What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-28 compared with 2024-04-01 · 46 added, 57 removed, 229 unchanged (31% of the section changed)

19 unchanged sentences

It also supports NFC tap-to-pair and includes a wired USB connection for compatibility with the full variety of modern devices.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On January 16, 2023, we introduced UNITE 260 Pro camera, a professional grade 4 K Ultra HD camera featuring both a 20 X optical zoom and 16 X digital zoom that allows users to capture every participant in all meeting, training, and learning environments it is deployed in.

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When combined with ClearOne UNITE series PTZ cameras, INTERACT, CONVERGE® Pro 2 , CONVERGE® HUDDLE, and CHAT series audio conferencing devices, the Versa UCS 2100 delivers guaranteed performance and a streamlined user experience that supports automatic source detection and switching and is controllable via RS- 232 , TCP/IP, or front panel buttons.

In May 2023, we launched eight new COLLABORATE® Versa® packaged hardware systems to provide optimized audio and video performance for conference rooms and personal office spaces.

The updated lineup of bundled solutions empowers businesses of all sizes and means to leverage powerful conferencing capabilities that include automatic voice tracking, face tracking and echo cancellation.

The new lineup of COLLABORATE Versa solutions offers an ideal package for every small-to-medium sized conferencing space or personal office, giving business owners and IT staff mission-specific options that ensure maximum value, utility and performance in any room.

The solutions launched were COLLABORATE Versa Room CT 160 , COLLABORATE Versa Room CT, COLLABORATE Versa 20 , COLLABORATE Versa 20 Plus, COLLABORATE Versa 160 , COLLABORATE Versa 60 , COLLABORATE Versa Pro 160 , and COLLABORATE Versa Pro 60 .

In June 2023, we returned to Infocomm for the first time since 2019 with a complete suite of products, programs, and on-site demonstrations designed to help partners grow their business across every vertical market where increased collaboration is a priority.

We exhibited our solutions in Booth # 3061 in the Orange County Convention Center from June 14-16, 2023 in Orlando, Florida.

At Infocomm 2023 , we unveiled the BMA 360 D, the newest member of the world’s most advanced beamforming microphone array ceiling tile family.

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Combined with adaptive steering that focuses audio pickup on active speakers, the adjustable beam patterns provide impeccable coverage of every meeting or conference participant.

The exceptional accuracy of ClearOne’s beamforming and adaptive steering technologies also enhance the performance of voice lift and camera tracking functions for any attached DSP mixer.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The exceptional accuracy of ClearOne’s beamforming and adaptive steering technologies also enhance the performance of voice lift and camera tracking functions for any attached DSP.

We also introduced at Infocomm, our powerful new DIALOG® UVHF wireless microphone system that combines class-leading flexibility, Power over Ethernet (PoE) simplicity, Dante technology, and up to 350 usable frequencies to offer professional-quality audio conferencing, video collaboration, and sound reinforcement for any size room.

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Versa USB 22 D enables users to seamlessly connect computers to a Dante network and use any audio application for playback or capture without installing software.

In January 2024, we introduced the DIALOG 20 USB.

This solution is ideal for hybrid meetings that require a dedicated presenter microphone and a shared audience microphone with simultaneous sound reinforcement, such as any type of hybrid training or presentation session.

The DIALOG 20 USB works in spaces up to 2500 square feet.

We also continued our programs to cut costs and to speed up product development that we believe will enable us to get back to a growth path.

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We also believe that the lack of Microsoft Teams certification for our products is increasingly impacting our ability to sell our conferencing and collaboration solutions.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our gross profit margin decreased to 23% during 2024 from 34 % in 2023 .

Net income of $ 20.6 million in 2022 changed to net loss of $ 0.6 million in 2023 .

The change from net income to net loss was primarily due to the recognition in 2022 of a gain of $ 33.6 million included under other income related to the one -time legal settlement receivable of $ 55 million net of unamortized capitalized legal expenses of $ 21.4 million.

This gain was partially offset by (a) a decrease in the tax provision by $ 6.5 million (b) recognition of settlement gains from two separate settlements of $ 5.3 million, (c) increase in interest income by $ 1.7 million, and (d) increase in operating income by $ 0.4 million.

Net loss of $ 0.6 million in 2023 changed to net loss of $ 9.0 million in 2024 .

The increase in the loss is attributed to decreasing revenue and an inability to capture cost reductions as rapidly as the decrease in revenue combined with compressed margins, falling 11% year over year.

Industry conditions

We operate in a very dynamic and highly competitive industry which is dominated on the one hand by a few players with respect to certain products like traditional video conferencing appliances while on the other hand influenced heavily by a fragmented reseller market consisting of numerous regional and local players.

We operate in a very dynamic and highly competitive industry which is dominated on the one hand by a few players with respect to certain products like video conferencing appliances while on the other hand influenced heavily by a fragmented reseller market consisting of numerous regional and local players.

The industry is also characterized by venture capitalist funded start-ups and private companies willing to fund cumulative cash losses in order to gain market share and achieve certain non-financial goals.

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Our installed professional audio-conferencing products, which is our flagship product category, continue to be ahead of the competition despite the reduction in revenues.

Our strength in this space is largely due to our fully integrated suite of products consisting of DSP mixers, wide range of professional microphone products and video collaboration products.

Our strength in this space is largely due to our fully integrated suite of products consisting of DSPs, a wide range of professional microphone products and video collaboration products.

Despite our strong leadership position in the installed professional audio-conferencing market, we face challenges to revenue growth due to the limited size of the market, pricing pressures from new competitors attracted to the commercial market due to higher margins, and the lack of certifications from Microsoft.

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Dollar denominated prices of our products less competitive.

In December 2019, a novel strain of coronavirus (“COVID- 19 ”) started spreading from China and was declared a pandemic.

The COVID- 19 pandemic caused severe global disruptions and had varying impact on our business.

The installed audio conferencing market was negatively impacted due to lockdowns , postponement of projects and restrictions on installers to visit commercial sites.

On the other hand, COVID- 19 generated higher than normal demand in 2020 for our video products and personal conferencing products due to the significant expansion of work-from-home market.

The extent of COVID- 19 ’s effect on our operational and financial performance keeps evolving and depends on multiple factors including the severity and infectiousness of current and future virus strains, effectiveness of vaccines especially on novel strains of COVID- 19 , government regulations, etc ., all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

Supply chain disruptions resulting from COVID- 19 have caused significant fluctuations in our costs of goods resulting in a reduction of our gross margins.

If the pandemic continues to be a severe worldwide health crisis, the disease could have a material adverse effect on our business, results of operations, financial condition and cash flows and adversely impact the trading price of our common stock.

Deferred Revenue

De ferred revenue decreased from $ 30 thousand in 2023 to $ 17 thousand in 2024 due to decrease in new subscriptions to the video conferencing software.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DISCUSSION OF RESULTS OF OPERATIONS

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Total operating expenses

Interest expense

Interest income (expense)

Other income, net

Operating loss

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Loss before income taxes

Provision for income taxes

Our revenue decreased by 39 % to $ 11.4 million in 2024 compared to $ 18.7 million of revenue in 2023 .

Revenue from all product categories declined during the year with audio conferencing, microphones and video products declining by 49%, 33% and 26% respectively.

Video products suffered a decline in revenues in 2023 compared to 2022 due to a lack of demand for video products due to bottoming of demand for the work from home and learn from home markets and due to extreme pricing pressures.

Video products suffered a decline in revenues in 2024 compared to 2023 due to a lack of demand for video products as demand for the work from home and learn from home markets contracted as well as experiencing extreme pricing pressures.

Revenue decreases were also d ue to our inability in the first half of 2023 to source adequate inventory to meet the demand for professional audio products and BMA due to the transition of manufacturing of our products from China to Singapore by our EMS provider.

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The share of microphones in the revenue mix increased slightly from 41 % in 2023 to 46% in 2024 .

Share of video products in the revenue mix remained the same at 14% in 2022 and 2023.

During 2023 , revenue decreased significantly in all regions of the world.

Asia Pacific inclu ding the Middle East decreased by 6 %, Europe and Africa decreased by 54 % a nd the Americas decreased by approximately 26 %.

Share of video products in the revenue mix increased from 14 % in 2023 and 16% in 2024 .

During 2024 , revenue decreased in the Asia Pacific area, including the Middle East, by 19%.

Europe and Africa decreased by 46% and the Americas decreased by approximately 54%.

We believe, although there can be no assurance, that we can return to revenue growth and generating operating profits through our strategic initiatives namely product innovation, focus on core products and cost reduction.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cost of Goods Sold and Gross Profit

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Our gross profit during 2024 was approximately $ 2.6 million or 23% compared to approximately $ 6.4 mill ion or 34% in 2023 .

The gross profit margin was negatively impacted due to (a) an increase in freight and tariff costs as a percentage of revenue , (b) increased administration costs as a percentage of revenue, and (c) an increase in inventory obsolescence costs.

These increases in cost of goods sold as a percentage of revenue was partially offset by reduction in material costs as a percentage of revenue.

The gross profit margin was negatively impacted due to (a) an increase in freight and tariff costs as a percentage of revenue , (b) increased material costs across all product lines, and (c) an increase in inventory obsolescence costs.

Our profitability in the near-term continues to depend significantly on our revenues from audio conferencing products.

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This decrease was partially offset by (a) an increase in consulting expenses including investor relations costs, and (b) an increase in directors and officers ’ insurance expenses.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest expense

I nterest expense increased to $0.5 million in 2023 compared to $0.4 million in 2022.

The increase was primarily due to interest associated with the prepayment of the $ 2 million bridge loan in January 2023.

Interest income (expense)

I nterest income increased to $ 0.23 million in 2024 compared to expense of ($ 0.5 ) million in 2023 .

The increase was primarily due to interest associated with investments in marketable securities offset by the prepayment of the $ 2 million bridge loan in January 2023.

Interest expense was $0.0 in 2024 compared to $0.5 million in 2023.

The decrease was primarily due to a loan being extinguished in 2023.

Other income (expense), net

Other income (expense), net includes interest income, foreign currency changes and gain or loss on disposal of assets.

Other income in 2 023 included (a) $5.3 million from two separate legal settlements, and (b) $1.9 million of interest income received on marketable securities.

Other income in 2022 included (a) a gain recognized of $33.6 million related to the one-time legal settlement receivable of $55 million, net of unamortized capitalized legal expenses of $21.4 million (b) $1.5 million in gain from the forgiveness of CARES Act Paycheck Protection Program Loan, and (c) $1.9 million of interest income received on marketable securities.

Other income in 2024 included ($ 0 .15) million due to foreign currency expenses.

Other income in 2023 included $ 51.3 million from a legal settlement, $4 million from a license agreement, and $ 1.9 million of interest income received on marketable securities.

Provision for income taxes

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Our working capital was $ 15.2 million and $ 39.1 million as of December 31, 2024 and 2023 , respectively.

Net cash flows used in operating activities were approximately $ 54.6 million during 2023 , an increase of ap proximately $ 58.8 million from $ 4.2 million used in opera ting activities in 2022 .

The increase in cash provided was primarily due to receipt of settlement proceeds of $56.3 million from two separate settlements and income tax refunds, partially offset by change in operating assets and liabilities.

Net cash used in investing activities was $ 4.9 million in 2023 compared to $ 2.1 million provided by investing activities in 2022 , an increase in cash used of $ 7.0 million.

The increase in cash used in investing activities in 2023 was primarily due to an increase in net cash outflows from purchase of marketable securities net of sale of marketable securities of approximately $7.4 million partially offset by a decrease of $0.7 million in capitalized legal spending.

Net cash used in financing activities was $ 32.9 million during 2023 compared to net cash provided by financing activities of $ 2.1 million during 2022 , a decrease in cash provided of $ 34.9 million.

The decrease was primarily due to payment of a special dividend of $29.0 million and an increase in principal payments of debt.

This decrease was further increased by lack of any capital raise in 2023 compared to capital raised through equity and debt issuances of $ 2.0 million in 2022 .

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 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 million 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 million.

Net cash flows used in operating activities were approximately ( $ 6.1 ) million during 2024 , a decrease of ap proximately ( $ 60.7 ) million from $ 54.6 million provided by opera ting activities in 2023 .

The decrease in cash provided was primarily due to receipt of settlement proceeds of $55 million from a legal settlement, a license agreement and income tax refunds in 2023, partially offset by change in operating assets and liabilities .

Net cash provided by investing activities was $ 4.2 million in 2024 compared to ( $ 4.9 ) million used in investing activities in 2023 , an increase in cash provided of $ 9.1 million.

The increase in cash used in investing activities in 2024 was primarily due to an increase in net cash inflows from sale of marketable securities net of purchase of marketable securities .

Net cash used in financing activities was ($ 14.5 ) million during 2024 compared to net cash used in financing activities of ($ 32.9 ) million during 2023 , a decrease in cash used of ($ 18.4 ) million.

The decrease was primarily due to payment of a special dividend of $14.5 million in 2024 compared to a special dividend issued of $29.0 million in 2023 .

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 $ 29 million.

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 $ 14.5 million 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 April 1, 2025.

As of December 31, 2023 , we had open purchase orders of approximately $ 3.6 million mostly for purchase of inventory.

The Company has experienced a decline in sales from 2023 to 2024, along with increasing product costs in 2024.

These conditions raise substantial doubt about continuing as a going concern.

We will need to complete one or more strategic transactions or raise additional working capital to continue our normal and planned operations.

We will need to generate and sustain significant revenue levels in future periods in order to become profitable, and, even if we do, we may not be able to maintain or increase our level of profitability.

In addition, as a public company, we will incur accounting, legal and other expenses.

These expenditures will make it necessary for us to continue to raise additional working capital.

Our efforts to grow our business may be costlier than we expect, and we may not be able to generate sufficient revenue to offset our increased operating expenses.

We may incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications and delays and other unknown events.

Accordingly, substantial doubt exists about our ability to continue as a going concern and we cannot assure you that we will achieve sustainable operating profits as we continue to expand our business, and otherwise implement our growth initiatives.

In February 2025, the Company raised $1,000 in a private placement transaction.

We may be unable to complete a strategic transaction within a reasonable timeframe, on attractive terms or at all, and market conditions, including the historical volatility in our common stock will likely limit our ability to raise capital on favorable terms, or at all, and the terms of any public or private offerings of debt or equity securities likely would be significantly dilutive to existing stockholders.

There is no set timetable for the overall process given the anticipated timelines for different strategic alternatives may vary, and there can be no assurance that this process will result in us pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms or at all.

The Company’s ability to continue as a going concern is dependent on the outcome of these uncertainties.

As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for 12 months from the date these consolidated financial statements are issued.

The consolidated financial statements as of December 31, 2024 have been prepared under the assumption that the Company will continue as a going concern for the next 12 months after these financial statements are issued, and that contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.

These Consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty .

As of December 31, 2024 , we had open purchase orders of approximately $4.3 million mostly for the purchase of inventory.

As of December 31, 2024 , we had inventory totaling $ 16.1 million, of which non-current inventory accounted for $ 4.9 million.

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We believe the following critical accounting policies identify our most critical accounting policies, which are the policies that are both important to the representation of our financial condition and results and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Revenue and Associated Allowances for Revenue Adjustments and Doubtful Accounts

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Assets held for sale are reported at the lower of the carrying amount or fair value, less the estimated costs to sell.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Accounting for Income Taxes

27 unchanged sentences

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 7. Management’s Discussion and Analysis