CLEARONE INC 10-Q

Item 1 . FINANCIAL STATEMENTS CLEARONE, INC UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value) March 31, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 2,034 $ 3,803 Marketable securities 967 1,117 Receivables, net of allowance for doubtful accounts of $ 506 4,930 5,194 Inventories, net 9,816 10,463 Income tax receivable 7,212 7,169 Prepaid expenses and other assets 1,271 1,536 Total current assets 26,230 29,282 Long-term marketable securities 1,807 1,762 Long-term inventories, net 4,126 4,590 Property and equipment, net 812 906 Operating lease - right of use assets, net 1,787 1,936 Intangibles, net 20,486 19,248 Other assets 4,600 4,599 Total assets $ 59,848 $ 62,323 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,907 $ 3,950 Accrued liabilities 2,775 2,352 Deferred product revenue 78 123 Short-term debt 950 672 Total current liabilities 6,710 7,097 Long-term debt, net 2,927 3,245 Operating lease liability, net of current 1,353 1,489 Other long-term liabilities 678 678 Total liabilities 11,668 12,509 Shareholders' equity: Common stock, par value $ 0.001 , 50,000,000 shares authorized, 18,775,773 shares issued and outstanding 19 19 Additional paid-in capital 63,394 63,359 Accumulated other comprehensive loss ( 200 ) ( 186 ) Accumulated deficit ( 15,033 ) ( 13,378 ) Total shareholders' equity 48,180 49,814 Total liabilities and shareholders' equity $ 59,848 $ 62,323 See accompanying notes 2 Table of Contents CLEARONE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Dollars in thousands, except per share amounts) Three months ended March 31, 2021 2020 Revenue $ 7,038 $ 5,734 Cost of goods sold 4,035 2,896 Gross profit 3,003 2,838 Operating expenses: Sales and marketing 1,573 1,739 Research and product development 1,274 1,344 General and administrative 1,680 1,506 Total operating expenses 4,527 4,589 Operating loss ( 1,524 ) ( 1,751 ) Interest expense ( 112 ) ( 108 ) Other income (expense), net ( 5 ) 35 Loss before income taxes ( 1,641 ) ( 1,824 ) Provision for income taxes 14 23 Net loss $ ( 1,655 ) $ ( 1,847 ) Basic weighted average shares outstanding 18,775,773 16,650,725 Diluted weighted average shares outstanding 18,775,773 16,650,725 Basic loss per share $ ( 0.09 ) $ ( 0.11 ) Diluted loss per share $ ( 0.09 ) $ ( 0.11 ) Comprehensive loss: Net loss $ ( 1,655 ) $ ( 1,847 ) Unrealized loss on available-for-sale securities, net of tax ( 2 ) ( 23 ) Change in foreign currency translation adjustment ( 12 ) ( 34 ) Comprehensive loss $ ( 1,669 ) $ ( 1,904 ) See accompanying notes 3 Table of Contents CLEARONE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands, except per share amounts) Three months ended March 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 1,655 ) $ ( 1,847 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization expense 661 522 Amortization of right-of-use assets 149 143 Stock-based compensation expense 31 37 Provision for doubtful accounts, net — 15 Change of inventory to net realizable value 375 201 Changes in operating assets and liabilities: Receivables 264 878 Inventories 736 1,428 Prepaid expenses and other assets 265 110 Accounts payable ( 1,043 ) ( 396 ) Accrued liabilities 446 ( 458 ) Income taxes payable ( 43 ) 10 Deferred product revenue ( 45 ) 34 Operating lease liabilities ( 154 ) ( 146 ) Other long-term lia bilities — — Net cash provided by (used in) operating activities ( 13 ) 531 Cash flows from investing activities: Purchase of property and equipment ( 7 ) ( 30 ) Purchase of intangibles ( 71 ) ( 48 ) Capitalized patent defense costs ( 1,678 ) ( 1,722 ) Proceeds from maturities and sales of marketable securities 413 1,208 Purchases of marketable securities ( 310 ) ( 1,124 ) Net cash used in investing activities ( 1,653 ) ( 1,716 ) Ca sh flows from financing activitie s: Net proceeds from equity-based compensation programs 4 3 Principal payments of long-term debt ( 90 ) — Net cash provided by (used in) financing activities ( 86 ) 3 Effect of exchange rate changes on cash and cash equivalents ( 17 ) ( 27 ) Net decrease in cash and cash equivalents ( 1,769 ) ( 1,209 ) Cash and cash equivalents at the beginning of the period 3,803 4,064 Cash and cash equivalents at the end of the period $ 2,034 $ 2,855 See accompanying notes 4 Table of Contents 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, 2021 2020 Cash paid for income taxes $ 43 $ 8 Cash paid for interest 50 76 See accompanying notes 5 Table of Contents CLEARONE, INC. 