ClearOne(CLRO) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Unaudited condensed consolidated financial statements for Q1 2020 are presented, covering balance sheets, operations, cash flows, and related notes Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,855 | $4,064 | | Total current assets | $22,204 | $25,183 | | Total assets | $52,346 | $55,110 | | Liabilities & Equity | | | | Total current liabilities | $5,405 | $6,249 | | Total liabilities | $9,732 | $10,632 | | Total shareholders' equity | $42,614 | $44,478 | | Total liabilities and shareholders' equity | $52,346 | $55,110 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Account | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Revenue | $5,734 | $6,305 | | Gross profit | $2,838 | $2,704 | | Total operating expenses | $4,589 | $5,095 | | Operating loss | $(1,751) | $(2,391) | | Net loss | $(1,847) | $(2,349) | | Basic and Diluted loss per share | $(0.11) | $(0.14) | Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Account | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $531 | $(1,294) | | Net cash used in investing activities | $(1,716) | $(5,591) | | Net cash provided by financing activities | $3 | $9 | | Net decrease in cash and cash equivalents | $(1,209) | $(6,885) | | Cash and cash equivalents at end of period | $2,855 | $4,326 | Unaudited Notes to Condensed Consolidated Financial Statements - The company is a global market leader in conferencing, collaboration, and AV streaming solutions for voice and visual communications[14] - As of March 31, 2020, cash and cash equivalents were $2.9 million. The company spent approximately $15.3 million on patent litigation from 2016 through March 31, 2020. Management believes existing liquidity, combined with cost-saving measures and potential capital raises, will be sufficient to meet operating needs through at least May 20, 2021[21][22][24] Revenue by Product Group (in thousands) | Product Group | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Audio conferencing | $2,787 | $2,711 | | Microphones | $2,143 | $2,106 | | Video products | $804 | $1,488 | | Total | $5,734 | $6,305 | Revenue by Region (in thousands) | Region | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | North and South America | $3,352 | $3,760 | | Asia (including Middle East) and Australia | $1,416 | $1,864 | | Europe and Africa | $966 | $681 | | Total | $5,734 | $6,305 | - In December 2019, the company issued $3.0 million in secured convertible notes and warrants to an affiliate. The notes mature in 2023 and have a conversion price of $2.11 per share[55][56] - Subsequent to the quarter end, the company is monitoring the impact of the COVID-19 pandemic. On April 24, 2020, the company received a PPP loan of approximately $1.5 million under the CARES Act[69][70] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 performance, noting revenue decline, improved gross margin, reduced net loss, and key operational updates - Overall revenue declined by 9% in Q1 2020 compared to Q1 2019, primarily due to a decline in revenue from video products. Gross profit margin increased to 49% from 43%, and net loss decreased from $2.3 million to $1.8 million[81] - The company is actively pursuing patent infringement litigation against a competitor (Shure) and believes a preliminary injunction granted in August 2019 is a valuable ruling for the business, despite believing the competitor continues to infringe[82][112] - New products were announced in Q1 2020, including COLLABORATE® Versa Room CT, COLLABORATE Versa Lite CT, and a new Touch-Panel Controller. COLLABORATE Space added webinar and Web RTC features[74][75][77][78] - Operating expenses decreased by 10% to $4.6 million in Q1 2020, driven by reductions in Sales & Marketing and R&D costs[92][100] - Cash and cash equivalents were $2.9 million at March 31, 2020. Net cash from operating activities was $0.5 million, a significant improvement from a $1.3 million use of cash in Q1 2019. The company capitalized $1.7 million in patent defense costs during the quarter[108][109][111] Contractual Obligations as of March 31, 2020 (in millions) | Obligation | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Senior Convertible Notes | $3.0 | $0.1 | $1.2 | $1.7 | $— | | Operating lease obligations | $2.8 | $0.6 | $1.4 | $0.8 | $— | | Purchase obligations | $1.4 | $1.4 | $— | $— | $— | | Total | $7.2 | $2.1 | $2.6 | $2.5 | $— | Quantitative and Qualitative Disclosures About Market Risk The company indicates that this section is not applicable for this reporting period - Not applicable[120] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls - Based on an evaluation, the CEO and Senior Vice President of Finance concluded that disclosure controls and procedures were effective as of March 31, 2020[121] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[122] PART II - OTHER INFORMATION Legal Proceedings The company reported no new legal proceedings in this section for the quarter, with ongoing litigation discussed in MD&A - None[126] Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year 2019 - There have been no material changes to the risk factors included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019[127] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the reporting period - None[128] Defaults Upon Senior Securities The company indicates that this item is not applicable - Not applicable[129] Mine Safety Disclosures The company indicates that this item is not applicable - Not applicable[130] Other Information The company indicates that this item is not applicable - Not applicable[131] Exhibits This section lists exhibits filed with Form 10-Q, including CEO and PFO certifications and XBRL documents - The report includes certifications from the CEO and Principal Financial Officer (Sections 302 and 906) and XBRL data files as exhibits[133]