CLEARONE INC 10-Q

Item 2 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27 A of the Securities Act of 1933 , as amended, and Section 21 E of the Securities Exchange Act of 1934 , as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are based upon reasonable assumptions at the time made, there can be no assurance that any such expectations or any forward-looking statement will prove to be correct. Our actual results will vary, and may vary materially, from those projected or assumed in the forward-looking statements. Future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not anticipate, including, without limitation, descriptions of our review of strategic alternatives and the timing and impact of any potential strategic transactions, the proposed development, manufacturing, and sale of our products; statements that describe expectations regarding pricing trends, the markets for our products, our anticipated capital expenditures, our cost reduction and operational restructuring initiatives, and future impact of regulatory developments; statements with regard to the nature and extent of competition we may face in the future; statements with respect to the anticipated sources of and need for future financing; and statements with respect to future strategic plans, goals, and objectives and forecasts of future growth and value; and other factors referred to in our reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2024 . All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are discussed in Part I , Item 1 A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 . BUSINESS OVERVIEW ClearOne is a global Company that designs, develops and sells conferencing, collaboration, and AV networking solutions for voice and visual communications. The performance and simplicity of our advanced, comprehensive solutions offer a high level of functionality, reliability and scalability. We derive a major portion of our revenue from audio conferencing products and microphones by promoting our products in the professional audio-visual channel. We have extended our total addressable market from the installed audio conferencing market to adjacent complementary markets – microphones, video collaboration and AV networking. We have achieved this through strategic technological acquisitions as well as by internal product development. 16 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On March 11, 2024, we announced a one -time special cash dividend of $ 0.50 per share of ClearOne common stock, paid on April 10, 2024 to shareholders of record on April 2, 2024. On January 23, 2024 we launched the DIALOG® 20 USB wireless microphone system at Integrated Systems Europe (ISE) 2024 , a major global audiovisual expo. ClearOne’s booth at ISE 2024 recorded a 319 % increase in unique visitors compared to the number of unique visitors the Company’s booth recorded in 2023 . The DIALOG® UVHF Wireless Microphone System also received AV Technology Magazine’s Best in Show award at ISE 2024 , having previously garnered other notable industry awards in 2023 . On August 8, 2024, the DIALOG® UVHF wireless Microphone system was named a winner of the 2024 Communications Solutions products of the year award. On September 9, 2024, ClearOne recorded a 31% increase in unique visitors at our 2024 Infocomm India trade show booth, while the overall annual increase of all attendees at that trade show was only 17%. On January 16, 2025, we launched the BMA 360DX ceiling tile beamforming microphone array with an integrated DSP processor that provides everything needed to combine, route, and process all the audio signals with no compromises. Like the other members of the BMA 360 product family, the BMA 360DX includes FiBeam(TM) technology that provides truly ultra-wideband, frequency-invariant performance with uniform-gain response across all frequency bands and DsBeam(TM) technology that provides unparalleled sidelobe depth, below -40 dB, resulting in superior rejection of reverb and noise in difficult spaces for superb clarity and intelligibility. The built-in power amplifiers, selectable as 4x15 Watt or 2x30 Watt, simplify installations with loudspeakers. Setting up the BMA 360DX is incredibly quick and easy with auto-detection of additional beamforming microphone arrays and peripherals such as USB expanders, analog audio I/Os, and HDMI audio de-embedders. With everything on board, its scalable design easily adapts to a variety of meeting spaces. The BMA 360DX won a Best of Show award in the AV Technology category at the Integrated Systems Europe 2025 exhibition in Barcelona, Spain. On January 20, 2025, we announced the launch of the Versa® 120D USB-C Docking Station with Dante®, designed to simplify and enhance hybrid meeting experiences. The Versa 120D is a versatile collaboration solution combining a USB-C docking station and Dante audio networking into a single, easy-to-use device. This innovative solution is specifically designed to meet the needs of Pro AV integrators and streamline BYOD (Bring Your Own Device) workflows in a variety of meeting spaces. It includes support for dual 4K60 displays or a single 8K30 display, ensuring crystal-clear visuals for presentations and video conferencing. High-speed USB-C connectivity delivers blazing-fast data transfer speeds of up to 40 Gbps, enabling seamless device operation. Simplified network integration with 10/100/1000 Base-T auto-negotiation and Ethernet pass-through over USB-C provides reliable, high-speed network connectivity directly to your device. The Versa 120D simplifies deployment and configuration with