What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-04-15 compared with 2021-03-31 · 133 added, 80 removed, 1144 unchanged (16% of the section changed)

19 unchanged sentences

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not Applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

2 unchanged sentences

Zeynep “Zee” Hakimoglu

Chairman, Chief Executive Officer, and President

Chief Executive Officer, and President

Chairman, and Director *

Narsi Narayanan

1 unchanged sentence

Member of the Audit and Compliance Committee, Compensation Committee and Nominating Committee

Zee Hakimoglu is our President, Chief Executive Officer and Chairman.

Zee Hakimoglu is our President and Chief Executive Officer.

She joined our Company in December 2003 as Vice President of Product Line Management with additional responsibility for Research & Development and was appointed President and Chief Executive Officer in July 2004;

she has served as a director of our Company since April 2006 and was named Chairman of the Board in July 2007.

She served as Chairman of the Board till February 2022.

Prior to joining ClearOne, Ms.

20 unchanged sentences

Higley earned her Bachelor of Science in Accounting from the University of Oregon and her MBA from Utah State University, and has been a Utah CPA since 2004.

Hi gley is the daughter of Edward D.

Higley is the daughter of Edward D.

Bagley, our former Chairman of the Board.

1 unchanged sentence

L Robinson has served as a director of our Company since July 2015.

He was appointed Chairman of the Board in February 2022.

Robinson spent fourteen years in private practice as a corporate attorney, including eleven years as a partner in the Salt Lake City, Utah law firm of Blackburn & Stoll, LC.

25 unchanged sentences

He did not graduate with a degree.

Narsi Narayanan (now serving as Senior Vice President of Finance) has served as our Vice President of Finance since July 2009 and has more than two decades of professional experience in the areas of accounting, finance and taxes.

Narsi Narayanan (now serving as Senior Vice President of Finance) has served as our Vice President of Finance since July 2009 and three decades of professional experience in the areas of accounting, finance and taxes.

Prior to joining our Company, he managed the SEC reporting, US GAAP accounting research, Sarbanes-Oxley Act (“SOX”) compliance and other financial reporting functions from August 2007 through February 2009 at Solo Cup Company, a publicly-reporting international consumer products company.

8 unchanged sentences

Officers, directors, and greater than 10% shareholders are required to furnish us with copies of all Section 16(a) reports they file.

Based solely on a review of the reports and amendments to reports furnished to us for the year ended December 31, 2019, we believe that each person who, at any time during such fiscal year was a director, officer, or beneficial owner of more than 10 % of our common stock complied with all Section 16 (a) filing requirements during such period, except for the following:

Larry Hendricks, a director, filed one Form 4 late for one transaction;

Bruce Whaley, a director, filed one Form 4 late for one transaction and Dallin E Bagley, a greater than 10 % shareholder filed one Form 4 late for three transactions.

Based solely on a review of the reports furnished to us for the year ended December 31, 2021, we believe that each person who, at any time during such fiscal year was a director, officer, or beneficial owner of more than 10% of our common stock complied with all Section 16(a) filing requirements during such period.

Code of Ethics

37 unchanged sentences

There were no exercises of stock options by named executive officers during 2021.

There were no equity awards that vested for the named executive officers during 2020 .

During 2021, 16,666 shares vested for Zeynep Hakimoglu and 10,000 shares vested for Narsi Narayanan.

DIRECTOR COMPENSATION

1 unchanged sentence

Hakimoglu did not receive additional compensation for her service as a director.

Fees Earned or Paid in Cash

Option Awards

Other Compensation

Historically, the Company's non-employee directors have received an annual grant of stock options to purchase 10,000 shares of the Company's common stock, of which one-third of the shares vest on the first anniversary of the grant date, and the remaining vest in equal monthly increments over the subsequent 24-month period.

However, the Board decided to terminate the annual stock option award to non-employee directors in 2018 , and consequently, no such grants were made in 2020 .

During 2021, each non-executive director named above received a grant of stock options to purchase 10,000 shares with 6-year expiry period.

T he amounts in the “Option Awards” column reflect the aggregate grant date fair value of awards of stock options granted pursuant to our long-term incentive plans during the periods reported above, computed in accordance with FASB ASC Topic 718 , Compensation - Stock Compensation.

