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Item 9A. Controls and Procedures

2024-04-01 compared with 2023-03-31 · 157 added, 168 removed, 959 unchanged (25% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, we have completed an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness and the design and operation of our disclosure controls and pr ocedures as of December 31, 2022 .

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

As required by Rule 13 a- 15 under the Exchange Act, we have completed an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Interim Chief Financial Officer, of the effectiveness and the design and operation of our disclosure controls and pr ocedures as of December 31, 2023 .

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effective at a reasonable assuran ce level as of December 31, 2022 .

Based upon this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effective at a reasonable assuran ce level as of December 31, 2023 .

The effectiveness of any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate improper conduct completely.

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Not Applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table sets forth certain information regarding our directors and executive officers as of March 31, 2022.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth certain information regarding our directors and executive officers as of April 1, 2024.

Director or Officer Since

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Chairman, and Director *

Narsi Narayanan

Chief Financial Officer and Corporate Secretary

Raghunathan Jayashree

Interim Chief Financial Officer

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

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Graham earned a Bachelor of Science in Electrical Engineering, with highest honors, and a Master’s Degree in Electrical Engineering from the Georgia Institute of Technology.

Hendricks has served as a director of our Company since June 2003.

Hendricks is a Certified Public Accountant who retired in December 2002 after serving as Vice President of Finance and General Manager of Daily Foods, Inc., a national meat processing company.

During his 30-year career in accounting, he served as a self-employed CPA and worked for the international accounting firm Peat Marwick & Mitchell.

Hendricks has served on the boards of eight other organizations, including Tunex International, Habitat for Humanity, Daily Foods, Skin Care International, and the National Advisory Board of the Huntsman College of Business at Utah State University.

He earned a Bachelor's Degree in Accounting from Utah State University and a Master of Business Administration Degree from the University of Utah.

Higley was appointed a director of our Company effective July 20, 2020.

Higley has been self-employed as a CPA since June 2009.

Previously, she was the CFO for Daisy D’s Paper Company from March 2007 until January 2009, where she managed all aspects of the company’s financial and accounting responsibilities.

Additionally, Ms.

Higley was the CFO for Tunex International from April 2006 to March 2007 where she was accountable for all financial aspects of the corporation.

Prior to that, Ms.

Higley was a staff tax accountant at Wisen, Smith, Racker & Prescott LLP from February 2004 to April 2006.

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.

Higley is the daughter of Edward D.

Bagley, our former Chairman of the Board.

Bagley beneficially owns 45% of our issued and outstanding common stock.

L Robinson has served as a director of our company since July 2015 and was named Chairman of the Board in February 2022.

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For the past five years, Mr.

Robinson has been principally employed by MicroPower Global Limited, a company in the semiconductor business and as a private attorney.

Robinson has been principally employed by MicroPower Global Limited, a company in the semiconductor business, Operation Underground Railroad, Inc.

and as a private attorney.

At MicroPower , Mr.

Robinson has acted as General Counsel, Chief Financial Officer and director.

Robinson also maintains a law practice and serves as counsel to a number of companies in the fields of regenerative medicine, transportation, commercial construction and nonprofit.

Robinson acted as General Counsel, Chief Financial Officer and a director.

At Operation Underground Railroad, Inc .

he acts as VP of Legal Affairs.

Robinson also maintains a law practice and serves as counsel to a number of companies in the fields of regenerative medicine and commercial construction.

Robinson previously served as chief financial officer, in-house counsel, secretary and treasurer of ActiveCare , Inc.

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Dallin Bagley.

Hendricks has served as a director of our Company since June 2003.

Hendricks is a Certified Public Accountant who retired in December 2002 after serving as Vice President of Finance and General Manager of Daily Foods, Inc., a national meat processing company.

During his 30 -year career in accounting, he served as a self-employed CPA and worked for the international accounting firm Peat Marwick & Mitchell.

He earned a Bachelor's Degree in Accounting from Utah State University and a Master of Business Administration Degree from the University of Utah.

Higley was appointed a director of our Company effective July 20, 2020.

Higley has been self-employed as a CPA since June 2009.

Previously, she was the CFO for Daisy D’s Paper Company from March 2007 until January 2009, where she managed all aspects of the company’s financial and accounting responsibilities.

Additionally, Ms.

Higley was the CFO for Tunex International from April 2006 to March 2007 where she was accountable for all financial aspects of the corporation.

Prior to that, Ms.