automatic discovery and native integration with Audinate’s Dante Controller software. It boasts broad interoperability, seamlessly integrating with a wide range of AV systems and devices. Enhanced security features include support for HDCP versions 1.4, 2.2, and 2.3 ensuring encrypted transmission of high-definition video and audio while meeting content protection standards. Additionally, the Versa 120D meets TAA requirements, making it ideal for US government and educational deployments. On January 22, 2025, we introduced the DIALOG® AERO, a wideband UHF 2-channel encrypted digital wireless microphone solution with over 100 MHz of RF tuning range. The DIALOG® AERO features an intuitive interface with a large, easy-to-read LCD display that provides real-time information on critical settings. Aero Console software provides remote configuration, monitoring and management of the receiver and smart dock via Ethernet. DIALOG® AERO microphones offer flexible powering options. They can be powered with the included rechargeable Li-Ion AA batteries, NiMH AA rechargeable batteries, common AA battery types, or USB-C. Microphones and Dock can charge Li-Ion and NiMH AA batteries and the dock also charges spare AA batteries for added convenience. The system features a modular expandable 2-bay smart dock, allowing for easy expansion up to eight channels by linking multiple docks together, simplifying installation and minimizing cabling. Larger systems can be further expanded using optional accessories, including a four-channel antenna distributor with ceiling mount antennas, antenna combiners, and a joining kit for mounting two receivers in a single rack space. The auto-scan feature finds open channels for optimal reception. The system also includes detachable antennas with a 5-foot extension kit for added flexibility in system placement and signal optimization. DIALOG® AERO is ideal for a wide range of applications, including town hall meetings, company all-hands meetings, management retreats, school award ceremonies, rallies, houses of worship, hybrid training and presentation sessions, sound reinforcement and voice lift scenarios. 17 Table of Contents On January 24, 2025, we introduced the UNITE 260N Pro, a professional 4K Ultra HD camera with NDI®|HX, designed to meet the requirements of NDI® workflows. NDI – Network Device Interface – is used by millions of customers worldwide and has been adopted by more media organizations than any other IP standard, creating the industry’s largest IP ecosystem of products. NDI allows multiple video systems to identify and communicate with one another over IP; it can encode, transmit, and receive many streams of high-quality, low-latency, frame-accurate video and audio in real time. The growth of NDI is backed by a growing community of installers, developers, AV professionals, and users who are deeply engaged with the company through community events and initiatives. NDI-enabled UNITE 260N Pro Cameras are instantly discoverable within a standard IP network, eliminating the need for complex setups. These cameras can seamlessly send or receive high-quality, low-latency video, audio, controls, and metadata all within a single stream. Also, UNITE 260N Pro Cameras seamlessly integrate with a vast ecosystem of thousands of NDI-compatible hardware and software products. On January 27, 2025, we announced the addition of a 4-channel Access Point and a 4-bay Dock to our award-winning DIALOG® UVHF Wireless Microphone System. With these new additions, the Dialog UVHF Wireless Microphone System now offers the flexibility to choose between an Access Point with 8 or 4 Dante channels and a Charger Dock capable of charging 8 or 4 microphones. The 4-channel Access Point and 4-bay Dock offer significant benefits like lower cost, system flexibility and a smaller form factor for the dock. This translates to increased value for our customers, making our high-quality wireless audio solutions more accessible and a better fit for applications that require fewer microphones. Overall revenue decreased by 36 % in the first quarter of 2025 when compared to the first quarter of 2024 , primarily due to a significant decrease in revenues from product shortages that resulted in delayed product shipments. The revenue decline was also caused by significantly reduced demand for our products in many regions including USA, Europe and China when compared to 2024-Q1 revenues. We believe this revenue decline was primarily due to the cumulative impact of past production shortages. We believe that lack of product availability has caused some of our channel partners to purchase and install competing brands. Historically, we have seen a lag of several months between the time that our professional conferencing products are specified for installation and the date when those products are installed. Since our product availability was constrained through a significant part of Q4 2023, we believe our revenue was impacted negatively by these market dynamics through much of 2024. We have also faced sales headwinds from our products’ lack of Microsoft Teams certification, despite their longtime functional compatibility with this platform. In Q1 2025, we were unable to maintain an uninterrupted flow of inventory from our contract manufacturers and suppliers due to insufficient cash on hand. This issue negatively affected new products that we introduced in Q1 2025 as well as older products with consistent demand. Our work through the first three months of 2025 has focused on mitigating these impacts through maintaining consistent dialogues, product demonstrations, and