All directors are reimbursed by the Company for their out-of-pocket travel and related expenses, if any, incurred in attending all Board of Directors and committee meetings.

However, during 2021 no expenses were reimbursed to any director.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding ownership of our common stock as of March 28, 2021, except as otherwise stated, by ( i ) each director and nominee for director, (ii) the named executive officers, (iii) all of our named executive officers and directors as a group, and (iv) each person known to us to be the beneficial owner of more than 5 % of our outstanding common stock.

The following table sets forth certain information regarding ownership of our common stock as of April 15, 2022, except as otherwise stated, by ( i ) each director and nominee for director, (ii) the named executive officers, (iii) all of our named executive officers and directors as a group, and (iv) each person known to us to be the beneficial owner of more than 5% of our outstanding common stock.

Shares Beneficially Owned

11 unchanged sentences

Except as otherwise indicated, each person may be reached at our corporate offices c/o ClearOne , Inc ., 5225 Wiley Post Way, Suite 500 , Salt Lake City, Utah 84116 .

The percentages shown in Column (B) are calculated based on 18,775,773 shares of common stock outstanding on March 29, 2021.

The numbers shown in Column (D) and percentages shown in Column (E) include the shares of common stock actually owned as of March 29, 2021 and the shares of common stock that the identified person or group had the right to acquire within 60 days of such date.

In calculating the percentage of ownership, all shares of common stock that each identified person or group had the right to acquire within 60 days of March 29, 2021 upon the exercise of the stock options , secured convertible notes and warrants shown in Column (C) are deemed to be outstanding for the purpose of computing the percentage of the shares of common stock owned by the persons or groups listed above.

The percentages shown in Column (B) are calculated based on 22,410,126 shares of common stock outstanding on April 15, 2022.

The numbers shown in Column (D) and percentages shown in Column (E) include the shares of common stock actually owned as of April 15, 2022 and the shares of common stock that the identified person or group had the right to acquire within 60 days of such date.

In calculating the percentage of ownership, all shares of common stock that each identified person or group had the right to acquire within 60 days of April 15, 2022 upon the exercise of the stock options , secured convertible notes and warrants shown in Column (C) are deemed to be outstanding for the purpose of computing the percentage of the shares of common stock owned by the persons or groups listed above.

This information is based upon the Form 3 filed with the SEC as of July 20, 2020.

48 unchanged sentences

On June 3, 2015, the Company entered into a Consulting Agreement with Edward D.

Bagley, former Chairman of the Board and greater than 10 % shareholder (“Consulting Agreement”) which became effective on July 29, 2015 for an initial term of three years which was renewed in 2018 for an additional term of three years through 2021 .

Bagley, former Chairman of the Board and greater than 10% shareholder (“Consulting Agreement”) which became effective on July 29, 2015 for an initial term of three years which was renewed in 2018 for an additional term of three years and renewed again in 2021 for an additional term of 3 years through 2024.

Pursuant to the terms of the Consulting Agreement Mr.

Bagley is paid a fee of $5,000 per month and is eligible to participate in our equity incentive programs and will be granted stock options commensurate with grants of stock options made to our directors.

During 2020, he was paid $ 60,000 as consulting fees but was not awarded any stock options.

During 2021, he was paid $60,000 as consulting fees and was awarded a grant of stock option to purchase 10,000 shares.

Director Independence

40 unchanged sentences

Employee Stock Purchase Plan

Note Purchase Agreement by and among ClearOne, Inc., the guarantors a party thereto and Edward D.

Bagley dated as of December 8, 2019

Form of Guaranty and Collateral Agreement

Form of Secured Convertible Note

Form of Securities Purchase Agreement

Form of Registration Rights Agreement

Securities Purchase Agreement.

Registration Rights Agreement.

Code of Ethics, approved by the Board of Directors on August 23, 2006

11 unchanged sentences

XBRL Taxonomy Extension Presentation Linkbase

The cover page from this Annual Report on Form 10-K formatted in Inline XBRL

* Constitutes a management contract or compensatory plan or arrangement.

1 unchanged sentence

‡ Information furnished herewith shall not be deemed to be “filed” for the purposes of Section 18 of the 1934 Act

#Management contract or compensatory plan or arrangement

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 its behalf by the undersigned, thereunto duly authorized.