Higley was a staff tax accountant at Wisen, Smith, Racker & Prescott LLP from February 2004 to April 2006.

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 .

Higley is the daughter of Edward D.

Bagley, our former Chairman of the Board.

Bagley beneficially owns 44 % of our issued and outstanding common stock.

Bruce Whaley was appointed a director of our Company effective April 16, 2019.

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He has been with Wilson & Davis since 1988 .

Whaley also holds a real estate license and works as a real estate agent for Coldwell Banker.

Until March 2023, Mr.

Whaley also h eld a real estate license and work ed as a real estate agent for Coldwell Banker.

Whaley attended the University of Utah between 1968 and 1971 and studied many subjects including business administration, accounting and finance.

He did not graduate with a degree.

Narsi Narayanan has served in the roles of Vice President of Finance and Senior Vice President of Finance since July 2009.

He has over 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.

Prior to that, Mr.

Narayanan managed the accounting and finance functions, including SEC Reporting, SOX compliance and US GAAP accounting research, from June 2004 through August 2007 at eCollege.com, a leading technology company serving private educational institutions, which was also a publicly-reporting company before being acquired by Pearson Education group.

In addition to being a Chartered Accountant, Mr.

Narayanan has extensive experience working in public accounting and in senior finance positions in India with a large conglomerate.

He is a Certified Public Accountant with graduate degrees in accounting (University of Utah, M.

Acc.) and business (University of Illinois, MBA-Finance).

Raghunathan Jayashree was appointed as Interim CFO on February 27, 2024.

Raghunathan joined the Company as a Senior Manager in July 2018 and has served as the Company’s Controller since October 2019.

Raghunathan, has been a Chartered Accountant in India since 1996 and has over twenty years of work experience in the field of accounting.

Section 16 (a) Beneficial Ownership Reporting Compliance

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The Company's Code of Ethics is posted on our website at www.clearone.com.

Insider Trading Policies and Procedures

The Company has adopted a Statement of Policy Regarding Compliance with Insider Trading Laws (the "Insider Trading Policy) that establishes policies and procedures governing the purchase, sale, and/or other dispositions of the Company's securities by directors, officers and employees.

The Insider Trading Policy requires compliance with all applicable laws, rules and regulations governing the offer and sale of securities and prohibits directors, officers and employees from engaging in transactions in the Company's securities while in possession of material nonpublic information.

The Insider Trading Policy establishes quarterly blackout periods during which trading in the Company's securities is prohibited.

These blackout periods begins 15 days prior to the end of each fiscal quarter and ends at the opening of trading on the first business day after the public dissemination of Company's financial results for that quarter for a full trading day.

In addition, the Insider Trading Policy requires senior officers and key employees to obtain pre-approval of any transactions in Company securities from the Company's Compliance Officer under the Insider Trading Policy, which currently is the Interim Chief Financial Officer.

A copy of the Company's Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.

Nomination Procedures

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Year ended December 31, 2023

Narsi Narayanan - Chief Financial Officer

Year ended December 31, 2022

Year ended December 31, 2021

Zeynep Hakimoglu - Chief Executive Officer and President (2)

Narsi Narayanan - Chief Financial Officer (2)

Year ended December 31, 2023

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Graham was appointed as Interim CEO on May 24, 2022 and became permanent CEO on Jan 26, 2023.

( 2 ) Zeynep Hakimoglu served as CEO and President till May 24, 2022, when her employment with ClearOne was terminated.

Narsi Narayanan served as CFO and Corporate Secretary till March 1, 2024, when his employment with ClearOne ended.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

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DIRECTOR COMPENSATION

The following table summarizes the compensation paid by us to non-employee directors for the year ended December 31, 2022.

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

The following table summarizes the compensation paid to non-employee directors for the year ended December 31, 2023 .

Fees Earned or Paid in Cash

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Directors and Executive Officers:

Narsi Narayanan

Raghunathan Jayashree

Total (Directors and Officers)

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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, 2024 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.

This information is based upon the Form 4 filed with the SEC as of June 2, 2023.

Lisa Higley, who was appointed a Director effective July 20, 2020, is the daughter of Edward D.

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Bagley and they are excluded from the amounts reported in the table above.

Bagley has sole voting and dispositive power over 11,481,855 shares (including the shares that may be acquired pursuant to exercise of options to purchase 34,999 shares of common stock, secured convertible notes to purchase 574,644 shares of common stock and warrants to purchase 685,295 shares of common stock) and shared voting and dispositive power over the 355,257 shares held by Mr.

