UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~June 30, 2021~~March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period _______ to _______

Commission file number:001-33660

CLEARONE, INC.

(Exact name of registrant as specified in its charter)

Delaware		87-0398877
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

5225 Wiley Post Way, Suite 500, Salt Lake City, Utah		84116
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (801) 975-7200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001		CLRO		The NASDAQ Capital Market

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Larger Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer ☒	Smaller Reporting Company ☒
	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Yes ☐ No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares of ClearOne common stock outstanding as of ~~August 10, 2021~~May 18, 2022 was ~~18,779,781.~~23,948,587.

Table of Contents

CLEARONE, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED ~~JUNE 30, 2021~~MARCH 31, 2022

INDEX


	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	23

	Unaudited Condensed Consolidated Balance Sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	23

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021	34

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	45

	Unaudited Notes to Condensed Consolidated Financial Statements	67

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2326

Item 4.	Controls and Procedures	2326

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	2427

Item 1A.	Risk Factors	2427

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2427

Item 3.	Defaults Upon Senior Securities	2427

Item 4.	Mine Safety Disclosures	2427

Item 5.	Other Information	2427

Item 6.	Exhibits	2528

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CLEARONE, INC

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

	June 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	2,088		$	3,803		$	1,422		$	1,071
Marketable securities		969			1,117			398			1,790
Receivables, net of allowance for doubtful accounts of $506		5,305			5,194
Receivables, net of allowance for doubtful accounts of $326 and $326, respectively								5,077			4,991
Inventories, net		9,203			10,463			9,865			10,033
Income tax receivable		7,220			7,169			7,540			7,535
Prepaid expenses and other assets		1,273			1,536			3,370			4,021
Total current assets		26,058			29,282			27,672			29,441
Long-term marketable securities		1,028			1,762			542			1,220
Long-term inventories, net		3,979			4,590			3,210			3,567
Property and equipment, net		753			906			676			744
Operating lease - right of use assets, net		1,645			1,936			1,383			1,537
Intangibles, net		21,547			19,248			24,675			25,086
Other assets		4,600			4,599			4,596			4,597
Total assets	$	59,610		$	62,323		$	62,754		$	66,192
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,046		$	3,950		$	4,125		$	5,388
Accrued liabilities		3,162			2,352			2,826			2,549
Deferred product revenue		56			123			46			54
Short-term debt		1,227			672			1,336			3,481
Total current liabilities		8,491			7,097			8,333			11,472
Long-term debt, net		2,609			3,245			1,359			1,535
Operating lease liability, net of current		1,214			1,489			871			1,026
Other long-term liabilities		678			678			655			655
Total liabilities		12,992			12,509			11,218			14,688

Shareholders' equity:
Common stock, par value $0.001, 50,000,000 shares authorized, 18,779,781 shares issued and outstanding		19			19
Common stock, par value $0.001, 50,000,000 shares authorized, 23,948,587 and 22,410,126 shares issued and outstanding, respectively								24			22
Additional paid-in capital		63,431			63,359			74,831			72,795
Accumulated other comprehensive loss		(213	)		(186	)		(280	)		(241	)
Accumulated deficit		(16,619	)		(13,378	)		(23,039	)		(21,072	)
Total shareholders' equity		46,618			49,814			51,536			51,504
Total liabilities and shareholders' equity	$	59,610		$	62,323		$	62,754		$	66,192

See accompanying notes

Table of Contents

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(Dollars in thousands, except per share amounts)

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020
Revenue

$
7,735

$
6,357

$ 14,773

$ 12,091
Cost of goods sold

4,311

3,739

8,346

6,635
Gross profit

3,424

2,618

6,427

5,456

Operating expenses:

Sales and marketing

1,755

1,457

3,328

3,196
Research and product development

1,487

1,474

2,761

2,818
General and administrative

1,668

1,526

3,348

3,032
Total operating expenses

4,910

4,457

9,437

9,046

Operating loss

(1,486
)

(1,839
)

(3,010 )

(3,590 )

Interest expense

(107 )

(109 )

(219 )

(217 )
Other income (expense), net

15

16

10

51

Loss before income taxes

(1,578
)

(1,932
)

(3,219 )

(3,756 )

Provision for income taxes

8

5

22

28

Net loss

$
(1,586
)

$
(1,937
)
$ (3,241 )
$ (3,784 )

Basic weighted average shares outstanding

18,775,817

16,650,774

18,775,795

16,650,750
Diluted weighted average shares outstanding

18,775,817

16,650,774

18,775,795

16,650,750

Basic loss per share

$
(0.08
)

$
(0.12
)
$ (0.17 )
$ (0.23 )
Diluted loss per share

$
(0.08
)

$
(0.12
)

$ (0.17 )
$ (0.23 )

Comprehensive loss:

Net loss

$
(1,586
)

$
(1,937
)
$ (3,241 )
$ (3,784 )
Unrealized gain(loss) on available-for-sale securities, net of tax

(3
)

30

(5 )

7
Change in foreign currency translation adjustment

(10
)

(8
)

(22 )

(42 )
Comprehensive loss

$
(1,599
)

$
(1,915
)

$ (3,268 )
$ (3,819 )

	Three months ended March 31,
	2022			2021
Revenue	$	7,545		$	7,038
Cost of goods sold		4,729			4,035
Gross profit		2,816			3,003

Operating expenses:
Sales and marketing		1,560			1,573
Research and product development		1,353			1,274
General and administrative		1,756			1,680
Total operating expenses		4,669			4,527

Operating loss		(1,853	)		(1,524	)

Interest expense		(101	)		(112	)
Other income, net		3			(5	)

Loss before income taxes		(1,951	)		(1,641	)

Provision for income taxes		16			14

Net loss	$	(1,967	)	$	(1,655	)

Basic weighted average shares outstanding		23,897,305			18,775,773
Diluted weighted average shares outstanding		23,897,305			18,775,773

Basic loss per share	$	(0.08	)	$	(0.09	)
Diluted loss per share	$	(0.08	)	$	(0.09	)


Comprehensive loss:
Net loss	$	(1,967	)	$	(1,655	)
Unrealized gain (loss) on available-for-sale securities, net of tax		(28	)		(2	)
Change in foreign currency translation adjustment		(11	)		(12	)
Comprehensive loss	$	(2,006	)	$	(1,669	)

See accompanying notes

Table of Contents

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share amounts)

	Six months ended June 30,						Three months ended March 31,
	2021			2020			2022			2021
Cash flows from operating activities:
Net loss	$	(3,241	)	$	(3,784	)	$	(1,967	)	$	(1,655	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		1,330			1,082			794			661
Amortization of right-of-use assets		291			273			154			149
Stock-based compensation expense		65			54
Provision for doubtful accounts, net		0—			31
Share-based compensation expense								36			31
Change of inventory to net realizable value		682			660			—			375
Changes in operating assets and liabilities:
Receivables		(111	)		(358	)		(86	)		264
Inventories		1,189			2,331			525			736
Prepaid expenses and other assets		261			238			651			265
Accounts payable		96			302			(1,263	)		(1,043	)
Accrued liabilities		842			(443	)		286			446
Income taxes payable		(51	)		6
Income taxes receivable								(5	)		(43	)
Deferred product revenue		(67	)		26			(8	)		(45	)
Operating lease liabilities		(301	)		(276	)		(160	)		(154	)
Other long-term liabilities		0—			(29	)
Net cash provided by operating activities		985			113
Net cash used in operating activities								(1,043	)		(13	)

Cash flows from investing activities:
Purchase of property and equipment		(25	)		(218	)		(8	)		(7	)
Purchase of intangibles		(147	)		(114	)		(70	)		(71	)
Capitalized patent defense costs		(3,206	)		(3,792	)		(189	)		(1,678	)
Proceeds from maturities and sales of marketable securities		1,394			2,482			2,042			413
Purchases of marketable securities		(517	)		(1,903	)		—			(310	)
Net cash used in investing activities		(2,501	)		(3,545	)
Net cash provided by (used in) investing activities								1,775			(1,653	)

Cash flows from financing activities:
Net proceeds from Paycheck Protection Program loan		0—			1,499
Net proceeds from equity-based compensation programs		7			6			2			4
Principal payments of long-term debt		(180	)		0—			(370	)		(90	)
Net cash provided by (used in) financing activities		(173	)		1,505
Net cash provided by financing activities								(368	)		(86	)

Effect of exchange rate changes on cash and cash equivalents		(26	)		(31	)		(13	)		(17	)

Net decrease in cash and cash equivalents		(1,715	)		(1,958	)
Net increase in cash and cash equivalents								351			(1,769	)
Cash and cash equivalents at the beginning of the period		3,803			4,064			1,071			3,803
Cash and cash equivalents at the end of the period	$	2,088		$	2,106		$	1,422		$	2,034

CLEARONE, INC.

UNAUIDTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - Dollars in thousands, except per share amounts)

1. Business Description, Basis of Presentation and Significant Accounting Policies

Business Description:

ClearOne, Inc., together with its subsidiaries (collectively, “ClearOne” or the “Company”), is a global market leader enabling conferencing, collaboration, and AV streaming solutions for voice and visual communications. The performance and simplicity of our advanced, comprehensive solutions offer unprecedented levels of functionality, reliability and scalability.

Basis of Presentation:

The fiscal year for ClearOne is the twelve months ending on December 31. The condensed consolidated financial statements include the accounts of ClearOne and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.

These accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not audited. Certain information and footnote disclosures that are usually included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted in accordance with SEC rules and regulations. The accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020,~~2021, and the cash flows for the ~~six~~ three months ended ~~June 30, 2021~~ March 31, 2022 and ~~2020.~~2021. The results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 are not necessarily indicative of the results for a full-year period. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the SEC.

Significant Accounting Policies:

The significant accounting policies were described in Note 1 to the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2020.~~2021. There have been no changes to these policies during the ~~six months ended June 30, 2021~~March 31, 2022 that are of significance or potential significance to the Company.

Recent accounting pronouncements: The Company has determined that recently issued accounting standards will not have a material impact on its consolidated financial position, results of operations or cash flows.

Liquidity:

As of ~~June 30, 2021~~March 31, 2022, our cash and cash equivalents were approximately ~~$2,088~~$1,422 compared to ~~$3,803~~$1,071 as of December 31, ~~2020.~~2021. Our working capital was ~~$17,567~~$19,339 as of ~~June 30, 2021~~March 31, 2022. Net cash ~~provided by~~used in operating activities was ~~$985~~$1,043 for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, an increase ~~of $872~~1,030 from ~~$113~~$13 of cash ~~provided by operating~~used in activities in the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

~~We are~~The Company is currently pursuing all available legal remedies to defend ~~our~~its strategic patents from infringement. ~~We have~~The Company has already spent approximately ~~$23,559~~$28,345 from 2016 through ~~June 30, 2021~~March 31, 2022 towards this litigation and may be required to spend more to continue ~~our~~its legal defense. We believe the decision by the U.S. District Court in August 2019 granting our request for a preliminary injunction to prevent our competitor from manufacturing, marketing, and selling its competing ceiling microphone array in an infringing configuration is an incredibly valuable ruling for ClearOne and its business. We believe that the decision validates the strength and importance of ClearOne’s intellectual property rights, recognizes ClearOne’s innovations in this space, and stops our competitor from further infringing our Graham patent (U.S. Patent No. 9,813,806) pending a full trial. Although there can be no assurance of any outcome of a full trial, we believe this ruling will help pave the way for ClearOne’s recovery from the immense harm inflicted by our competitor's ~~infringement of our valuable patents.~~ For more information about our intellectual property litigation, See Note 8. Commitments and Contingencies - Legal Proceedings, in our annual report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1. Legal Proceedings in this quarterly report.

Table of Contents

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - Dollars in thousands, except per share amounts)

~~We have~~The Company has been actively engaged in preserving cash by suspending our dividend program and allowing our share repurchase program to expire in 2018 and implementing company-wide cost reduction measures. ~~We have~~The company has also raised additional capital in 2019 by issuing senior convertible notes, ~~and~~ in 2020 by borrowing through the CARES Act Paycheck Protection Program and issuing common stock and warrants and in 2021 by issuing short-term notes and issuing common stock and warrants. In January 2022, the Company issued $2,000 in common stock as consideration for the cancellation and termination of the short-term notes. In addition, we ~~expect to generate~~have been generating additional cash as our inventory levels are brought down to historical levels.

WeThe Company also ~~believe~~believes that the ~~measures taken by us~~Company's core strategies of product innovation and prudent cost management will ~~yield higher revenues~~bring the company back to profitability in the future. ~~We believe,~~The Company believes, although there can be no assurance, that all of these measures and effective management of working capital will provide the liquidity needed to meet our operating needs through at least ~~August 10, 2022.~~May 19, 2023. We also believe that ~~our~~its strong portfolio of intellectual property and ~~our~~its solid brand equity in the market will enable usit to raise additional capital if and when needed to meet our short and long-term financing needs; however, there can be no assurance that, if needed, we will be successful in obtaining the necessary funds through equity or debt financing. If ~~we need~~the Company needs additional capital and ~~are~~is unable to secure financing, weit may be required to further reduce expenses, delay product development and enhancement, or revise ~~our~~its strategy regarding ongoing litigation.

2. Revenue Information

The following table disaggregates the Company’s revenue into primary product groups:

	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2021		2020		2021		2020		2022		2021
Audio conferencing	$	3,096	$	2,648	$	5,931	$	5,435	$	3,176	$	2,835
Microphones		3,218		1,891		5,568		4,034		2,928		2,350
Video products		1,421		1,818		3,274		2,622		1,441		1,853
	$	7,735	$	6,357	$	14,773	$	12,091	$	7,545	$	7,038

The following table disaggregates the Company’s revenue into major regions:

	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2021		2020		2021		2020		2022		2021
North and South America	$	3,640	$	4,003	$	7,164	$	7,355	$	3,776	$	3,524
Asia (including Middle East) and Australia		1,797		1,580		4,023		2,996
Asia Pacific (includes Middle East, India and Australia)										2,074		2,226
Europe and Africa		2,298		774		3,586		1,740		1,695		1,288
	$	7,735	$	6,357	$	14,773	$	12,091	$	7,545	$	7,038

3. ~~Earnings (Loss)~~Loss Per Share

~~Earnings (loss)~~Loss per common share is computed based on the weighted-average number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, warrants and convertible portion of senior convertible notes are considered to be potential common stock. The computation of diluted earnings (loss) per share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Basic earnings (loss) per common share is the amount of net earnings (loss) for the period available to each weighted-average share of common stock outstanding during the reporting period. Diluted earnings (loss) per common share is the amount of earnings (loss) for the period available to each weighted-average share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an anti-dilutive effect.

The following table sets forth the computation of basic and diluted earnings (loss) per common share:

	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2021			2020			2021			2020			2022			2021
Numerator:
Net loss	$	(1,586	)	$	(1,937	)	$	(3,241	)	$	(3,784	)	$	(1,967	)	$	(1,655	)
Denominator:
Basic weighted average shares outstanding		18,775,817			16,650,774			18,775,795			16,650,750			23,897,305			18,775,773
Dilutive common stock equivalents using treasury stock method		0—			0—			0—			0—			—			—
Diluted weighted average shares outstanding		18,775,817			16,650,774			18,775,795			16,650,750			23,897,305			18,775,773

Basic loss per common share	$	(0.08	)	$	(0.12	)	$	(0.17	)	$	(0.23	)	$	(0.08	)	$	(0.09	)
Diluted loss per common share	$	(0.08	)	$	(0.12	)	$	(0.17	)	$	(0.23	)	$	(0.08	)	$	(0.09	)

Weighted average options, warrants and convertible portion of senior convertible notes outstanding		3,597,418			542,196			3,616,661			542,507			7,062,673			3,636,117
Anti-dilutive options, warrants and convertible portion of senior convertible notes not included in the computation		3,597,148			542,196			3,616,661			542,507			7,062,673			3,636,117

Table of Contents

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - Dollars in thousands, except per share amounts)

4. Marketable Securities

The Company has classified its marketable securities as available-for-sale securities. These securities are carried at estimated fair value with unrealized holding gains and losses included in accumulated other comprehensive loss in stockholders’ equity until realized. Gains and losses on marketable security transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned.

The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of securities ~~at June 30, 2021~~as of March 31, 2022 and December 31, ~~2020~~2021 were as follows:

	Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Estimated fair value		Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses			Estimated fair value
June 30, 2021
March 31, 2022
Available-for-sale securities:
Corporate bonds and notes	$	1,007	$	19	$	0—	$	1,026	$	511	$	1	$	(13)		$	499
Municipal bonds		969		2		0—		971		454		—		(13)			441
Total available-for-sale securities	$	1,976	$	21	$	0—	$	1,997	$	965	$	1	$	(26)		$	940

December 31, 2020
December 31, 2021
Available-for-sale securities:
Corporate bonds and notes	$	1,312	$	26	$	0—	$	1,338	$	1,434	$	8	$	(2	)	$	1,440
Municipal bonds		1,536		5		0—		1,541		1,573		—		(3	)		1,570
Total available-for-sale securities	$	2,848	$	31	$	0—	$	2,879	$	3,007	$	8	$	(5	)	$	3,010

Maturities of marketable securities classified as available-for-sale securities were as follows ~~at June 30, 2021:~~as of March 31, 2022:

	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Due within one year	$	959	$	969	$	402	$	398
Due after one year through five years		1,017		1,028		563		542
Due after five years		0—		0—		—		—
Total available-for-sale securities	$	1,976	$	1,997	$	965	$	940

910

Table of Contents

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - Dollars in thousands, except per share amounts)

Debt securities in an unrealized loss position as of ~~June 30, 2021~~March 31, 2022 were not deemed impaired at acquisition and subsequent declines in fair value are not deemed attributed to declines in credit quality. Management believes that it is more likely than not that the securities will receive a full recovery of par value, although there can be no assurance that such recovery will occur. The available-for-sale marketable securities with continuous gross unrealized loss position for less than 12 months and 12 months or greater and their related fair values were as follows:

	Less than 12 months				More than 12 months				Total
	Estimated fair value		Gross unrealized holding losses		Estimated fair value		Gross unrealized holding losses		Estimated fair value		Gross unrealized holding losses
As of March 31, 2022
Corporate bonds and notes	$	254	$	8	$	144	$	5	$	398	$	13
Municipal bonds		292		11		150		2		442		13
Total	$	546	$	19	$	294	$	7	$	840	$	26

Debt securities in an unrealized loss position as of March 31, 2022 were not deemed impaired at acquisition and subsequent declines in fair value are not deemed attributed to declines in credit quality. Management believes that it is more likely than not that the securities will receive a full recovery of par value, although there can be no assurance that such recovery will occur.

~~There were no available-for-sale marketable securities with gross unrealized loss position.~~

5. Intangible Assets

Intangible assets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 consisted of the following:

	Estimated useful lives (years)			June 30, 2021			December 31, 2020			Estimated useful lives (years)			March 31, 2022			December 31, 2021
Tradename	5	to	7	$	555		$	555		5	to	7	$	555		$	555
Patents and technological know-how	10	to	20		28,780			25,427		10	to	20		33,812			33,553
Proprietary software	3	to	15		2,981			2,981		3	to	15		2,981			2,981
Other	3	to	5		323			323		3	to	5		323			323
Total intangible assets					32,639			29,286						37,671			37,412
Accumulated amortization					(11,092	)		(10,038	)					(12,996	)		(12,326	)
Total intangible assets, net				$	21,547		$	19,248					$	24,675		$	25,086

The amortization of intangible assets for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was as follows:

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

Amortization of intangible assets

$
543

$
406

$ 1,054

$ 774

	Three months ended March 31,
	2022		2021
Amortization of intangible assets	$	670	$	511

The estimated future amortization expense of intangible assets is as follows:

Years ending December 31,	Amount		Amount
2021 (Remainder)	$	1,123
2022		2,246
2022 (Remainder)			$	2,030
2023		2,239		2,700
2024		1,975		2,436
2025		1,914		2,375
2026				2,375
Thereafter		12,050		12,759
Total		21,547	$	24,675

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(Unaudited - Dollars in thousands, except per share amounts)

6. Inventories

Inventories, net of reserves, as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 consisted of the following:

	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Current:
Raw materials	$	1,090	$	1,182	$	3,821	$	4,085
Finished goods		8,113		9,281		6,044		5,948
	$	9,203	$	10,463	$	9,865	$	10,033

Long-term:
Raw materials	$	2,237	$	1,977	$	1,576	$	1,980
Finished goods		1,742		2,613		1,634		1,587
	$	3,979	$	4,590	$	3,210	$	3,567

Long-term inventory represents inventory held in excess of our current (next 12 months) requirements based on our recent sales and forecasted level of sales. We expect to sell the above inventory, net of reserves, at or above the stated cost and believe that no loss will be incurred on its sale, although there can be no assurance of the timing or amount of any sales.

Net loss incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 was as follows:

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

Net loss incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory

$
307

$
459

$ 682

$ 660

	Three months ended March 31,
	2022		2021
Net loss incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory	$	—	$	375

7. Leases

Rent expense is recognized on a straight-line basis over the period of the lease taking into account future rent escalation and holiday periods.

Rent expense for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021 was as follows:

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

Rent expense

$
175

$
172

$ 359

$ 359

	Three months ended March 31,
	2022		2021
Rent expense	$	179	$	184

WThe Company ~~e occupy~~occupies a 1,350 square-foot facility in Gainesville, Florida under the terms of an operating lease expiring in February ~~2023.~~2023. The Gainesville facility is used primarily to support ~~our~~the Company's research and development activities.

~~We occupy~~The Company occupies a 21,443 square-foot facility in Salt Lake City, Utah under the terms of an operating lease expiring in March2024, with an option to extend for additional five years. The facility supports ~~our~~ the Company's principal administrative, sales, marketing, customer support, and research and product development activities.

~~We occupy~~The Company occupies a 950 square-foot facility in Austin, Texas under the terms of an operating lease expiring in October 2022. This facility supports ~~our~~ the Company's sales, marketing, customer support, and research and development activities.

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(Unaudited - Dollars in thousands, except per share amounts)

We occupy a 3,068 square-foot facility in Zaragoza, Spain under the terms of an operating lease expiring in March 2022. This office supports our research and development and customer support activities.

~~We occupy~~The Company occupies a 6,175 square-foot facility in Chennai, India under the terms of an operating lease expiring in August ~~2021.~~2023. This facility supports ~~our~~ the Company's administrative, marketing, customer support, and research and product development activities.

~~We occupy~~The Company occupies a 40,000 square-foot warehouse in Salt Lake City, Utah under the terms of an operating lease expiring in April 2025, which serves as ~~our~~the Company's primary inventory fulfillment and repair center.

Supplemental cash flow information related to leases was as follows:

	Six months ended June 30,						Three months ended March 31,
	2021			2020			2022			2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(360	)	$	(356	)	$	(183	)	$	(184	)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	0—		$	97		$	—		$	—

The following represents maturities of operating lease liabilities as of ~~June 30, 2021:~~March 31, 2022:

8. Shareholders' Equity

	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2021			2020			2021			2020			2022			2021
Common stock and additional paid-in capital
Balance, beginning of period	$	63,413		$	58,577		$	63,378		$	58,537		$	72,818		$	63,378
Issuance of common stock and warrants, net														2,000			—
Share-based compensation expense		34			17			65			54			35			31
Proceeds from employee stock purchase plan		3			3			7			6			2			4
Balance, end of period	$	63,450		$	58,597		$	63,450		$	58,597		$	74,855		$	63,413

Accumulated other comprehensive loss
Balance, beginning of period	$	(200	)	$	(233	)	$	(186	)	$	(176	)	$	(241	)	$	(186	)
Unrealized loss on available-for-sale securities, net of tax		(3	)		30			(5	)		7			(28	)		(2	)
Foreign currency translation adjustment		(10	)		(8	)		(22	)		(42	)		(11	)		(12	)
Balance, end of period	$	(213	)	$	(211	)	$	(213	)	$	(211	)	$	(280	)	$	(200	)

Accumulated deficit
Balance, beginning of period	$	(15,033	)	$	(15,730	)	$	(13,378	)	$	(13,883	)	$	(21,072	)	$	(13,378	)
Net loss		(1,586	)		(1,937	)		(3,241	)		(3,784	)		(1,967	)		(1,655	)
Balance, end of period	$	(16,619	)	$	(17,667	)	$	(16,619	)	$	(17,667	)	$	(23,039	)	$	(15,033	)

Total shareholders' equity	$	46,618		$	40,719		$	46,618		$	40,719		$	51,536		$	48,180

Issue of Common Stock and Warrants

On September 13, 2020, the Company entered into a securities purchase agreement with certain purchasers named therein, pursuant to which the Company issued and sold in a registered direct offering 2,116,050 shares of the Company's common stock, par value $0.001 per share at an offering price of $2.4925 per share. The Company received gross proceeds of approximately $5,275 and net proceeds $4,764 after deducting placement agent fees and related offering expenses. In a concurring private placement, the Company also issued to the same purchasers warrants exercisable for an aggregate of 1,058,025 shares of common stock at an exercise price of $2.43 per share. Each warrant became immediately exercisable and will expire five years from the issuance date.

On September 12, 2021, the Company entered into a securities purchase agreement with certain purchasers named therein, pursuant to which the Company issued 3,623,189 shares of the Company's common stock, par value $0.001 per share at an offering price of $2.76 per share. The Company received gross proceeds of approximately $10,000 and net proceeds of $9,288 after deducting placement agent fees and related offering expenses. In a concurring private placement the Company also issued to the same purchasers warrants exercisable for an aggregate of 3,623,189 shares of common stock at an exercise price of $2.76 per share. Each warrant became immediately exercisable and will expire on March 15, 2027.

On January 4, 2022, the Company entered into a Securities Purchase Agreement with Edward D. Bagley, an affiliate of the Company, pursuant to which the Company agreed to issue and sell, in a private placement 1,538,461 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.30 per share of Common Stock. The consideration for the Shares is the cancellation and termination of Mr.Bagley’s outstanding bridge loan to the Company in the principal amount of $2,000,000 originally issued on July 2, 2021 and amended and restated on September 11, 2021. Mr. Bagley is an affiliate of the Company and the Company’s single largest stockholder.

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(Unaudited - Dollars in thousands, except per share amounts)

9. ~~Long-Term~~ Debt

Senior Convertible Notes and Warrants

On December 17, 2019, the Company completed the issuance and sale of $3,000 aggregate principal amount of secured convertible notes of the Company (the “Notes”) and warrants (the “Warrants”) to purchase 340,909 shares of common stock, par value $0.001 per share of the Company (the “Common Stock”), in a private placement transaction. The Notes and Warrants were issued and sold to Edward D. Bagley, an affiliate of the Company, on the terms and conditions of a Note Purchase Agreement dated December 8, 2019 between the Company, certain subsidiary guarantors of the Company, and Mr. Bagley. Mr. Bagley ~~is an affiliate of the Company and~~ was the beneficial owner of approximately 46.6% of the Company’s issued and outstanding shares of Common Stock at the time that the Notes and Warrants were issued to him.

The Notes will mature on December 17, 2023 (the “Maturity Date”) and will accrue interest at a variable rate adjusted on a quarterly basis and equal to two and one-half percent (2.5%) over the greater of (x) five and one-quarter percent (5.25%) and (y) the Prime Rate as published in the Wall Street Journal (New York edition) as of the beginning of such calendar quarter. The Notes may be converted into shares of the Company’s Common Stock at any time at the election of Mr. Bagley at an initial conversion price of $2.11 per share (the “Conversion Price”), or 120% of the closing price of the Common Stock on December 6, 2019 as reported on the Nasdaq Capital Market. Also, the Company can cause a mandatory conversion of the Notes if the volume weighted average closing price of the Common Stock over 90 consecutive trading days exceeds 200% of the Conversion Price. In addition, the Notes may be redeemed by the Company for cash at any time after December 17, 2020 upon payment of the outstanding principal balance of the Notes and any unpaid and accrued interest. The Company also is required to redeem the Notes upon the occurrence of a change in control of the Company.

The Warrants have an initial exercise price equal to $1.76, the closing price of the Common Stock on December 6, 2019 as reported on the Nasdaq Capital Market, and are exercisable until December 17, 2026. The Warrants must be exercised for cash, unless at the time of exercise there is not a then effective registration statement for the resale of the shares of Common Stock issuable upon exercise of the Warrants, in which case the Warrants may be exercised via a cashless exercise feature that provides for net settlement of the shares of Common Stock issuable upon exercise.

Concurrent with the issuance of the Notes and Warrants pursuant to the Note Purchase Agreement, the Company, the Guarantors and Mr. Bagley entered into a Guaranty and Collateral Agreement (the “Collateral Agreement”) pursuant to which the Company and the Guarantors granted Mr. Bagley a first priority lien interest in all of the Company’s assets as security for the Company’s performance of its obligations under the Notes and Warrants.

The net proceeds after original issue discount and issuance costs of ~~$346~~$346 were approximately ~~$2,654.~~$2,654. The Company expects to use the proceeds from the sale of the Notes and Warrants for general corporate purposes and working capital.

In accounting for the issuance of the Notes, the Company separated Notes and Warrants into liability and equity components. The carrying amount of Warrants, being an equity component, was first calculated using Black-Scholes method with the following assumptions:

Risk-free interest rate	1.82%
Expected life of warrants (years)	7
Expected price volatility	~~49.94%~~49.4%
Expected dividend yield	0%

The carrying amount of the Notes was then determined by deducting the fair value of the Warrants from the principal amount of the Notes. The carrying amount of the Notes was further separated into equity and liability components after separating the value of the conversion feature into an equity component and leaving the remaining value as liability. The equity component is notremeasuredwhile the Notes and Warrants continue to meet the conditions for equity classification for equity components.

The original issue discount and issuance costs are netted against the liability. The following table represents the carrying value of Notes and Warrants:

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(Dollars in thousands, except share and per share amounts)

	June 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
Liability component:
Principal	$	2,820		$	3,000		$	2,460		$	2,640
Less: debt discount and issuance costs, net of amortization		(483	)		(581	)		(450	)		(385	)
Net carrying amount	$	2,337		$	2,419		$	2,010		$	2,255
Equity component⁽¹⁾:
Warrants	$	318		$	318		$	318		$	318
Conversion feature		122			122			122			122
Net carrying amount	$	440		$	440		$	440		$	440

Current portion of liability component included under short-term debt	$	540		$	360		$	765		$	720
Long-term portion of liability component included under long-term debt		1,797			2,059			1,695			1,920
Liability component total	$	2,337		$	2,419		$	2,460		$	2,640

(1) Recorded on the condensed consolidated balance sheets as additional paid-in capital.

Debt discount and issuance costs are amortized over the life of the note to interest expense using the effective interest method. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and March 31, 2021 amortization of debt discount and issuance costs was $49 and ~~$98, respectively and for the three and six months ended June 30, 2020, amortization of debt discount and issuance costs was~~ $49, ~~and $98,~~ respectively. The following table represents schedule of maturities of principal amount contained in the Notes as of ~~June 30, 2021:~~March 31, 2022:

Year ending December 31,	Principal Amount Maturing		Principal Amount Maturing
2021 (Remainder)	$	180
2022		720
2022 (Remainder)			$	540
2023		1,920		1,920
2024		0—		—
2025				—
Total principal amount	$	2,820	$	2,460

Short-term Bridge Loan

On July 2, 2021, the Company obtained a bridge loan in the principal amount of $2,000from Edward D. Bagley (the “Bridge Loan”), an affiliate of the Company. The Bridge Loan is evidenced by a promissory note dated July 2, 2021 (the “Note”) issued by the Company to Mr. Bagley.The Note bearsinterests at a rate of8.0% per annum, matures on the earlier to occur of (i) October 1, 2021 or (ii) within two business days of the Company’s receipt of its expectedU.S. federal income tax refund, and contains other customary covenants and events of default. On September 11, 2021, the Company amended and restated the terms of the Bridge Loan to extend the latest maturity date from October 1, 2021 to January 3, 2022. All other terms and conditions of the Bridge Loan remained the same. This Bridge Loan of $2,000 is included under short-term debt. On January 4, 2022, the Company entered into a Securities Purchase Agreement with Edward D. Bagley, pursuant to which the Company agreed to issue and sell, in a private placement 1,538,461 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.30 per share of Common Stock. The consideration for the Shares is the cancellation and termination of Mr. Bagley’s outstanding bridge loan to the Company in the principal amount of $2,000,000 originally issued on July 2, 2021 and amended and restated on September 11, 2021. Mr. Bagley is an affiliate of the Company and the Company’s single largest stockholder.

Paycheck Protection Program Loan

On April 18, 2020, the Company, entered into a loan agreement with U.S. Bank National Association Bank, which provided for a loan in the principal amount of $1,499 (“PPP Loan”) pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan has a ~~two-year~~two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for approximately sixteen months after the date of disbursement.

The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP Loan contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the Loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company intends to use the entire PPP Loan amount for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act.

June 30, 2021

December 31, 2020

Current portion of the PPP Loan included under short-term debt
$ 687

$ 312
Long-term portion of the PPP Loan included under long-term debt

812

1,187
Liability component total
$ 1,499

$ 1,499

As further discussed in Note 11 - Subsequent Events, the PPP Loan and the interest associated with the loan have been forgiven by United States Small Business Administration ("SBA") effective April 29, 2022.

10. Fair Value Measurements

The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:

Level 1 - Quoted prices in active markets for identical assets and liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. This category generally includes U.S. Government and agency securities; municipal securities; mutual funds and securities sold and not yet settled.

Level 3 - Unobservable inputs.

The Company’s financial instruments are valued using observable inputs. The following table sets forth the fair value of the financial instruments re-measured by the Company as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
June 30, 2021
March 31, 2022
Corporate bonds and notes	$	0—	$	1,026	$	0—	$	1,026	$	—	$	499	$	—	$	499
Municipal bonds		0—		971		0—		971		—		441		—		441
Total	$	0—	$	1,997	$	0—	$	1,997	$	—	$	940	$	—	$	940
December 31, 2020
December 31, 2021
Corporate bonds and notes	$	0—	$	1,338	$	0—	$	1,338	$	—	$	1,440	$	—	$	1,440
Municipal bonds		0—		1,541		0—		1,541		—		1,570		—		1,570
Total	$	0—	$	2,879	$	0—	$	2,879	$	—	$	3,010	$	—	$	3,010

Item 2.2. 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 27A of the Securities Act of 1933, as amended, and Section 21E 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, product recalls and product liability claims; infringement of our technology or assertion that our technology infringes the rights of other parties; termination of supplier relationships, or failure of suppliers to perform; inability to successfully manage growth; delays in obtaining regulatory approvals or the failure to maintain such approvals; concentration of our revenue among a few customers, products or procedures; development of new products and technology that could render our products obsolete; market acceptance of new products; introduction of products in a timely fashion; price and product competition, availability of labor and materials, cost increases, and fluctuations in and obsolescence of inventory; volatility of the market price of our common stock; foreign currency fluctuations; changes in key personnel; work stoppage or transportation risks; integration of business acquisitions; 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, ~~2019.~~2021. 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 II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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.

In early January 2022, we introduced DIALOG^® 10 USB, the industry's only pro-quality, single-channel wireless USB microphone system offering professional-quality audio with USB connectivity for webcasting and cloud-based collaboration. In March 2022, this new USB wireless mic system won the 2022 NSCA Excellence in Product Innovation Award. One of only seven winners in this prestigious award program, the DIALOG® 10 USB is the industry’s only pro-quality single-channel wireless microphone system with USB connectivity for webcasting and cloud-based collaboration such as Microsoft Teams, Zoom, WebEx, and GotoMeeting.

During January, at the ~~first quarter~~Las Vegas Customer Electronics Show, CES 2022, the world’s most influential annual tech event, our home office Aura™ Xceed™ BMA was singled out for exceptional innovation with a CES Picks Award, presented by Residential Systems magazine.

In early February 2022, our Versa Lite CT, a USB audio-enabled Beamforming Ceiling Tile Microphone that brings cost-effective and superb professional conferencing audio to small- and mid-sized spaces received Google Meet certification. Google Meet ranks among the top 5 for growth in the cloud meetings and team collaboration market according to Frost & Sullivan.

In early February 2022, we were awarded a new patent for a beamforming microphone array system with distributed processing. This patent claims a ceiling tile microphone array that can be physically separated from the processors running the beamforming algorithm. It enables a single computing engine to run multiple beamforming algorithms for multiple microphone arrays, which can lower the overall system cost compared to an integrated design that is limited to a single computing engine with a single microphone array. Later in the same month another ClearOne patent was granted which is related to beamforming microphone arrays with acoustic echo cancellation. The patent, titled “Band-Limited Beamforming Microphone Array with Acoustic Echo Cancellation," describes, among other things, a microphone array with one set of ~~2021, we announced two new powerful cameras~~microphones used for beamforming, and one or more additional microphones that are not used for beamforming, but instead are used to enhance the ~~ease and visual quality~~audio performance of ~~online collaboration beyond~~ the capabilities of integrated laptop and PC cameras. With the new ClearOne UNITE® 10, the company’s most affordable camera ever, and the feature-rich ClearOne UNITE 50 4K AF that includes Auto-Framing technology for automatic single- or multi-person capture, everyone can take on the new year with the confidence provided by stunning video that puts them in the best possible light. We recognized that millions of people were expected to use video collaboration tools, for the first time, and the rapid societal shift to home-based and remote work left a lot of people desiring higher quality video solutions to ensure they make a good impression and enjoy reliable, clear and efficient communication. microphone array.For users who want to upgrade from the basic camera included in their laptop or PC, ClearOne has lowered the barrier of entry with its most affordable webcam ever, the UNITE 10. The small, powerful webcam supports up to 1080p video quality and offers autofocus. The UNITE 10 can capture five-megapixel images with a field of view up to 87 degrees, while major competitors at this price point only achieve 78-degree field of view. The UNITE 10 attaches any PC or laptop with a simple mounting bracket, and a 1.5m USB-A cable ensures simple connection to most modern computers. The UNITE 10 is also available to dealers and distributors in 20 packs for commercial sale. The new UNITE 50 4K AF camera is a major upgrade over traditional webcams and introduces ClearOne’s new Auto-Framing technology that automatically frames meeting participants to maximize screen use through intelligent image algorithms and ePTZ automation (electronic pan, tilt and zoom). With 4K video quality at 30 Hz, auto-focus capability, 4x digital zoom, more than 8 megapixels of total resolution and an ultra-wide 110-degree field of view, the UNITE 50 4K AF ePTZ is equally capable of delivering incredible image quality from a home office as it is at capturing all participants in an office boardroom.

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The camera can be controlled through an IR remote, further simplifying use and enabling real-time control of pan, tilt and zoom to provide greater control when capturing multi-person meeting environments. A standard damping mount ensures fast, easy installation, while an included USB 3.0 cable provides both power and video. Both new ClearOne cameras enable life-like video quality to web-based conferencing applications including ClearOne’s COLLABORATE® Space, WebEx™, Google Meet, Zoom™, GoToMeeting™, and Microsoft® Teams.

During February 2021, we expanded the applications for our BMA 360 Beamforming Microphone Array Ceiling Tile with the addition of a new Voice Lift feature that allows its impeccable audio to be locally amplified and heard throughout classrooms, lecture halls, and large meeting rooms. announced a new Touch-Panel Controller, a highly intuitive 10-inch touch-screen device, designed for ClearOne’s CONVERGE®Pro 2 audio DSP mixers as well as COLLABORATE Live video conferencing room systems. Paired with CONVERGE Pro 2 DSP mixers, users can make and receive PSTN and/or VoIP conference calls, and multiparty calls with the easy-to-use on-screen dial pad. When paired with COLLABORATE Live, users can make and receive video calls as well as manage content sharing options. ClearOne’s powerful breakthrough technologies, FiBeam™ and DsBeam™, already found on the BMA 360, enable exceptional new levels of Voice Lift performance. FiBeam technology makes the BMA 360 the world’s first truly wideband, frequency-invariant beamforming mic array that provides the ultimate in natural and full-fidelity sound. DsBeam provides unparalleled sidelobe depth below -40 dB, resulting in superior rejection of reverb and noise and providing superb clarity and intelligibility. With the addition of the new Voice Lift feature, the BMA 360 offers everything desired in a beamforming microphone array ceiling tile—superior beamformed audio, echo cancellation, noise cancellation, auto-mixing, power amplifiers, and camera-tracking functions. The ClearOne architecture offers easy setup and configuration for foolproof installation which benefits AV practitioners. End-users also benefit from the BMA 360’s reduced overall system cost for maximum return on investment. Each BMA 360 can have up to four Voice Lift zones to provide a simple and intuitive way to drive multiple speaker groups, allowing everyone to easily hear and be heard. Built-in 4 channel power amplifiers make wiring simple, convenient, and provide a large cost savings. ClearOne’s innovative combination of built-in power amplifiers and mix-minus zones makes the Voice Lift feature extremely simple to create and deploy. The BMA 360, now with Voice Lift, sets another industry standard for exceptional mic pickup distance and system gain.

~~During May 2021, we announced the immediate availability of CONVERGENCE AV Cloud, which significantly expands AV Practitioner recurring revenue opportunities for remote, real-time Management as a Service (MaaS).~~ CONVERGENCE Cloud software is a unified AV network management platform to monitor, control, and audit ClearOne Pro Audio and Video products and services. Remote real-time system access provides at-a-glance and all-inclusive dashboard views with auto-discovery of Pro Audio devices and unlimited scalability designed to support organizations of any size. With the new Cloud option, AV Practitioners can profit on value-added MaaS opportunities to easily support multiple clients and multiple networks with fully secure, real-time remote system access on a single multi-tenant platform. The powerful and elegant user interface, in twelve languages, works on any browser and will allow full support of the AV Network with built-in video, audio, and chat tools for real-time communications as well as email and immediate SMS text alerts. Relevant information is quickly found with search, sort, and filter options. CONVERGENCE AV Cloud can be virtually partitioned for AV management by location such as building, floor, room, or any desired global topology. Practitioners can easily manage accounts, assigning three levels of access with Owner, Administrator, and Monitor roles; all housed on encrypted secure cloud servers. Client tenant usage can be conveniently tracked for invoicing and optional auto-payment reminders.

During the first ~~six~~three months of ~~2021,~~2022, we continued our efforts, primarily through litigation, to stop the infringement of our strategic patents. We believe the decision by the U.S. District Court in August 2019 granting our request for a preliminary injunction to prevent Shure from manufacturing, marketing, and selling its competing ceiling microphone array in an infringing configuration is an incredibly valuable ruling for ClearOne and its business. The decision validates the strength and importance of ClearOne’s intellectual property rights, recognizes ClearOne’s innovations in this space, and stops Shure from further infringing the Graham patent (U.S. Patent No. 9,813,806) pending a full trial. Although there can be no assurance of any outcome of a full trial, we believe this ruling will help pave the way for ClearOne’s recovery from the immense harm inflicted by Shure's infringement of our valuable patents. However, we are not getting the full benefits of the Court’s extraordinary remedy in the form of the preliminary injunction granted against Shure with respect to infringement of our ’806 Patent as we believe that Shure is still infringing ClearOne’s patent.

On September 1, 2020, the U.S. District Court of Northern Illinois held that "Shure has violated the preliminary injunction order and is found in contempt because it designed the MXA910-A in such a way that allows it to be easily installed flush in most ceiling grids”. The Court also opined that, “[t]he record is clear and convincing that Shure - through its design choices - violated the injunction order by allowing integrators to install the MXA910-A in the enjoined flush configuration.” Ultimately, the Court ordered that “Shure shall no longer manufacture, market, or sell the MXA910...”. ClearOne’s motion to accuse Shure’s MXA910-US of infringing the ’806 Patent is still pending with the Court.

Shure expanded the original litigation in the U.S. District Court of North Illinois to the District of Delaware, where Shure filed claims for patent infringement, including of a design patent, and trade libel against ClearOne. In May 2020 and January 2021, we secured an important pair of wins, defeating Shure’s requests first for a temporary restraining order and then a preliminary injunction, allowing us to continue selling our ground-breaking audio-conferencing products. In addition to defeating Shure’s requests for preliminary injunctive relief, we also obtained a stay of the proceedings with respect to the only other asserted patent. During November 2021, after a three-day jury trial, ClearOne obtained a complete victory against claims asserted by Shure, when the jury returned a verdict of no infringement and invalidated the asserted patent.

In February 2022 we claimed another legal victory over Shure. The Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (PTO) issued a final written decision confirming the patentability of all claims of ClearOne’s important U.S. Patent No. 10,728,653 (the “’653 Patent”). The ’653 Patent covers aspects of ClearOne’s revolutionary innovations in BMAs and relates to “a ceiling tile combined with [a] beamforming microphone array” that includes acoustic echo cancellation and “adaptive acoustic processing that automatically adjusts to a room configuration.” Shortly after the ’653 patent was issued in mid-2020, Shure initiated the case in yet another attempt to disrupt ClearOne’s patent rights, but the PTAB rejected each and every one of Shure’s seven challenges and is the latest in a long string of defeats for Shure. In 2019, the U.S. District Court for the Northern District of Illinois preliminarily enjoined Shure from infringing a different ClearOne patent, U.S. Patent No. 9,813,806, and then in 2020 held Shure in contempt of that injunction in case no. 17-cv-3078. In November 2021, a jury in a different court, the U.S. District Court for the District of Delaware, found a Shure design patent asserted against ClearOne to be invalid and not infringed.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We also continued our programs to cut costs and to speed up product development that we believe will enable us to get back to a growth path.

Overall revenue increased by ~~22%~~7% in the ~~second~~first quarter of ~~2021~~2022 when compared to the ~~second~~first quarter of ~~2020,~~2021, primarily due to a significant increase in revenues from microphones followed by an increase in ~~revenue~~revenues from ~~microphones and~~ audio conferencing products ~~with BMA based solutions generating the highest revenue growth. Overall revenue increased~~and partially offset by ~~22% during the six months ended June 30, 2021 compared to the same period~~a decrease in ~~2020, primarily due to increase in revenue~~revenues from ~~microphones, especially the BMA based solutions and~~ video products. Despite the negative impact of COVID-19 and the infringement of our patents by Shure on all professional installed products, our new solutions incorporating Beamforming Microphone Array Ceiling Tile ("BMA-CT") continued to result in overall Beamforming Microphone Array ("BMA") revenue to be significantly higher than last year. However, revenue from BMA products as well as from our pro audio products are still far below the levels prior to infringement of our patents. Our revenue is negatively impacted due to on-going harm of infringement of ClearOne’s patents despite the preliminary injunction granted against Shure as we believe Shure continues to infringe certain of our patents and violates the preliminary injunction. The patent infringement also has negatively impacted directly the revenue from ClearOne’s other products not related to the infringed patents. Our revenue performance in 2022-Q1 was also impacted negatively due to the raw material supply shortages that have affected the global manufacturing of high tech products as well as due to logistics bottlenecks. Despite the negative impact of COVID-19 and the infringement of our patents by Shure on all professional installed products, our new solutions incorporating Beamforming Microphone Array Ceiling Tile ("BMA-CT") continued to result in overall Beamforming Microphone Array ("BMA") revenue to be significantly higher than last year. However, revenue from BMA products as well as from our pro audio products are still far below the levels prior to infringement of our patents. Our revenue is negatively impacted due to on-going harm of infringement of ClearOne’s patents despite the preliminary injunction granted against Shure as we believe Shure continues to infringe certain of our patents and violates the preliminary injunction. The patent infringement also has negatively impacted directly the revenue from ClearOne’s other products not related to the infringed ~~patents not withstanding a significant growth in revenue~~ patents.

Our gross profit margin decreased to 37.3% during the first quarter of 2022 from ~~video products~~42.7% during the first quarter of 2021. Net loss increased from $1.7 million in the first quarter of ~~2021 compared to first quarter of 2020.~~ ~~Our gross profit margin~~ ~~increased~~ ~~to 44.3% during the second quarter of~~ 2021~~from 41.2% during the second quarter of 2020. Net loss~~ ~~decreased~~ ~~from $1.9~~ ~~million in the second quarter of~~ ~~2020~~ to ~~$1.6~~$2.0 million in the ~~second~~first quarter of ~~2021~~2022. The ~~decrease~~increase in net loss was mainly due to ~~increase~~(a) decrease in absolute gross profit dollars ~~through higher revenue partially offset by an increase in operating~~as a result of reduced gross margin, and (b) increased amortization costs relating to our capitalized patent defense costs. During the six months ended June 30, 2021, our absolute gross profit dollars increased to $6.4 million from $5.5 million in the same period in 2020 despite gross profit margin declining to 43.5% from 45.1% due to increase in revenues. During the six months ended June 30, 2021, net loss decreased to $3.2 million compared to $3.8 million during the same period in 2020 mainly due to higher gross profit dollars from higher revenue partially offset by an increase in operating expenses in the six months ended June 30, 2021 compared to six months ended June 30, 2020.

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~~On September 1, 2020, the U.S. District Court of Northern Illinois held that "Shure~~ has violated the preliminary injunction order and is found in contempt because it designed the MXA910-A in such a way that allows it to be easily installed flush in most ceiling grids”. The Court also opined that, “[t]he record is clear and convincing that ~~Shure~~ ~~- through its design choices - violated the injunction order by allowing integrators to install the MXA910-A in the enjoined flush configuration.” Ultimately, the Court ordered that “Shure~~ ~~shall no longer manufacture, market, or sell the MXA910...”.~~ ~~ClearOne’s~~ ~~motion to accuse~~ ~~Shure’s~~ ~~MXA910-US of infringing the ’806 Patent is still pending with the Court.~~

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 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.

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 mixers, 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 limited size of the market and pricing pressures from new competitors attracted to the commercial market due to higher margins.

Our video products and beamforming microphone arrays, especially BMA-CT and the newly introduced BMA 360 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 combining curated audio solutions with our high quality professional cameras, and our high-end audio conferencing technology will generate high growth in the near future.

We derive a major portion of our revenue (approximately ~~38%~~51% for the year ended December 31, ~~2020)~~2021) from international operations and expect this trend to continue in the future. Most of our revenue from outside 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.

In December 2019, a novel strain of coronavirus (“COVID-19”) started spreading from China and was declared a pandemic. The COVID-19 pandemic caused severe global disruptions and had varying impact on our business. The installed audio conferencing market was negatively impacted due to lockdowns, postponement of projects and restrictions on installers to visit commercial sites. On the other hand, COVID-19 generated higher than normal demand for our video products and personal conferencing products due to the significant expansion of work-from-home market. The extent of COVID-19’s effect on our operational and financial performance ~~will depend~~keeps evolving and depends on ~~future developments,~~multiple factors including the ~~vaccination rate,~~severity and infectiousness of current and future virus strains, effectiveness of vaccines especially on novel strains of COVID-19, government regulations, etc., all of which are uncertain and difficult to predict considering the rapidly evolving landscape. Supply chain disruptions resulting from COVID-19 have caused significant fluctuations in our costs of goods resulting in a reduction of our gross margins in 2021 and in the first quarter of 2022. We expect for these fluctuations to continue in 2022. If the pandemic continues to be a severe worldwide health crisis, the disease could have a material adverse effect on our business, results of operations, financial condition and cash flows and adversely impact the trading price of our common stock.

Deferred Product Revenue

Deferred product revenue decreased to ~~$56~~$46 thousand ~~at June 30, 2021~~on March 31, 2022 compared to ~~$123~~$54 thousand aton December 31, ~~2020.~~2021.

A detailed discussion of our results of operations follows below.

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Results of Operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 (“~~2021-~~2022-Q2Q1”) ~~("2021-H1")~~ and ~~2020~~2021 ("~~2020-~~2021-Q2Q1")~~("2020-H1")~~, respectively, together with the percentage of total revenue which each such item represents:

	Three months ended June 30,									Six months ended June 30,									Three months ended March 31,
(dollars in thousands)	2021			2020			Percentage Change 2021 vs 2020			2021			2020			Percentage Change 2021 vs 2020			2022			2021			Change Favorable (Adverse) in %
Revenue	$	7,735		$	6,357			22	%	$	14,773		$	12,091			22	%	$	7,545		$	7,038			7
Cost of goods sold		4,311			3,739			15	%		8,346			6,635			26	%		4,729			4,035			(17	)
Gross profit		3,424			2,618			31	%		6,427			5,456			18	%		2,816			3,003			(6	)
Sales and marketing		1,755			1,457			20	%		3,328			3,196			4	%		1,560			1,573			1
Research and product development		1,487			1,474			1	%		2,761			2,818			-2	%		1,353			1,274			(6	)
General and administrative		1,668			1,526			9	%		3,348			3,032			10	%		1,756			1,680			(5	)
Total operating expenses		4,910			4,457			10	%		9,437			9,046			4	%		4,669			4,527			(3	)
Operating loss		(1,486	)		(1,839	)		-19	%		(3,010	)		(3,590	)		-16	%		(1,853	)		(1,524	)		(22	)
Interest expense net of other income		(92	)		(93	)		-1	%		(209	)		(166	)		26	%		(98	)		(117	)		16
Loss before income taxes		(1,578	)		(1,932	)		-18	%		(3,219	)		(3,756	)		-14	%		(1,951	)		(1,641	)		(19	)
Provision for income taxes		8			5			60	%		22			28			-21	%		16			14			(14	)
Net loss	$	(1,586	)	$	(1,937	)		-18	%	$	(3,241	)	$	(3,784	)		-14	%	$	(1,967	)	$	(1,655	)		(19	)