2 unchanged sentences

Zeynep Hakimoglu

President, Chief Executive Officer and Chairman of the Board

March 31, 2021

President and Chief Executive Officer

April 15, 2022

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 registrant and in the capacities and on the dates indicated.

3 unchanged sentences

Narsi Narayanan

President, Chief Executive Officer and Chairman of the Board

President and Chief Executive Officer

Senior Vice President of Finance

1 unchanged sentence

(Principal Accounting and Principal Financial Officer)

March 31, 2021

April 15, 2022

Director and Chairman of the Board

April 15, 2022

/s/ Bruce Whaley

March 31, 2021

April 15, 2022

CLEARONE, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (Auditor ID:

Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020

38 unchanged sentences

Assessment of lower of cost or net realizable value of inventories

As described in Notes 1 and 4 to the consolidated financial statements, inventories totaling $15,053,000 as of December 31, 2020 are stated at the lower of cost or market.

As described in Notes 1 and 4 to the consolidated financial statements, inventories totaling $13.6 million as of December 31, 2021 are stated at the lower of cost or market.

The Company performs analyses to identify and estimate the net realizable value of excess or slow-moving inventories based on forecasted future product demand.

7 unchanged sentences

Salt Lake City, Utah

March 31, 2021

April 15, 2022

CLEARONE, INC.

56 unchanged sentences

Other comprehensive income (loss):

Unrealized gain on available-for-sale securities, net of tax

Unrealized gain (loss) on available-for-sale securities, net of tax

Change in foreign currency translation adjustment

15 unchanged sentences

Balance, beginning of period

Unrealized gain on available-for-sale securities, net of tax

Unrealized gain (loss) on available-for-sale securities, net of tax

Foreign currency translation adjustment

16 unchanged sentences

Provision for doubtful accounts, net

Write-down of inventory to net realizable value

Loss on disposal of assets

Change of inventory to net realizable value

Changes in operating assets and liabilities:

10 unchanged sentences

Purchase of property and equipment

Purchase of intangible assets

Purchase of intangibles

Proceeds from maturities and sales of marketable securities

2 unchanged sentences

Cash flows from financing activities:

Issuance of common stock

N et proceeds from issuance of senior convertible notes

Gross proceeds from issuance of common stock and warrants

Costs of issuance of common stock and warrants

Proceeds from issuance of short-term notes

Proceeds from Pay check Protection Program loan

Principal payments of long-term debt

Proceeds from equity-based compensation programs

9 unchanged sentences

Cash paid for income taxes

Interest paid

Cash paid for interest

See accompanying notes

26 unchanged sentences

Operating in the international environment exposes us to certain inherent risks, including unexpected changes in regulatory requirements and tariffs, and potentially adverse tax consequences, which could materially affect our results of operations.

Currently, we have no second source of manufacturing for a portion of our products.

Currently, we have no second source of manufacturing for most of our products.

Significant Accounting Policies:

28 unchanged sentences

Balance at beginning of the year

Allowance increase

Allowance increase (decrease)

Write offs, net of recoveries

153 unchanged sentences

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

As of December 31, 2020 , our cash and cash equivalents were approximately $ 3,803 compared to $ 4,064 as of December 31, 2019 .

As of December 31, 2021 , cash and cash equivalents were approximately $ 1,071 compared to $ 3,803 as of December 31, 2020 .

Our working capital was $ 17,969 as of December 31, 2021 compared to $ 22,185 as of December 31, 2020 .

Net cash used in operating activities was $ 4,394 for the twelve months ended December 31, 2021, a decrease of cash used of $ 3,412 from $ 982 of cash used in operating activities in the twelve months ended December 31, 2020.

We are currently pursuing all available legal remedies to defend our strategic patents from infringement.

We have already spent approximately $ 20,319 from 2016 through 2020 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.

9,813,806 ) pending a full trial.

We believe this ruling will help pave way for ClearOne’s recovery from the immense harm inflicted by our competitor's infringement of our valuable patents.

We have been actively engaged in preserving cash by suspending our dividend program, allowing our share repurchase program to expire 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 continue to yield higher revenues in the future.

We believe all of these and effective management of working capital will provide the liquidity needed to meet our operating needs through at least March 31, 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.

The Company is currently pursuing all available legal remedies to defend its strategic patents from infringement.