feedback cycles with end users and channel partners, along with improving our visibility at key industry events. In addition, we saw a reduction in sales in the Middle East region, where we had previously experienced consistent sales growth, as we transitioned to a new distributor for the Middle East region. We believe our revenue performance in 2025-Q1 compared to 2024-Q1 also was to a small extent impacted negatively due to anticipated cost increases, whether realized or unrealized, associated with the tariffs on electronic raw materials that have affected the global manufacturing of high-tech products. We do expect to realize some of these increased costs in various degrees through the remainder of 2025. Our gross profit margin decreased to 5.2 % during the first quarter of 2025 from 31.8 % during the first quarter of 2024 . The reduction in gross margin is the result of revenue decreasing by a higher percentage than cost of goods sold. The Company experienced a significant reduction in inventory levels, with a decrease of approximately $1.4 million compared to December 31, 2024. This reduction was primarily driven by supply chain pauses from our cash flow constraints. As a result, there was insufficient new inventory to absorb the Company’s standard overhead allocation, which is typically applied to inventory production. This led to unabsorbed overhead costs being recognized as an expense in the period, directly impacting cost of goods sold. The increase in unabsorbed overhead reflects the temporary misalignment between production levels and fixed overhead costs, which are generally allocated to inventory under our standard costing methodology. Management is actively evaluating strategies to optimize inventory levels and production schedules to mitigate similar impacts in future periods. Net loss increased from $( 1.9 ) million in the first quarter of 2024 to $( 2.8 ) million in the first quarter of 2025 . The increase in net loss was mainly due to the decrease in revenues and decrease in gross margin. In November 2024, we announced that our board of directors had formed a Special Transaction Committee (the “Special Transaction Committee”) to conduct a comprehensive review of strategic alternatives 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 to its current stockholders (each, a “Strategic 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. Given these challenges, if we are unable to complete a strategic transaction, we may not be able to continue to execute our business plan to be able to continue as a going concern. 18 Table of Contents 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. The financial statements included with this quarterly report on Form 10-Q have been prepared on a going concern basis. We may not be able to generate profitable operations in the future and/or obtain the necessary financing to meet our obligations and pay liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time. These factors raise substantial doubt that we will be able to continue as a going concern. We plan to continue to provide for our capital needs through sales of our securities and/or one or more strategic transactions, however there can be no assurance that we will be successful in completing any such transactions on attractive terms or at all. Our financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern 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. 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. It has become increasingly important to have higher interoperability with other products in the audio-visual market as well as certifications from leading video conferencing service providers like Microsoft and Zoom . 19 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Economic conditions, challenges and risks The audio-visual products market is characterized by intense competition and rapidly evolving technology. Our competitors vary within each product category. 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 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 lack of component availability to build our products in 2023 driving growth to competitors, pricing pressures from new competitors attracted to the commercial market due to higher margins, and the lack of certifications from Microsoft. Notably, the Microsoft Teams device certification program is closed to new meeting room devices and solutions. Although we have requested admission into this certification program on multiple occasions ClearOne has been denied admission by Microsoft so far. Our video products and beamforming microphone arrays, especially highly advanced BMA 360 and BMA-CT are critical to our long-term growth. We face intense competition in this market from well-established market leaders as well as emerging players rich with marketing funds. We expect our strategy of making our products more interoperable with other audio-visual products, continuing to improve the quality of our high-end audio-conferencing products and microphones, and offering a wide range of innovative professional cameras will generate growth in the near future. We derive a significant portion of our revenue (approximately 58.5% in the first three months of 2025 ) from operations outside North and South America and expect this trend to continue in the future. Most of our revenue from ou tside the U.S. is billed in U.S. dollars and is not exposed to any significant currency risk. However, we are exposed to foreign exchange risk if the U.S. dollar is strong against other currencies as it will make U.S. Dollar denominated prices of our products less competitive. Recent and proposed increases in U.S. tariffs on imports from China and Singapore may materially impact our operations, cost structure, and financial performance. As of May 2025, tariffs on Chinese goods have risen to 145%, with China imposing retaliatory tariffs of 125% on U.S. exports. Singapore faces a 10% baseline tariff under the U.S. reciprocal tariff regime, unaffected by a 90-day pause on tariffs for other countries, though potential retaliatory measures remain a risk due to the U.S.