CLEARONE INC 10-K

ITEM 7 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this report, as well as our other filings with the SEC. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions, as set forth under “SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.” Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the following discussion and under the caption “Risk Factors” in Item 1 A and elsewhere in this report. 10 Table of Contents OVERVIEW The year ended December 31, 2025 was a transformational period for ClearOne, Inc. (“ClearOne,” the “Company,” “we,” “us” or “our”). On October 24, 2025, the Company completed the sale of certain intellectual property, product inventory, and non-exclusive rights to customer data (the “Asset Sale”). As a result of the Asset Sale, the Company no longer manufactures or sells products and maintains a limited inventory and provides customer support services to satisfy warranty claims. The financial results of the disposed operations are reflected as discontinued operations in the Company’s consolidated financial statements for all periods presented. Following the Asset Sale, the Company’s continuing activities consist solely of fulfilling warranty and technical support obligations on legacy products, evaluating potential Strategic Transactions, managing and liquidating remaining assets of the Company’s legacy operating business, collecting accounts receivable and recovering prepaid assets, satisfying outstanding liabilities, and maintaining public-company compliance. These activities are transitional in nature and are not expected to generate material revenue. The Company is actively evaluating strategic alternatives intended to enhance stockholder value. These alternatives may include without limitation one or more special transactions, an investment in, or an acquisition of a private operating company, additional asset sales, or other actions that maximize value for stockholders. The closing of the Asset Sale on October 24, 2025 triggered the mandatory redemption of all outstanding shares of the Company’s Class A Redeemable Preferred Stock. The Company currently estimates the final redemption amount will be approximately $50 after permitted expenses and net asset recoveries. Discontinued Operations Description of Disposed Assets The disposed assets consisted of the Company’s historical operations related to conferencing, collaboration, and network streaming products, including product development, manufacturing, sales, and support activities. These operations historically generated the majority of the Company’s revenue. Timing and Classification The Company classified the disposed assets as held for sale and discontinued operations during the third quarter of 2025. The sale closed on October 24, 2025. Accordingly, the results of the disposed assets are presented as discontinued operations for all periods presented, with a hard cutoff on the legal closing date of October 24, 2025. No allocation or smoothing of results has been applied. Financial Impact The discontinued operations incurred operating losses during 2025 and prior periods. In connection with the Asset Sale, the Company recognized a loss on sale in the fourth quarter of 2025 (primarily driven by inventory carrying values exceeding the $3.0 million gross proceeds, after the $10.7 million impairment charge recorded in the third quarter of 2025). The results of discontinued operations include operating losses incurred prior to closing, inventory write-downs, severance and restructuring costs, and the loss on sale. See Note 2 to the consolidated financial statements for additional information regarding discontinued operations, including the components of the loss on disposal. The following table summarizes the results of discontinued operations (in thousands): Year Ended December 31, 2025 Year Ended December 31, 2024 Revenue $ 6,009 $ 11,386 Gross profit (loss) $ ( 3,021 ) $ 2,823 Operating loss $ ( 10,317 ) $ ( 7,076 ) Loss on sale of assets $ ( 11,143 ) $ — Loss from discontinued operations, net of tax $ ( 21,460 ) $ ( 7,076 ) 11 Table of Contents Continuing Involvement Following the Asset Sale, the Company continues to service warranty claims and provide technical support related to products sold prior to October 24, 2025. The Company retained a limited amount of inventory solely to fulfill these obligations. These activities are reported in continuing operations and do not constitute ongoing operations of the disposed assets . DISCUSSION OF RESULTS OF OPERATIONS Discontinued Operations Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Revenue from discontinued operations decreased significantly in 2025 compared to 2024 due to the disposition of operating assets and the cessation of revenue-generating activities associated with the disposed assets on October 24, 2025. Gross margin and operating results were negatively impacted by reduced sales volume prior to disposition, inventory write-downs, severance and restructuring costs, and the loss on sale recognized in the fourth quarter of 2025. As a result, discontinued operations reported a substantial net loss for the year ended December 31, 2025 . Continuing Operations Following the Asset Sale, continuing operations generated no revenue during the fourth quarter of 2025 . Operating expenses consisted primarily of public-company compliance costs, legal and professional fees, warranty servicing and technical support costs, and general and administrative expenses related to the significantly reduced workforce. Because continuing operations are limited in scope and do not generate revenue, period-to-period comparisons are not meaningful. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION Liquidity Position As of December 31, 2025, the Company had cash and cash equivalents, and restricted cash of $0.74 million. The Company’s primary liquidity requirements relate to ongoing public-company compliance and reporting costs, warranty servicing obligations, professional fees (including legal and investment banking), lease payments on the remaining facilities, the $57,500 severance obligation to the former CEO, and the required redemption of the Class A Redeemable Preferred Stock with any net proceeds from the Asset Sale. Net proceeds from the Asset Sale are contractually required to be used to redeem all outstanding shares of the Company’s Class A Redeemable Preferred Stock. The Asset Sale closed on October 24, 2025, triggering the mandatory redemption of the Class A Redeemable Preferred Stock. As of December 31, 2025, the redemption had not yet been completed. The Company currently estimates the final redemption amount at approximately $50,000 after permitted expenses and net asset recoveries. The redemption payment will occur subsequent to December 31, 2025 and is treated as a non-recognized subsequent event. Subsequent to year-end, on March 11, 2026, the Company closed a private placement with First Finance Ltd. (its largest stockholder) for aggregate gross proceeds of $1.75 million through the issuance of 437,500 shares of common stock at $4.00 per share and a warrant to purchase up to 437,500 additional shares at $5.00 per share. Of the proceeds, $500,000 became immediately available, with the remaining $1.25 million available upon completion of the Company’s reincorporation from Delaware to Nevada. This financing provides an additional source of short-term liquidity. Cash Flows Net cash used in operating activities during 2025 primarily resulted from operating losses, restructuring activities, and costs associated with discontinued operations. Net cash provided by investing activities primarily reflects the $3.0 million gross proceeds from the October 2025 Asset Sale (net of transaction costs). The Company did not have committed sources of financing during 2025. Subsequent to year-end, on March 11, 2026, the Company closed a private placement with its largest stockholder for aggregate gross proceeds of $1.75 million (see Liquidity, Capital Resources and Financial Position and Note 17 – Subsequent Events for additional information). 12 Table of Contents Capital Resources and Going Concern The Company has incurred significant losses and negative cash flows from operations. These conditions, the limited nature of continuing operations, the mandatory redemption obligation for the Class A Redeemable Preferred Stock (triggered by the October 24, 2025 Asset Sale closing), and the absence of committed sources of financing raise substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of the consolidated financial statements. Subsequent to year-end, on March 11, 2026, the Company closed a private placement with its largest stockholder for aggregate gross proceeds of $1.75 million (see Liquidity, Capital Resources and Financial Position and Note 17 – Subsequent Events for additional information). This financing provides a partial source of short-term liquidity. Management is actively evaluating strategic alternatives intended to enhance stockholder value and improve the Company’s liquidity position. These alternatives may include one or more special transactions or other actions that maximize value for stockholders. There can be no assurance that the Company will successfully complete any transaction or that any such transaction will provide sufficient liquidity to continue operations. If the Company is unable to complete a special transaction, satisfy the conditions for the remaining financing proceeds, or otherwise obtain additional capital on acceptable terms, management may be required to significantly curtail operations or pursue an orderly wind-down of operations. The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Contractual Obligations and Commitments The Company’s contractual obligations as of December 31, 2025 primarily consist of operating lease obligations for the three remaining facilities, warranty obligations, and legal settlement obligations. A summary of the Company’s contractual obligations is included in the table below (in thousands): Payment Due by Period Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More than 5 years Operating lease obligations $ 513 $ 223 $ 290 $ — $ — Purchase obligations — — — — — Total $ 513 $ 223 $ 290 $ — $ — CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses. The Company’s most significant accounting estimates include: Classification of and accounting for discontinued operations and the Asset Sale (ASC 205-20 and ASC 360) Impairment of long-lived assets and inventory valuation related to retained warranty inventory Warranty reserves Legal contingencies and settlements Going-concern assessment (ASC 205-40) Actual results could differ materially from these estimates. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition, results of operations, liquidity, or capital resources. Recent Accounting Pronouncements For descriptions of recently issued accounting standards, see Note 1 – Business Description, Basis of Presentation and Significant Accounting Policies of our Notes to Consolidated Financial Statements. 13 Table of Contents IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For descriptions of recently issued accounting standards, see Note 1 . Business Description, Basis of Presentation and Significant Accounting Policies of our Notes to Consolidated Financial Statements. ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable ITEM 8 . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data required by this are included herein as a separate section of this Form 10-K, beginning on page F- 1 , and are incorporated in this Item 8 by reference. ITEM 9 . CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.