The Company has already spent approximately $ 28,156 from 2016 through 2021 towards this litigation and may be required to spend more to continue its legal defense.

The Company has been actively engaged in preserving cash by suspending its dividend program, allowing the share repurchase program to expire in 2018 and implementing company-wide cost reduction measures.

The Company has also raised additional capital in 2019 by issuing senior convertible notes, in 2020 by borrowing through the CARES Act Paycheck Protection Program and issuing common stock and warrants, and in 2021 by issuing common stock and warrants and short-term notes.

In addition, the Company has been generating additional cash as the Company's inventory levels are brought down to historical levels.

The Company also believes that the measures taken by it will continue to yield higher revenues in the future.

The Company believes, although there can be no assurance, that all of these measures and effective management of working capital will provide the liquidity needed to meet the operating needs through at least April 15, 2023.

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 our 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, delay product development and enhancement, or revise its strategy regarding ongoing litigation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

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 income (loss) in shareholders’ equity until realized.

These debt securities are carried at estimated fair value with unrealized holding gains and losses included in accumulated other comprehensive income (loss) in shareholders’ equity until realized.

Gains and losses on marketable security transactions are reported on the specific-identification method.

33 unchanged sentences

Total intangible assets, net

Patents and technological know-how include capitalized legal expenses, net of amortization of $ 16,582 related to our defense of patents from infringement by our competitors.

P atents and technological know-how include capitalized legal expenses, net of amortizati o n of $ 22,637 rela ted to our defense of patents from infringement by our competitors.

Legal expenses have been capitalized upon satisfaction of two conditions:

36 unchanged sentences

This facility support s our sales, marketing, customer support, and research and development activities.

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 3,068 square-foot facility in Zaragoza, Spain under the terms of an operating lease that expired in March 2022.

This office supported 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 2023.

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.

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 center.

Supplemental cash flow information related to leases was as follows:

72 unchanged sentences

The Court held that “Shure has violated the preliminary injunction order and is found in contempt because it designed the MXA910-A in such a way that allows it to be easily installed flush in most ceiling grids.” The Court’s order prohibited Shure from continuing to “manufacture, market, or sell the MXA910-A.” In addition, the Court held that “[t]he record is also clear as to the MXA910-60CM, but in an abundance of caution, the Court will refrain from granting that aspect of the contempt motion to allow for additional discovery” on that and the “possibility that Shure also violated the preliminary injunction order” by “pushing” sales of the MXA910 immediately after the issuance of the August 2019 preliminary injunction order.

The parties will soon complete supplemental briefing relating to this contempt finding.

On September 15, 2020, Shure filed an appeal of the contempt ruling with the United States Court of Appeals for the Federal Circuit, seeking reversal of the Court’s order finding contempt and disallowing further sales of the MXA910-A.

The briefing on Shure’s appeal will be complete in April 2021 and then the Federal Circuit may order a hearing on the appeal.

Shure and ClearOne completed supplemental briefing before the district court relating to the Court’s ruling holding Shure in contempt.

The Court has not yet issued a ruling on the supplemental briefing.

On July 21, 2021, the Federal Circuit dismissed Shure’s appeal of the Court’s ruling holding Shure in contempt.

On July 9, 2020, the Company moved for summary judgment, or partial summary judgment, of infringement by Shure of the ’186 and ’806 patents, and Shure moved on the same day for summary judgment of invalidity of the ’186 and ’806 patents.

26 unchanged sentences

The Company has appealed the PTAB’s final written decision to the U.S Court of Appeal for the Federal Circuit.

The parties completed briefing on this appeal in November 2021, and the hearing was held on April 7, 2022.

The Federal Circuit has not yet issued any judgment.

ClearOne, Inc.

6 unchanged sentences

On January 13, 2020, Shure moved to dismiss the Company’s new claims.

On July 21, 2020, ClearOne informed the Court that it would proceed with its advertising-related claims in Delaware rather than Illinois.

ClearOne thus filed a Second Amended Complaint removing the prospective economic advantage and trade libel claims.

In July 2021, the parties completed briefing on Shure’s early motion to obtain summary judgment and dismissal of ClearOne’s trade secret misappropriation claims.

Shure's motion is still pending.

The parties’ claim construction briefing is also still pending.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13 unchanged sentences

D865723 (the “Design Patent”) and additional claims of trade libel.

