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, our ability to collect accounts receivable and recover prepaid assets, our ability to regain compliance with the continued listing standards of the Nasdaq Capital Market; 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, 2025 . 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, 2025 . Beginning September 30, 2025 , we classified substantially all operating assets related to our product business as held for sale and began presenting the results of that component as discontinued operations. Accordingly, the discussion below focuses on continuing operations unless otherwise indicated. See Note 2 . BUSINESS OVERVIEW ClearOne, Inc. (the “Company,” “we,” “us,” or “our”) was historically a global provider of conferencing, collaboration, and AV streaming solutions for voice and visual communications. Following the October 24, 2025 disposition of substantially all operating assets and intellectual property to Biamp Systems, LLC (the “Asset Sale”), the Company no longer manufactures or sells products. Our continuing operations are now limited to (i) fulfilling warranty and technical support obligations for legacy products, (ii) maintaining public-company compliance and governance, (iii) collecting accounts receivable and recovering prepaid assets and (iv) evaluating and pursuing strategic alternatives, including a potential mergers or other transaction intended to maximize stockholder value. 21 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In September 2025, the Company’s Board of Directors approved a plan (the “Strategic Plan”) to seek the sale of a significant portion of the Company’s operating assets related to its product business, reduce the Company’s continuing operations to warranty and product support, and position the Company as a reverse merger vehicle for a possible strategic transaction (a “Strategic Transaction”). Accordingly, as of September 30, 2025, we classified the related disposal group of assets as held for sale and measured it at the lower of carrying amount or fair value less costs to sell; the assets held for sale were sold in October 2025 and certain assets and liabilities related to discontinued operations remained after the October 2025 sale (see Note 2 — Discontinued Operations and Assets Held for Sale). Because the planned disposal represents a strategic shift that will have a significant effect on our operations and financial results, we present the results of that component as discontinued operations for all periods shown. Accordingly, this MD&A discusses continuing operations separately from discontinued operations where relevant. Strategic actions during 2025 and 2026 July 2025 – Issuance of Class A Redeemable Preferred Stock as a special stock dividend and automatic conversion of the $3.0 million convertible note into Class B Convertible Preferred Stock (see Notes 3 and 4). September 2025 – Repurchase and cancellation of all then-outstanding warrants (see Note 5). October 24, 2025 – Completion of the Asset Sale to Biamp Systems, LLC for $3.0 million in cash. The transaction represented a strategic shift that had a major effect on the Company’s operations and financial results. The results of the disposed component are presented as discontinued operations for all periods presented (see Note 2). March 2, 2026 – Private placement with First Finance Ltd. (largest stockholder) for 437,500 shares and a warrant to purchase 437,500 additional shares (see Note 11). March 9, 2026 – Repurchase of 24,155 warrants from CVI Investments, Inc. (see Note 5). April 1, 2026 – Transition of CEO Derek Graham to a consulting arrangement (see Note 15). April 7, 2026 – Termination of the Edgewater Corporate Park lease and receipt of Nasdaq continued listing deficiency notice (see Notes 9 and 15). April 10, 2026 – Board approval of Class A Preferred Stock redemption at par (April 21, 2026) (see Notes 3 and 15). April 22, 2026 – Completion of reincorporation from Delaware to Nevada (see Note 1). Operating context Following the Asset Sale, our continuing operations generate minimal revenue and consist primarily of warranty support, collecting accounts receivable and recovering prepaid assets, public-company compliance costs, and restructuring activities. Management’s primary focus is preserving liquidity, and evaluating strategic alternatives (including a potential reverse merger or other transaction) to maximize stockholder value. The Company has incurred net losses and used cash in operations, and substantial doubt exists about its ability to continue as a going concern (see Note 1 – Going Concern). Continuing operations and post-disposition plan Following the Asset Sale on October 24, 2025, our continuing operations are