreciation Plan (Incorporated by reference to Exhibit 10.13 to the Company’s Current Reporton Form 10-Q filed with the Securities and Exchange Commission on May12, 2014). 10.27†Offer Letter, dated as of August 13, 2012, between Voyetra Turtle Beach, Inc. and Juergen Stark (Incorporated by reference to Exhibit 10.14to the Company’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on May12, 2014). 10.28†**Stock Option Agreement, dated as of May 29, 2015, by and between the Company and Juergen Stark. 80 10.29†Offer Letter, dated as of September 16, 2013, by and between Voyetra Turtle Beach, Inc. and John Hanson (Incorporated by reference toExhibit 10.26 to the Company’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on May12, 2014). 10.30†**Offer Letter, dated as of November 24, 2015, by and between the Company and Joseph Cleary. 10.31†Stock Award Agreement, dated as of June 21, 2011, by and between VTB Holdings, Inc. and Ronald Doornink (Incorporated by referenceto Exhibit 10.16 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May12, 2014). 10.32†First Amendment to Stock Award Agreement, dated as of February 26, 2013, by and between VTB Holdings, Inc. and Ronald Doornink(Incorporated by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K filed with the Securities and ExchangeCommission on May12, 2014). 10.33†Consulting Agreement, dated as of October 12, 2010, by and between Voyetra Turtle Beach, Inc. and Ronald Doornink (Incorporated byreference to Exhibit 10.18 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May12,2014). 10.34†Termination of Consulting Agreement and Continued Service on the Board of Directors, dated as of February 26, 2013, by and betweenVoyetra Turtle Beach, Inc. and Ronald Doornink (Incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May12, 2014). 10.35†Performance Bonus Agreement, dated as of October 12, 2010, by and among the Company, Carmine J. Bonnano and Frederick J. Romano(Incorporated by reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K filed with the Securities and ExchangeCommission on May12, 2014). 10.36†Employment Agreement, dated as of October 12, 2010, by and between Voyetra Turtle Beach, Inc. and Carmine J. Bonnano (Incorporatedby reference to Exhibit 10.21 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission onMay12, 2014). 10.37†Severance Agreement, dated as of August 2, 2012, by and between Voyetra Turtle Beach, Inc. and Carmine J. Bonnano (Incorporated byreference to Exhibit 10.22 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May12,2014). 10.38†Employment Agreement, dated as of October 12, 2010, by and between Voyetra Turtle Beach, Inc. and Frederick J. Romano (Incorporatedby reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission onMay12, 2014). 10.39†Severance Agreement, dated as of August 2, 2012, by and between Voyetra Turtle Beach, Inc. and Frederick J. Romano (Incorporated byreference to Exhibit 10.24 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May12,2014). 10.40†Offer Letter, dated as of October 21, 2013, by and between Voyetra Turtle Beach, Inc. and Frederick J. Romano (Incorporated by referenceto Exhibit 10.25 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May12, 2014). 10.41†Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed withthe Securities and Exchange Commission on March 30, 2015). 10.42†Form of Turtle Beach Corporation Non-Employee Director Restricted Stock Award (Incorporated by reference to Exhibit 10.21 to theCompany’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2015). 10.43†Form of Turtle Beach Corporation Non-Employee Director Incentive Stock Option Agreement 10.44†**Form of Turtle Beach Corporation Non-Qualified Stock Option Agreement81 10.45†Form of Turtle Beach Corporation Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.21 to the Company’sAnnual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2015). 21**Subsidiaries of the Company 23.1**Consent of BDO USA, LLP. 23.2**Consent of Freed Maxick CPAs, P.C. 31.1**Certification of Juergen Stark, Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 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 adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 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 byJuergen Stark, Principal Executive Officer and John Hanson, Principal Financial Officer. Extensible Business Reporting Language (XBRL) Exhibits101.INSXBRL Instance Document**101.SCHXBRL Taxonomy Extension Schema Document**101.CALXBRL Taxonomy Extension Calculation Linkbase Document**101.DEFXBRL Taxonomy Extension Definition Linkbase Document**101.LABXBRL Taxonomy Extension Labels Linkbase Document**101.PREXBRL Taxonomy Extension Presentation Linkbase Document** *All exhibits and schedules to the Agreement and Plan of Merger have been omitted pursuant to Item 601(b)(2) of Regulation S-K. TheCompany will furnish the omitted exhibits and schedules to the SEC upon request by the SEC.**Filed herewith.***Furnished herewith.†Management contract or compensatory plan.^Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately withthe Securities and Exchange Commission.82 Turtle Beach CorporationSchedule II - Valuation and Qualifying AccountsYears ended December 31, 2015, 2014 and 2013 DescriptionBalance - Begin Additions Deductions /Other Balance - EndYear Ended December 31, 2015: (in thousands)Allowance for sales returns$4,155 $17,108 $(14,995) $6,268Allowance for cash discounts5,451 $17,904 $(15,896) 7,459Allowance for doubtful accounts200 $157 $(255) 102 $13,829Year Ended December 31, 2014: Allowance for sales returns$6,266 $13,042 $(15,153) $4,155Allowance for cash discounts2,489 18,488 (15,526) 5,451Allowance for doubtful accounts225 $37 $(62) 200 $9,806Year Ended December 31, 2013: Allowance for sales returns$7,748 $20,146 $(21,628) $6,266Allowance for cash discounts6,196 15,347 (19,054) 2,489Allowance for doubtful accounts460 125 (360) 225 $8,98083 Exhibit 10.4FOURTH AMENDMENT TOLOAN, GUARANTY AND SECURITY AGREEMENTThis FOURTH AMENDMENT TO LOAN, GUARANTY AND SECURITY AGREEMENT (this “Amendment”) is dated asof April 22, 2015, and is entered into by and among TURTLE BEACH CORPORATION, a Nevada corporation, formerly known asParametric Sound Corporation (“Parametric”), VOYETRA TURTLE BEACH, INC., a Delaware corporation (“Voyetra”; and togetherwith Parametric, individually “US Borrower,” and individually and collectively, jointly and severally, “US Borrowers”), TURTLEBEACH EUROPE LIMITED, a company limited by shares and incorporated in England and Wales with company number 03819186(“Turtle Beach,” also referred to hereinafter as “UK Borrower”; and together with US Borrowers, individually “Borrower” andindividually and collectively, “Borrowers”), PSC LICENSING CORP., a California corporation (“PSC”), VTB HOLDINGS, INC., aDelaware corporation (“VTB”; and together with PSC, individually a “US Guarantor” and individually and collectively, jointly andseverally, “US Guarantors”; and together with US Borrowers, individually a “UK Guarantor” and individually and collectively, jointlyand severally, “UK Guarantors”; UK Guarantors and US Guarantors, individually a “Guarantor,” and individually and collectively,“Guarantors”); the financial institutions party hereto as lenders (collectively, “Lenders”), and BANK OF AMERICA, N.A., a nationalbanking association, as agent collateral agent and security trustee for Lenders (in such capacity, together with its successors and assignsin such capacity, “Agent”).WHEREAS, the Borrowers, the Guarantors, the Agent, and the Lenders have entered into that certain Loan, Guaranty andSecurity Agreement (as amended, restated, or otherwise modified from time to time, the “Loan Agreement”), dated as of March 31,2014; andWHEREAS, the Borrowers have requested that the Agent and the Lenders agree to enter into certain amendments to the LoanAgreement,NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Loan Agreement and thisAmendment, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agreeas follows:ARTICLE I DEFINITIONSInitially capitalized terms used but not otherwise defined in this Amendment have the respective meanings set forth in the LoanAgreement, as amended hereby.ARTICLE IIAMENDMENTS TO LOAN AGREEMENT 2.01. New/Amended Definitions.(a) The following definition is added to Section 1.1 of the Loan Agreement in its entirety to read as follows: TBC Note: that certain Subordinated Promissory Note dated as of April 21, 2015 by Parametric for the benefit of SGVTB Holdings, LLC in the original principal amount of $5,000,000.(b) The definition of “Subordinated Debt” as set forth Section 1.1 of the Loan Agreement is hereby amended andrestated by deleting and replacing it with the following:Subordinated Debt: (i) Debt incurred by any Obligor or any of its respective Subsidiaries that is expressly subordinateand junior in right of payment to Full Payment of all Obligations, and is also on terms (including maturity, interest, fees,repayment, covenants and subordination) reasonably satisfactory to Agent, (ii) the Existing Subordinated Debt, and (iii)debt incurred pursuant to the TBC Note.2.02. Amendment to Section 10.2.8 Section 10.2.8 of the Loan Agreement is hereby amended and restated by deleting and replacing itwith the following:10.2.8 Restrictions on Payment of Certain Debt. Make any payments (whether voluntary or mandatory, or aprepayment, redemption, retirement, defeasance or acquisition) with respect to any(a) Subordinated Debt (other than the Existing Subordinated Debt and Debt under the TBC Note), except:(i)regularly scheduled payments of principal, interest and fees, but only to the extent permittedunder any Subordination Agreement relating to such Debt (and a Senior Officer of Obligor Agent shallcertify to Agent, not less than five Business Days prior to the date of payment, that all conditions undersuch agreement have been satisfied);(ii)full repayment of all obligations under the Subordinated Debt in connection with a refinancingthereof if the Refinancing Conditions have been satisfied;(b) Existing Subordinated Debt or Debt under the TBC Note except:(i)regularly scheduled payments of interest and fees, but only if immediately before and aftergiving effect to any such payment no Default or Event of Default exists or will occur (and a SeniorOfficer of Borrower Agent shall certify to Agent prior to the making of the payment that such conditionhas been satisfied),(ii)full repayment of all obligations under the Existing Subordinated Debt in place on the ClosingDate using the proceeds of a Liquidity Event which is consummated contemporaneously with suchrepayment, (iii)full or partial repayment of obligations under any Existing Subordinated Debt provided afterthe Closing Date using the proceeds of a Liquidity Event which is consummated contemporaneouslywith such repayment so long as (x) all Existing Subordinated Debt in place on the Closing Date has beenpaid in full before such repayment, (y) such repayment is only made if the net proceeds of the LiquidityEvent are in excess of $30,000,000 and such repayment is in an amount not greater than such excess,and (z) at least $10,000,000 of the net proceeds of such Liquidity Event have been applied to repay theObligations,(iv)full or partial repayment of the obligations under the TBC Note using the proceeds of aSecond Lien Loan and contemporaneous with the closing of a Second Lien Loan, so long as (x)immediately before and after giving effect to any such repayment, no Default or Event of Default existsor will occur and (y) immediately after giving effect to any such repayment, Availability (taking intoaccount the application of the net proceeds of such Second Lien Loan to the Obligations) is in an amountnot less than 20% of the Revolver Commitments (and a Senior Officer of Borrower Agent shall certify toAgent prior to the making of the payment that such conditions have been satisfied), and(v)any other full or partial repayment of the obligations under the TBC Note, so long as (x)immediately before and after giving effect to any such repayment no Default or Event of Default existsor will occur and (y) for each of the 30 days prior to giving effect so any such repayment andimmediately after giving effect thereto, Availability is in an amount not less than 20% of the RevolverCommitments (and a Senior Officer of Borrower Agent shall certify to Agent prior to the making of thepayment that such conditions have been satisfied).