In July 2020, the Company filed counterclaims accusing Shure of false advertising.

In July 2020, the Company filed counterclaims accusing Shure of business torts based on false advertising.

Both parties’ claims are still pending.

8 unchanged sentences

Since neither party objected, the district court judge adopted the report and recommendation in November 2020.

On November 1, 2021, a jury trial commenced in the U.S.

District Court for the District of Delaware on Shure’s claim of infringement and ClearOne's counterclaim of invalidity on the sole claim of U.S.

D865,723 (the “’723 patent”).

On the third day of trial, November 3, 2021, a jury returned a verdict in favor of ClearOne on all issues.

The jury found that ClearOne had not infringed the ’723 patent and that the ’723 patent was invalid.

Shortly before trial, Shure dropped its business tort claims against ClearOne, and ClearOne has asked the Court to dismiss Shure’s now withdrawn business tort claims with prejudice.

That request is still pending.

The Court also severed ClearOne’s business tort claims from the trial of Shure’s ’723 patent infringement claims, and the parties are waiting for the Court to schedule a trial on ClearOne’s business tort claims.

Shure’s claim of infringement of U.S Patent No.

9,565,493 is stayed pending ClearOne’s appeal to the U.S.

Court of Appeals for the Federal Circuit of the U.S.

Patent and Trademark Office’s decision regarding the patentability of several amended claims of that patent in an inter partes review proceeding.

That appeal is fully briefed, with the hearing held on April 7, 2022.

Shure, Incorporated v.

6 unchanged sentences

The institution decision found that five of the seven challenges in the petition were not reasonably likely to prevail, but instituted trial under its all-or-nothing institution policy.

The Company may file its initial set of trial papers by May 11, 2021.

A trial hearing is scheduled to take place November 16, 2021, and a final written decision is due from the PTAB by February 16, 2022.

On February 14, 2022, the PTAB issued a final written decision, finding that Shure had not proved that any claims of the ’653 patent were unpatentable.

On February 24, 2022, Shure filed a notice of appeal, indicating that it would appeal the final written decision to the Federal Circuit.

The Company intends to continue to vigorously enforce and defend its intellectual property rights in these proceedings.

9 unchanged sentences

(Dollars in thousands, except share and per share amounts)

Long-Term Debt

Senior Convertible Notes and Warrants

42 unchanged sentences

Debt discount and issuance costs are amortized over the life of the note to interest expense using the effective interest method.

During the year ended December 31, 2020 , amortization of debt discount and issuance costs was $ 197 .

During the twelve months December 31, 2021amortization of debt discount and issuance costs were $ 196 and $ 197 respectively.

The following table represents schedule of maturities of principal amount contained in the Notes as of December 31, 2021:

2 unchanged sentences

Net carrying amount

Short-term Bridge Loan

On July 2, 2021, the Company obtained a bridge loan in the principal amount of $ 2,000 from Edward D.

Bagley (the “Bridge Loan”), an affiliate of the C ompany.

The Bridge Loan is evidenced by a promissory note dated July 2, 2021 (the “Note”) issued by the Company to Mr.

The Note bears interests at a rate of 8.0 % per annum, matures on the earlier to occur of (i) October 1 , 2021 or (ii) within two business days of the Company’s receipt of its expected U.S.

federal income tax refund, and contains other customary covenants and even ts of default .

On September 11, 2021, the Company amended and restated the terms of the Bridge Loan to extend the latest maturity date from October 1, 2021 to January 3, 2022 .

All other terms and conditions of the Bridge Loan remained the same.

This Bridge Loan of $ 2,000 is included under short-term debt.

As further discussed in Note 16 - Subsequent Events , this Bridge Loan was cancelled on January 4, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8 unchanged sentences

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.

The Company used the entire PPP Loan amount for qualifying expenses and intends to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act.

December 31, 2021

21 unchanged sentences

(Dollars in thousands, except share and per share amounts)

The Company did not grant any options during the year ended December 31, 2019.

The Company granted 50,000 options during the year ended December 31, 2021.

In applying the Black-Scholes methodology to the options granted during the year ended December 31, 2021, the Company used the following assumptions:

9 unchanged sentences

The Company estimated the forfeiture rates based on its historical experience and expectations about future forfeitures.

The Company did not grant any options during the years ended December 31, 2020 and 2019 .