limited to (i) fulfilling warranty and technical support obligations for legacy products, (ii) maintaining public-company compliance and governance, (iii) collecting accounts receivable and recovering prepaid assets and (iv) evaluating and pursuing strategic alternatives. We do not expect to generate material revenue from continuing operations in the foreseeable future. Warranty support activities We retained responsibility for legacy product support and warranty obligations. The Company maintains a small technical support function and limited service inventory to honor these obligations. Any immaterial service or parts revenue, if recognized, is reported within continuing operations. We evaluate warranty accruals each period and adjust estimates based on observed claim rates and resolution costs. 22 Table of Contents Corporate infrastructure and compliance We maintain a lean corporate staff, including accounting/finance, IT, and senior management (CEO/CFO). Ongoing costs include audit and tax services, legal and advisory fees, SEC reporting, D&O insurance, IT/licensing, and Board and compliance expenses. Monetization of residual assets and settlement of obligations Management’s near-term priorities include monetizing any remaining assets, collecting receivables, settling liabilities, and completing the Class A Preferred redemption. All three facility leases were terminated by April 7, 2026 (see Note 9 and Note 15). Presentation and comparability Results of the disposed product business are presented as discontinued operations for all periods shown. Continuing operations primarily comprise warranty support, corporate and restructuring costs. The balance sheet reflects assets and liabilities related to discontinued operations. The statement of operations presents (loss) from continuing operations separately from gain (loss) from discontinued operations, net of tax, and basic/diluted income (loss) per share is shown for continuing operations, discontinued operations, and total (see Note 7 — Income (Loss) Per Share). Critical accounting estimates The classification of the disposal group of assets as held for sale and presentation as discontinued operations required management to make significant estimates, including the measurement of fair value less costs to selloff the disposal group of assets (ASC 360 ) and the warranty obligation retained by the Company (ASC 460 ). These estimates use assumptions regarding market participant pricing, transaction costs, expected claim rates and unit repair costs. Actual results could differ materially from these estimates. Liquidity and going-concern considerations We have incurred net losses and used cash in operations for the periods presented. Our ability to meet obligations as they come due depends on the timing and magnitude of cash from residual asset monetization, collections, and access to additional financing or a Strategic Transaction. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the issuance of these financial statements. Management’s plans include managing warranty exposure, collecting accounts receivable and recovering prepaid assets, and pursuing strategic alternatives. See Note 1 — Going Concern for additional information. Key risks and uncertainties Execution of the restructuring and any Strategic Transaction involves risks, including warranty claim variability, timing of asset monetization, and the cost and availability of essential public-company services. Actual outcomes may differ materially from current expectations. Off-balance sheet arrangements We had no off-balance sheet arrangements as of March 31, 2026 . Deferred Product Revenue Deferred product revenue decreased to $ 0 at both March 31, 2026 and December 31, 2025 . A detailed discussion of our results of operations follows below. 23 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, 2026 Following the Asset Sale on October 24, 2025, the Company’s continuing operations generate minimal revenue and consist primarily of warranty support, public-company compliance, and restructuring costs. The majority of the Company’s historical operations are now presented as discontinued operations (see Note 2): Continuing Operations Three months ended March 31, (dollars in thousands) 2026 2025 Change Favorable (Adverse) in % Revenue $ — $ — — Cost of goods sold 70 27 ( 159 ) Gross profit (loss) ( 70 ) ( 27 ) ( 159 ) Sales and marketing — — — Research and product development — — — General and administrative 780 799 2 Total operating expenses 780 799 2 Operating loss ( 850 ) ( 826 ) ( 3 ) Other income (expense), net — 12 ( 100 ) Loss before income taxes ( 850 ) ( 814 ) ( 4 ) Provision (benefit) for income taxes — — — Net loss from continuing operations $ ( 850 ) $ ( 814 ) ( 4 ) Overview