(c) Borrowed Money (other than the Obligations) prior to its due date under the agreements evidencing suchDebt as in effect on the Closing Date (or as amended thereafter with the consent of Agent).ARTICLE IIIREPRESENTATIONS AND WARRANTIESEach Obligor hereby represents and warrants to each Lender and the Agent, as of the date hereof, as follows:3.01. Representations and Warranties. After giving effect to this Amendment, the representations and warranties set forth in Section 9of the Loan Agreement and in each other Loan Document are true and correct in all material respects on and as of the date hereof and on and as of the date hereof with the same effect as if made on and as of thedate hereof, except to the extent such representations and warranties expressly relate solely to an earlier date.3.02. No Defaults. After giving effect to this Amendment, each of the Obligors is in compliance with all terms and conditions of theLoan Agreement and the other Loan Documents on its part to be observed and performed and no Default or Event of Default hasoccurred and is continuing.3.03. Authority and Pending Actions. The execution, delivery, and performance by each Obligor of this Amendment has been dulyauthorized by each such Obligor (as applicable) and there is no action pending or any judgment, order, or decree in effect which islikely to restrain, prevent, or impose materially adverse conditions upon the performance by any Obligor of its obligations under theLoan Agreement or the other Loan Documents.3.04. Enforceability. This Amendment constitutes the legal, valid, and binding obligation of each Obligor, enforceable against eachsuch Obligor in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency,moratorium, reorganization, or other similar laws affecting the enforcement of creditors’ rights or by the effect of general equitableprinciples.ARTICLE IVCONDITIONS PRECEDENT AND FURTHER ACTIONS4.01. Conditions Precedent. This Amendment shall not be binding upon the Agent, the Lenders or any Obligor until each of thefollowing conditions precedent have been satisfied in form and substance satisfactory to the Agent:(a)The representations and warranties contained herein and in the Loan Agreement, as amended hereby, shallbe true and correct in all material respects as of the date hereof, after giving effect to this Amendment, as if made on such date, exceptfor such representations and warranties limited by their terms to a specific date; and(b)Each Obligor shall have delivered to the Agent duly executed counterparts of this Amendment which, whentaken together, bear the authorized signatures of the Borrowers, the Agent, and the Lenders.4.02. Further Actions. Each of the parties to this Amendment agrees that at any time and from time to time upon the written request ofany other party, it will execute and deliver such further documents and do such further acts and things as such other party mayreasonably request in order to effect the purposes of this Amendment.ARTICLE VCOSTS AND EXPENSESWithout limiting the terms and conditions of the Loan Documents, the Obligors jointly and severally agree to pay on demand:(i) all reasonable costs and expenses incurred by the Agent in connection with the preparation, negotiation, and execution of thisAmendment and the other Loan Documents executed pursuant to this Amendment and any and all subsequent amendments, modifications, and supplements to this Amendment, including withoutlimitation, the reasonable costs and fees of the Agent’s legal counsel; and (ii) all reasonable costs and expenses reasonably incurred bythe Agent in connection with the enforcement or preservation of any rights under the Loan Agreement, this Amendment, and/or theother Loan Documents, including without limitation, the reasonable costs and fees of the Agent’s legal counsel.ARTICLE VIMISCELLANEOUS6.01. No Course of Dealing. The consents and waivers set forth herein are a one-time accommodation only and relate only to thematters set forth in Article III herein. The consents and waivers are not a consent to any other deviation of the terms and conditions ofthe Loan Agreement or any other Loan Document unless otherwise expressly agreed to by Agent and Lenders in writing.6.02. Cross-References. References in this Amendment to any Section are, unless otherwise specified, to such Section of thisAmendment.6.03. Instrument Pursuant to Loan Agreement. This Amendment is a Loan Document executed pursuant to the Loan Agreement andshall (unless otherwise expressly indicated herein) be construed, administered, and applied in accordance with the terms and provisionsof the Loan Agreement.6.04. Acknowledgment of the Obligors. Each Obligor hereby represents and warrants that the execution and delivery of thisAmendment and compliance by such Obligor with all of the provisions of this Amendment: (i) are within the powers and purposes ofsuch Obligor; (ii) have been duly authorized or approved by the board of directors (or other appropriate governing body) of suchObligor; and (iii) when executed and delivered by or on behalf of such Obligor will constitute valid and binding obligations of suchObligor, enforceable in accordance with its terms. Each Obligor reaffirms its obligations to perform and pay all amounts due to theAgent or the Lenders under the Loan Documents (including, without limitation, its obligations under any promissory note evidencingany of the Loans) in accordance with the terms thereof, as amended and modified hereby.6.05. Loan Documents Unmodified. Each of the amendments provided herein shall apply and be effective only with respect to theprovisions of the Loan Document specifically referred to by such amendments. Except as otherwise specifically modified by thisAmendment, all terms and provisions of the Loan Agreement and all other Loan Documents, as modified hereby, shall remain in fullforce and effect and are hereby ratified and confirmed in all respects. Nothing contained in this Amendment shall in any way impair thevalidity or enforceability of the Loan Documents, as modified hereby, or alter, waive, annul, vary, affect, or impair any provisions,conditions, or covenants contained therein or any rights, powers, or remedies granted therein, except as otherwise specifically providedin this Amendment. Subject to the terms of this Amendment, any lien and/or security interest granted to the Agent, for the benefit of theLenders, in the Collateral set forth in the Loan Documents shall remain unchanged and in full force and effect and the Loan Agreementand the other Loan Documents shall continue to secure the payment and performance of all of the Obligations.6.06. Parties, Successors and Assigns. This Amendment represents the agreement of the Obligors, the Agent and each of the Lenderssignatory hereto with respect to the subject matter hereof, and there are no promises, undertakings, representations, or warrantiesrelative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. This Amendment shall be binding upon and inure to the benefit of Obligors, Agent,Lenders, and their respective successors and assigns, except that (i) no Borrower shall have the right to assign its rights or delegate itsobligations under any Loan Documents; and (ii) any assignment by a Lender must be made in compliance with Section 14.3 of theLoan Agreement.6.07. Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original, but all of whichwhen taken together shall constitute a single contract. This Amendment shall become effective when all conditions precedent have beenmet and when the Agent has executed it and received counterparts bearing the signatures of all other parties hereto. Delivery of asignature page of this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of such agreement.This Amendment may be executed and delivered by facsimile or electronic mail, and will have the same force and effect as manuallysigned originals.6.08. Headings. The headings, captions, and arrangements used in this Amendment are for convenience only, are not a part of thisAmendment, and shall not affect the interpretation hereof.6.09. Miscellaneous. This Amendment is subject to the general provisions set forth in the Loan Agreement, including but not limited toSections 15.14, 15.15, and 15.16.6.10. Severability. Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be valid underApplicable Law. If any provision is found to be invalid under Applicable Law, it shall be ineffective only to the extent of suchinvalidity and the remaining provisions of the Loan Documents shall remain in full force and effect.6.11. Release.(a)EACH OBLIGOR HEREBY IRREVOCABLY RELEASES AND FOREVER DISCHARGES AGENT, LENDERS AND THEIRAFFILIATES, AND EACH SUCH PERSON’S RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, MEMBERS,ATTORNEYS AND REPRESENTATIVES (EACH, A “RELEASED PERSON”) OF AND FROM ALL DAMAGES, LOSSES,CLAIMS, DEMANDS, LIABILITIES, OBLIGATIONS, ACTIONS OR CAUSES OF ACTION WHATSOEVER (EACH A“CLAIM”) THAT SUCH OBLIGOR MAY NOW HAVE OR CLAIM TO HAVE AGAINST ANY RELEASED PERSON ONTHE DATE OF THIS AMENDMENT, WHETHER KNOWN OR UNKNOWN, OF EVERY NATURE AND EXTENTWHATSOEVER, FOR OR BECAUSE OF ANY MATTER OR THING DONE, OMITTED OR SUFFERED TO BE DONE OROMITTED BY ANY OF THE RELEASED PERSONS THAT BOTH (1) OCCURRED PRIOR TO OR ON THE DATE OF THISAMENDMENT AND (2) IS ON ACCOUNT OF OR IN ANY WAY CONCERNING, ARISING OUT OF OR FOUNDED UPONTHE LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT.(b)EACH OBLIGOR INTENDS THE ABOVE RELEASE TO COVER, ENCOMPASS, RELEASE, AND EXTINGUISH, INTERALIA, ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION THAT MIGHT OTHERWISE BE RESERVED BY THECALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW ORSUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVEMATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.(c)EACH OBLIGOR ACKNOWLEDGES THAT IT MAY HEREAFTER DISCOVER FACTS DIFFERENT FROM OR INADDITION TO THOSE NOW KNOWN OR BELIEVED TO BE TRUE WITH RESPECT TO SUCH CLAIMS, DEMANDS, ORCAUSES OF ACTION, AND AGREES THAT THIS AMENDMENT AND THE ABOVE RELEASE ARE AND WILL REMAINEFFECTIVE IN ALL RESPECTS NOTWITHSTANDING ANY SUCH DIFFERENCES OR ADDITIONAL FACTS.6.12. Total Agreement. This Amendment, the Loan Agreement, and all other Loan Documents constitute the entire agreement, andsupersede all prior understandings and agreements, among the parties relating to the subject matter hereof.[Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the day and year first written above.BORROWERS:TURTLE BEACH CORPORATION, a Nevada corporation, formerlyknown as Parametric Sound CorporationBy: /s/ John T. Hanson_________Name: John T. HansonTitle: Chief Financial OfficerVOYETRA TURTLE BEACH, INC.,a Delaware corporationBy: /s/ John T. Hanson_________Name: John T. HansonTitle: Chief Financial OfficerTURTLE BEACH EUROPE LIMITED,a company limited by shares and incorporated in England and Wales withcompany number 03819186By: /s/ John T. Hanson_________Name: John T. HansonTitle: Chief Financial OfficerBANK OF AMERICA, N.A.,as Agent and LenderBy: /s/ Matthew Van Steenhuyse_________Name: Matthew Van SteenhuyseTitle: Senior Vice President GUARANTOR CONSENTThe undersigned hereby consent to the foregoing Amendment and hereby (a) confirm and agree that notwithstanding the effectivenessof the foregoing Amendment, each Loan Document to which it is a party is, and shall continue to be, in full force and effect and ishereby ratified and confirmed in all respects, except that, on and after the effectiveness of the foregoing Amendment, each reference inany Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of like import shall mean and be a reference to theCredit Agreement, as amended by the foregoing Amendment, (b) confirm and agree that the pledge and security interest in theCollateral granted by it pursuant to any Security Documents to which it is a party shall continue in full force and effect, (c)acknowledge and agree that such pledge and security interest in the Collateral granted by it pursuant to such Security Documents shallcontinue to secure the Obligations purported to be secured thereby, as amended or otherwise affected hereby, and (d) agrees to bebound by the release set forth in Section 7.11 of the Amendment.PSC LICENSING CORP.,a California corporationBy: /s/ John T. Hanson_________Name: John T. HansonTitle: Chief Financial OfficerVTB HOLDINGS, INC.,a Delaware corporationBy: /s/ John T. Hanson_________Name: John T. HansonTitle: Chief Financial Officer Exhibit 10.25Master Services AgreementThis Master Services Agreement (hereinafter the "Agreement") is effective as of October 6, 2015 (hereinafter the "Effective Date"), by andamong Turtle Beach Corporation, (hereinafter “TB”) with principal place of business located at 100 Summit Lake Drive, Suite 