-Singapore Free Trade Agreement. These tariffs could increase the cost of goods sourced from these countries, disrupt supply chains, and elevate operating expenses. For example, a portion of our cameras and wireless products is imported from China, and higher tariffs may lead to increased procurement costs or necessitate sourcing from alternative markets, potentially at higher prices or with logistical challenges. In Singapore, which serves as a key hub for the majority of our product lines, tariff-related uncertainties may impact trade flows and regional operations. Additionally, retaliatory tariffs or trade restrictions from China and Singapore could affect our ability to export goods to these markets, potentially reducing revenue from international sales. The broader economic implications, including potential inflation and reduced consumer demand, may further impact our financial condition. Deferred Product Revenue Deferred product revenue decreased to $ 12 thousand on March 31, 2025 compared to $ 17 thousand on December 31, 2024 . A detailed discussion of our results of operations follows below. 20 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations for the three months ended March 31, 2025 The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three months ended March 31, 2025 (“ 2025 - Q1 ”) and 2024 (" 2024 - Q1 ") , respectively, together with the percentage of total revenue which each such item represents: Three months ended March 31, (dollars in thousands) 2025 2024 Change Favorable (Adverse) in % Revenue $ 2,313 $ 3,622 ( 36 ) Cost of goods sold 2,192 2,471 11 Gross profit 121 1,151 ( 89 ) Sales and marketing 1,116 1,312 15 Research and product development 691 894 23 General and administrative 1,160 1,023 ( 13 ) Total operating expenses 2,967 3,229 8 Operating loss ( 2,846 ) ( 2,078 ) ( 37 ) Other income (expense), net 12 178 ( 93 ) Loss before income taxes ( 2,834 ) ( 1,900 ) ( 49 ) Provision (benefit) for income taxes — ( 2 ) 100 Net loss $ ( 2,834 ) $ ( 1,898 ) ( 49 ) Revenue Our revenue decreased to $ 2.3 million in 2025 - Q1 compared to $ 3.6 million in 2024 - Q1 due to a 37 % decline in audio conferencing, a 54 % decline in video products, and a 29 % decrease in microphones. Our traditional ceiling mics, personal audio-conferencing products, and video cameras suffered revenue declines due to lack of product availability and the transition of business from one major customer in the Middle East to another one . When comparing 2025-Q1 to 2024-Q1, all sales regions suffered revenue loss. Revenues from Americas declined by 12 %, from Europe and Africa by 69 %, and from Asia Pacific (including Middle East, India and Australia) by 41 %. Costs of Goods Sold and Gross Profit Cost of goods sold includes expenses associated with finished goods purchased from outsourced manufacturers, the repackaging of our products, our manufacturing and operations organization, property and equipment depreciation, warranty expense, freight expense, royalty payments, and the allocation of overhead expens es. Our gross profit margin decreased from 31.8 % during 2024 - Q1 to 5.2 % during 2025 - Q1 . The reduction in gross margin is the result of revenue decreasing by a higher percentage than cost of goods sold. The Company experienced a significant reduction in inventory levels, with a decrease of approximately $1.4 million compared to December 31, 2024. This reduction was primarily driven by supply chain pauses from our cash flow constraints. As a result, there was insufficient new inventory to absorb the Company’s standard overhead allocation, which is typically applied to inventory production. This led to unabsorbed overhead costs being recognized as an expense in the period, directly impacting cost of goods sold. The increase in unabsorbed overhead reflects the temporary misalignment between production levels and fixed overhead costs, which are generally allocated to inventory under our standard costing methodology. Management is actively evaluating strategies to optimize inventory levels and production schedules to mitigate similar impacts in future periods. 21 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our profitability in the near term continues to depend significantly on our revenues from professionally installed audio-conferencing products. We hold long-term inventory and if we are unable to sell our long-term inventory, our profitability might be affected by inventory write-offs and price mark-downs. Our long-term inventory consists primarily of three product categories. These categories are as follows: Converge Pro and Beamforming microphone array products, cameras, and raw materials that will be used primarily for manufacturing professional audio-conferencing products and BMA microphones. Any business changes that are adverse to these product lines could potentially impact our ability to sell our long-term inventory in addition to our current inventory. Operating Expenses Operating expenses include sales and marketing (“S&M”) expenses, research and product development (“R&D”) expenses and general and