Continuing operations in Q1 2026 primarily comprise corporate activities (public-company reporting, governance, and compliance), warranty support for legacy products, and restructuring actions. We recorded no product revenue in continuing operations for the three months ended March 31, 2026 . Costs of Goods Sold and Gross Profit (Loss) Cost of goods sold in continuing operations reflects warranty-related parts and labor and immaterial service inventory usage. With no revenue in continuing operations for the periods presented, gross margin percentages are not meaningful; the period-over-period dollar changes reflect timing and volume of warranty claims and repairs. Operating Expenses General & administrative (G&A) - General & administrative (G&A) expenses in Q1 2026 were driven primarily by legal, advisory, and regulatory fees associated with the strategic review, disposition process, audit and tax fees, D&O insurance, and incremental accounting and compliance costs. S&M and R&D expenses in continuing operations were immaterial following the classification of the product business as held for sale. Sales & marketing (S&M) and research & development (R&D) - Following classification of the product business as held for sale, S&M and R&D expenses in continuing operations were immaterial for the periods presented. To the extent severance or other exit costs were recognized in the quarter, such costs are reflected in the relevant operating expense caption in the period incurred. Restructuring/exit costs - To the extent actions met ASC 420 recognition criteria, we recorded employee termination or contract termination costs; otherwise, such costs will be recognized when probable and reasonably estimable. 24 Table of Contents Other income (expense), net Other income (expense), net reflects interest income on cash equivalents, interest expense on the convertible note through its conversion on July 21, 2025, and immaterial gains/losses on asset disposals related to restructuring activities. Income taxes We maintained a full valuation allowance against US federal and state deferred tax assets in both periods due to cumulative losses and uncertainty of realization. Accordingly, we did not recognize an income tax benefit for losses in continuing operations. Discontinued Operations Three months ended March 31, (dollars in thousands) 2026 2025 Change Favorable (Adverse) in % Revenue $ — $ 2,313 ( 100 ) Cost of goods sold 88 2,165 96 Gross profit (loss) ( 88 ) 148 ( 159 ) Total operating expenses 264 2,168 88 Operating loss ( 430 ) ( 2,020 ) 79 Income /(Loss) from discontinued operations, net of tax $ 363 $ ( 2,020 ) 118 Revenue in discontinued operations declined to $ 0 in Q1 2026 compared to $2,313 in Q1 2025 , reflecting the completion of the Asset Sale in October 2025. See Note 2 — Discontinued Operations and Assets Held for Sale for additional details on the components of discontinued operations. 25 Table of Contents 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 expenses. Our gross profit decreased from $ 148 during 2025 - Q1 to a loss of $ 88 during 2026 - Q1 . The reduction in gross profit reflects the completion of the Asset Sale in October 2025. See Note 2 — Discontinued Operations and Assets Held for Sale for additional details on the components of discontinued operations. 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 2026 - Q1 were $ 264 compared to $2, 168 in 2025 - 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 $ 33 in Q1 - 2026 , compared to $1, 116 in Q1 - 2025 . Both comparisons are the result of decreased sales commissions on fewer sales as well as lowered marketing spend inclusive of the reduction in force completed in Q3 of 2025. 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 $ 9 in Q1 - 2026 , compared to $ 691 in Q1 - 2025 . The decrease in comparing the quarterly results was due to a decrease in headcount. General and Administrative - G&A expenses include employee-related costs, allocations of overhead expenses, litigation costs, and corporate administrative costs, including costs related to operational teams. G&A expenses were $ 222 in Q1 - 2026 , compared to $ 361 in Q1 - 2025 . The decreases were due to decreased expenses related to the exploration of strategic alternatives and closing down facilities. Other income (expense), net Other income (expense), net includes gain or loss on disposal of assets and impairment charges related to assets being held for sale. Other income for the three months ended March 31, 2026 included a $ 78 charge for expenses related to closure of foreign subsidiaries, compared to $ 0 for the three months ended March 2025 . Provision for income taxes During the three months ended March 31, 2026, the Company recorded an income tax benefit