100, Valhalla, NewYork 10595, and its affiliated companies, and Hon Hai Precision Industry Co. Ltd. (hereinafter "Foxconn"), with its principal place of business at2 Tzu Yu St. Tu-Cheng, New Taipei City Taiwan 23644 and its affiliated companies, a company incorporated under the laws of Taiwan, R.O.C.. Inthis Agreement, the term “Party” refers individually to TB, or Foxconn, and the term “Parties” refers collectively to TB, and Foxconn.1.Definitions1.1“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common controlwith such Person. For the purpose of this definition, the term “control” (including with correlative meanings, the terms “controlling”,“controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly,of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of votingsecurities or by contract or otherwise.1.2“Business day” means any day except Saturday, Sunday or any other day on which commercial banks located in New York or thelocation of the applicable Foxconn facility in which the Products are being produced are authorized or required by Law to be closed forbusiness.1.3"Confidential Information" means any and all confidential and proprietary information, including both technical and non-technicalinformation, exchanged among the Parties at any time, before or after the date of this Agreement, whether verbally or in writing or byother means, and including: (a) copyright, trade secret and proprietary information; (b) techniques, algorithms, firmware and softwareprograms related to the current or future proposed business, products and service of a Party; (c) information concerning research,engineering, industrial design and styling; (d) financial information, procurement requirements, purchasing information, customer lists,business forecasts, sales and merchandising information, marketing plans and marketing information; and (e) the terms and conditionsof this Agreement.1.4“Components” means materials, sub-assemblies, intermediate assemblies, sub-components, components or other parts used inmanufacture of or incorporated into the Products.1.5“Frozen Window” means, [*****].1.6“Governmental Authority” means any transnational, domestic or foreign federal, state or local, governmental authority, department,court, board or other regulatory authority, agency, self-regulatory organization or official, including any political subdivision thereof.1.7“IPRs” means any and all intellectual and industrial property and other proprietary rights, arising in any jurisdiction, whether registered orunregistered, including such rights in: (a) patents, patent applications, inventions and other industrial property rights, including allapplications, registrations, extensions, renewals, continuations, continuations-in-part, combinations, divisions and reissues of theforegoing, (b) non-public technical or business information, Know-How, trade secrets, ideas, confidential information and rights to limitthe use or disclosure thereof by any person, in each case whether or not patentable including business and technical information,inventions and discoveries, (c) works of authorship, whether or not copyrightable, including writings, databases, computer softwareprograms and documentation; (d) copyrights, mask works, registrations or applications for registration of copyrights or mask workrights, and any renewals or extensions thereof; (e) moral rights; and (f) all rights of any kind in databases,[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] inventions, designs, industrial designs, topographies, firmware, software, trade names, business names, internet domain names,trademarks, service marks, devices or other indicators of source (whether or not registered).1.8“Know-How” means information, practical knowledge, techniques, and skill required to manufacture a given Product or technology, andany training in any of the foregoing or physical embodiments thereof.1.9“Person” means a natural person, firm, corporation, partnership, association, limited liability company, union, trust or estate or anyother entity or organization whether or not having separate legal existence, including any Governmental Authority.1.10“Product” means the products manufactured by Foxconn hereunder, each of which will meet cosmetic, technical and performancespecifications set forth in one or more Specification of Product (“Product SoP”) to be prepared and agreed to by the parties withrespect to each such product.1.11“Purchase Order” or “PO” means a purchase order in the form attached hereto as Schedule A issued to Foxconn by TB either by fax oremail.1.12“Services” means any services provided by Foxconn in connection with the manufacturing and delivery of Products specified in a PO,which may include one or more of the following: (a) procuring Components or tooling; (b) manufacturing, testing, performing qualitycontrol, assembling and providing other related production services; (c) procuring cables and accessories, printed materials and otherComponents required for the packaging of Products as finished retail goods; or (d) obtaining required regulatory certifications andapprovals.1.13“Specifications” means the design, functional and performance specifications provided by TB (including, without limitation, Bill ofMaterials (“BOM”), operating parameters, industrial design and styling, electrical specifications, testing procedures other qualityrequirements or metrics for Products) in connection with the design, production, manufacture and testing of each Product.1.14“Vendor” means a third party provider who is contracted by Foxconn to assist in the design, production or manufacture of Products orto provide any Services.1.15“BOM Cost” means the material cost for a component, which may be [*****].1.16“Guided Turnkey (“GTK”) Components” means components that Foxconn purchases from a Vendor designated by TB pursuant toTB negotiated pricing and/or terms and conditions.1.17“Turnkey (“TK”) Components” means components that Foxconn may open source. Supplier details must still be provided to TB onthe quote template and any changes reported immediately to TB.2.Pricing, Payment and Delivery2.1General Purchasing Terms: The prices for Services and Products shall be as may be agreed from time to time by Foxconn and TB inaccordance with Section 2.2 hereof. TB shall not be liable for any amounts, fees or costs to Foxconn except pursuant to a valid POissued by TB and accepted by Foxconn on the terms and conditions of this Agreement, or as otherwise specified in this Agreement.Unless otherwise specified in the PO, the price specified in such PO shall be the total gross amount payable in respect of the Productsand Services ordered thereunder, inclusive of all charges and amounts whatsoever, including packaging, boxing and processing[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] and all applicable national, provincial, local and other taxes, duties and charges. Payment for Products shall be in US Dollars and duewithin the agreed payment term after the date of delivery.2.2Price for TB Products: The price for the headset Products will be calculated on a [*****] basis, including [*****]. The price for theHyperSound Products will be calculated on a [*****] basis, including [*****]. In connection with each Product, Foxconn shall provide aproposed price quote and [*****] for each Product in accordance with the form of Quote Template provided by TB or as mutually agreedto in writing (the “Price Quote”), including [*****]. Foxconn may not change any Components or otherwise deviate from the line itemsincluded in the Quote Template without TB’s prior written approval. The Price Quote for a Product will remain in effect for [*****] or suchother period as the Parties may agree upon from time to time. [*****]2.3Continuous Cost Reductions: Foxconn will use commercially reasonable efforts to continually reduce manufacturing costs related tothe Products, including those Component, labor and overhead costs. Foxconn will assign personnel to review such costs on a monthlybasis and propose reductions, if any such cost reduction opportunities are identified, to TB in writing, which will be incorporated into thePrice Quote if accepted by TB and reflected on the Quote Template. Savings will be reviewed by TB and discussion of gain sharing willbe at TB’s discretion. Once profit percentage reaches [*****], then profit dollars will remain constant at the amount calculated on thelocked quote and will not be affected by these TB-accepted cost reductions.2.4Purchase Orders and Acceptance: Each PO shall have a unique order number and specify a single part-number and quantity with asingle line item, required date and delivery terms. Foxconn shall, within [*****] of receipt of a PO from TB, acknowledge receipt of suchPO. Foxconn must respond to said PO within [*****] by: (a) agreeing to provide the Products and/or Services specified therein byindicating its acceptance by email or such other method as the Parties may agree upon (b) rejecting such PO by indicating its rejectionby email or such other method as the Parties may agree upon; or (c) rejecting such PO, and proposing changes to the PO, byindicating its rejection and including a detailed counterproposal by email or such other method as the Parties may agree upon;provided, [*****] No terms and conditions in any counterproposal by Foxconn shall be deemed accepted by TB until incorporated in arevised PO issued by TB to Foxconn in accordance with this Agreement. The Parties agree that the only method for validly rejecting orproposing changes to a PO shall in accordance with the procedures set forth in this Section 2.4. Any other form of response, includingany different, additional or contrary terms contained in any Foxconn or TB form or pre-printed response, shall be disregarded. TB maywithdraw a PO at any time prior to Foxconn’s acceptance. Notwithstanding anything to the contrary, Foxconn agrees, during the term ofthis Agreement, to manufacture all of TB’s requirements for TB Products as ordered by TB at the price determined in accordance withthis Section 2 unless otherwise agreed to in writing.2.5Change Orders: Subject to the terms below, TB may change the shipping instructions, extend the delivery date as to all or part of anyorder, or cancel all or part of an order set forth in any accepted PO by providing written notice to Foxconn prior to the delivery shipmentdate specified on the PO (a “Change Order”).1)Extending Delivery Date. Prior to the start of the Frozen Window, [*****]. For the purposes of calculating the number ofunits the delivery date of which may be extended, no distinction shall be made between Products of different types orderedin a single PO and TB may allocate the permitted percentage of units to be rescheduled among different Product types inits discretion.2)Cancellation: Prior to the start of the Frozen Window, TB may provide a Change Order cancelling an order for Products[*****]. Following such a cancellation, Foxconn will be entitled to [*****].