ClearOne(CLRO) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related disclosures Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, and statements of cash flows, along with detailed notes explaining significant accounting policies, financial performance, and recent corporate actions Unaudited Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $1,132 | $1,417 | | Restricted cash | $1,678 | — | | Total current assets | $16,869 | $18,753 | | Total assets | $24,005 | $26,544 | | Total current liabilities | $7,499 | $3,545 | | Total liabilities | $9,059 | $5,213 | | Total shareholders' equity | $14,946 | $21,331 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss This statement details the company's revenues, expenses, and net loss over specific reporting periods | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $1,916 | $2,304 | $4,229 | $5,926 | | Gross profit (loss) | $(231) | $(20) | $(110) | $1,131 | | Operating loss | $(4,559) | $(2,924) | $(7,405) | $(5,002) | | Net loss | $(4,572) | $(2,820) | $(7,406) | $(4,718) | | Basic loss per share | $(2.64) | $(1.76) | $(4.38) | $(2.95) | | Diluted loss per share| $(2.64) | $(1.76) | $(4.38) | $(2.95) | Unaudited Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by the company across operating, investing, and financing activities | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(2,568) | $(2,722) | | Net cash provided by (used in) investing activities | $(21) | $1,826 | | Net cash provided by (used in) financing activities | $4,000 | $(14,483) | | Net increase (decrease) in cash and cash equivalents | $1,393 | $(15,385) | | Cash and cash equivalents at the end of the period | $2,810 | $2,450 | Unaudited Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the condensed consolidated financial statements 1. Business Description, Basis of Presentation and Significant Accounting Policies This note outlines the company's business, the basis for financial statement presentation, and key accounting policies - ClearOne, Inc. is a global market leader in conferencing, collaboration, and AV streaming solutions for voice and visual communications[14] - Substantial doubt exists about the Company's ability to continue as a going concern due to consistent cash usage, decreased sales, and ongoing operational challenges. Management plans to pursue strategic transactions, including an Asset Sale, generate additional revenue through inventory sales, or raise additional working capital[15][16][17][18] - The Company completed a 1-for-15 reverse stock split on June 9, 2025, to regain compliance with Nasdaq's minimum bid price requirement, reducing outstanding shares from approximately 26.0 million to 1.7 million[21] - Restricted cash of $1,678 thousand as of June 30, 2025, consists of remaining proceeds from a $3,000 thousand convertible note, subject to contractual restrictions for specific uses like severance, deal fees, and legal fees[23] - No significant changes to the Company's significant accounting policies during the quarter ended June 30, 2025[24] - The Company is evaluating the impact of new accounting pronouncements: ASU 2023-07 (Segment Reporting), ASU 2023-09 (Income Tax Disclosures), and ASU 2024-03 (Disaggregation of Income Statement Expenses), with no material impact expected on financial position or results of operations from ASU 2024-03[25][26][27] 2. Revenue Information This note provides a breakdown of the company's revenue by product group and geographic region Product Group (in thousands) | Product Group (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Audio conferencing | $625 | $905 | $1,579 | $2,429 | | Microphones | $971 | $1,043 | $2,089 | $2,614 | | Video products | $320 | $356 | $561 | $883 | | Total Revenue | $1,916 | $2,304 | $4,229 | $5,926 | Region (in thousands) | Region (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | North and South America | $1,331 | $1,210 | $2,291 | $2,304 | | Asia Pacific | $230 | $841 | $1,418 | $2,842 | | Europe and Africa | $355 | $253 | $520 | $780 | | Total Revenue | $1,916 | $2,304 | $4,229 | $5,926 | 3. Loss Per Share This note details the calculation of basic and diluted loss per common share | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss (in thousands) | $(4,572) | $(2,820) | $(7,406) | $(4,718) | | Basic weighted average shares outstanding | 1,733,307 | 1,597,943 | 1,691,836 | 1,597,943 | | Diluted weighted average shares outstanding | 1,733,307 | 1,597,943 | 1,691,836 | 1,597,943 | | Basic loss per common share | $(2.64) | $(1.76) | $(4.38) | $(2.95) | | Diluted loss per common share | $(2.64) | $(1.76) | $(4.38) | $(2.95) | 4. Intangible Assets This note presents the carrying value and amortization of the company's intangible assets Intangible Asset (in thousands) | Intangible Asset (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Total intangible assets | $11,172 | $11,157 | | Accumulated amortization | $(9,719) | $(9,618) | | Total intangible assets, net| $1,453 | $1,539 | Amortization Expense (in thousands) | Amortization Expense (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Amortization of intangible assets | $51 | $50 | $102 | $160 | 5. Inventories This note provides a breakdown of inventory by type and discusses valuation adjustments Inventory (in thousands) | Inventory (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Current: Raw materials | $2,091 | $2,424 | | Current: Finished goods | $6,755 | $8,800 | | Long-term: Raw materials | $1,346 | $1,112 | | Long-term: Finished goods| $3,287 | $3,808 | | Total Current Inventories | $8,846 | $11,224 | | Total Long-term Inventories | $4,633 | $4,920 | Inventory Valuation (in thousands) | Inventory Valuation (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss (recovery) on valuation | $48 | $(95) | $320 | $98 | 6. Leases This note details the company's lease arrangements, including right-of-use assets and lease liabilities Rent Expense (in thousands) | Rent Expense (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Rent expense | $101 | $118 | $213 | $227 | Lease Information (in thousands) | Lease Information (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $607 | $750 | | Total operating lease liabilities | $627 | $771 | | Weighted average remaining lease term (years) | 2.63 | 2.99 | | Weighted average discount rate | 6.71% | 6.59% | - The Company cancelled a 40,000 square-foot warehouse lease in Salt Lake City on January 31, 2025, and entered into a new 2,590 square-foot warehouse lease in Salt Lake City on December 1, 2024, expiring in February 2028[42] 7. Convertible Notes Payable This note describes the terms and balances of the company's convertible notes payable - On June 20, 2025, ClearOne entered into a Note Purchase Agreement with First Finance Ltd., selling $3.0 million aggregate principal amount of convertible notes[44] - The convertible notes accrue interest at 10% per annum and are mandatorily convertible into Class B Convertible Preferred Stock upon the issuance of Class A Redeemable Preferred Stock[44] Convertible Note (in thousands) | Description | Interest Rate | Maturity Date | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------- | :------------ | :------------ | :--------------------------- | :------------------------------- | | Convertible Note | 10% | June 30, 2025 | $3,008 | — | 8. Shareholders' Equity This note provides details on changes in common stock, preferred stock, and accumulated deficit Shareholders' Equity (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Common stock and additional paid-in capital, end of period | $32,740 | $31,640 | $32,740 | $31,640 | | Accumulated other comprehensive loss, end of period | $(329) | $(294) | $(329) | $(294) | | Accumulated deficit, end of period | $(17,465) | $(5,794) | $(17,465) | $(5,794) | | Total shareholders' equity | $14,946 | $25,552 | $14,946 | $25,552 | - In February 2025, the Company raised $1.0 million through a private placement of 133,334 common shares at $7.50 per share to an affiliate[48] - Stockholders approved amendments to the Certificate of Incorporation, including increasing authorized common stock to 150 million, authorizing 50 million 'blank check' preferred stock, and effecting a 1-for-15 reverse stock split on June 9, 2025, to regain Nasdaq compliance[49] - The Company authorized Class A Redeemable Preferred Stock (redeemable upon Asset Sale) and Class B Convertible Preferred Stock (senior to common stock), with Class A issued as a dividend on July 18, 2025[51] 9. Share-based Compensation This note outlines the company's share-based compensation plans and related expenses Share-based Compensation Expense (in thousands) | Share-based Compensation Expense (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cost of goods sold | $1 | $2 | $1 | $3 | | Sales and marketing | $(1) | $2 | — | $4 | | Research and product development | $3 | $12 | $7 | $25 | | General and administrative | $18 | $6 | $36 | $16 | | Total | $21 | $22 | $44 | $48 | - As of June 30, 2025, the total remaining unrecognized compensation cost related to non-vested stock options was approximately $66 thousand, to be recognized over a weighted average period of 1.23 years[56] 10. Income Taxes This note discusses the company's income tax provisions, deferred tax assets, and valuation allowances - The Company recorded a full valuation allowance against U.S. Federal and State deferred tax assets, resulting in no income tax benefit for domestic losses[58] - The Company had approximately $969 thousand of uncertain tax positions as of June 30, 2025, reflected in other long-term liabilities[59] 11. Operating Segment This note identifies the company's single operating segment for financial reporting purposes - The Company operates as one operating segment, with the Chief Executive Officer evaluating financial information and assessing performance on a consolidated basis[60] 12. Restructuring and Other Charges This note details significant restructuring activities and associated costs incurred by the company - On June 20, 2025, the Company implemented a significant workforce reduction as part of operational scaling for the Asset Sale pursuit, with estimated severance and related costs of approximately $1.9 million expected primarily in Q3 2025[61] 13. Subsequent Events This note discloses significant events that occurred after the balance sheet date but before financial statement issuance - On June 30, 2025, the Board declared a one-time special stock dividend of Class A Redeemable Preferred Stock, paid on July 18, 2025, which entitles holders to 100% of net proceeds from any Asset Sale upon its completion[63] - On July 21, 2025, the $3,025 thousand outstanding principal and accrued interest under the convertible note issued to First Finance Ltd. automatically converted into 3,026 shares of Class B preferred stock[65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting significant revenue declines, increased losses, and the ongoing strategic review process, including efforts to address going concern risks and recent financing activities BUSINESS OVERVIEW This section describes the company's core business, product offerings, and recent operational highlights and challenges - ClearOne designs, develops, and sells conferencing, collaboration, and AV networking solutions, deriving a major portion of revenue from audio conferencing products and