of $793 (recorded in discontinued operations) resulting from the reversal of unrecognized tax benefits (FIN 48 reserves). This reversal occurred because the statute of limitations expired for certain tax years, and the underlying tax positions were no longer subject to IRS review. For the three months ended March 31, 2025, the Company did not recognize any tax benefit from its losses due to the establishment of a full valuation allowance on its net deferred tax assets. Net Loss and Outlook Net loss for the first quarter of 2026 was $487, compared to a net loss of $2,834 in the first quarter of 2025. The improvement was primarily driven by a one-time income tax benefit of $793 (recorded in discontinued operations) from the release of uncertain tax positions, partially offset by the absence of revenue-generating operations following the October 2025 Asset Sale to Biamp Systems. Looking ahead, the Company’s continuing operations are expected to consist primarily of warranty servicing and technical support for legacy products, along with ongoing public company compliance and governance costs. We will continue to evaluate warranty claims experience and adjust our reserves as appropriate. In parallel, management is actively pursuing strategic alternatives, completed the redemption of the Class A Redeemable Preferred Stock on April 21, 2026, collecting accounts receivable and recovering prepaid assets, and continues to evaluate potential reverse merger or other value-enhancing transactions. We expect these activities to remain the primary focus for the remainder of 2026. 26 Table of Contents LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2026 , cash and cash equivalents were $ 1,053 compared to $ 739 as of December 31, 2025 . Working capital was minimal at both dates. Cash used in opera ting activities was approximately $ 680 in the three months ended March 31, 2026 , compared to $ 2,644 in the three months ended March 31, 2025 . The decrease in cash used was primarily due to the absence of operating activities following the Asset Sale. Cash provided by (used in) investing activities was $ 0 for the three months ended March 31, 2026 , compared to $ 0 used in the prior-year period. Cash provided by financing activities in the three months ended March 31, 2026 was $ 1,728 , compared to $ 1,000 in the three months ended March 31, 2025 . Both provision to cash were the result of common stock sales. For a detailed discussion of liquidity and going-concern considerations, including management’s plans and the substantial doubt about the Company’s ability to continue as a going concern, see Note 1 – Going Concern. In furtherance of the Asset Sale pursuit, the Company completed a one-time special stock dividend of Class A Redeemable Preferred Stock, payable July 18, 2025 to holders of record of our common stock on July 11, 2025, which entitles holders of the Class A Redeemable Preferred Stock to 100% of net proceeds from any Asset Sale upon redemption (see Notes 3 and 15 – the redemption occurred on April 21, 2026 at par value of $2). This structure aligns stockholder interests with the strategic process but depends on the successful completion of the Asset Sale for value realization. See Note 3 – Class A Redeemable Preferred Stock. As of March 31, 2026 , First Finance Ltd. beneficially owned approximately 61.34% of our common stock on an as-converted basis and has the right to nominate two directors to our Board. This concentration may influence strategic decisions, including the ongoing restructuring and possible Strategic Transactions, and could affect our ability to attract alternative financing or partners. As of March 31, 2026 , we had no open purchase orders. As of March 31, 2026 , we had inventory totaling $333 . This compares to total inventories of $353 as of December 31, 2025 . Contractual Obligations and Commitments The following table summarizes our contractual obligations as of March 31, 2026 (in thousands): Payment Due by Period Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More than 5 years Operating lease obligations $ 360 $ 185 $ 175 $ — $ — Purchase obligations — — — — — Total $ 360 $ 185 $ 175 $ — $ — 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 critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2026, other than (i) the presentation of discontinued operations as described in Note 2 and (ii) the reclassification of Class A Redeemable Preferred Stock from temporary equity to a current liability (see Note 3). RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 — Significant Accounting Policies and Recent Accounting Pronouncements for a discussion of recently issued accounting standards and their expected impact on our financial statements. 27 Table of Contents