[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] 2.6Non-Recurring Engineering Activities: TB may order engineering services from Foxconn for the design and development ofProducts, including but not limited to the product development phase of new products, product certification, tooling and samples.Manufacturing costs shall not include any Non-Recurring Engineering (“NRE”) activities and NRE charges shall be quoted separatelyfrom the Price Quote and shall be paid in accordance to the regular payments terms of this Agreement. Any IPR developed inconnection with such NRE activities shall constitute TB IPR and Foxconn shall deliver any documentation related thereto to TB uponthe completion of any NRE activities (or earlier upon TB’s request), provided that TB has fully paid for the NRE charges. Engineeringresources shall be listed by title, discipline or other discrete methodology and the level of support shall be agreed to as part of thequotation process. TB’s engineering team shall agree in writing to any deliverables for NRE support. The Parties shall negotiate in goodfaith and execute an “Engineering Services Agreement” reflecting the foregoing within [*****] of the execution of this Agreement.2.7Extraordinary Expenses: Foxconn will deliver a summary of all extraordinary expenses incurred by Foxconn in accordance with theterms hereof that are not included in the Agreed Price by the [*****] of the following month. [*****].2.8Delivery: Foxconn shall comply with TB’s billing and delivery instructions on the respective PO or as otherwise communicated toFoxconn in writing. Foxconn shall deliver the Products ordered by TB to such location specified, and on the date specified, in the PO.Foxconn shall execute and deliver a bill of sale or any other document that may be reasonably requested by TB in order to conveygood title to TB at the time of delivery. TB is not required to accept any Non-Conforming Products, notwithstanding any usage of tradeor common practices to the contrary. For the avoidance of doubt, the acceptance of Products for delivery by a common carrier orshipper does not constitute TB’s acceptance of such Products and acceptance of Products by TB shall not preclude any other remedyby TB in respect of defective or Non-Conforming Products or otherwise for breach of this Agreement. In the event that Foxconndelivers fewer Products than ordered by TB, TB will accept the lesser quantity and receive a credit for the Product shortfall. To theextent TB incurs additional costs due to improperly marked or routed Products, TB shall be entitled to request a Credit Note on suchcosts from Foxconn.2.9Delivery Date: Foxconn shall deliver the Products to TB on the date indicated by TB in the relevant PO. If Foxconn fails to maketimely deliveries of the Products meeting the requirements set forth in this Agreement, [*****]. Foxconn shall ensure that [*****]. IfFoxconn fails or has reason to believe it will fail to make deliveries at the specified time, Foxconn shall promptly notify TB and employaccelerated measures such as [*****].2.10Import/Export Requirements: Foxconn shall 1) comply with all import and export laws and regulations and maintain appropriate importand export documentation, 2) provide an appropriate certification stating the country of origin for Products sufficient to satisfy therequirements of the Governmental Authorities of the destination country or countries and any applicable customs or import/exportregulations of such countries, including without limitation those of the United States, 3) ensure that Products and packaging ofProducts are marked with the country of origin, as required by applicable regulations of any jurisdiction or as otherwise reasonablyrequested by TB, 4) at TB's request, (a) make available for inspection and audit all import and export documentation for the Productsand technology included in the Products; (b) assist TB in determining an appropriate Export Control Classification Number for allProducts; and (c) provide export screening for all shipments of Products or Parts. Foxconn will not, directly or indirectly, export, re-export or transship any Products in violation of any applicable U.S. export control laws and regulations or any other applicable exportcontrol laws promulgated and administered by the government of any country having jurisdiction over the parties or the transactionscontemplated herein and, at TB’s request for product importation into the USA, designate TB or its designated customer as theimporter of record and if TB is not the importer of record, provide TB with[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] documents required by the customs authorities of the country of receipt to prove proper importation.2.11Engineering Changes. TB shall be liable for any and all obsolete materials, work in process product, semi-finished goods, finishedgoods, material cost, cost of rework, test, upgrade, scrap, other handling charges, and any other costs that result from theimplementation of any engineering changes.2.12Excess and Obsolescence: TB shall be liable for any excess materials, parts, and work-in-process and finished goods prepared formanufacturing Products as required by TB (including with respect to any end-of-life products), provided that [*****]. Materials shall bedeemed excess and/or obsolete if [*****].3.Materials Management3.1Forecasts: TB will provide Foxconn a [*****] (each, a “Forecast”) for Products TB anticipates ordering.3.2Materials Liability: TB will be liable in accordance with Section 2.12 for any and all Components ordered within material lead-time andminimum order quantity to support approved Forecasts and, subject to Section 3.8, any and all Components Foxconn purchasesoutside standard order lead-time provided that such order was placed by Foxconn at the direction of TB.3.3Component Supplier Ordering Plans: Foxconn shall prepare and provide [*****] ordering plan for each applicable Component supplier.Each such ordering plan will contain the following data: [*****].3.4Sourcing of Non-Consigned Components: Foxconn will buy all Components (other than Consigned Components) and materials fromVendors listed on the Approved Vendor List (“AVL”) provided by TB. Foxconn shall inform TB of any Vendors it intends to use in themanufacture of any TB Products or providing any Services to TB. In the event a Component or material is not covered under the AVL,Foxconn shall guarantee that Components and/or materials comply with TB quality requirements. Foxconn shall not employ anyVendor, or otherwise subcontract any aspect of the design, product, manufacturing or testing of TB Products or providing Services toTB, without TB’s prior express written consent.3.5Consigned Components: TB shall retain all right, title and interest in Components furnished by TB to Foxconn (the “ConsignedComponents”), including all Consigned Components in Foxconn’s inventory and all Consigned Components in-transit to, and in-process at, a Foxconn facility. Foxconn assumes liability for Consigned Components in its possession against any non-manufacturingloss or damage Foxconn shall submit an inventory reconciliation of all Consigned Components on a monthly basis to TB. Within [*****]following TB’s written request, Foxconn will return all Consigned Components to TB, or to any other location specified by TB, at TB’scost.3.6Management of equipment, molds, jigs and tools, etc.: Foxconn shall be responsible for the management and maintenance ofequipment, molds, tooling, dies, jigs and tools, etc. and measuring instruments and testing apparatus, etc., necessary for production ofthe Products (hereinafter, the “Production Materials”). Foxconn shall provide reports regarding the status of Production Materialsmonthly. [*****] Foxconn shall not use TB-paid Production Materials or Consigned Components in the manufacture of any non-TBproducts or for any purpose other than fulfilling its responsibilities under this Agreement.3.7Scrap Material Disposal: Foxconn shall be responsible for all costs, taxies, duties and activities related to scrap material disposal ifthe cause for such scrap is attributed to Foxconn’s sole fault.[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] In all cases, Foxconn shall comply with all laws, rules and regulations regarding such disposal processes and procedures.3.8Inventory Carrying Costs: TB may from time to time request Foxconn to purchase materials outside standard Component lead-times(“Advance Purchase Components”). TB shall reimburse Foxconn for any inventory carrying costs resulting from Advance PurchaseComponents, excess Components to the extent resulting from changes by TB to its forecasts and obsolete Components to the extentresulting from engineering changes required by TB. Such inventory carrying costs shall : [*****]. Foxconn shall invoice TB on a monthlybasis for the inventory carrying costs with a detailed calculation of such carrying costs. Upon request by TB, Foxconn shall provideany information necessary to TB to support how these inventory carrying costs are calculated and tracked.4.Quality Requirements4.1Manufacturing Process and Specifications: Foxconn shall manufacture all Products in accordance with the Specifications providedby TB. Additionally, all products manufactured for sale as FDA-regulated medical devices for HyperSound hearing systems shallcomply with the separate quality agreement titled “[*****]. Foxconn shall not modify or deviate from any Specifications without TB’sprior written consent, provided, however, that Foxconn shall immediately notify TB of any design errors, defects, ambiguities,inconsistencies or omissions in any Specifications which may come to the attention of Foxconn. Additional manufacturing and qualitytesting processes for Products shall be mutually agreed upon and shall not be changed by Foxconn without TB’s prior written consent.4.2Product Regulations Conformity: Unless otherwise specified in the relevant Product SoP or agreed to by TB in writing and withoutlimitation of any other product quality requirements, Products (including any labelling, packaging and inserts) shall adhere to thefollowing requirement and regulations, as may be amended from time to time, and shall be labelled accordingly: [*****]. Additionally,each Product will include a unique serial number clearly labelled on the outside of final packaging, any inner cartons and carton packs.As of [*****], Foxconn will implement Unique Device Identifier (UDI) numbering in compliance with FDA’s UDI regulatory requirementsfor all products manufactured for sale as FDA-regulated medical devices. Foxconn will implement and utilize a serial number trackingsystem to track the use of specific Components in Products via bar code tracking.4.3Quality System and Quality Assurance: Foxconn shall implement quality systems, which shall be subject to TB’s review andapproval, standards to ensure process integrity, allow for early problem detection and minimize occurrence of product quality problemsand warranty failures. This shall include, but not be limited to having adequate technical resources, formal process documentation,results recording, traceability of processing, monitoring manufacturing processes and supply chain service activities, failure analysisskills, capabilities and repair, improving material and procurement processes and implementation of corrective actions. Such qualityassurance systems will be applied to both incoming parts and outgoing finished goods. [*****].4.4NPI Involvement: Foxconn shall designate a team of key quality engineering personnel to be involved in the various NPI activities,such as the development of quality processes, the establishment of audit facilities and facilitation of the proto-build. Foxconn shallensure that the resource allocation of the NPI team does not affect the manufacturing operations and processes and that any newproduct introductions do not have a negative impact on current product manufacturing operations and processes. For each NPI,Foxconn will create written test plans (each, a “Test Plan”) to [*****].[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] 4.5Production Quality Management: Foxconn will track and ensure performance metrics that measure the amount and type of [*****] in amanner satisfactory to TB. These measures might include, but are not limited to, [*****]. Foxconn will ensure an efficient system is inplace to block and segregate non-conforming materials.4.6Incoming Quality: Foxconn must implement processes and infrastructure to perform applicable incoming inspection/test onComponents, including a quality assurance system to ensure [*****], within [*****] of the Effective Date of this Agreement. Foxconnshall implement a monitoring and reporting system satisfactory to TB in order to manage the quality of the supply chain, and isresponsible for managing and resolving any Component quality issues, including, but not limited to, determining the nature of theissues, escalating issue, setting performance metrics and monitoring progress, and providing TB regular and timely updates.4.7Process Quality: Foxconn shall ensure that the finished Products comply in all respects with the TB Specifications, including qualityand reliability standards, by industry mutually agreed testing methods, which will be no less than what is generally utilized in theconsumer electronics industry.4.8Outgoing Quality: Foxconn must have internal processes and infrastructure in place to perform Product audits pursuant to a mutually-agreed sampling plan (the “Sampling Plan”) to ensure only Products meeting all Specifications will be released from production and toperform finished goods inspection pursuant such Sampling Plan. Foxconn will have processes and infrastructure to perform [*****]outgoing inspection of each whole pallet configuration (such as labelling, unit quantity, and orientation) prior to container loading.Foxconn shall start at [*****]. If the quality is deemed by TB to be acceptable based on outgoing quality, TB Audits and Field failureanalysis, Foxconn may reduce inspection levels to Level II with written agreement from TB. Foxconn shall ensure that the rate offailure of a particular Product (or series or family of Products) will never exceed [*****] of the Products delivered over a [*****] perioddue to a single root cause and/or single failure type and that there are effective processes to escalate, manage, contain and resolveissues in a timely way to minimize the exposure of such failure. In the event of failure, Foxconn needs to perform the rescreen/reworkto minimize risk of defective units being shipped out as agreed to by Foxconn. TB can modify sampling rates as needed and deemednecessary to maintain outgoing quality levels.4.9Field Failure Analysis: Foxconn shall support field failure analysis process as established in the SOW and drive product qualityimprovements, including by [*****].4.10Audit and Inspection Rights: TB shall have the right, at any time during the term of this Agreement, to audit Foxconn’s compliancewith the terms of this Agreement (an “Audit”). TB may appoint one or more independent auditors subject to Foxconn approval andconfidentiality obligations, not to be unreasonably withheld, conditioned or delayed (an “Independent Auditor”) to assist with an Audit.1)Books and Records Audit: The scope of an Audit may include [*****]. Foxconn shall and shall cause each of itsRepresentatives to and request that each of its Vendors to, cooperate fully with any Audit. Foxconn shall further make its,and each of its Affiliates’, Vendors, employees, contractors, directors, officers and other representatives related to TBProducts available for interview by TB and any Independent Auditor at reasonable times and places, and shall cause allsuch Persons to cooperate fully with any Audit, and shall promptly provide any records or other documents relating to thisAgreement, the Product or the Services reasonably requested by TB or an Independent Auditor.