What changed in this filing

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Item 1. Financial Statements

2022-05-19 compared with 2021-11-12 · 96 added, 83 removed, 335 unchanged (35% of the section changed)

3 unchanged sentences

(Dollars in thousands, except par value)

September 30, 2021

March 31, 2022

December 31, 2021

35 unchanged sentences

(Dollars in thousands, except per share amounts)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Cost of goods sold

21 unchanged sentences

(Dollars in thousands, except per share amounts)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

3 unchanged sentences

Share-based compensation expense

Provision for doubtful accounts, net

Change of inventory to net realizable value

6 unchanged sentences

Operating lease liabilities

Other long-term lia bilities

Net cash used in operating activities

5 unchanged sentences

Purchases of marketable securities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Net proceeds from issuance of common stock and warrants

Proceeds from issuance of short-term notes

Net proceeds from Paycheck Protection Program loan

Net proceeds from equity-based compensation programs

10 unchanged sentences

The following is a summary of supplemental cash flow activities:

Nine months ended September 30,

Three months ended March 31,

Cash paid for income taxes

14 unchanged sentences

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 September 30, 2021 and December 31, 2020, the results of operations for the three and nine months ended September 30, 2021 and 2020, and the cash flows for the nine months ended September 30, 2021 and 2020.

The results of operations for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results for a full-year period.

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, 2022 and December 31, 2021, the results of operations for the three months ended March 31, 2022 and 2021, and the cash flows for the three months ended March 31, 2022 and 2021.

The results of operations for the three months ended March 31, 2022 and 2021 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, 2021 filed with the SEC.

1 unchanged sentence

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, 2021.

There have been no changes to these policies during the nine months ended September 30, 2021 that are of significance or potential significance to the Company.

There have been no changes to these policies during the March 31, 2022 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.

As of September 30, 2021 , our cash and cash equivalents were approximately $ 9,161 compared to $ 3,803 as of December 31, 2020.

Our working capital was $ 23,739 as of September 30, 2021 .

Net cash used in operating activities was $ 1,477 for the nine months ended September 30, 2021, an increase of $ 1,168 from $ 309 of cash used in activities in the nine months ended September 30, 2021.

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

We have already spent approximately $ 25,668 from 2016 through September 30, 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.

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.

As of March 31, 2022 , our cash and cash equivalents were approximately $ 1,422 compared to $ 1,071 as of December 31, 2021.

Our working capital was $ 19,339 as of March 31, 2022 .

Net cash used in operating activities was $ 1,043 for the three months ended March 31, 2022, an increase 1,030 from $ 13 of cash used in activities in the three months ended March 31, 2022.

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

The Company has already spent approximately $ 28,345 from 2016 through March 31, 2022 towards this litigation and may be required to spend more to continue its legal defense.

UNAUDITED 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, in 2020 by borrowing through the CARES Act Paycheck Protection Program and issuing common stock and warrants and in 2021 by issuing short term notes and issuing common stock and warrants.

The Company has 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.

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 short-term notes and issuing common stock and warrants.

In January 2022, the Company issued $ 2,000 in common stock as consideration for the cancellation and termination of the short-term notes.

In addition, we have been generating 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 November 12, 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;

The Company also 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 all of these measures and effective management of working capital will provide the liquidity needed to meet our operating needs through at least May 19, 2023.

We also believe 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, 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.

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.

Revenue Information

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

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Audio conferencing

1 unchanged sentence

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

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

North and South America

10 unchanged sentences

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

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Basic weighted average shares outstanding

12 unchanged sentences

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 September 30, 2021 and December 31, 2020 were as follows:

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 as of March 31, 2022 and December 31, 2021 were as follows:

Amortized cost

2 unchanged sentences

Estimated fair value

September 30, 2021

March 31, 2022

Available-for-sale securities:

7 unchanged sentences

Total available-for-sale securities

Maturities of marketable securities classified as available-for-sale securities were as follows at September 30, 2021:

Maturities of marketable securities classified as available-for-sale securities were as follows as of March 31, 2022:

Amortized cost

6 unchanged sentences

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

Debt securities in an unrealized loss position as of September 30, 2021 were not deemed impaired at acquisition and subsequent declines in fair value are not deemed attributed to declines in credit quality.

Debt securities in an unrealized loss position as of March 31, 2022 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.

There were no available-for-sale marketable securities with gross unrealized loss positions.

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

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, 2022

Corporate bonds and notes

Municipal bonds

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.