Bagley has sole voting and dispositive power over 11,314,156 shares (including the shares that may be acquired pursuant to exercise of options to purchase 35,277 shares of common stock, and warrants to purchase 685,295 shares of common stock) and shared voting and dispositive power over the 355,257 shares held by Mr.

Bagley’s spouse.

This information is based upon Schedule 13D/A and Form 4 as filed by Mr.

Bagley with the SEC in September 2020 and January 2022, respectively.

This information is based upon a Form 4 as filed by Mr.

Bagley with the SEC on December 15, 2023 and a Schedule 13D Amendment filed by Mr.

Bagley with the SEC in September 2020.

Bryan Bagley, who resigned as Director effective November 6, 2012, is the son of Edward D.

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Bryan Bagley or Lisa Higley.

Bryan Bagley has sole voting and dispositive power over 1,528,282 shares (including the shares that may be acquired pursuant to exercise of secured convertible notes to purchase 184,834 shares of common stock and warrants to purchase 106,818 shares of common stock) This information is based upon Schedule 13D/A as filed by E.

Bryan Bagley with the SEC in September 2020.

Bryan Bagley, who resigned as Director effective November 6, 2012, is the son of Edward D.

Bagley, and each of them has previously disclaimed beneficial ownership of common stock beneficially owned by the other.

The share amounts indicated for Mr.

Bryan Bagley do not include any shares held by Edward D.

The share amounts indicated for Mr.

Bryan Bagley do not include 2,252,636 shares held by a trust in which he is a co-trustee.

Equity Compensation Plan Information

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Audit-related fees ( 2 )

Tax fees ( 3 )

All other fees

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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

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Confidential Separation Agreement and General Release.

Promissory Note dated October 28, 2022.

Confidential Settlement and License Agreement.

Non-Exclusive Cross License Agreement effective December 23, 2023 by and between ClearOne, Inc.

and Sennheiser electronic GmbH & C0.

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

ClearOne Inc.

Statement of Policy Regarding Compliance with Insider Trading Laws

Subsidiaries of the registrant

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Chief Executive Officer

March 31, 2023

April 1, 2024

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.

/s/ Narsi Narayanan

Narsi Narayanan

/s/ Raghunathan Jayashree

Raghunathan Jayashree

President and Chief Executive Officer

Chief Financial Officer

Interim Chief Financial Officer

(Principal Executive Officer)

(Principal Accounting and Principal Financial Officer)

March 31, 2023

April 1, 2024

Director and Chairman of the Board

March 31, 2023

April 1, 2024

/s/ Bruce Whaley

March 31, 2023

April 1, 2024

CLEARONE, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (Auditor ID:

Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021 F-3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2022 and 2021 F-4

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022 and 2021 F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-6

Notes to Consolidated Financial Statements F-8

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter - Gain on Legal Settlement

As discussed more fully in Note 8 to the consolidated financial statements, the Company and another party entered into a confidential settlement and license agreement (the Agreement) on December 9, 2022.

Under the terms of the Agreement, all of the litigations between the parties were dismissed with prejudice and both the Company and the other party released all claims against the other arising from or in connection with the matters that were subject to the litigations.

The Company received a one-time settlement payment in early January 2023 in the amount of $55,000,000 after the dismissal of the litigations in accordance with the Agreement.

The Company and the other party agreed to certain covenants not to sue.

As of December 31, 2022, the Company recorded a receivable of $55,000,000 for the proceeds.

During the year ended December 31, 2022, the Company recognized a gain of $33,623,000, after deducting the entire capitalized legal costs totaling $27,374,000 net of amortized costs of $5,997,000.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Capitalized patent defense costs

As described in Notes 3 and 8 to the consolidated financial statements, the Company was involved in litigation against a competitor related to intellectual property rights.

The Company has capitalized legal expenses related to the defense of certain patents as intangible assets on the balance sheet based on the satisfaction of two conditions:

(i) a determination being made that a successful defense is probable, and (ii) that the monetary benefits arising out of such a successful defense will be in excess of the costs for the defense.

We identified the capitalization of patent defense costs as a critical audit matter because evaluating the likelihood of potential outcomes of the litigation as well as determining the expected monetary benefit involves significant judgment by management.

This required a high degree of auditor judgement and subjectivity in performing procedures and evaluating audit evidence related to management’s assertions that a successful defense is probable and that the monetary benefits will be in excess of the costs.