[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] Foxconn shall retain and preserve all contracts, POs, Forecasts and invoices relating to this Agreement for a period of atleast [*****] from the date such document was created or received.[*****]The Independent Auditor shall be a member of the “Big Four” accounting firms and shall provide to TB all relevantinformation related to the discrepancies discovered. 2)Spot Testing: Upon prior notice to Foxconn, TB or its authorized representative(s) may conduct spot functional tests of theProducts at Foxconn’s facility at which Products are being manufactured during Foxconn’s normal business hours. TheParties shall mutually agree upon the timing of such investigations, which shall be conducted in such a manner as not tounreasonably interfere with Foxconn’s operations.3)Manufacturing Quality Audits: TB retains the right to inspect and audit all manufacturing operations and quality controlprocesses involving their products to confirm the integrity and compliance by Foxconn with its quality system and theSpecifications.4)Site Inspections: TB and any Independent Auditor will have the right to perform on-site inspections during normal businesshours at Foxconn’s, or its Representative’s, premises and facilities, including review of production records related toProducts. Foxconn will provide TB’s inspectors with reasonable assistance at no additional charge.4.11Working Conditions: Foxconn shall, and shall cause its Affiliates and Vendors to, comply with all applicable laws, regulations, andguidelines relating to employment, working conditions, occupational health and safety, and environmental compliance. Foxconn willmaintain its membership in good standing with the Electronic Industry Citizenship Coalition (EICC). Additionally, Foxconn shall allowany counterparties of TB who may require social and environmental standards audits to be conducted at manufacturing facilities toconduct inspections of its facilities during normal business hours, with the presence of TB representatives if Foxconn so requests. TBwill be responsible for the fees of the auditor in connection with any initial audits. Foxconn shall be responsible for any additional re-audit expenses relating to failure to pass audit requirements as well as any costs incurred by TB resulting from failure to pass socialcompliance and environmental standard audits.5.Intellectual Property and Proprietary Materials5.1Intellectual Property: All IPRs and other legal, moral, and equitable rights of any kind (including any physical and electronicembodiments of thereof, including BOMs, price analyses, design, documentation, graphic renderings, industrial design and stylingsketches, diagrams, notes, software, firmware, computer files, memoranda, and any documents or materials generated from, including,or reflecting any such IPRs (collectively, the “TB Proprietary Materials”)) provided by TB or any of its Affiliates, employees, or agentsto Foxconn or Foxconn Representatives (the “TB IPRs”) shall belong exclusively to TB and shall constitute Confidential Information ofTB. Foxconn shall use such IPRs only as authorized in writing by TB and only to manufacture TB Products for TB and for no otherpurpose whatsoever. Within five (5) business days of the expiration or early termination of this Agreement or at TB’s request, all copiesof TB Proprietary Materials under the[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] possession or control of Foxconn or Foxconn Representatives shall immediately and unconditionally be returned to TB.Subject to Section 5.2 below, Foxconn shall retain ownership of all intellectual property rights, including without limitation, patent rights,copyrights, trademarks, trade secrets and moral rights: (a) owned by Foxconn as of the Effective Date, (b) developed by Foxconnwithout any involvement of TB and without use of, reference to or reliance upon any TB confidential or proprietary information, TBProprietary Materials or TB IPRs, or (c) related to manufacturing processes, tooling, generic testing, or any such technology that at thetime of conception by Foxconn was not exclusively used for Products (“Foxconn IP Rights”); provided, however, Foxconn IP Rightsshall not include any intellectual property rights based on or derived from TB IPRs, TB Proprietary Materials, TB Developed IPR orConfidential Information of TB and Foxconn will only use TB IPRs, TB Proprietary Materials, TB Developed IPR and ConfidentialInformation of TB for the manufacture of Products and/or rendering of Services for TB, in each case, under this Agreement.5.2TB IPRs Developed by Foxconn: Any IPRs and other legal, moral and equitable rights of any kind conceived, reduced to practice,developed, authored or otherwise made by Foxconn or its Affiliates, Vendors, agents, directors or employees (collectively, the“Foxconn Representatives”) in connection with or related to the Services, including as a result of any NRE activities (the “DevelopedIPR”), including the design and manufacture of the Product, shall constitute TB IPRs and belong exclusively to TB, provided that TBhas fully paid for the actual documented NRE cost incurred by Foxconn in connection with such Developed IPR (the “TB DevelopedIPR”). The Parties acknowledge that the TB Developed IPR is being created at the request of TB and shall be deemed a “work madefor hire” as defined under U.S. copyright law for TB and exclusively owned by TB. To the extent any TB Developed IPR is deemed notto be a work made for hire made for TB, Foxconn hereby unconditionally and irrevocably assigns, on behalf of itself and the FoxconnRepresentatives, to TB all rights, title and interests in and to the TB Developed IPR. Foxconn shall cause the FoxconnRepresentatives to execute any additional documents and takes such actions as are necessary to register, record, and perfect TB’sright in the TB Developed IPR. Additionally, if any TB Developed IPR includes patentable rights, Foxconn shall give TB prompt writtennotice thereof and shall furnish TB with all relevant information, including but not limited to a complete written disclosure thereof,requested by TB with respect to such patentable rights. Foxconn represents, warrants and covenants that it will have in place witheach Foxconn Representative a written agreement pursuant to which such Foxconn Representative assigns all rights, title and interestsin and to the TB Developed IPR to Foxconn. Foxconn and the Foxconn Representatives shall have no further interest in the TBDeveloped IPR and shall not use any of the TB Developed IPR for any purpose whatsoever other than to perform Foxconn’s obligationsunder this Agreement. Foxconn shall immediately provide any documentation and materials relating to the TB Developed IPR to TBupon any request by TB.5.3License to Foxconn: TB hereby grants to Foxconn a limited, non-exclusive, revocable, royalty-free license, during the term of thisAgreement, under TB IPRs related to the TB Product, solely to the extent necessary for Foxconn to perform the Services for TB underthis Agreement. Foxconn may not sublicense any of its rights under the foregoing license except to its Affiliates and Vendors solely tothe extent necessary for such Affiliates and Vendors to provide the Services for TB under this Agreement and only if such Vendors andAffiliates agree in writing with Foxconn to be subject to and comply with all applicable terms and conditions of this Agreement.5.4Protection of TB Proprietary Materials: Foxconn acknowledges TB's right, title and interest in and to TB IPRs and TB ProprietaryMaterials and will not at any time do or cause to be done any act or thing contesting or in any way impairing or intended to impair anypart of such right, title or interest. If Foxconn becomes aware of any infringement of TB's IPRs, Foxconn shall immediately notify TB ofsuch infringement and, at TB’s own cost and expense, cooperate with TB in the enforcement of TB's IPRs. Foxconn shall not, andshall cause the Foxconn[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] Representatives to not, apply for or otherwise seek to register or obtain any TB IPRs or TB Developed IPRs.5.5Information and Material: Within five (5) business days after TB’s written request, Foxconn shall furnish to TB, at TB’s expense, thefollowing for any and all Products:[*****]6.Product Warranty6.1Warranty: Foxconn represents and warrants on an ongoing basis that: [*****]Notwithstanding the foregoing, [*****].6.2Non-Conforming Products: In addition to any other remedies that TB may have, as to any Products which violate any representationor warranty of Foxconn (“Non-Conforming Products”), TB shall be entitled to a credit equal to [*****]. TB may use the services of thethird party returns and refurbishment vendor to test returned Product and to provide reports documenting the quantity and nature ofeach defect and, if requested, will provide to Foxconn copies of such report and samples of such Non-Conforming Products forFoxconn’s review. Foxconn shall issue a Credit Note to TB for any Products mutually agreed to be Non-Conforming Products, includingreasonable shipping, receiving and testing costs incurred by TB for such units. TB and will retain the defective product for use in itsrefurbishment operations.6.3Defective Product and Hazard Conditions: If either Party becomes aware of any information which reasonably supports a conclusionthat a defect may exist in any Product, and such defect could cause (a) [*****] (hereinafter a "Hazard") or (b) [*****] (hereinafter a"Defect"), such Party shall immediately notify the other Party of the Hazard or Defect. Notice to the other Party shall precede notice toany governmental agency, unless otherwise required by law. Foxconn and TB shall promptly exchange all relevant data and, ifpractical, meet to review and discuss the information, tests and conclusions relating to the alleged Hazard or Defect. At any suchmeeting the Parties shall discuss the basis for any action, including a recall, and the origin or causation of the alleged Hazard orDefect, provided, however, that the TB shall have the right to make the ultimate decision regarding any recall or other method ofaddressing a Hazard or Defect. Foxconn shall cooperate with TB and provide reasonable assistance in facilitating such recall or otheraction at TB’s request. Foxconn shall be solely responsible for all costs resulting from such Hazards or Defects if such Products areNon-Conforming Products, including but not limited to the costs of effecting a recall and the related logistics, transportation and reworkcosts to TB. Each Party shall, on request, provide to the other reasonable assistance in (a) determining how best to deal with theHazard or Defect and (b) preparing for and making any presentation before any governmental agency which may have jurisdiction overHazards or Defects involving Products.6.4Warranty Costs: The Parties shall review on a [*****] basis the accrued warranty costs as compared to the costs for replaced productand refunds. The Parties shall negotiate in good faith the warranty costs for the Products.7.Additional Covenants of Foxconn7.1Exclusivity: Foxconn shall manufacture TB Products exclusively for TB, and shall not provide any TB Product to any other Personwithout TB’s prior written consent. Without limitation of the foregoing, Foxconn shall not, and shall cause each of its respectiveAffiliates not to, sell TB Products under a different label in any market without TB’s prior written consent.