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, 2021 and December 31, 2020 , the results of operations for the three months ended March 31, 2021 and 2020 , and the cash flows for the three months ended March 31, 2021 and 2020 . The results of operations for the three months ended March 31, 2021 and 2020 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, 2020 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, 2020 . There have been no changes to these policies during the three months ended March 31, 2021 that are of significance or potential significance to the Company. Recent accounting pronouncements: The Company has determined that recently issued accounting standards will not have a material impact on its consolidated financial position, results of operations or cash flows. Liquidity: As of March 31, 2021 , our cash and cash equivalents were approximately $ 2,034 compared to $ 3,803 as of December 31, 2020 . Our working capital was $ 19,520 as of March 31, 2021 . Net cash used in operating activities was $ 13 for the three months ended March 31, 2021 , a decrease of $ 544 from $ 531 of cash provided by operating activities in the three months ended March 31, 2020 . We are currently pursuing all available legal remedies to defend our strategic patents from infringement. We have already spent approximately $ 21,985 from 2016 through March 31, 2021 towards this litigation and may be required to spend more to continue our legal defense. We believe the decision by the U.S. District Court in August 2019 granting our request for a preliminary injunction to prevent our competitor from manufacturing, marketing, and selling its competing ceiling microphone array in an infringing configuration is an incredibly valuable ruling for ClearOne and its business. We believe that the decision validates the strength and importance of ClearOne’s intellectual property rights, recognizes ClearOne’s innovations in this space, and stops our competitor from further infringing our Graham patent (U.S. Patent No. 9,813,806 ) pending a full trial. Although there can be no assurance of any outcome of a full trial, we believe this ruling will help pave the way for ClearOne’s recovery from the immense harm inflicted by our competitor's infringement of our valuable patents. For more information about our intellectual property litigation, See Note 8. Commitments and Contingencies - Legal Proceedings, in our annual report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1. Legal Proceedings in this quarterly report. 6 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars in thousands, except per share amounts) We have been actively engaged in preserving cash by suspending our dividend program and allowing our share repurchase program to expire in 2018 and implementing company-wide cost reduction measures. We have also raised additional capital in 2019 by issuing senior convertible notes and in 2020 by borrowing through the CARES Act Paycheck Protection Program and issuing common stock and warrants. In addition, we expect to generate additional cash as our inventory levels are brought down to historical levels. We also believe that the measures taken by us will yield higher revenues in the future. We believe, although there can be no assurance, that all of these measures and effective management of working capital will provide the liquidity needed to meet our operating needs through at least May 14, 2022. We also believe that our strong portfolio of intellectual property and our solid brand equity in the market will enable us to raise additional capital if and when needed to meet our short and long-term financing needs; however, there can be no assurance that, if needed, we will be successful in obtaining the necessary funds through equity or debt financing. If we need additional capital and are unable to secure financing, we may be required to further reduce expenses, delay product development and enhancement, or revise our strategy regarding ongoing litigation. 2 . Revenue Information The following table disaggregates the Company’s revenue into primary product groups: Three months ended March 31, 2021 2020 Audio conferencing $ 2,835 $ 2,787 Microphones 2,350 2,143 Video products 1,853 804 $ 7,038 $ 5,734 The following table disaggregates the Company’s revenue into major regions: Three months ended March 31, 2021 2020 North and South America $ 3,524 $ 3,352 Asia (including Middle East) and Australia 2,226 1,416 Europe and Africa 1,288 966 $ 7,038 $ 5,734 7 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars in thousands, except per share amounts) 3 . Earnings (Loss) Per Share Earnings (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 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, 2021 2020 Numerator: Net loss $ ( 1,655 ) $ ( 1,847 ) De nominato r: Basic weighted average shares outstanding 18,775,773 16,650,725 Dilutive common stock equivalents using treasury stock method — — Diluted weighted average shares outstanding 18,775,773 16,650,725 Basic loss per common share $ ( 0.09 ) $ ( 0.11 ) Diluted loss per common share $ ( 0.09 ) $ ( 0.11 ) Weighted average options, warrants and convertible portion of senior convertible notes outstanding 3,636,117 542,818 Anti-dilutive options , warrants and convertible portion of senior convertible notes not included in the computation 3,636,117 542,818 8 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars in thousands, except per share amounts) 4 . Marketable Securities The Company has classified its marketable securities as available-for-sale securities. These securities are