administrative (“G&A”) expenses. Total operating expenses in 2025 - Q1 were $ 3.0 million compared to $ 3.2 million in 2024 - Q1 . The following contains a more detailed discussion of expenses related to sales and marketing, research and product development, general and administrative, and other items. Sales and Marketing - S&M expenses include selling, customer service, and marketing expenses such as employee-related costs, allocations of overhead expenses, trade shows, and other advertising and selling expenses. S&M expenses were lower in 2025 - Q1 , $ 1.1 million compared to $ 1.3 million in 2024 - Q1 , because of decreasing commissions on fewer sales . Research and Product Development - R&D expenses include research and development, product line management, engineering services, and test and application expenses, including employee-related costs, outside services, expensed materials, depreciation, and an allocation of overhead expenses. R&D expenses were lower in 2025-Q1, $ 0.7 million compared to $ 0.9 million in 2024 - Q1 . The reduction was primarily due to a reduction in personnel. General and Administrative - G&A expenses include employee-related costs, professional service fees, allocations of overhead expenses, litigation costs, and corporate administrative costs, including costs related to finance and human resources teams. G&A expenses increased to $ 1.2 million in 2025 - Q1 compared to $ 1.0 million in 2024 - Q1 . The increase was primarily due to an increase in legal and regulatory expenses related to the exploration of strategic alternatives. 22 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other income (expense), net Other income (expense), net includes interest income, foreign currency changes and gain or loss on disposal of assets. Other income for 2025 - Q1 included $ 0.0 million of interest income received on marketable securities compared to $ 0.2 million in 2024 - Q1 Provision for income taxes During each of the three months ended March 31, 2025 and 2024 , we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2025 , our cash and cash equivalents were approximately $ 0.9 million compared to $ 1.4 million as of December 31, 2024 . Our working capital was $ 13.5 million and $ 15.2 million as of March 31, 2025 and December 31, 2024 , respectively. Cash used in opera ting activities was approximately $ 1.4 million in the three months ended March 31, 2025 , a decrease of approximately $ 1.8 million from $ 0.4 million of cash provided by operating activities in the three months ended March 31, 2024 . The decrease in cash inflow was primarily due to the net loss partially offset by the reduction in inventory purchases. Cash used in investing activities in the three months ended March 31, 2025 was $( 0.0 ) million compared to $ 0.3 million of cash provided by investing activities in the three months ended March 31, 2024 . The decrease in cash provided by investing activities was primarily due to no proceeds from sale of marketable securities and no offset by purchases of marketable securities in the three months ended March 31, 2025 compared to $2.3 million and $(1.9) million respectively for the three months ended March 31, 2024 . Cash provided by financing activities in the three months ended March 31, 2025 was $ 1.0 million compared to $ 0.0 million of cash provided by financing activities in the three months ended March 31, 2024 . The 2025 amount was comprised primarily of a stock sale. These and other 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 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 March 31, 2025 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 March 31, 2025 , we had open purchase orders of approximately $4.2 million, mostly for the purchase of inventory. As of March 31, 2025 , we had inventory totaling $ 14.8 million, of which non-current inventory accounted for $ 4.9 million. This compares to total inventories of $ 16.1 million, which includes non-current inventory of $ 4.9 million as of December 31, 2024 . 23 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Contractual Obligations and Commitments The following table summarizes our contractual obligations as of March 31, 2025 (in millions): Payment Due by Period Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More than 5 years Operating lease obligations $ 0.7 $ 0.2 $ 0.5 $ — $ — Purchase obligations 4.2 4.2 — — — Total $ 4.9 $ 4.4 $ 0.5 $ — $ — OFF-BALANCE SHEET ARRANGEMENTS We have no off-balance-sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, results of operations or liquidity. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of our results of operations and financial position are based upon our unaudited condensed consolidated financial statements included under Item 1 of this Form 10-Q, which have been prepared in conformity with accounting principles generally accepted in the United States. We review the accounting policies used in reporting our financial results on a regular basis. We believe certain of our accounting policies are critical to understanding our financial position and results of operations. There have been no changes to the critical accounting policies as explained in our Annual Report on Form 10-K for the year ended December 31, 2024 . RECENT ACCOUNTING PRONOUNCEMENTS For a discussion of recent accounting pronouncements, see Note 1 : “Business Description, Basis of Presentation and Significant Accounting Policies” in the notes to our unaudited condensed consolidated financial statements included under Item 1 of this Form 10-Q. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.