[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] 7.2Business Continuity Plan: Foxconn shall develop and annually evaluate and test a formal business continuity plan (a “BCP”) detailingstrategies for response to, and recovery from, a broad spectrum of potential disasters. TB shall have the right to review the BCP andresults of its annual evaluation and testing. Foxconn is responsible for maintaining its facilities and operations according to applicableand prudent safety, security and fire protection standards and its BCP. Upon reasonable advance written notice from TB, Foxconn willallow TB and its designated representatives to visit and perform loss control audits of the facilities and operations during normalbusiness hours and make reasonable recommendations for improvement to loss control processes. Foxconn shall review any suchrecommendations and implement any recommendations or alternative solutions upon which the Parties mutually agree.7.3Compliance with Law and Standards: In performance of its obligations under this Agreement, both Parties agree to comply with allapplicable laws, rules, regulations, orders and ordinances of the United States and any other state or country with jurisdiction over theParty or the Party’s activities in performance of its obligations hereunder, and Foxconn agrees to comply with (a) ProductSpecifications and (b) TB manufacturing, social and ethical standards.7.4Insurance: Foxconn shall maintain insurance coverage in such amounts and coverage as reasonable and appropriate for the scope ofits operations under this Agreement, including without limitation workers' compensation, comprehensive general liability insurance andproduct liability coverage, and shall name TB as an additional insured thereunder for issues not primarily arising from TB negligence orwillful misconduct.8.Confidential Information, Liability and Indemnification8.1Confidential Information: Each Party shall, during the term of this Agreement and at all times thereafter, (x) hold all ConfidentialInformation of the other Party in trust and in the strictest confidence, (y) not use, duplicate, reproduce, distribute, disclose, or otherwisedisseminate such Confidential Information of the other Party without the other Party’s express written consent, except in theperformance of its duties under this Agreement and (z) protect the Confidential Information from disclosure. Each Party shall takereasonable measures to maintain the confidentiality of the other Party’s Confidential Information. Each Party will immediately givenotice to other Party of any unauthorized use or disclosure of Confidential Information. Each Party agrees to assist the other Party inremedying such unauthorized use or disclosure of Confidential Information. A disclosure of Confidential Information: (a) in response toa valid order by a court or other Governmental Authority, or (b) otherwise required by law, shall not be considered to be a breach of thisAgreement or a waiver of confidentiality for other purposes; provided, however, that such Party shall: (i) provide prompt written noticethereof to the other to enable it to seek a protective order, confidential treatment or otherwise prevent such disclosure, (ii) cooperate inseeking such protective order or treatment and (iii) furnish only the portion of Confidential Information legally required to be disclosedand shall use its best efforts to ensure confidential treatment will be accorded such information.8.2Foxconn Indemnification: Foxconn agrees to defend, indemnify and hold harmless TB, its customers, and their respective directors,officers, employees, agents, customers and distributors from and against any and all claims, actions, demands, legal proceedings,liabilities, damages, judgments, settlements, reasonable costs and expenses, including, without limitation, attorneys’ reasonable feesand costs, arising out of or in connection with any alleged or actual: [*****] (collectively referred to as “Claims”).8.3TB Indemnification: TB agrees to defend, indemnify and hold harmless Foxconn, its customers, and their respective directors,officers, employees, agents, customers and distributors from and against any and all claims, actions, demands, legal proceedings,liabilities, damages, judgments,[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] settlements, reasonable costs and expenses, including, without limitation, attorneys’ reasonable fees and costs, arising out of or inconnection with any alleged or actual: [*****].9.Termination and Term of Agreement9.1Term of Agreement: This Agreement shall begin on the Effective Date and continue for a period of [*****] from the date hereof (the“Initial Term”), unless earlier terminated under any of the following provisions:1)Breach: Either Party may terminate this Agreement, effective [*****] after serving written notice, if the other Party commitsa material breach of the terms hereof, unless, in the case of a breach capable of remedy: (a) specific action to cure thebreach is taken within [*****] of the receipt by the defaulting Party of notice specifying the breach and requiring its remedy,(b) the breach is remedied in all material respects within [*****] of the receipt by the breaching Party of notice specifying thebreach and (c) the breaching Party takes prompt and reasonable action to minimize the effect of such breach and to preventfuture such breaches.2)Insolvency: TB may terminate this Agreement upon [*****] notice if Foxconn (a) enters into bankruptcy, liquidation, orsimilar proceedings, (b) becomes insolvent or unable to pay its debts in the ordinary course of business or (c) ceases doingbusiness.3)Convenience: Following the Initial Term of this agreement, either party may terminate this Agreement without cause uponno less than [*****] prior written notice.9.2Extension: This Agreement will automatically renew for an extended term of [*****] at the expiration of the Initial Term or any extensionthereof, unless either Foxconn or TB provides written notice of non-renewal at least [*****] prior to such expiration.9.3Surviving Termination: At least [*****] prior to the termination date of this Agreement, Foxconn will provide any documentationreasonably requested by TB to reconcile its Consigned Components and other inventory held by Foxconn and to carry on its activitieswith Vendors as provided in this Agreement, including Vendor contact information and purchasing records. For a period of [*****]following the termination date of this Agreement, Foxconn will provide TB with reasonable assistance and information to facilitate thereturn of Consigned Components and other inventory materials to TB and for the uninterrupted continuation of TB’s purchasingactivities initiated under this Agreement. After the expiration or early termination of this Agreement in accordance with the terms hereof,this Agreement shall forthwith become null and void, and there shall be no further liability or obligation on the Parties; provided,however, that (i) this Section 9.3 and Sections 5, 6, 7.1, 8, and 10 shall survive termination of this Agreement, and (ii) each Party shallremain liable to the other Parties for any breach of this Agreement existing at the time of such termination or in respect of any POaccepted prior to termination.10.General10.1Governing Law and Dispute Resolution: This Agreement shall be construed in accordance with the laws of the state of California(without giving effect to any choice or conflict of law provision or rule that would cause the application of laws of any jurisdiction otherthan those of the state of California) and the Parties submit to the exclusive jurisdiction of the federal courts located in the SouthernDistrict of California. The Parties hereby irrevocably waive any and all claims and defenses either might otherwise have in any action orproceeding in any of such courts based upon any alleged lack of personal jurisdiction, improper venue, forum non conveniens or anysimilar claim or defense. The Parties agree that the United Nations Convention on Contracts for the International Sale of Goods (1980)is specifically excluded from application to this Agreement.[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] 10.2Notices: Any notice or other communication under this Agreement shall be in writing and shall be deemed to have been fully given ormade when personally delivered, delivered by a reputable express courier service, or when sent by electronic mail to the addresses setforth below if sent between 8:00 a.m. and 5:00 p.m. recipient’s local time on a business day, or on the next business day if sent byelectronic mail to the addresses set forth below if sent other than between 8:00 a.m. and 5:00 p.m. recipient’s local time on a businessday, or three (3) calendar days after being mailed by registered or certified mail, postage prepaid, to the following addresses or suchother addresses as a Party may provide by notice to the other Party from time to time:For Foxconn: [*****]For TB:[*****] 10.3Assignment: Neither this Agreement, nor any rights or obligations contained therein, may be assigned or delegated by either Partywithout the prior written consent of the other Party, and any such purported assignment or delegation shall be void and of no effect.Subject to the foregoing, this Agreement will inure to the benefit of each Parties’ successors and assigns.10.4Amendments and Waivers: No amendment, modification or waiver of any provision of this Agreement shall be effective unless setforth in a writing executed by an authorized representative of each Party. No failure or delay by any Party in exercising any right, poweror remedy will operate as a waiver of any such right, power or remedy. No waiver of any provision of this Agreement shall constitute acontinuing waiver or a waiver of any similar provision unless expressly set forth in a writing signed by an authorized representative ofeach Party.10.5Severability: Should any provision herein be deemed invalid or unenforceable, such provision will be amended to achieve as nearly aspossible the same economic effect as the original provision and the remainder of this Agreement shall remain in full force.10.6Independent Parties: The relationship created between Foxconn and TB under this Agreement shall be that of independentcontractors. There is no relationship of agency, partnership, joint venture, employment or franchise between the Parties. Neither Partyhas the authority to bind the other or to incur any obligation on its behalf.10.7Specific Performance: Each Party hereto agrees that its obligations hereunder are necessary and reasonable in order to protect theother Parties to this Agreement, and each Party expressly agrees and understands that monetary damages would inadequatelycompensate an injured Party for the breach of this Agreement, that this Agreement shall be specifically enforceable and that, inaddition to any other remedies that may be available at law, in equity or otherwise, any breach or threatened breach of this Agreementshall be the proper subject of a temporary or permanent injunction or restraining order, without the necessity of proving actual damagesor posting bond. Further, each Party hereto waives any claim or defense that there is an adequate remedy at law for such breach orthreatened breach.10.8Interpretation: When a reference is made in this Agreement to Sections, paragraphs or Schedules, such reference shall be to aSection, paragraph, or Schedule to this Agreement unless otherwise indicated. The headings contained in this Agreement are forreference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include,""includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words"hereof", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a wholeand not to any particular provision of this Agreement. The terms defined in the singular have a[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] comparable