carried at estimated fair value with unrealized holding gains and losses included in accumulated other comprehensive loss in stockholders’ equity until realized. Gains and losses on marketable security transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of securities at March 31, 2021 and December 31, 2020 were as follows: Amortized cost Gross unrealized holding gains Gross unrealized holding losses Estimated fair value March 31, 2021 Available-for-sale securities: Corporate bonds and notes $ 1,008 $ 20 $ — $ 1,028 Municipal bonds 1,743 3 — 1,746 Total available-for-sale securities $ 2,751 $ 23 $ — $ 2,774 December 31, 2020 Available-for-sale securities: Corporate bonds and notes $ 1,312 $ 26 $ — $ 1,338 Municipal bonds 1,536 5 — 1,541 Total available-for-sale securities $ 2,848 $ 31 $ — $ 2,879 Maturities of marketable securities classified as available-for-sale securities were as follows at March 31, 2021 : Amortized cost Estimated fair value Due within one year $ 960 $ 967 Due after one year through five years 1,791 1,807 Due after five years — — Total available-for-sale securities $ 2,751 $ 2,774 9 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars in thousands, except per share amounts) Debt securities in an unrealized loss position as of March 31, 2021 were not deemed impaired at acquisition and subsequent declines in fair value are not deemed attributed to declines in credit quality. Management believes that it is more likely than not that the securities will receive a full recovery of par value, although there can be no assurance that such recovery will occur. The available-for-sale marketable securities with continuous gross unrealized loss position for less than 12 months and 12 months or greater and their related fair values were as follows: Less than 12 months More than 12 months Total Estimated fair value Gross unrealized holding losses Estimated fair value Gross unrealized holding losses Estimated fair value Gross unrealized holding losses As of March 31, 2021 Corporate bonds and notes $ — $ — $ — $ — $ — $ — Municipal bonds — — — — — — Total $ — $ — $ — $ — $ — $ — 5 . Intangible Assets Intangible assets as of March 31, 2021 and December 31, 2020 consisted of the following: Estimated useful lives (years) March 31, 2021 December 31, 2020 Tradename 5 to 7 $ 555 $ 555 Patents and technological know-how 10 to 20 27,176 25,427 Proprietary software 3 to 15 2,981 2,981 Other 3 to 5 323 323 Total intangible assets 31,035 29,286 Accumulated amortization ( 10,549 ) ( 10,038 ) Total intangible assets, net $ 20,486 $ 19,248 The amortization of intangible assets for the three months ended March 31, 2021 and 2020 was as follows: Three months ended March 31, 2021 2020 Amortization of intangible assets $ 511 $ 368 The estimated future amortization expense of intangible assets is as follows: Years ending December 31, Amount 2021 (Remainder) $ 1,580 2022 2,107 2023 2,101 2024 1,837 2025 1,776 Thereafter 11,085 Total 20,486 10 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars in thousands, except per share amounts) 6 . Inventories Inventories, net of reserves, as of March 31, 2021 and December 31, 2020 consisted of the following: March 31, 2021 December 31, 2020 Current: Raw materials $ 1,140 $ 1,182 Finished goods 8,676 9,281 $ 9,816 $ 10,463 Long-term: Raw materials $ 2,031 $ 1,977 Finished goods 2,095 2,613 $ 4,126 $ 4,590 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 the three months ended March 31, 2021 and 2020 was as follows: Three months ended March 31, 2021 2020 Net loss incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory $ 375 $ 201 7 . 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 the three months ended March 31, 2021 and 2020 was as follows: Three months ended March 31, 2021 2020 Rent expense $ 184 $ 187 W e occup y a 1,350 square-foot facility in Gainesville, Florida under the terms of an operating lease expiring in F ebruary 2023 . The Gainesville facility is used primarily to support our research and development activities. We occupy a 21,443 square-foot facility in Salt Lake City, Utah under the terms of an operating lease expiring in March 2024 , with an option to extend for additional five years. The facility supports our principal administrative, sales, marketing, customer support, and research and product development activities. We occupy a 950 square-foot facility in Austin, Texas under the terms of an operating lease expiring in October 20 22 . This facility support s our sales, marketing, customer support, and research and development activities. 