Addressing this critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

These procedures included, among others:

(1) testing of legal expenses related to the litigation, (2) obtaining and evaluating a legal confirmation obtained from the Company’s lead counsel in the case (3) obtaining and evaluating a legal opinion letter from another third party intellectual property law firm related to their evaluation of the likelihood of potential outcomes of the litigation based on their review of the case, (4) reviewing and evaluating management’s cost analysis, (5) obtaining and evaluating an expert witness damages report and, (6) evaluating the reasonableness of management’s assumptions.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the account or disclosure to which it relates.

Assessment of lower of cost or net realizable value of inventories

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Salt Lake City, Utah

March 31, 2023

April 1, 2024

We have served as the Company’s auditor since October 14, 2015.

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Legal settlement receivable

Receivables, net of allowance for doubtful accounts of $ 326

Receivables, net of allowance for credit losses of $ 326

Inventories, net

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Income (loss) before income taxes

Provision for (benefit from) income taxes

Provision for income taxes

Net income (loss)

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Issuance of common stock

Dividends paid

Share-based compensation expense

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Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization expense

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Changes in operating assets and liabilities:

Legal settlement receivable

Prepaid expenses and other assets

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Other long-term liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Capitalized patent defense costs

Purchase of marketable securities

Purchase of property and equipment

Purchase of intangibles

Capitalized patent defense costs

Proceeds from maturities and sales of marketable securities

Purchase of marketable securities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Gross proceeds from issuance of common stock and warrants

Costs of issuance of common stock and warrants

Dividend payment

Principal payments of long-term debt

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

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

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At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limits.

As of December 31, 2022, there was one cash account that exceeded federally insured limits, in the amount of $ 564 .

As of December 31, 2023 , there were three cash accounts in the United States that exceeded federally insured limits, in the amount of $ 17,251 .

In addition, there were foreign cash accounts in the amount of $ 192 that were not covered by Federal Deposit Insurance Corporation insurance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The Company has in place credit policies and procedures, an approval process for sales returns and credit memos, and processes for managing and monitoring channel inventory levels.

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.

The allowance for credit losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.

Management regularly analyzes accounts receivable including current aging, historical write-off experience, customer concentrations, customer creditworthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.

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Delinquent account balances are written off if the Company determines that the likelihood of collection is not probable.

If the assumptions that are used to determine the allowance for doubtful accounts change, the Company may have to provide for a greater level of expense in future periods or reverse amounts provided in prior periods.

If the assumptions that are used to determine the allowance for credit losses change, the Company may have to provide for a greater level of expense in future periods or reverse amounts provided in prior periods.

The Company’s allowance for doubtful accounts activity for the years ended December 31, 2023 and 2022 is as follows:

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Our working capital was $ 39,052 as of December 31, 2023 compared to $ 69,307 as of December 31, 2022 .

Net cash used in operating activities was $ 4,179 for the twelve months ended December 31, 2022, a decrease of cash used of $ 215 from $ 4,394 of cash used in operating activities in the twelve months ended December 31, 2021.

Net cash provided by operating activities was $ 54,628 for the twelve months ended December 31, 2023 , an increase in cashflows of $ 58,807 from $ 4,179 of cash used in operating activities in the twelve months ended December 31, 2022 .

In order to maintain liquidity, the Company has been actively engaged in preserving cash by implementing company-wide cost reduction measures and raising additional capital.

The company 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 raised additional capital in 2019 by issuing senior c onvertible 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 October 2022, the Company issued short term notes to raise $ 2,000 .

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

The Company paid a special one -time cash dividend of $ 1.00 per share of ClearOne common stock or the eligible warrants on June 1, 2023 amounting to $ 28,979 .

On March 11, 2024 the Company's Board of Directors declared another special dividend of $ 0.50 per share of the Company's stock and eligible warrants amounting to estimated $ 14,500 to be paid on April 10, 2024.

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, along with the current cash balance after the receipt of proceeds from legal settlement, will provide the liquidity needed to meet our operating needs through at least March 31, 2024.

The Company believes, although there can be no assurance, that all of these measures and effective management of working capital, along with the current cash balance, will provide the liquidity needed to meet our operating needs through at least April 1, 2025.

Marketable Securities

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Amortized cost

Gross unrealized

holding gains

Gross unrealized

holding losses

Gross unrealized holding gains

Gross unrealized holding losses

Estimated fair value

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Available-for-sale securities:

Corporate bonds and notes

Municipal bonds

US Treasury securities

Certificates of deposit

Corporate debt securities

Total available-for-sale securities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Maturities of marketable securities classified as available-for-sale securities were as follows at December 31, 2023:

Amortized cost

Estimated fair value

Due within one year

Due after one year through five years

Total available-for-sale securities

There were no available-for sale securities as of December 31, 2022.

Debt securities in an unrealized loss position as of December 31, 2023 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.

The available-for-sale marketable securities in a gross unrealized loss position as of December 31, 2023 are summarized as follows:

Less than 12 months

More than 12 months

As of December 31, 2023

US Treasury Securities

Certificates of Deposit

Corporate Debt securities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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As of December 31,

Patents and techn ologic al know-ho w

Patents and technological know-how

Proprietary software

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Total intangible assets, net

P atents and technological know-how as of December 31, 2021 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 were capitalized upon satisfaction of two conditions:

(a) a determination being made that a successful defense of this litigation is probable, and (b) that the monetary benefits arising out of such successful defense will be in excess of the costs for the defense.

The Company capitalized $ 737 and $ 7,836 of litigation expenses related to this matter during the twelve months ended December 31, 2022 and 2021 , respectively.

A gain of $ 33,623 was recognized and included under other income after deducting the entire capitalized legal costs amounting to $ 27,374 net of amortized costs of $ 5,997 from the one-time legal settlement amount of $ 55,000 , which is included in the balance sheet under legal settlement receivable as of December 31, 2022.

Please refer to Note 8 - Commitments and Contingencies for additional information.

During t he years ended December 31, 2023 and 2022 , amortization of these intangible assets were $ 517 and $ 2,512 respectively.

A gain of $ 33,623 was recognized and included under other income after deducting the entire capitalized legal costs amounting to $ 27,374 net of amortized costs of $ 5,997 from the one -time legal settlement amount of $ 55,000 , which is included in the balance sheet under legal settlement receivable as of December 31, 2022.

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

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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, which has been amended in February 2023 to expire in February 2028.

Under the terms of this amendment , we will reduce our space to approximately 9,402 square feet.

We occupy a 9,402 square-foot facility in Salt Lake City, Utah under the terms of an operating lease, which expires in February 2028.

The facility supports our principal administrative, sales, marketing, customer support, and research and product development activities.

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Intellectual Property Litigation

The Company has been involved in several litigation proceedings (collectively, the “Litigations”) against Shure Incorporated (“Shure”) as more fully described in the Part I, Item 3 of the Company’s annual report on Form 10-K for the year ended December 31, 2021, as supplemented in Part II, Item 1 of the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2022.

The Company was involved in several litigation proceedings (collectively, the “Litigations”) against Shure Incorporated (“Shure”).

On December 9 , 2022 , the Company and Shure entered into a confidential settlement and license agreement (the “Agreement”) .

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A gain of $ 33,623 was recognized and included under other income after deducting the entire capitalized legal costs amounting to $ 27,374 net of amortized costs of $ 5,997 from the one -time legal settlement amount of $ 55,000 , which is included in the balance sheet under legal settlement receivable as of December 31, 2022.

The Company also settled another intellectual property matter by entering into a cross licensing agreement in December 2023 and accepting a one-time payment of $ 4,000 in March 2024.

The amount is recognized and included under other income in the consolidated statement of operations and in the consolidated balance sheet under legal settlement receivable as of December 31, 2023.

In addition, the Company is also involved from time to time in various claims and legal proceedings which arise in the normal course of our business.

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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.

The Notes mature on December 17, 2023 (the “Maturity Date”) and 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 matured on December 17, 2023 (the “Maturity Date”) and accrued 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.

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The Company also is required to redeem the Notes upon the occurrence of a change in control of the Company.

The Notes were fully repaid as per the terms of the Note on December 17, 2023.

No part of the Note was converted into a common stock.

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.

32 unchanged sentences

During the twelve months December 31, 2023 amortization of debt discount and issuance costs were $ 188 and $ 197 respectively.

The following table represents schedule of maturities of principal amount contained in the Notes as of December 31, 2022:

Year ending December 31,

Principal Amount Maturing

Net carrying amount

2021 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 “2021 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 2021 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 of December 31, 2021.

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

Bagley, pursuant to which the Company issued and sold to Mr.

Bagley, 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 was the cancellation and termination of Mr.

Bagley’s outstanding bridge loan to the Company in the principal amount of $ 2,000 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9 unchanged sentences

The Company treated the forgiveness as extinguishment of debt in this quarter ended September 30, 2022 and reported the entire principal amount forgiven of $ 1,499 along with interest already accounted for of $ 29 as a gain on extinguishment of debt included in other income.

2022 Bridge Loan

On October 28, 2022 the Company obtained a bridge loan in the principal amount of $ 2,000 from Edward D.

Short-term Bridge Loans

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

Bagley (the “ 2021 Bridge Loan”), an affiliate of the C ompany.

The 2022 Bridge Loan is evidenced by a promi ssory note dated October 28, 2022 (the “ 2022 Note”) issued by the Company to Mr.

The 2022 Note bears interest at a rate of 12.0 % per annum and matures on October 28, 2023 .

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

The Note bore interest at a rate of 8.0 % per annum.

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.

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

Bagley, pursuant to which the Company issued and sold to Mr.

Bagley, 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 was the cancellation and termination of Mr.

Bagley’s outstanding bridge loan to the Company in the principal amount of $ 2,000 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.

O n October 28, 2022 the Company obtained a bridge loan in the principal amount of $ 2,000 from Edward D.

Bagley (the “ 2022 Bridge Loan”), an affiliate of the Company.

The 2022 Bridge Loan was evidenced by a promissory note dated October 28, 2022 (the “ 2022 Note”) issued by the Company to Mr.

The 2022 Note bore interest at a rate of 12.0 % per annum and had a maturity date of October 28, 2023 .

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

This Bridge Loan of $ 2,000 is included under short-term debt as of December 31, 2022.

In January 2023, the 2022 Bridge loan of $ 2,000 along with applicable interest was repaid in full.

Share-Based Payments

9 unchanged sentences

Additionally, in the event of a change in control or the occurrence of a corporate transaction, the Company’s Board of Directors has the authority to elect that all unvested options shall vest and become exercisable immediately prior to the event or closing of the transaction.

As of December 31, 2022 , the Company had 245,977 options with contractual lives of ten years and 242,500 options with contractual lives of 6 years .

As of December 31, 2023 , the Company had 217,810 options with contractual lives of ten years and 390,000 options with contractual lives of six years .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of December 31, 2023 , there were 607,810 options outstanding under the 2007 Plan.

3 unchanged sentences

The Company uses the Black-Scholes option pricing model to determine the fair value of share-based payments granted under the guidelines of ASC Topic 718 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company did not grant any options during the year ended December 31, 2022 .

1 unchanged sentence

Risk free interest rate, average

Expected option life, average 5 years

Expected option life, average

Expected price volatility, average

52 unchanged sentences

There were no sales to significant customers that represented more than 10 percent of total revenues during the years ended December 31, 2023 and 2022 .

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

As December 31,

Fair Value Mezasurements

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).

13 unchanged sentences

December 31, 2023

Corporate bonds and notes

Municipal bonds

US Treasury securities

Certificates of deposit

Corporate debt securities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

Year ended December 31,

The Company’s benefit from (provision for) income taxes consisted of the following:

The Company’s provision for income taxes consisted of the following:

Year ended December 31,

2 unchanged sentences

Total deferred

Tax benefit (provision)

The income tax benefit (provision) differs from that computed at the federal statutory corporate income tax rate as follows:

Tax provision

The income tax provision differs from that computed at the federal statutory corporate income tax rate as follows:

Year ended December 31,

50 unchanged sentences

The total amount of unrecognized tax benefits at December 31, 2023 and 2022 , that would favorably impact our effective tax rate if recognized was $ 1,034 and $ 976 , respectively.

As of December 31, 2022 and 2021 , we accrued $ 44 and $ 16 , respectively, in interest and penalties related to unrecognized tax benefits.

As of December 31, 2023 and 2022 , we acc rued $ 111 and $ 44 , respectively, in interest and penalties related to unrecognized tax benefits.

We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision.

5 unchanged sentences

Additions based on tax positions related to the current year

Additions for tax positions of prior years

Reductions for tax positions of prior years

18 unchanged sentences

Subsequent events

In January 2023, the 2022 Bridge loan of $ 2,000 along with applicable interest was repaid.

The Company received $ 1,350 and recorded the settlement gain in March 2023 upon entering into an agreement with a service provider to settle a contract dispute arising on provision of software services to the Company.

On March 10, 2024 t he Company's Board of Directors declared a special dividend of $ 0.50 per share of the Company's stock and eligible warrants to be paid on April 10, 2024.

This is expected to result in a cash outflow of approximately $ 14,500 .

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