clro-20230331.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period _______ to _______

Commission file number:001-33660

CLEARONE, INC.

(Exact name of registrant as specified in its charter)

Delaware		87-0398877
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

5225 Wiley Post Way, Suite 500, Salt Lake City, Utah		84116
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (801) 975-7200

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001		CLRO		The NASDAQ Capital Market

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

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

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

Larger Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer ☒	Smaller Reporting Company ☒
	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Yes ☐ No

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

The number of shares of ClearOne common stock outstanding as of May 12, 2023 was 23,955,767.

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CLEARONE, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023

INDEX


	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	5

	Unaudited Notes to Condensed Consolidated Financial Statements	7

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CLEARONE, INC

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

	March 31, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	59,006		$	984
Legal settlement receivable		—			55,000
Receivables, net of allowance of $326		3,541			3,603
Inventories, net		8,395			8,961
Income tax receivable		—			1,071
Prepaid expenses and other assets		3,635			7,808
Total current assets		74,577			77,427
Long-term inventories, net		2,885			2,707
Property and equipment, net		356			383
Operating lease - right of use assets, net		1,259			1,047
Intangibles, net		1,995			2,071
Other assets		112			115
Total assets	$	81,184		$	83,750
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,820		$	1,284
Accrued liabilities		2,454			3,041
Deferred product revenue		71			63
Short-term debt		1,556			3,732
Total current liabilities		5,901			8,120
Operating lease liability, net of current		949			492
Other long-term liabilities		1,008			1,008
Total liabilities		7,858			9,620

Shareholders' equity:
Common stock, par value $0.001, 50,000,000 shares authorized, 23,955,767 shares issued and outstanding		24			24
Additional paid-in capital		74,933			74,910
Accumulated other comprehensive loss		(283	)		(288	)
Accumulated deficit		(1,348	)		(516	)
Total shareholders' equity		73,326			74,130
Total liabilities and shareholders' equity	$	81,184		$	83,750

See accompanying notes

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CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(Dollars in thousands, except per share amounts)

	Three months ended March 31,
	2023			2022
Revenue	$	4,178		$	7,545
Cost of goods sold		2,863			4,729
Gross profit		1,315			2,816

Operating expenses:
Sales and marketing		1,192			1,560
Research and product development		1,043			1,353
General and administrative		1,269			1,756
Total operating expenses		3,504			4,669

Operating loss		(2,189	)		(1,853	)

Interest expense		(292	)		(101	)
Other income, net		1,666			3

Loss before income taxes		(815	)		(1,951	)

Provision for income taxes		17			16

Net loss	$	(832	)	$	(1,967	)

Basic weighted average shares outstanding		23,955,767			23,897,305
Diluted weighted average shares outstanding		23,955,767			23,897,305

Basic loss per share	$	(0.03	)	$	(0.08	)
Diluted loss per share	$	(0.03	)	$	(0.08	)

Comprehensive loss:
Net loss	$	(832	)	$	(1,967	)
Unrealized loss on available-for-sale securities, net of tax		—			(28	)
Change in foreign currency translation adjustment		5			(11	)
Comprehensive loss	$	(827	)	$	(2,006	)

See accompanying notes

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CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share amounts)

	Three months ended March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(832	)	$	(1,967	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		221			794
Amortization of right-of-use assets		129			154
Share-based compensation expense		23			36
Change of inventory to net realizable value		23			—
Gain from disposal of assets		(8	)		—
Changes in operating assets and liabilities:
Receivables		62			(86	)
Legal settlement receivable		55,000			—
Inventories		365			525
Prepaid expenses and other assets		4,176			651
Accounts payable		536			(1,263	)
Accrued liabilities		(551	)		286
Income taxes receivable		1,293			(5	)
Deferred product revenue		8			(8	)
Operating lease liabilities		(124	)		(160	)
Net cash provided by (used in) operating activities		60,321			(1,043	)

Cash flows from investing activities:
Purchase of property and equipment		(27	)		(8	)
Purchase of intangibles		(42	)		(70	)
Capitalized patent defense costs		—			(189	)
Proceeds from maturities and sales of marketable securities		—			2,042
Net cash provided by (used in) investing activities		(69)			1,775

Cash flows from financing activities:
Net proceeds from equity-based compensation programs		—			2
Principal payments of debt		(2,225	)		(370	)
Net cash used in financing activities		(2,225	)		(368	)

Effect of exchange rate changes on cash and cash equivalents		4			(13	)

Net increase in cash and cash equivalents		58,031			351
Cash and cash equivalents at the beginning of the period		986			1,071
Cash and cash equivalents at the end of the period	$	59,017		$	1,422

See accompanying notes

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CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share amounts)

The following is a summary of supplemental cash flow activities:

	Three months ended March 31,
	2023		2022
Cash paid for income taxes	$	18	$	26
Cash paid for interest		231		51

See accompanying notes

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CLEARONE, INC.

UNAUIDTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - Dollars in thousands, except per share amounts)

1. Business Description, Basis of Presentation and Significant Accounting Policies

Business Description:

ClearOne, Inc., together with its subsidiaries (collectively, “ClearOne” or the “Company”), is a global market leader enabling conferencing, collaboration, and AV streaming solutions for voice and visual communications. The performance and simplicity of our advanced, comprehensive solutions offer unprecedented levels of functionality, reliability and scalability.

Basis of Presentation:

The fiscal year for ClearOne is the twelve months ending on December 31. The condensed consolidated financial statements include the accounts of ClearOne and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.

These accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not audited. Certain information and footnote disclosures that are usually included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted in accordance with SEC rules and regulations. The accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of March 31, 2023 and December 31, 2022, the results of operations for the three months ended March 31, 2023 and 2022, and the cash flows for the three months ended March 31, 2023 and 2022. The results of operations for the three months ended March 31, 2023 and 2022 are not necessarily indicative of the results for a full-year period. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.

Significant Accounting Policies:

The significant accounting policies were described in Note 1 to the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2022. There have been no changes to these policies during the quarter ended March 31, 2023 that are of significance or potential significance to the Company.

Recent accounting pronouncements:

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. CECL estimates of expected credit losses on trade receivables over their life will be required to be recorded at inception, based on historical information, current conditions, and reasonable and supportable forecasts. The Company adopted the standard in its first quarter of 2023. There was no material impact on the results of operations.

The Company has determined that recently issued accounting standards, other than the above discussed, will not have a material impact on its consolidated financial position, results of operations or cash flows.

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UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Liquidity:

As of March 31, 2023, our cash and cash equivalents were approximately $59,006 compared to $984 as of December 31, 2022. Our working capital was $68,676 as of March 31, 2023. Net cash provided by operating activities was $60,321 for the three months ended March 31, 2023, an increase of $61,364 compared to $1,043 of cash used in operating activities for the three months ended March 31, 2022. The company announced a special one-time cash dividend of $1.00 per share or eligible warrant (please see Note 10 - Subsequent events) which will be paid on May 31, 2023 and is expected to generate cash outflows of approximately $28,978. The Company also paid approximately $6,600 towards income taxes in April 2023. The Company believes that the Company's core strategies of product innovation and prudent cost management will bring the company back to profitability in the future. The Company believes, although there can be no assurance, that the current cash position and all of these measures and effective management of working capital, will provide the liquidity needed to meet our operating needs through at least May 15, 2024. The Company also believes that its strong portfolio of intellectual property and its solid brand equity in the market will enable it to raise additional capital if and when needed to meet its short and long-term financing needs; however, there can be no assurance that, if needed, the Company will be successful in obtaining the necessary funds through equity or debt financing. If the Company needs additional capital and is unable to secure financing, it may be required to further reduce expenses, or delay product development and enhancement.

2. Revenue Information

The following table disaggregates the Company’s revenue into primary product groups:

	Three months ended March 31,
	2023		2022
Audio conferencing	$	2,329	$	3,176
Microphones		1,195		2,928
Video products		654		1,441
	$	4,178	$	7,545

The following table disaggregates the Company’s revenue into major regions:

	Three months ended March 31,
	2023		2022
North and South America	$	1,570	$	3,776
Asia Pacific (includes Middle East, India and Australia)		1,696		2,074
Europe and Africa		912		1,695
	$	4,178	$	7,545

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UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - Dollars in thousands, except per share amounts)

3. Loss Per Share

Loss per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, warrants and the convertible portion of senior convertible notes are considered to be potential common stock. The computation of diluted earnings (loss) per share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Basic earnings (loss) per common share is the amount of net earnings (loss) for the period available to each weighted-average share of common stock outstanding during the reporting period. Diluted earnings (loss) per common share is the amount of earnings (loss) for the period available to each weighted-average share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an anti-dilutive effect.