11 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars in thousands, except per share amounts) We occupy a 3,068 square-foot facility in Zaragoza, Spain under the terms of an operating lease expiring in March 2022. This office supports our research and development and customer support activities. We occupy a 6,175 square-foot facility in Chennai, India under the terms of an operating lease expiring in August 2021. This facility support s our administrative, marketing, customer support, and research and product development activities. We occupy 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 our primary inventory fulfillment and repair center. Supplemental cash flow information related to leases was as follows: Three months ended March 31, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 184 $ 180 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ — $ 63 Supplemental balance sheet information related to leases was as follows: March 31, 2021 December 31, 2020 Operating lease right-of-use assets $ 1,787 $ 1,936 Current portion of operating lease liabilities, included in accrued liabilities $ 561 $ 579 Operating lease liabilities, net of current portion 1,353 1,489 Total operating lease liabilities $ 1,914 $ 2,068 Weighted average remaining lease term for operating leases (in years) 3.33 3.54 Weighted average discount rate for operating leases 6.1 % 6.1 % The following represents maturities of operating lease liabilities as of March 31, 2021 : Years ending December 31, 2021 (Remainder) $ 504 2022 634 2023 610 2024 306 2025 69 Thereafter — Total lease payments 2,123 Less: Imputed interest 209 Total $ 1,914 12 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars in thousands, except per share amounts) 8 . Shareholders' Equity Three months ended March 31, 2021 2020 Common stock and additional paid-in capital Balance, beginning of period $ 63,378 $ 58,537 Share-based compensation expense 31 37 Proceeds from employee stock purchase plan 4 3 Balance, end of period $ 63,413 $ 58,577 Accumulated other comprehensive loss Balance, beginning of period $ ( 186 ) $ ( 176 ) Unrealized loss on available-for-sale securities, net of tax ( 2 ) ( 23 ) Foreign currency translation adjustment ( 12 ) ( 34 ) Balance, end of period $ ( 200 ) $ ( 233 ) Accumulated deficit Balance, beginning of period $ ( 13,378 ) $ ( 13,883 ) Net loss ( 1,655 ) ( 1,847 ) Balance, end of period $ ( 15,033 ) $ ( 15,730 ) Total shareholders' equity $ 48,180 $ 42,614 13 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars in thousands, except per share amounts) 9 . Long-Term Debt Senior Convertible Notes and Warrants On December 17, 2019, the Company completed the issuance and sale of $ 3,000 aggregate principal amount of secured convertible notes of the Company (the “Notes”) and warrants (the “Warrants”) to purchase 340,909 shares of common stock, par value $ 0.001 per share of the Company (the “Common Stock”), in a private placement transaction. The Notes and Warrants were issued and sold to Edward D. Bagley, an affiliate of the Company, on the terms and conditions of a Note Purchase Agreement dated December 8, 2019 between the Company, certain subsidiary guarantors of the Company, and Mr. Bagley. Mr. Bagley is an affiliate of the Company and was the beneficial owner of approximately 46.6 % of the Company’s issued and outstanding shares of Common Stock at the time that the Notes and Warrants were issued to him. The Notes will mature on December 17, 2023 (the “Maturity Date”) and will accrue interest at a variable rate adjusted on a quarterly basis and equal to two and one -half percent ( 2.5 %) over the greater of (x) five and one -quarter percent ( 5.25 %) and (y) the Prime Rate as published in the Wall Street Journal (New York edition) as of the beginning of such calendar quarter. The Notes may be converted into shares of the Company’s Common Stock at any time at the election of Mr. Bagley at an initial conversion price of $ 2.11 per share (the “Conversion Price”), or 120 % of the closing price of the Common Stock on December 6, 2019 as reported on the Nasdaq Capital Market. Also, the Company can cause a mandatory conversion of the Notes if the volume weighted average closing price of the Common Stock over 90 consecutive trading days exceeds 200 % of the Conversion Price. In addition, the Notes may be redeemed by the Company for cash at any time after December 17, 2020 upon payment of the outstanding principal balance of the Notes and any unpaid and accrued interest. The Company also is required to redeem the Notes upon the occurrence of a change in control of the Company. The Warrants have an initial exercise price equal to $ 1.76 , the closing price of the Common Stock on December 6, 2019 as reported on the Nasdaq Capital Market, and are exercisable until December 17, 2026. The Warrants must be exercised for cash, unless at the time of exercise there is not a then effective registration statement for the resale of the shares of Common Stock issuable upon exercise of the Warrants, in which case the Warrants may be exercised via a cashless exercise feature that provides for net settlement of the shares of Common Stock issuable upon exercise. Concurrent with the issuance of the Notes and Warrants pursuant to the Note Purchase Agreement, the Company, the Guarantors and Mr. Bagley entered into a Guaranty and Collateral Agreement (the “Collateral Agreement”) pursuant to which the Company and the Guarantors granted Mr. Bagley a first priority lien interest