Intangible Assets

Intangible assets as of September 30, 2021 and December 31, 2020 consisted of the following:

Intangible assets as of March 31, 2022 and December 31, 2021 consisted of the following:

Estimated useful lives (years)

September 30, 2021

March 31, 2022

December 31, 2021

4 unchanged sentences

Total intangible assets, net

The amortization of intangible assets for the three months ended September 30, 2021 and 2020 was as follows:

Three months ended September 30,

Nine months ended September 30,

The amortization of intangible assets for the three months ended March 31, 2022 and 2021 was as follows:

Three months ended March 31,

Amortization of intangible assets

4 unchanged sentences

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

Inventories, net of reserves, as of September 30, 2021 and December 31, 2020 consisted of the following:

September 30, 2021

Inventories, net of reserves, as of March 31, 2022 and December 31, 2021 consisted of the following:

March 31, 2022

December 31, 2021

5 unchanged sentences

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 and nine months ended September 30, 2021 and 2020 was as follows:

Three months ended September 30,

Nine months ended September 30,

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, 2022 and 2021 was as follows:

Three months ended March 31,

Net loss incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory

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 and nine months ended September 30, 2021 and 2020 was as follows:

Three months ended September 30,

Nine months ended September 30,

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.

Rent expense for the three months ended March 31, 2022 and 2021 was as follows:

Three months ended March 31,

The Company occup ies 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 the Company's research and development activities.

The Company occupies 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 the Company's principal administrative, sales, marketing, customer support, and research and product development activities.

The Company occupies a 950 square-foot facility in Austin, Texas under the terms of an operating lease expiring in October 20 22 .

This facility support s the Company's sales, marketing, customer support, and research and development activities.

UNAUDITED 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 2024.

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.

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 support s 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 and repair center.

Supplemental cash flow information related to leases was as follows:

Nine months ended September 30,

Three months ended March 31,

Cash paid for amounts included in the measurement of lease liabilities

3 unchanged sentences

Supplemental balance sheet information related to leases was as follows:

September 30, 2021

March 31, 2022

December 31, 2021

5 unchanged sentences

Weighted average discount rate for operating leases

The following represents maturities of operating lease liabilities as of September 30, 2021:

The following represents maturities of operating lease liabilities as of March 31, 2022:

Years ending December 31,

5 unchanged sentences

Shareholders' Equity

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Common stock and additional paid-in capital

22 unchanged sentences

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

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

Bagley, an affiliate of the Company, 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.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4 unchanged sentences

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 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.

Bagley 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.

24 unchanged sentences

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

September 30, 2021

March 31, 2022

December 31, 2021

10 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 three and nine months ended September 30, 2021, amortization of debt discount and issuance costs was $ 49 and $ 147 , respectively and for the three and nine months ended September 30, 2020, amortization of debt discount and issuance costs was $ 50 and $ 148 , respectively.

The following table represents schedule of maturities of principal amount contained in the Notes as of September 30, 2021:

During the three months ended March 31, 2022 and March 31, 2021 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, 2022:

Year ending December 31,

11 unchanged sentences

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

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.

Paycheck Protection Program Loan

7 unchanged sentences

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.

September 30, 2021

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As further discussed in Note 11 - Subsequent Events, the PPP Loan and the interest associated with the loan have been forgiven by United States Small Business Administration ("SBA") effective April 29, 2022.

March 31, 2022

December 31, 2021

2 unchanged sentences

Liability component total

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Fair Value Measurements

11 unchanged sentences

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 September 30, 2021 and December 31, 2020:

September 30, 2021

The following table sets forth the fair value of the financial instruments re-measured by the Company as of March 31, 2022 and December 31, 2021:

March 31, 2022

Corporate bonds and notes

5 unchanged sentences

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 nine months ended September 30, 2021 represents income tax expense recorded for jurisdictions outside the United States.

Provision for income taxes for the three months ended March 31, 2022 represents income tax expense recorded for jurisdictions outside the United States.

The Company had approximately $ 895 of uncertain tax positions as of March 31, 2022.

Due to the inherent uncertainty of the underlying tax positions, it is not possible to forecast the payment of this liability for any particular year.

Subsequent events

The Company's Paycheck Protection Program Loan ("PPP Loan") under the CARES Act was forgiven by Small Business Administration effective April 29, 2022.

With this forgiveness, the Company is not required to repay the principal amount of $ 1,499 and the interest of $ 31 .

The Company expects to receive $ 953 back that it had already paid towards principal and interest payments toward the PPP Loan.

The Company will treat the forgiveness as extinguishment of debt in the quarter ended June 30, 2022 and will report the entire principal amount forgiven of $ 1,499 along with interest already accounted for of $ 27 as a gain on extinguishment of debt.

We have manufacturing agreements with electronics manufacturing service (“EMS”) providers related to the outsourced manufacturing of our products.

Certain manufacturing agreements establish annual volume commitments.

We are also obligated to repurchase the Company-forecasted but unused materials.

The Company has non-cancellable, non-returnable, and long-lead time commitments with its EMS providers and certain suppliers for inventory components that will be used in production.

The Company’s purchase commitments under such agreements are approximately $ 4,850 as of March 31, 2022.

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-Q

Item 1. Financial Statements