The following table sets forth the computation of basic and diluted earnings (loss) per common share:

	Three months ended March 31,
	2023			2022
Numerator:
Net loss	$	(832	)	$	(1,967	)
Denominator:
Basic weighted average shares outstanding		23,955,767			23,897,305
Dilutive common stock equivalents using treasury stock method		—			—
Diluted weighted average shares outstanding		23,955,767			23,897,305

Basic loss per common share	$	(0.03	)	$	(0.08	)
Diluted loss per common share	$	(0.03	)	$	(0.08	)

Weighted average options, warrants and convertible portion of senior convertible notes outstanding		6,368,420			7,062,673
Anti-dilutive options, warrants and convertible portion of senior convertible notes not included in the computation		6,368,420			7,062,673

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UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

4. Intangible Assets

Intangible assets as of March 31, 2023 and December 31, 2022 consisted of the following:

	Estimated useful lives (years)			March 31, 2023			December 31, 2022
Tradename	5	to	7	$	555		$	555
Patents and technological know-how	10	to	20		7,094			7,053
Proprietary software	3	to	15		2,981			2,981
Other	3	to	5		323			323
Total intangible assets					10,953			10,912
Accumulated amortization					(8,958	)		(8,841	)
Total intangible assets, net				$	1,995		$	2,071

The amortization of intangible assets for the three months ended March 31, 2023 and 2022 was as follows:

	Three months ended March 31,
	2023		2022
Amortization of intangible assets	$	118	$	670

The estimated future amortization expense of intangible assets is as follows:

Years ending December 31,	Amount
2023 (Remainder)	$	398
2024		253
2025		192
2026		191
2027		61
Thereafter		900
Total	$	1,995

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UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

5. Inventories

Inventories, net of reserves, as of March 31, 2023 and December 31, 2022 consisted of the following:

	March 31, 2023		December 31, 2022
Current:
Raw materials	$	4,552	$	4,499
Finished goods		3,843		4,462
	$	8,395	$	8,961

Long-term:
Raw materials	$	928	$	1,068
Finished goods		1,957		1,639
	$	2,885	$	2,707

Long-term inventory represents inventory held in excess of our current (next 12 months) requirements based on our recent sales and forecasted level of sales. We expect to sell the above inventory, net of reserves, at or above the stated cost and believe that no loss will be incurred on its sale, although there can be no assurance of the timing or amount of any sales.

Net loss incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory for three months ended March 31, 2023 and 2022 was as follows:

	Three months ended March 31,
	2023		2022
Net loss incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory	$	23	$	—

6. Leases

Rent expense is recognized on a straight-line basis over the period of the lease taking into account future rent escalation and holiday periods.

Rent expense for three months ended March 31, 2023 and 2022 was as follows:

	Three months ended March 31,
	2023		2022
Rent expense	$	149	$	179

The Company occupies a 1,350 square-foot facility in Gainesville, Florida under the terms of an operating lease expiring in February 2028. The Gainesville facility is used primarily to support the Company's research and development activities.

The Company occupies a 9,402 square-foot facility in Salt Lake City, Utah under the terms of an operating lease expiring in February 2028. The facility supports the Company's principal administrative, sales, marketing, customer support, and research and product development activities.

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UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The Company occupies a 6,175 square-foot facility in Chennai, India under the terms of an operating lease expiring in August 2023. This facility supports the Company's administrative, marketing, customer support, and research and product development activities.

The Company occupies a 40,000 square-foot warehouse in Salt Lake City, Utah under the terms of an operating lease expiring in April 2025, which serves as the Company's primary inventory fulfillment center.

Supplemental cash flow information related to leases was as follows:

	Three months ended March 31,
	2023			2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(151	)	$	(183	)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	758		$	—

Supplemental balance sheet information related to leases was as follows:

	March 31, 2023			December 31, 2022
Operating lease right-of-use assets	$	1,259		$	1,047

Current portion of operating lease liabilities, included in accrued liabilities	$	382		$	641
Operating lease liabilities, net of current portion		949			492
Total operating lease liabilities	$	1,331		$	1,133

Weighted average remaining lease term for operating leases (in years)		4			2.12
Weighted average discount rate for operating leases		6.37	%		5.93	%

The following represents maturities of operating lease liabilities as of March 31, 2023:

Years ending December 31,
2023 (Remainder)	$	341
2024		439
2025		272
2026		210
2027		216
Thereafter		37
Total lease payments		1,515
Less: Imputed interest		(184	)
Total	$	1,331

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UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - Dollars in thousands, except per share amounts)

7. Shareholders' Equity

	Three months ended March 31,
	2023	2022
Common stock and additional paid-in capital

SEC Form 10-Q filed by ClearOne Inc. (DE)