in all of the Company’s assets as security for the Company’s performance of its obligations under the Notes and Warrants. The net proceeds after original issue discount and issuance costs of $ 346 were approximately $ 2,654 . The Company expects to use the proceeds from the sale of the Notes and Warrants for general corporate purposes and working capital. In accounting for the issuance of the Notes, the Company separated Notes and Warrants into liability and equity components. The carrying amount of Warrants, being an equity component, was first calculated using Black-Scholes method with the following assumptions: Risk-free interest rate 1.82 % Expected life of warrants (years) 7 Expected price volatility 49.94 % Expected dividend yield 0 % The carrying amount of the Notes was then determined by deducting the fair value of the Warrants from the principal amount of the Notes. The carrying amount of the Notes was further separated into equity and liability components after separating the value of the conversion feature into an equity component and leaving the remaining value as liability. The equity component is not remeasured while the Notes and Warrants continue to meet the conditions for equity classification for equity components. The original issue discount and issuance costs are netted against the liability. The following table represents the carrying value of Notes and Warrants: 14 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) March 31, 2021 December 31, 2020 Liab ility compo nent: Principal $ 2,910 $ 3,000 Less: debt discount and issuance costs, net of amortization ( 532 ) ( 581 ) Net carrying amount $ 2,378 $ 2,419 Equity component ( 1 ) : Warrants $ 318 $ 318 Conversion feature 122 122 Net carrying amount $ 440 $ 440 Current portion of liability component included under short-term debt $ 450 $ 360 Long-term portion of liability component included under long-term debt 1,928 2,059 Liability component total $ 2,378 $ 2,419 ( 1 ) Recorded on the condensed consolidated balance sheets as additional paid-in capital. Debt discount and issuance costs are amortized over the life of the note to interest expense using the effective interest method. During the three months ended March 31, 2021 and March 31, 2020 , amortization of debt discount and issuance costs was $ 49 and $ 49 , respectively. The following table represents schedule of maturities of principal amount contained in the Notes as of March 31, 2021 : Year ending December 31, Principal Amount Maturing 2021 (Remainder) $ 270 2022 720 2023 1,920 2024 — Total principal amount $ 2,910 Paycheck Protection Program Loan On April 18, 2020, the Company, entered into a loan agreement with U.S. Bank National Association Bank, which provided for a loan in the principal amount of $ 1,499 (“PPP Loan”) pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan has a two -year term and bears interest at a rate of 1.0 % per annum. Monthly principal and interest payments are deferred for approximately sixteen months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP Loan contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the Loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company intends to use the entire PPP Loan amount for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. March 31, 2021 December 31, 2020 Current portion of the PPP Loan included under short-term debt $ 500 $ 312 Long-term portion of the PPP Loan included under long-term debt 999 1,187 Liability component total $ 1,499 $ 1,499 15 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) 10 . Fair Value Measurements The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels: Level 1 - Quoted prices in active markets for identical assets and liabilities. Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. This category generally includes U.S. Government and agency securities; municipal securities; mutual funds and securities sold and not yet settled. Level 3 - Unobservable inputs. The substantial majority of the Company’s financial instruments are valued using observable inputs. The following table sets forth the fair value of the financial instruments re-measured by the Company as of March 31, 2021 and December 31, 2020 : Level 1 Level 2 Level 3 Total March 31, 2021 Corporate bonds and notes $ — $ 1,028 $ — $ 1,028 Municipal bonds — 1,746 — 1,746 Total $ — $ 2,774 $ — $ 2,774 December 31, 2020 Corporate bonds and notes $ — $ 1,338 $ — $ 1,338 Municipal bonds — 1,541 — 1,541 Total $ — $ 2,879 $ — $ 2,879 11 . Income Taxes The current year loss did not result in income tax benefit due to recording a full valuation allowance against expected benefits. The valuation allowance was recorded as we concluded that it was more likely than not that our deferred tax assets were not realizable primarily due to the Company's recent pre-tax losses. Provision for income taxes for the three months ended March 31, 2021 represents income tax expense recorded for jurisdictions outside the United States. 12 . Subsequent events None. 16 Table of Contents