The following table shows the stock option activity:

36 unchanged sentences

Each warrant became immediately exercisable and had an expiry term of five years from the issuance date.

On September 12, 2021, the Company entered into a securities purchase agreement with certain purchasers named therein, pursuant to which the Company issued 3,623,189 shares of the Company's common stock, par value $ 0.001 per share at an offering price of $ 2.76 per share.

The Company received gross proceeds of approximately $ 10,000 and net proceeds of $ 9,288 after deducting placement agent fees and related offering expenses.

In a concurring private placement the Company also issued to the same purchasers warrants exercisable for an aggregate of 3,623,189 shares of common stock at an exercise price of $ 2.76 per share.

Each warrant became immediately exercisable and will expire on March 15, 2027.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Significant Customers

Sales to significant customers that represented more than 10 percent of total revenues are as follows:

Year ended December 31,

There were no sales to significant customers that represented more than 10 percent of total revenues during the years ended December 2021 and 2020.

The following table summarizes the percentage of total gross accounts receivable from significant customers that represented more than 10 percent of total gross accounts receivable:

As of December 31,

* Sales and accounts r eceivable from Customer A in 2020 did not exceed 10 % of revenue and t otal gross accounts receivable .

As December 31,

* Sales and accounts receivable from Customer A and Customer B in 2020 did not exceed 10% of revenue and total gross accounts receivable.

Fair Value Measurements

56 unchanged sentences

In November 2020, the Company completed its assessment of the impact of the carryb ack provisions from the CARES Act and elected to carry back its net operating losses to previous years.

The Company has not provided for foreig n withholding t axes on undistributed earnings of its non-U.S.

The Company has not provided for foreig n withholding taxes on undistributed earnings of its non-U.S.

subsidiaries since these earnings are intended to be reinvested indefinitely, in accordance with guidelines contained in ASC Topic 740 , Accounting for Income Taxes .

12 unchanged sentences

Accordingly, the Company recorded a full valuation allowance at September 30, 2018, and continues to be in a full valuation allowance position at December 31, 2021 .

Under the five-year carryback provision of the CARES Act, the Company carried back its 2018 and 2019 taxable losses to 2013 and 2014.

The Company also intends to carry back its 2020 taxable loss to 2015.

As no tax benefit was previously recorded for the 2018 – 2020 losses, due to the full valuation allowance, the carryback of these losses resulted in a tax benefit of $7.1M.

Under the five-year carryback provision of the CARES Act, the Company carried back its taxable losses from 2018 through 2020 to years from 2013 through 2015.

As no tax benefit was previously recorded for the years from 2018 through 2021 for the losses, due to the full valuation allowance, the carryback of these losses resulted in a tax benefit of $ 0.4 and $ 7.1 M in 2021 and 2020, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24 unchanged sentences

federal income tax returns for 2018 through 2020 are subject to examination.

The Company's U.S.

2018 federal income tax return is currently under examination.

The Company also files in various state and foreign jurisdictions.

8 unchanged sentences

Year ended December 31,

United States

Un ited States

All other countries

The Impact of Covid-19

A s of the time of this filing the Company’s operating activities have been curtailed by the impact of Covid-19.

Government directives have suspe nded manufacturing and limited workplace activities beginning March 23, 2020.

As of the time of this filing the Company’s operating activities have been curtailed by the impact of Covid-19.

Government directives have suspended manufacturing and limited workplace activities beginning March 23, 2020.

The Company has empowered its employees to work remotely wherever possible to minimize the disruption to Company operations.

5 unchanged sentences

however, as of now, the Company is unable to determine the likelihood or degree of such adverse consequences.

Subsequent events

On January 4, 2022, the Company entered into a Securities Purchase Agreement with Edward D.

Bagley, pursuant to which the Company agreed to issue and sell, in a private placement 1,538,461 shares (the “Shares”) of the Company’s common stock, par value $ 0.001 per share, at a purchase price of $ 1.30 per share of Common Stock.

The consideration for the Shares is the cancellation and termination of Mr.

Bagley’s outstanding bridge loan to the Company in the principal amount of $ 2,000,000 originally issued on July 2, 2021 and amended and restated on September 11, 2021.

Bagley is an affiliate of the Company and the Company’s single largest stockholder.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures