What changed in this filing

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Item 9A. Controls and Procedures

2025-03-28 compared with 2024-04-01 · 207 added, 196 removed, 920 unchanged (30% of the section changed)

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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 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 .

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 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 Chief Financial Officer, of the effectiveness and the design and operation of our disclosure controls and pr ocedures as of December 31, 2024 .

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

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 .

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, 2024 .

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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OTHER INFORMATION

(a) On March 27, 2025, ClearOne, Inc., a Delaware corporation (the “Company”), entered into engagement letter dated as of March 20, 2025 (the “Engagement Letter”) with RBW Capital Partners LLC (“RBW”) and Dawson James Securities, Inc.

(“Dawson James,” and together with RBW, the “Advisor”) to assist the Company with capital raising efforts and the sale of the Company by way of a negotiated merger or consolidation, including a reverse merger, the negotiated sale of all or substantially all of the Company’s assets, the sale, via negotiated tender offer, of the Company’s issued and outstanding shares of stock, or a spin-off of the Company’s current business and operations to its current stockholders (each, a “Strategic Transaction”).

The engagement of the Advisor is part of a comprehensive review of strategic alternatives being conducted by the Company’s Board of Directors (the “Board”) focused on maximizing shareholder value, including but not limited to, equity or debt financing alternatives, merger and acquisition transactions, divestiture of assets, licensing opportunities, joint ventures, collaborations or other partnerships with other companies, or a spin-off of the Company’s current business and operations.

The Board has formed a special transaction committee of the Board (the “Special Transaction Committee”) consisting of independent and disinterested directors and delegated all power and authority of the Board to the Special Transaction Committee to oversee the Company’s evaluation of strategic alternatives.

There is no set timetable for this process and there can be no assurance that this process will result in the Company pursuing a Strategic Transaction or that any transaction, if pursued, will be completed on attractive terms or at all.

The Company does not expect to disclose developments with respect to this process unless and until the evaluation of strategic alternatives has been completed or the Company has concluded that disclosure is appropriate or legally required.

Pursuant to the terms and conditions of the Company’s Engagement Letter with the Advisor, the Advisor will act as the Company’s exclusive placement agent and financial advisor for a term of six months to assist the Company with capital raising efforts and identifying potential acquisition or merger partners for the Company and negotiating and consummating a Strategic Transaction with one or more such parties.

As consideration for the financial advisory services to be provided by the Advisor to the Company, the Company will pay the Advisor the following fees pursuant to the Engagement Letter:

A success fee payable equal to five percent (5%) of the transaction value of any completed Strategic Transaction with any parties not previously known to the Company prior to the engagement of the Advisor;

In connection with any sale of debt or equity securities contemplated by the Engagement Letter, a cash success fee of eight percent (8%) of the amount of capital raised;

Reimbursement of Advisor’s out-of-pockets fees and expenses up to $150,000.

The Engagement Letter also includes a tail fee provision that requires the Company to pay the foregoing fees to the Advisor with respect to any Strategic Transaction completed within twelve (12) months following the term of the Engagement Letter with a party introduced to the Company by the Advisor.

The Company also has agreed to a customary lock-up provision that prohibits the Company and its affiliates, officers, and directors will not, directly or indirectly, offer, sell, contract to sell, grant any option to purchase, or otherwise dispose of any shares of the Company’s securities until 90 days after the completion of any Strategic Transaction, including any sale of Company securities.

The foregoing summary of the material terms of the Engagement Letter is qualified entirely by reference to Engagement Letter, a copy of which is filed as Exhibit 10.11 to this Annual Report on Form 10-K and incorporated herein by reference.

The foregoing disclosure of the Engagement Letter is set forth in Item 9B of this Form 10-K in lieu of a separate Form 8-K disclosing the Engagement Letter under Items 1.01 and 9.01 of Form 8-K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

The following table sets forth certain information regarding our directors and executive officers as of March 28, 2025 .

Director or Officer Since

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Chairman, and Director *

Raghunathan Jayashree

Interim Chief Financial Officer

Chief Financial Officer

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

Derek Graham is our Chief Executive Officer.

Graham is our Chief Executive Officer.

He was appointed as Interim CEO in May 2022 and was confirmed as the permanent CEO in January 2023.

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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, Operation Underground Railroad, Inc.

Robinson has been principally employed by MicroPower Global Limited, a company in the semiconductor business, OUR Rescue, Inc.

and as a private attorney.

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

At Operation Underground Railroad, Inc .

At OUR Rescue , Inc .

he acts as VP of Legal Affairs.

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He did not graduate with a degree.

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.

Simon Brewer was appointed as Chief Financial Officer of ClearOne Inc.

in April 2024, bringing over 25 years of experience in finance, operations, and leadership across technology, manufacturing, e-commerce, biotech, and non-profit sectors.

He oversees the company’s finance and accounting functions, helping drive strategic initiatives to position ClearOne for scalable growth.

Prior to ClearOne, Mr.

Brewer was CFO and COO at an international non-profit dedicated to eradicating human trafficking (2021–2024), and CFO at Predictive Technology Group Inc.

(2018–2021), leading its transition to a public company.

He also held CFO roles at Norbest LLC (2016–2018) and senior finance and IT positions at Wilson Electronics (2013–2016) and Backcountry.com (2009–2013), consistently achieving revenue growth and operational efficiencies.

Brewer transitioned to a dedicated accounting career at KPMG LLP (2005–2009), managing audits and advisory for high-profile clients, after beginning his career in 1999 as a programmer and accountant at Prospect Planet Dotcom.

He holds a Master of Accounting and a Bachelor of Arts in Accounting (Cum Laude) with a Minor in Russian from the University of Utah and is a Certified Public Accountant (CPA) in Utah and Nevada and a Chartered Global Management Accountant (CGMA).

Section 16 (a) Beneficial Ownership Reporting Compliance

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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.

These blackout periods begin 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 (2)

Simon Brewer - Chief Financial Officer ( 2 )

Year ended December 31, 2024

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

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

Simon Brewer was appointed Chief Financial Officer on April 15, 2024.

Bonuses reflect achievement of specific performance metrics approved by the Compensation Committee.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

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Unexercisable

Narsi Narayanan

One -third of the shares underlying each stock option vest on the first anniversary of the grant date and the remaining shares vest equally over a period of 24 months following the first anniversary of the grant date.

All of the shares underlying each stock option vest on the first anniversary of the grant date or upon a change of control;

whichever occurs first.

OPTION EXERCISES AND STOCK VESTED

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Directors and Executive Officers:

Raghunathan Jayashree

Total (Directors and Officers)

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The numbers shown in Column (D) and percentages shown in Column (E) include the shares of common stock actually owned as of March 27, 2025 and the shares of common stock that the identified person or group had the right to acquire within 60 days of such date.

In calculating the percentage of ownership, all shares of common stock that each identified person or group had the right to acquire within 60 days of March 29, 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.

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 27, 2025 upon the exercise of the stock options 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 4 filed with the SEC as of June 2, 2023.

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Higley do not include 6,546 shares owned by her spouse and 2,252,636 shares held by a trust in which she is a co-trustee.

Bagley may be deemed to own an additional 2,252,636 shares of common stock that are deemed to be owned by his wife, Carolyn Bagley, as a result of her acting as one of four co-trustees of a trust.

Bagley may be deemed to own an additional 355,257 shares of common stock that Carolyn Bagley owns individually.

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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 11,314,156 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.

Bagley has sole voting and dispositive power over 13,314,156 shares (including the shares that may be acquired pursuant to exercise of options to purchase 38,333 shares of common stock, and warrants to purchase 685,295 shares of common stock).

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.

Bagley with the SEC on February 28, 2025 and a Schedule 13D Amendment filed by Mr.

Bagley with the SEC on February 28, 2025.

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

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Employee Stock Purchase Plan

Form of Securities Purchase Agreement

Form of Registration Rights Agreement

Securities Purchase Agreement.

Registration Rights Agreement.

Confidential Separation Agreement and General Release.

Confidential Settlement and License Agreement.

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and Sennheiser electronic GmbH & C0.

Engagement Letter dated March 20, 2025 by and between ClearOne, Inc .

, RBW Capital Partners LLC and Dawson James Securities, Inc.

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

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Chief Executive Officer

April 1, 2024

March 28, 2025

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/ Raghunathan Jayashree

Raghunathan Jayashree

/s/ Simon Brewer

President and Chief Executive Officer

Interim Chief Financial Officer

Chief Financial Officer

(Principal Executive Officer)

(Principal Accounting and Principal Financial Officer)

April 1, 2024

March 28, 2025

Director and Chairman of the Board

April 1, 2024

March 28, 2025

/s/ Bruce Whaley

April 1, 2024

March 28, 2025

CLEARONE, INC.

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We have audited the accompanying consolidated balance sheets of ClearOne, Inc.

and subsidiaries (collectively, the Company) as of December 31, 2023 and 2022 , and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023 , and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material aspects, the financial position of ClearOne as of December 31, 2023 and 2022 , and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023 , in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (collectively, the Company) as of December 31, 2024 and 2023 , and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024 , and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material aspects, the financial position of the Company as of December 31, 2024 and 2023 , and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024 , in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to

Continue as a Going Concern

The accompanying financial

statements have been prepared assuming that the Company will continue as a

going concern.

As discussed in Note 1 to the financial statements, the Company

incurred a net loss from operations and had negative cash flows from

operations, which raise substantial doubt about its ability to continue as a

going concern.

Management's plans in regard to these matters are also described

The financial statements do not include any adjustments that might

result from the outcome of this uncertainty.

Basis for Opinion

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(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 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.

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

We identified the inventory valuation as a critical audit matter because of the significant balance of inventory held by the Company and because forecasting future product demand involves significant judgement by management.

We identified the valuation of slow-moving inventory as a critical audit matter because of the significant balance of inventory held by the Company and because forecasting future product demand involves significant judgement by management.

This required a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence to evaluate management’s assumptions related to estimating the reserve of obsolete and slow-moving inventory.

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Salt Lake City, Utah

April 1, 2024

March 28, 2025

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

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Marketable securities

Legal settlement receivable

Receivables, net of allowance for credit losses of $ 326

License receivable

Receivables, net of allowance for credit losses of $ 405 and $ 326

Inventories, net

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Deferred product revenue

Short-term debt

Total current liabilities

Long-term debt

Op erat ing lease liability, net of current

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share amounts)

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

Year ended December 31,

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Operating loss

Interest expense

Interest income (expense)

Other income, net

Income (loss) before income taxes

Loss before income taxes

Provision for income taxes

Net income (loss)

Basic income (loss) per common share

Diluted income (loss) per common share

Basic loss per common share

Diluted loss per common share

Basic weighted average shares outstanding

Diluted weighted average shares outstanding

Comprehensive income (loss):

Net income (loss)

Other comprehensive income (loss):

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

Comprehensive loss:

Other comprehensive loss:

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

Change in foreign currency translation adjustment

Comprehensive income (loss)

Comprehensive loss

See accompanying notes

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Balance, beginning of year

Issuance of common stock

Dividends paid

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Cash flows from operating activities:

Net income (loss)

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

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

Depreciation and amortization expense

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Share-based compensation expense

Provision for doubtful accounts, net

Change of inventory to net realizable value

Loss on disposal of assets

Gain recognized on Paycheck Protection Plan Loan forgiveness

Gain on legal settlement proceeds, net of capitalized legal costs less amortization

Patent license proceeds

Changes in operating assets and liabilities:

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Purchase of intangibles

Capitalized patent defense costs

Proceeds from maturities and sales of marketable securities

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Principal payments of long-term debt

Proceeds from issuance of short-term notes

Proceeds from Pay check Protection Program loan

Proceeds from equity-based compensation programs

Net cash provided by (used in) financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

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Cash paid for interest

Supplemental disclosure of non-cash investing and financing activities

Right-of-use assets obtained in exchange for lease obligations

Issue of common stock in consideration of cancellation of debt

See accompanying notes

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The performance and simplicity of our advanced, comprehensive solutions offer unprecedented levels of functionality, reliability and scalability.

Going Concern:

As of December 31, 2024 , cash and cash equivalents were approximately $ 1,417 compared to $ 17,835 as of December 31, 2023 .

Our working capital was $ 15,208 as of December 31, 2024 compared to $ 39,052 as of December 31, 2023 .

Net cash used in operating activities was $ 6,116 for the twelve months ended December 31, 2024 , a decrease in cashflows of $ 60,744 from $ 54,628 of cash provided by operating activities in the twelve months ended December 31, 2023 .

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.

Basis of Presentation:

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Actual results could differ materially from these estimates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Foreign Currency Translation – We are exposed to foreign currency exchange risk through our foreign subsidiaries.

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

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 .

As of December 31, 2024 , there was one cash account in the United States that exceeded federally insured limits, in the amount of $ 977 .

In addition, there were foreign cash accounts in the amount of $ 190 that were not covered by Federal Deposit Insurance Corporation insurance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Marketable Securities - The Company has classified its marketable securities as available-for-sale securities.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company’s allowance for doubtful accounts activity for the years ended December 31, 2024 and 2023 is as follows:

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Long term inventory represents inventory held in excess of our current (next 12 months) requirements based on our recent sales and forecasted level of sales.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Property and Equipment – Property and equipment are stated at cost less accumulated depreciation and amortization.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

We determine if an arrangement is a lease at inception.

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The Company evaluates certain factors including the customer’s ability to pay (or credit risk)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled.

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Taxes assessed by government authorities on revenue-producing transactions, including value-added and excise taxes, are presented on a net basis (excluded from revenues) in the consolidated statements of operations and comprehensive income (loss).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The details of deferred revenue and associated cost of goods sold and gross profit are as follows:

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The inventory due from the customer is accounted at cost or market value whichever is lower.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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Balance at end of year

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Advertising – The Company expenses advertising costs as incurred.

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Significant judgment and estimates are required in determining whether valuation allowances should be established as well as the amount of such allowances.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The valuation allowance is based on our estimates of future taxable income and the period over which we expect the deferred tax assets to be recovered.

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Year Ended December 31,

Net income (loss)

Interest adjustment under if-converted method

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Diluted weighted average shares

Basic income (loss) per common share:

Diluted income (loss) per common share:

Weighted average options, warrants and convertible portion of senior convertible notes outstanding

Anti-dilutive options, warrants and convertible portion of senior convertible notes not included in the computation

Basic loss per common share:

Diluted loss per common share:

Weighted average options and warrants outstanding

Anti-dilutive options and warrants not included in the computation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Share-Based Payment – We estimate the fair value of stock options using the Black-Scholes option-pricing model, which requires certain estimates, including an expected forfeiture rate and expected term of options granted.

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When there are changes to the assumptions used in the option-pricing model, including fluctuations in the market price of our common stock, there will be variations in the calculated fair value of our future stock option awards, which results in variation in the compensation cost recognized.

Other recent accounting pronouncements:

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

Operating Segment – The Company operates as one operating segment.

Operating segments are defined as components of an entity for which separate financial information is regularly evaluated by the chief operating decision maker ("CODM"), which is the Company's Chief Executive Officer, in deciding how to allocate resources and assess performance.

The Company's CODM evaluates financial information and resources and assesses the performance of these resources on a consolidated basis.

There is no expense or asset information that is supplemental to information disclosed within the consolidated financial statements, that is regularly provided to the CODM.

The allocation of resources and assessment of performance of the operating segment is based on consolidated net loss and functional expenses as reported on our consolidated statements of operations and comprehensive loss.

Because the Company operates as one operating segment, financial segment information, including expense and asset information, can be found in the consolidated financial statements.

Recently issued accounting pronouncements:

ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The standard is effective for full year 2024 reporting, and for interim reporting beginning in 2025.

The adoption of this ASU did not change the way the Company evaluates its reportable segments and, as a result, did not have a material impact on the Company’s segment-related disclosures.

ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures." This update enhances income tax disclosure requirements, primarily by requiring greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disclosures.

For public business entities, such as the Company, ASU 2023-09 mandates a tabular reconciliation of the effective tax rate using both percentages and reporting currency amounts, with specific categories of reconciling items and additional detail for ite ms meeting a quantitative threshold of 5 % of the expected tax amount.

Additionally, the standard requires annual disclosure of income taxes paid, disaggregated by federal, state, and foreign jurisdictions, with further breakout by individual jurisdiction if the amount is significant.

The ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied prospectively, though retrospective application is optional.

The Company is currently evaluating the impact of ASU 2023-09 on its financial statement disclosures.

Adoption of this standard is expected to require updates to our income tax disclosure processes, including the collection and reporting of additional data to comply with the enhanced disaggregation requirements.

While the standard does not affect the recognition or measurement of income taxes, it will increase the level of detail provided in the notes to our consolidated financial statements.

We are assessing the necessary changes to our systems and controls to ensure compliance and do not anticipate a material impact on our financial position or results of operations beyond the additional disclosure requirements.

ASU 2024-03, Income Statement—Reporting Comprehensive Income (Topic 220):

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU No.

2024-03, "Income Statement—Reporting Comprehensive Income (Topic 220):

Disaggregation of Income Statement Expenses," which requires public business entities, such as the Company, to provide disaggregated disclosure of specific natural expense categories underlying certain income statement expense line items in the notes to the financial statements.

The standard identifies five required natural expense categories for disaggregation—employee compensation, depreciation, amortization, inventory expense, and other manufacturing expenses—along with a residual "other" category for remaining amounts within relevant expense captions (e.g., cost of sales, selling, general and administrative expenses).

ASU 2024-03 does not alter the expense captions presented on the face of the income statement but enhances footnote disclosures to improve transparency.

The standard is effective for annual periods beginning after December 15, 2026, with early adoption permitted, and must be applied prospectively, though retrospective application is optional.

An update in ASU 2025-01 clarified that interim period disclosures are not required until annual periods beginning after December 15, 2027.

The Company is in the process of evaluating the impact of ASU 2024-03 on its consolidated financial statements.

We expect adoption to necessitate modifications to our financial reporting processes and systems to capture and disclose the required disaggregated expense information in the footnotes.

Management anticipates that this will enhance the granularity of expense disclosures but does not expect a material effect on our reported financial position or results of operations.

We are reviewing our current expense classification practices and data collection capabilities to ensure compliance with the new requirements upon adoption.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of December 31, 2023 , cash and cash equivalents were approximately $ 17,835 compared to $ 984 as of December 31, 2022 .

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

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 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 .

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, will provide the liquidity needed to meet our operating needs through at least April 1, 2025.

Marketable Securities

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Dividend and interest income are recognized when earned.

All such securities were liquidated during the year for working capital, and, as such, we have $ 0.0 in marketable securities as of December 31, 2024, compared to $ 4,396 as of December 31, 2023.

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 December 31, 2023 were as follows:

Amortized cost

Gross unrealized holding gains

Gross unrealized holding losses

Estimated fair value

Gross unrealized

holding gains

Gross unrealized

holding losses

Estimated fair

December 31, 2023

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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

Corporate bonds and notes

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

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

Intangible Assets

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During t he years ended December 31, 2024 and 2023 , amortization of these intangible assets were $ 260 and $ 517 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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(Dollars in thousands, except share and per share amounts)

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 is recognized on a straight-line basis over the period of the lease considering future rent escalation and holiday periods.

Rent expense for the years ended December 31, 2024 and 2023 was as follows:

W e occup y a 1,350 square-foot facility in Gainesville, Florida under the terms of an operating lease that expires in February 2028 .

W e occup y a 1,350 square-foot facility in Gainesville, Florida under the terms of an operating lease expiring in February 2028 .

The Gainesville facility is used primarily to support our research and development activities.

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.

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 reduced our space to approximately 9,402 square feet.

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

We occupy a 6,175 square-foot facility in Chennai, India under the terms of an operating lease expiring in August 2024.

We occupy a 6,175 square-foot facility in Chennai, India under the terms of an operating lease expiring in September 2025.

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 center.

This lease was cancelled on January 31, 2025.

We entered into a new lease on December 1, 2024 to occupy a 2,590 square-foot warehouse in Salt Lake City Utah.

The lease is an operating lease expiring in February 2028.

This facility serves as our primary warranty and repair center.

Supplemental cash flow information related to leases was as follows:

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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 is approximately $ 3,596 as of December 31, 2023 .

The Company’s purchase commitments under such agreements is approximately $ 4,300 million as of December 31, 2024 .

Uncertain Tax Positions.

3 unchanged sentences

Intellectual Property Litigation

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”) .

Under the terms of the Agreement:

All of the Litigations between the parties were dismissed with prejudice and each of the Company and Shure released all claims against the other arising from or in connection with the matters that were subject to the Litigations;

Shure made a one -time settlement payment to the Company in the amount of $ 55,000 within five days after the dismissal of the Litigations in accordance with the Agreement in January 2023;

The Company and Shure agreed to certain patent licenses and covenants not to sue.

The Company capitalized $ 0 and $ 737 of litigation expenses related to this matter during the twelve months ended December 31, 2023 and 2022 , respectively.

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.

The Company settled an 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 License 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 a first priority lien interest in all of the Company’s assets as security for the Company’s performance of its obligations under the Notes and Warrants.

The net proceeds after original issue discount and issuance costs of $ 346 were approximately $ 2,654 .

The Company expects to use the proceeds from the sale of the Notes and Warrants for general corporate purposes and working capital.

In accounting for the issuance of the Notes, the Company separated Notes and Warrants into liability and equity components.

The carrying amount of Warrants, being an equity component, was first calculated using Black-Scholes method with the following assumptions:

The carrying amount of Warrants, being an equity component, was calculated using Black-Scholes method with the following assumptions:

Risk-free interest rate

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Expected dividend yield

The carrying amount of the Notes was then determined by deducting the fair value of the Warrants from the principal amount of the Notes.

The carrying amount of the Notes was further separated into equity and liability components after separating the value of the conversion feature into an equity component and leaving the remaining value as liability.

The equity component is not remeasured while the Notes and Warrants continue to meet the conditions for equity classification for equity components.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The original issue discount and issuance costs are netted against the liability.

The following table represents the carrying value of Notes and Warrants:

December 31, 2023

December 31, 2022

Liability component:

debt discount and issuance costs, net of amortization

Net carrying amount

Equity component ( 1 ) :

Conversion feature

Net carrying amount

Current portion of liability component included under short-term debt

Long-term portion of liability component included under long-term debt

Liability component total

( 1 ) Recorded on the consolidated balance sheets as additional paid-in capital.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Paycheck Protection Program Loan

On April 18, 2020, the Company, entered into a loan agreement with U.S.

Bank National Association Bank, which provided for a loan in the principal amount of $ 1,499 (“PPP Loan”) pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

The PPP Loan had a two -year term and bears interest at a rate of 1.0 % per annum.

Monthly principal and interest payments are deferred for approximately sixteen months after the date of disbursement.

The 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 received $ 953 back that it had already paid towards principal and interest payments toward the PPP Loan.

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.

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 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.

Short-term Bridge Loan

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

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Options may be granted to employees, officers, non-employee directors and other service providers and may be granted upon such terms as the Compensation Committee of the Board of Directors determines in their sole discretion.

All vesting schedules for options granted are based on 3 or 4 -year vesting schedules, with either one -third or one -fourth vesting on the first anniversary and the remaining options vesting ratably over the remainder of the vesting term.

Generally vesting schedules for options granted are based on 3 or 4 -year vesting schedules, with either one -third or one -fourth vesting on the first anniversary and the remaining options vesting ratably over the remainder of the vesting term.

Generally, directors and officers have 3 -year vesting schedules and all other employees have 4 -year vesting schedules.

8 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 .

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

In applying the Black-Scholes methodology to the 160,000 options granted during the year ended December 31, 2023 , the Company used the following assumptions:

3 unchanged sentences

Expected dividend yield

In applying the Black-Scholes methodology to the 160,000 options granted during the year ended December 31, 2024 , the Company used the following assumptions:

Risk free interest rate, average

Expected option life, average

Expected price volatility, average

Expected dividend yield

The risk-free interest rate is determined using the U.S.

49 unchanged sentences

Significant Customers

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 .

During the year ended December 31, 2024 one of our distributors, customer A, accounted for 17 % of total sales.

For the year ended December 31, 2023 no distributor accounted for more than 10 % of our total consolidated revenue.

As of December 31, 2024, customer A accounted for 30 % and customer B accounted for 12 % of trade account receivables.

No customer accounted for more than 10 % of receivables as of December 31, 2023.

Fair Value Measurements

11 unchanged sentences

The substantial majority of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs.

There were no financial instruments that were re-measured by the Company as of December 31, 2022 .

The following tables set forth the fair value of the financial instruments re-measured by the Company as of December 31, 2023 .

The following tables set forth the fair value of the financial instruments re-measured by the Company as of December 31, 2024 and 2023 .

December 31, 2024

2 unchanged sentences

Corporate debt securities

December 31, 2023

US Treasury securities

Certificates of deposit

Corporate debt securities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

38 unchanged sentences

The Company routinely evaluates the likelihood of realizing the benefit of its deferred tax assets and may record a valuation allowance if, based on all available evidence, it determines that it is more likely than not some portion of the tax benefit will not be realized.

As of December 31, 2023 , the Company had an aggregate of approximately $ 13.8 million in deferred tax assets primarily related to intangible assets, net operating losses, tax credit carryforwards, and inventory basis differences.

As of December 31, 2024 , the Company had an aggregate of approximately $ 15,975 in deferred tax assets primarily related to intangible assets, net operating losses, tax credit carryforwards, and inventory basis differences.

On a quarterly basis, the Company tests the value of deferred tax assets for impairment at the taxpaying-component level within each tax jurisdiction.

10 unchanged sentences

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

As of December 31, 2023 the Company has federal net operating loss (“NOL”) carryforwards of approximately $ 5.8 million (pre-tax), state NOL carryforwards of approximately 6.3 million (pre-tax) and Spain NOL carryforwards of approximately $ 12.7 million (pre-tax).

As of December 31, 2024 the Company has federal net operating loss (“NOL”) carryforwards of approximately $ 3,000 (pre-tax), state NOL carryforwards of approximately $ 600 (pre-tax) and Spain NOL carryforwards of approximately $ 3,300 (pre-tax).

The federal NOL carryforward expires in 2029 .

25 unchanged sentences

income tax examinations by tax authorities for years prior to 2017 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Geographic Sales Information

6 unchanged sentences

Subsequent events

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 .

On February 26, 2025 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 at-the-market offering of 2,000,000 shares of the Company’s common stock, par value $ 0.001 per share, at a purchase price of $ 0.50 per share of Common Stock.

The Company received $ 1,000 in cash in connection with the sale.

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

On March 27, 2025, the Company entered into an agreement with RBW Capital Partners LLC and Dawson James Securities, Inc.

to act as exclusive placement agent for a proposed offering of the Company’s common stock.

The agreement has a six -month term.

Included are also the following fees:

a success fee payable equal to five percent ( 5 %) of the transaction value of any completed transaction with any parties not previously known to the Company prior to the engagement of the advisor, a cash success fee of eight percent ( 8 %) of the amount of capital raised, in connection with any sale of debt or equity securities, and reimbursement of advisor’s out-of-pockets fees and expenses up to $ 150,000 .

No adjustments to the accompanying financial statements are required as a result of this event.

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