meaning when used in the plural, and vice versa. The Schedules hereto are an integral part of this Agreement and shall bedeemed part of this Agreement and included in any reference to this Agreement. No Party will be deemed, or construed by any court, tobe the drafter of this Agreement, which Agreement will be deemed to have been jointly prepared by the Parties. It is the intent of theParties that this Agreement and its addenda will prevail over the terms and conditions of any PO or other instrument.10.9Entire Agreement: This Agreement sets forth the entire agreement and understanding of the Parties relating to the subject mattercontained herein, and merges all prior discussions and agreements, both oral and written, between the Parties. [Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the dayand year first written herein.TURTLE BEACH CORPORATIONBy: /s/ Robert Andris____________________________ Date: ______________________Name: Robert Andris Title: Sr. Vice-President Global Supply Chain Operations HON HAI PRECISION INDUSTRY CO. LTD.By: /s/ Mark Chien______________________________ Date: ______________________Name: Mark ChienTitle: Executive Vice-President and General Manager[Bracketed Items Reflect the Portions of the Agreement for which Confidential Treatment is Requestedof the Securities and Exchange Commission] Exhibit 10.28TURTLE BEACH CORPORATION2013 STOCK-BASED INCENTIVE COMPENSATION PLANOPTION AGREEMENTThis OPTION AGREEMENT (this “Agreement”), dated as of May 20, 2015 (the “Grant Date”), is by and betweenTurtle Beach Corporation, a Nevada corporation (the “Company”), and Juergen Stark (the “Optionee”)WITNESSETH:WHEREAS, the Company desires to afford the Optionee an opportunity to purchase Shares of the Company ashereinafter provided, in accordance with the provisions of the Turtle Beach Corporation 2013 Stock-Based Incentive CompensationPlan (the “Plan”), a copy of which is attached hereto as Exhibit A;NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuableconsideration, the parties hereto, intending to be legally bound hereby, agree as follows:1.Grant of Option. The Company hereby grants to the Optionee a Non-Qualified Stock Option (the “Option”)to purchase 1,863,646 shares of the Company’s common stock (the “Shares”). The Option is in all respects limited and conditioned ashereinafter provided, and is subject in all respects to the terms and conditions of the Plan now in effect and as it may be amended fromtime to time.2. Purchase Price. The exercise price of the Shares covered by the Option shall be $1.93 per Share (the “OptionPrice”).3. Option Term. Unless earlier terminated pursuant to any provision of the Plan or this Agreement, the Option shallexpire on September 3, 2022 (the “Expiration Date”). The Option shall not be exercisable after the Expiration Date.4. Vesting. The Option is vested and exercisable with respect to 1,242,431 underlying Shares as of the Grant Date.Subject to the Optionee’s continuing employment in good standing with the Company or any Subsidiary or Affiliate, the Option shallvest and become exercisable with respect to 1/22nd of the remaining underlying Shares on the 1st day of each month after the GrantDate.5. Effect of Termination of Service. If the Optionee ceases to be employed by the Company or any Subsidiary orAffiliate for any reason, the unvested portion of the Option shall immediately cease to vest and be forfeited with no compensation dueto the Optionee, and, unless the Optionee is terminated for cause, the vested portion of the Option shall remain exercisable until theearlier of (i) the date that is three months following the Optionee’s termination date and (ii) the Expiration Date. 6. Change in Control. Immediately prior to the consummation of a Change in Control, 50% of the then-unvestedportion of the Option shall vest; provided, further, that the other 50% of the then-unvested portion of the Option (the “Unvested CICOptions”) shall also vest immediately prior to the consummation of a Change in Control unless the successor company or its direct orindirect parent agrees to assume the Unvested CIC Options or replace them with options that maintain the existing aggregate optionspread of the Unvested CIC Options, provide for vesting that is not less favorable to Optionee than the Unvested CIC Options and areotherwise substantially similar to the Unvested CIC Options in connection with the Change in Control.7. Method of Exercise. The Optionee may exercise the Option by delivering notice to the Company in a formspecified or accepted by the Committee and signed by the Optionee or the person then having the right to exercise the Option,specifying the number of Shares with respect to which the Option is being exercised and the Option Price per Share, and paying to theCompany the aggregate Option Price. The aggregate Option Price must be paid within three days of the date of exercise: (i) in cash, (ii)with the proceeds received from a broker-dealer whom the Optionee has authorized to sell all or a portion of the Shares covered by theOption, or (iii) with the consent of the Committee, in whole or in part in Common Stock held by the Optionee and valued at FairMarket Value on the date of exercise. The Option may be exercised only for a whole number of Shares.8. Transferability of Option. Except as provided in the Plan, the Option is not assignable or transferable, in whole or inpart, by the Optionee other than by will or by the laws of descent and distribution and, during the lifetime of the Optionee, the Optionshall be exercisable only by the Optionee or, in the event of his or her disability, by his or her guardian or legal representative.9. Rights as a Shareholder. The Optionee shall have no rights of a shareholder with respect to the Shares underlyingthe Option (including no right to receive dividends or to vote shares) unless and until such Shares are transferred to the Optionee uponthe exercise of the Option.10. No Right to Continued Service. Neither the Plan nor this Agreement shall confer upon the Optionee any right tobe retained in any position with the Company or any Subsidiary or Affiliate. Further, nothing in the Plan or this Agreement shall beconstrued to limit the discretion of the Company or any Subsidiary or Affiliate to terminate the Optionee’s employment or otherservice-relationship, at any time, with or without cause.11. Plan Terms; Definitions. This Option is issued under the Plan and governed by its terms. Except as specifically setforth herein, in the event of any inconsistency in the Plan and this Agreement, the Plan’s terms control. Any term capitalized herein thatis not separately defined shall have the meaning set forth in the Plan.12. Governing Law. To the extent that Federal laws do not otherwise control, the validity and construction of thisAgreement shall be construed and enforced in accordance-2- with the laws of the State of California, but without giving effect to the choice of law principles thereof.13. Withholding of Taxes. Prior to the issuance of Shares upon the exercise of the Option, the Optionee must makearrangements satisfactory to the Company to pay or provide for any applicable federal, state and local withholding obligations of theCompany. The Optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of the Option bytendering a cash payment or, with the prior consent of the Committee in its sole discretion, by (a) authorizing the Company to withholdShares from the Shares otherwise issuable to the Participant as a result of the exercise of the Option; provided, however, that no Sharesare withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (b) delivering to the Companypreviously owned and unencumbered shares of Common Stock. The Company has the right to withhold such amounts from anycompensation paid to a Participant.14. Entire Agreement; Receipt of Documents. This Agreement and the Plan set forth the entire understanding of theparties hereto and supersede all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subjectmatter hereof. The Optionee hereby acknowledges receipt of a copy of the Plan and this Agreement, represents that he or she has readand understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of the Plan and thisAgreement.15. Counterparts. This Agreement may be executed and delivered in separate counterparts, each of which when soexecuted shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. ThisAgreement shall become effective only when counterparts have been executed and delivered by all parties whose names are set forthon the signature page(s) hereof. Any signature delivered by fax or in pdf format shall have the same force and effect as an originalsignature.[Signature Page Follows]-3- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its duly authorized officer, andthe Optionee has hereunto set his or her hand and seal, all as of the day and year first above written.OPTIONEE TURTLE BEACH CORPORATION____________________________ By:__________________________________Optionee’s Signature Title:____________________________ _____________________________________Date Date-4- [EXHIBIT A – COPY OF PLAN] Exhibit 10.30PERSONAL AND CONFIDENTIALNovember 24, 2015Joe ClearyDear Joe,We are pleased to extend an offer to you to join Turtle Beach Corp. (“TB” or the “Company”) under the terms and conditions as stated below.TITLE:Chief Accounting OfficerREPORTING TO:John Hanson, CFOSTART DATE:TBDCOMPENSATION:Your base salary will be $250,000 annually, paid in accordance with TB’s normal payrollpractices (currently bi-weekly intervals of $9,615.38) and subject to applicable withholdingsand deductions.PREFORMANCE BONUS:You will be eligible for a discretionary target annual Performance Bonus. Your targetincentive is 30% of base salary. Your actual bonus will be based upon a variety of factorsincluding company performance, pro-rated for partial years, and your achieving specifiedperformance criteria to be established and approved with your manager. In the event thatchanges are made to any of the Bonus Plans, the changes will apply to you as they do othersimilarly situated employees of the Company.Payment of your bonus will be delivered according to the regular annual incentive planpayout schedule. An annual bonus shall not be deemed earned by you until the Company hasdetermined your entitlement to such bonus and only if you are employed by the Company(without having given or received notice of the termination of your employment) at the timesuch bonus is payable in accordance with the Bonus Plan and Company practices. TheCompany does not pay pro-rata bonuses upon departure.SIGN ON BONUSVACATION & SICK TIME:You will be granted 20 paid days off per year (pro-rated based on your start date for your firstyear of employment), consisting of 14 vacation and 6 sick days, which are described in andgoverned by our standard vacation and sick day rules in effect from time to time. Upontermination of your employment for any reason, you will not be paid for any credited butunused sick days, unless otherwise required by applicable law.BENEFITS:At your option, and on the 1st of the month following your start date, you will be eligible toparticipate in our health benefit plans. The employee contribution depends on coverageelection and is on a pre-tax basis. At your option, and on the 1st of the month following yourstart date, you may participate in the long-term disability and life insurance plans, whichrequire employee contribution depending on coverage election and are on a post-tax basis.Following 30 days of employment, you may participate in the TB 401k plan.PROPRIETARY INFORMATION ANDEMPLOYMENT AGREEMENT:Your employment is conditioned upon and you will be required to sign and return theenclosed Proprietary Information and Employment Agreement.EQUITY PARTICIPATION:You will be entitled to receive a grant of options to purchase 20,000 shares of Turtle BeachCorporation Common Stock, 25% of which will vest on the first anniversary of your first dayof employment with the remainder vesting ratably each month over the following three yearperiod, subject to the terms of any applicable agreements that you may be required to sign inconnection with such options. REPRESENTATION:You represent that you are free to accept employment with TB and have no duties orobligations to any person or entity, by agreement or otherwise, that would prevent or impairyou from fully performing your duties and responsibilities to TB.POLICIES & PROCEDURES:You will be required to comply with TB policies and procedures for employees as they may bein effect from time to time, which include, among other things, your obligations to complywith TB rules regarding confidential and proprietary information and trade secrets, and tofurnish accurate and complete information to TB in connection with your application foremployment.CONFIDENTIALITY:You agree not to disclose the terms of this letter to anyone, other than to your immediatefamily, your tax advisors and legal counsel (provided each such person agrees to maintain theconfidentiality of the disclosed terms), or as otherwise required by law.We look forward to having you join the Company and anticipate a long and mutually beneficial relationship.Should you accept this offer and begin employment with the Company you retain the right to resign without cause. There is no fixed duration for youremployment. In accepting this offer you acknowledge and agree that your employment with the Company is at will and may be terminated by the Companyat any time, with or without notice, and for any or no reason. In accepting this offer you acknowledge that, apart from this letter (and the ProprietaryInformation and Employment Agreement), there is not and shall not be any written contract between you and the Company concerning this offer ofemployment, and that this letter does not guarantee employment for any definite or specific term or duration or at any particular level of benefits orcompensation. As an at will employee, the Company, in its sole discretion, may terminate or amend any of the terms of your employment at any time. Thisoffer is further conditioned on completion of a satisfactory background check.By signing and returning this letter you confirm that its contents accurately summarize the current understanding between you and the Company and thatyou accept and agree to the terms as stated above.Sincerely,Turtle Beach CorporationAcknowledged & Agreed: /s/ Joe Cleary________________ Date: ______________________Joe Cleary Exhibit 10.44TURTLE BEACH CORPORATION2013 STOCK-BASED INCENTIVE COMPENSATION PLANOPTION AGREEMENTThis OPTION AGREEMENT (this “Agreement”), dated as of (the “Grant Date”), is by and between Turtle BeachCorporation, a Nevada corporation (the “Company”), and (the “Optionee”)WITNESSETH:WHEREAS, the Company desires to afford the Optionee an opportunity to purchase Shares of the Company as hereinafterprovided, in accordance with the provisions of the Turtle Beach Corporation 2013 Stock-Based Incentive Compensation Plan (the“Plan”), a copy of which is attached hereto as Exhibit A;NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuableconsideration, the parties hereto, intending to be legally bound hereby, agree as follows:1.Grant of Option. The Company hereby grants to the Optionee a Non-Qualified Stock Option (the “Option”)to purchase shares of the Company’s common stock (the “Shares”). The Option is in all respects limited and conditioned as hereinafterprovided, and is subject in all respects to the terms and conditions of the Plan now in effect and as it may be amended from time totime.2. Purchase Price. The exercise price of the Shares covered by the Option shall be $ per Share (the “Option Price”).3. Option Term. Unless earlier terminated pursuant to any provision of the Plan or this Agreement, the Option shallexpire on (the “Expiration Date”). The Option shall not be exercisable after the Expiration Date.4. Vesting. [The Option is vested and exercisable with respect to underlying Shares as of the Grant Date.] Subject tothe Optionee’s continuing employment in good standing with the Company or any Subsidiary or Affiliate, the Option shall vest andbecome exercisable with respect to of the remaining underlying Shares on the 1st day of each month thereafter. In addition, anyunvested portion of the Option that has not been forfeited as provided herein shall vest immediately prior to the consummation of aChange in Control.5. Effect of Termination of Service. If the Optionee ceases to be employed by the Company or any Subsidiary orAffiliate for any reason, the unvested portion of the Option shall immediately cease to vest and be forfeited with no compensation dueto the Optionee, and, unless the Optionee is terminated for cause, the vested portion of the Option shall remain exercisable until the earlier of (i) the date that is three months following the Optionee’s termination date and (ii) the Expiration Date.6. Change in Control. Any outstanding, unexercised portion of the Option shall be cancelled immediately upon theconsummation of a Change in Control. If the Option Price per Share is greater than the consideration being paid per Share in suchChange in Control, the Company shall have no further obligation to the Optionee hereunder. If the Option Price per Share is less thanthe consideration being paid per Share in such Change in Control, the Company shall pay the Optionee an amount equal to the productof (i) the excess of the consideration being paid per Share in such Change in Control over the Option Price per Share and (ii) thenumber of Shares underlying the unexercised portion of the Option, whether or not vested, as soon as practicable following suchChange in Control.7. Method of Exercise. The Optionee may exercise the Option by delivering notice to the Company in a formspecified or accepted by the Committee and signed by the Optionee or the person then having the right to exercise the Option,specifying the number of Shares with respect to which the Option is being exercised and the Option Price per Share, and paying to theCompany the aggregate Option Price. The aggregate Option Price must be paid within three days of the date of exercise: (i) in cash, (ii)with the proceeds received from a broker-dealer whom the Optionee has authorized to sell all or a portion of the Shares covered by theOption, or (iii) with the consent of the Committee, in whole or in part in Common Stock held by the Optionee and valued at FairMarket Value on the date of exercise. The Option may be exercised only for a whole number of Shares.8. Transferability of Option. Except as provided in the Plan, the Option is not assignable or transferable, in whole or inpart, by the Optionee other than by will or by the laws of descent and distribution and, during the lifetime of the Optionee, the Optionshall be exercisable only by the Optionee or, in the event of his or her disability, by his or her guardian or legal representative.9. Rights as a Shareholder. The Optionee shall have no rights of a shareholder with respect to the Shares underlyingthe Option (including no right to receive dividends or to vote shares) unless and until such Shares are transferred to the Optionee uponthe exercise of the Option.10. No Right to Continued Service. Neither the Plan nor this Agreement shall confer upon the Optionee any right tobe retained in any position with the Company or any Subsidiary or Affiliate. Further, nothing in the Plan or this Agreement shall beconstrued to limit the discretion of the Company or any Subsidiary or Affiliate to terminate the Optionee’s employment or otherservice-relationship, at any time, with or without cause.11. Plan Terms; Definitions. This Option is issued under the Plan and governed by its terms. Except as specifically setforth herein, in the event of any inconsistency in the Plan and this Agreement, the Plan’s terms control. Any term capitalized herein thatis not separately defined shall have the meaning set forth in the Plan.-2- 12. Governing Law. To the extent that Federal laws do not otherwise control, the validity and construction of thisAgreement shall be construed and enforced in accordance with the laws of the State of California, but without giving effect to thechoice of law principles thereof.13. Withholding of Taxes. Prior to the issuance of Shares upon the exercise of the Option, the Optionee must makearrangements satisfactory to the Company to pay or provide for any applicable federal, state and local withholding obligations of theCompany. The Optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of the Option bytendering a cash payment or, with the prior consent of the Committee in its sole discretion, by (a) authorizing the Company to withholdShares from the Shares otherwise issuable to the Participant as a result of the exercise of the Option; provided, however, that no Sharesare withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (b) delivering to the Companypreviously owned and unencumbered shares of Common Stock. The Company has the right to withhold such amounts from anycompensation paid to a Participant.14. Entire Agreement; Receipt of Documents. This Agreement and the Plan set forth the entire understanding of theparties hereto and supersede all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subjectmatter hereof. The Optionee hereby acknowledges receipt of a copy of the Plan and this Agreement, represents that he or she has readand understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of the Plan and thisAgreement.15. Counterparts. This Agreement may be executed and delivered in separate counterparts, each of which when soexecuted shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. ThisAgreement shall become effective only when counterparts have been executed and delivered by all parties whose names are set forthon the signature page(s) hereof. Any signature delivered by fax or in pdf format shall have the same force and effect as an originalsignature.[Signature Page Follows]-3- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its duly authorized officer, andthe Optionee has hereunto set his or her hand and seal, all as of the day and year first above written.OPTIONEE TURTLE BEACH CORPORATION____________________________ By:__________________________________Optionee’s Signature Title:____________________________ _____________________________________Date Date[EXHIBIT A – COPY OF PLAN]-4- Exhibit 21List of Subsidiaries ofTurtle Beach CorporationVTB Holdings, Inc.Voyetra Turtle Beach, Inc.PSC Licensing CorporationTurtle Beach Europe Limited Exhibit 23.1Consent of Independent Registered Public Accounting FirmTurtle Beach CorporationValhalla, New YorkWe hereby consent to the incorporation by reference in the Registration Statements on Form S3 (File No. 333-188389 and File No. 333-173017) and Form S-8 (File No. 333-171838, File No. 333-181653, File No. 333-188390 and File No. 333-193982) of Turtle BeachCorporation of our report dated March 30, 2016, relating to the consolidated financial statements and financial statement schedule,which appears in this Form 10-K./s/ BDO USA, LLPStamford, ConnecticutMarch 30, 2016 Exhibit 23.2Consent of Independent Registered Public Accounting FirmTurtle Beach CorporationSan Diego, CaliforniaWe consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-188389 and File No. 333-173017) and Registration Statements on Form S-8 (File No. 333-171838, File No. 333-181653, File No. 333-188390, and File No. 333-193982) of Turtle Beach Corporation of our report dated March 28, 2014 (March 30, 2015 as to Note 10 and Supplemental Schedule)relating to the consolidated financial statements of VTB Holdings, Inc. as of and for the year ended December 31, 2013, which iscontained in this Annual Report on Form 10-K of Turtle Beach Corporation./s/ FREED MAXICK CPAs, P.C.Buffalo, New YorkMarch 30, 2016 Exhibit 31.1 CERTIFICATION I, Juergen Stark, certify that: 1.I have reviewed this annual report on Form 10-K of Turtle Beach Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date:March 30, 2016By:/s/ JUERGEN STARK Juergen Stark Chief Executive Officer and President Exhibit 31.2 CERTIFICATION I, John T. Hanson, certify that:1.I have reviewed this annual report on Form 10-K of Turtle Beach Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date:March 30, 2016By:/s/ JOHN T. HANSON John T. Hanson Chief Financial Officer, Treasurer and Secretary Exhibit 32.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Turtle Beach Corporation (the “Company”) on Form 10-K for the year ended December 31, 2015 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), we, Juergen Stark, Chief Executive Officer of the Company, and John T. Hanson,Chief Financial Officer of the Company, certify to my knowledge, pursuant to 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), , that:1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.Date:March 30, 2016By:/s/ JUERGEN STARK Juergen Stark Chief Executive Officer and President (Principal Executive Officer)Date:March 30, 2016By:/s/ JOHN T. HANSON John T. Hanson Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer)
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