microphones[68] - Recent product launches include the DIALOG® 20 USB wireless microphone system (Jan 2024), BMA 360DX ceiling tile beamforming microphone array (Jan 2025), Versa® 120D USB-C Docking Station with Dante® (Jan 2025), DIALOG® AERO wireless microphone solution (Jan 2025), and UNITE 260N Pro 4K Ultra HD camera with NDI®|HX (Jan 2025)[71][73][74][75][76] - Overall revenue decreased by 17% in Q2 2025 compared to Q2 2024, primarily due to product shortages, reduced demand in key regions (USA, Europe, China), and lack of Microsoft Teams certification[78] - Gross loss margin decreased to (12.1)% in Q2 2025 from (0.9)% in Q2 2024, mainly due to revenue decline, severance expense, and unabsorbed overhead costs from reduced inventory levels[79] - Net loss increased from $(2.8) million in Q2 2024 to $(4.6) million in Q2 2025, driven by decreased revenues, lower gross margin, severance expense, and deal-related costs from strategic repositioning[81] - The Board of Directors formed a Special Transaction Committee in November 2024 to review strategic alternatives, including financing, M&A, divestitures, and spin-offs, to maximize shareholder value[82] - Substantial doubt exists about the Company's ability to continue as a going concern, necessitating strategic transactions or additional working capital to achieve profitability and meet obligations[83][84] Industry conditions This section analyzes the competitive landscape and key trends impacting the company's operating environment - The industry is dynamic and highly competitive, characterized by a few dominant players in traditional video conferencing and a fragmented reseller market[85] - Higher interoperability with other AV products and certifications from leading video conferencing providers like Microsoft and Zoom are increasingly important[85] Economic conditions, challenges and risks This section discusses macroeconomic factors, competitive pressures, and specific risks affecting the company's performance - ClearOne faces intense competition, challenges from component availability, pricing pressures from new competitors, and the lack of Microsoft Teams certifications[87] - Approximately 46% of revenue in the first six months of 2025 was derived from operations outside North and South America, exposing the Company to foreign exchange risk if the U.S. dollar strengthens[89] - Recent and proposed increases in U.S. tariffs on imports from China (up to 145%) and Singapore (10% baseline) may increase procurement costs, disrupt supply chains, and elevate operating expenses[90][91] - Customer uncertainty regarding the Company's pursuit of an asset sale and going concern risk has led some customers to put orders on hold[93] Deferred Product Revenue This section presents the company's deferred product revenue balances at various reporting dates | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Deferred product revenue | $12 | $17 | Results of Operations for the three and six months ended June 30, 2025 This section analyzes the company's financial performance, including revenue, gross profit, and operating expenses, for the specified periods - Revenue decreased to $1.9 million in Q2 2025 (from $2.3 million in Q2 2024) due to declines in audio conferencing (31%), video products (10%), and microphones (7%), with a 73% decrease in Asia Pacific revenues[98] - Gross profit margin decreased from (0.9)% in Q2 2024 to (12.1)% in Q2 2025, primarily due to revenue decreasing more than cost of goods sold and unabsorbed overhead from reduced inventory levels[99][100] - Total operating expenses increased to $4.3 million in Q2 2025 (from $2.9 million in Q2 2024) and $7.3 million year-to-date (from $6.1 million in 2024), driven by severance expenses, increased legal/investment bank fees for strategic alternatives, and additional accounting headcount[104][106][108][110] Other income (expense), net This section details non-operating income and expenses, such as interest income and expense - Other income, net, decreased significantly, with interest income from marketable securities falling from $0.3 million in H1 2024 to $0.0 million in H1 2025[112] - Interest expense of approximately $8 thousand was recorded in Q2 2025 related to the convertible notes issued on June 20, 2025[113] Provision for income taxes This section discusses the company's income tax provisions and the impact of valuation allowances - No income tax benefit was recognized from domestic losses due to a full valuation allowance against U.S. Federal and State deferred tax assets[114] LIQUIDITY AND CAPITAL RESOURCES This section assesses the company's ability to meet its short-term and long-term obligations and its sources of funding Cash and Working Capital (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $2,810 | $1,417 | | Working capital | $9,400 | $15,200 | Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(2,568) | $(2,722) | | Net cash used in investing activities | $(21) | $1,826 (provided) | | Net cash provided by financing activities | $4,000 | $(14,483) (used) | - Substantial doubt about the Company's ability to continue as a going concern persists, requiring strategic transactions (including an Asset Sale), additional revenue from inventory sales, or new working capital[119][121][122] - Financing activities in H1 2025 included a $1.0 million private placement of common stock and a $3.0 million convertible note issuance, with proceeds from the latter restricted for specific uses related to the Asset Sale[120] - The Board declared a special stock dividend of Class A Redeemable Preferred Stock on June 30, 2025, payable July 18, 2025, which entitles holders to 100% of net proceeds from any Asset Sale[123] Inventory and Purchase Orders (in thousands) | Inventory and Purchase Orders (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------------- | :------------ | :---------------- | | Open purchase orders | $4,200 | N/A | | Total inventory | $13,500 | $16,100 | | Non-current inventory | $4,600 | $4,900 | Contractual Obligations and Commitments This section outlines the company's future payment obligations under various contracts and agreements | Obligation (in millions) | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More than 5 years | | :----------------------- | :---- | :--------------- | :-------- | :-------- | :---------------- | | Operating lease obligations | $0.6 | $0.2 | $0.4 | — | — | | Purchase obligations | $4.2 | $4.2 | — | — | — | | Total | $4.8| $4.4 | $0.4 | — | — | OFF-BALANCE SHEET ARRANGEMENTS This section discloses any off-balance sheet transactions that could materially affect the company's financial position - The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition or results of operations[129] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section highlights the accounting policies and estimates that require significant judgment and can materially impact financial results - There have been no changes to the critical accounting policies as explained in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[130] RECENT ACCOUNTING PRONOUNCEMENTS This section discusses the impact of recently issued accounting standards on the company's financial statements - For a discussion of recent accounting pronouncements, refer to Note 1: 'Business Description, Basis of Presentation and Significant Accounting Policies' in the notes to the unaudited condensed consolidated financial statements[131] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item states that quantitative and qualitative disclosures about market risk are not applicable to the Company - Quantitative and Qualitative Disclosures About Market Risk are not applicable[132] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, and there have been no material changes to internal control over financial reporting - The Chief Executive Officer and Principal Financial and Accounting Officer concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[133] - There has been no material change in the Company's internal control over financial reporting as of June 30, 2025[134] PART II - OTHER INFORMATION This section includes other required disclosures not covered in the financial information section Item 1. Legal Proceedings The Company reported no legal proceedings for the period - No legal proceedings to report[135] Item 1A. Risk Factors New and amended risk factors highlight significant dilution potential from recent financing and preferred stock, the uncertainty and operational disruption associated with the mandatory Asset Sale pursuit, risks from dependence on third-party financing terms and governance changes, and potential impairment of operations due to the workforce reduction. Concentration of ownership by First Finance Ltd. and Edward D. Bagley also poses risks to corporate actions and market price - Recent issuance of convertible notes and designation of preferred stock may result in significant dilution to existing stockholders and adversely affect financial condition[136] - The Company is obligated to pursue an Asset Sale within 180 days of issuing Class A Redeemable Preferred Stock, which may not be completed on favorable terms or at all, potentially leading to liquidity constraints and operational disruptions[137] - Dependence on third-party financing terms introduces risks related to control and governance changes, including the appointment of two directors nominated by First Finance Ltd. and limitations on operational flexibility[138] - A significant reduction in force implemented on June 20, 2025, may impair the Company's ability to maintain operations, comply with obligations, and could lead to loss of institutional knowledge and revenue declines[139] - The special stock dividend of Class A Redeemable Preferred Stock may not result in value to stockholders if the Asset Sale is not completed or is completed on unfavorable terms[140] - Concentration of ownership by First Finance Ltd. (approx. 32.4%) and Edward D. Bagley (approx. 32.5%) could significantly influence corporate actions and potentially discourage third-party acquisition attempts[141][142] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company reported no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities or use of proceeds to report[143] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities for the period - Not applicable; no defaults upon senior securities to report[144] Item 4. Mine Safety Disclosures The Company reported that mine safety disclosures are not applicable - Not applicable; no mine safety disclosures to report[145] Item 5. Other Information The Company reported no other information for the period - Not applicable; no other information to report[146][147] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certificates of designation for preferred stock, certificate of amendment, securities purchase agreement, and various certifications - Key exhibits include Certificates of Designation for Class A Redeemable Preferred Stock and Class B Convertible Preferred Stock, Certificate of Amendment to Certificate of Incorporation, Securities Purchase Agreement, and Section 302 and 906 Certifications[148] SIGNATURES This section formally attests to the accuracy and completeness of the report by authorized officers - The report is signed by Derek L. Graham, Chief Executive Officer, and Simon Brewer, Chief Financial Officer, on August 14, 2025[150]