Our revenue increased to ~~$7.7~~$7.5 million in ~~2021-Q2~~2022-Q1 compared to ~~$6.4~~$7.0 million in ~~2020-Q2~~2021-Q1 primarily due to a ~~70%~~23% increase in microphones ~~revenue, followed by~~and a 17%13% increase in audio conferencing ~~revenue,~~ products partially offset by a 22% ~~decline~~decrease in video products. Microphones growth continued to be led by our new solutions incorporating BMA-CT and BMA 360 ~~with~~while our traditional ceiling mics also ~~enjoying~~enjoyed a significant revenue ~~growth.~~increase. Audio Conferencing category as a whole increased mainly due to a strong revenue performance of our professional mixers ~~despite decreases in other product groups within~~and personal audio conferencing ~~category.~~products. Video products suffered declines in 2022-Q1 compared to 2021-Q1 due to lack of demand for video products. During the ~~second~~first quarter of ~~2021,~~2022, revenues from Americas ~~declined~~increased by 9%6% primarily due to ~~decline in~~increased revenues from USA despite significant revenue decreases from Latin America and Canada, while revenues from Asia Pacific, including the Middle East, India and ~~India grew~~Australia decreased by ~~14%~~6% primarily due to ~~increase~~overall decrease in revenues from ~~China, Australia~~all regions except India and ~~Korea,~~China, and revenues from Europe and Africa increased by ~~197%~~33% primarily due to significant revenue increases from ~~Southern Europe followed by overall revenue growth in~~ all ~~other regions~~parts of Europe ~~and Africa.~~except central Europe.

During the six months ended June 30, 2021 our revenues increased from $12.1 million to $14.8 million compared to same period in 2020 due to increase in all product categories with revenues from microphones increasing by 38%, video products increasing by 25% and audio conferencing increasing by 9%. The increase in revenue from m~~icrophones continued to be led by our new solutions incorporating BMA-CT and BMA~~ ~~360~~ ~~with wireless~~ ~~microphones~~ also enjoying revenue growth. Audio Conferencing category as a whole increased mainly due to a strong revenue performance by our professional mixers. However other product categories within audio conferencing category suffered revenue declines during 2021-H1 when compared to 2020-H1. Video products enjoyed revenue growth primarily due to growth in demand from work from home and learn from home markets. During 2021-H1 Americas declined by 3%, Asia Pacific, including the Middle East and India increased by 34% and Europe and Africa increased by 106%. Revenues increased from all major regions except USA and Canada during 2021-H1 compared to 2020-H1 with revenue growth from Korea and Southern Europe far exceeding revenue growth from other regions.

We believe, although there can be no assurance, that we can sustain our revenue growth and return to generating operating profits through our strategic initiatives namely product innovation, cost reduction and defense of our intellectual property.

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 margin ~~increased~~decreased from ~~41.2%~~42.7% during ~~2020-Q2~~2021-Q1 to ~~44.3~~37.3% during ~~2021~~2022~~-Q2~~-Q1. The gross profit margin was ~~positively~~negatively impacted due to ~~decreased~~increase in material costs due to continuing supply chain constraints, and increased freight and tariff costs, ~~and~~which were partially offset by the absence of inventory obsolescence costs ~~as a percentage of revenue, partially offset by~~ ~~increase~~ in ~~material costs and overhead costs as a percentage of revenue.~~

Our gross profit margin decreased from 45.1% during 2020-H1 to 43.5% during 2021-H1. The gross profit margin decreased primarily due to increase in material costs and freight and tariff costs a percentage of revenue, partially offset by decrease in inventory obsolescence costs as a percentage of revenue.
2022-Q1.

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 professional 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 includes approximately ~~$0.7~~$0.6 million of wireless microphone-related finished goods and assemblies, ~~$0.4~~$0.3 million of Converge Pro and Beamforming microphone array products, ~~$0.3~~$0.1 million of network media streaming products, ~~$0.3~~$0.6 million of ~~tabletop conferencing~~video products, and about ~~$2.0~~$1.7 million of raw materials that will be used primarily for manufacturing professional audio conferencing products. 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 include sales and marketing (“S&M”) expenses, research and product development (“R&D”) expenses and general and administrative (“G&A”) expenses. Total operating expenses were ~~$4.9~~$4.7 million ~~for 2021-Q2~~in 2022 Q1 compared to $4.5 million ~~for 2020-Q2. Total operating expenses were $9.4 million for 2021-H1 compared to $9.0 million for 2020-H1.~~in 2021-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 ~~for 2021-Q2 increased~~in 2022-Q1 remained almost unchanged at $1.6 million when compared to ~~$1.8 million from $1.5 million for 2020-Q2.~~2021-Q1. The decrease ~~The increase was mainly~~in employment expenses and consultant expenses due to a reduction in the headcount were offset by an increase in ~~sales commissions~~employee travel and ~~due to one-time employment termination costs.~~

~~S&M~~benefits expenses ~~for 2021-H1 increased to $3.3 million from $3.2 million for 2020-H1. The increase was mainly due to~~and increase in ~~sales commissions and due one time employment termination costs partially offset by decreases in trade-show related expenses and travel~~advertising expenses.

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 ~~remained almost the same at $1.5~~increased marginally to $1.4 million in 2022-Q1 compared to $1.3 million for ~~both quarters compared.~~

2021-Q1. The increase was primarily due to increases in R&D project expenses, ~~remained fairly consistent with approximately $2.8 million for 2021-H1, as compared~~legal expenses, and employee benefits, which were partially offset by reduction in employment expenses due to ~~$2.8 million for 2020-H1.~~
reduction in the headcount.

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 ~~slightly~~marginally from ~~$1.5 million in 2020-Q2 to~~ $1.7 million in ~~2021-~~2021-Q1 to $1.8 million in 2022-~~Q2.~~Q1. The increase was primarily due to ~~increases~~increased amortization costs relating to our capitalized patent defense costs, which were partially offset by a reduction in ~~depreciation and amortization~~legal expenses and ~~insurance~~consulting expenses.

~~G&A expenses increased from $3.0 million in 2020-H1 to $3.3 million in 2021-H1. The increase was primarily due to increases in depreciation and amortization expenses~~ ~~and insurance expenses.~~

Other income (expense), net includes interest income and foreign currency changes. Other income remained immaterial during the ~~second~~first quarter of ~~2021~~2022 and ~~2020 and between 2021-H1 and 2020-H1.~~2021.

Interest expense almost remained ~~almost the same~~unchanged at $0.1 million ~~for both~~ ~~quarters~~ ~~compared.~~

~~Interest expense~~ ~~remained consistent at $0.2~~ ~~million~~ in ~~2021-~~H1 2022-Q1 when compared to ~~$0.2 million in 2020-H1~~.
2021-Q1.

During ~~2021-H1,~~the first quarters of 2022 and 2021, we did not recognize any benefit from the losses incurred due to setting up of a full valuation allowance. Provision for income taxes recognized ~~for~~ ~~2021-Q2 and 2021-H1~~in the first quarter of 2022 relates to foreign jurisdictions.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of ~~June 30, 2021,~~March 31, 2022, our cash and cash equivalents were approximately ~~$2.1~~$1.4 million compared to ~~$3.8~~$1.1 million as of December 31, ~~2020.~~2021. Our working capital was $~~17.6~~19.3 million and ~~$22.2~~$18.0 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Net cash ~~provided~~used in by operating activities was approximately $1.0 million in ~~2021~~2022--Q1H1, an increase of cash ~~provided of approximately $0.9 million from $0.1 million of cash provided by~~used in operating activities ~~in 2020-H1.~~ of approximately $1.0 million compared to 2021-Q1.The increase in cash ~~inflow~~outflow was due to (a) a ~~positive~~negative change in operating assets and liabilities of ~~$0.1~~$0.5 million, ~~increase~~(b) a decrease in non-cash charges by ~~$0.3~~$0.2 million and ~~a decrease~~(c) an increase in net loss by ~~$0.5~~$0.3 million.

Net cash ~~used in~~provided by investing activities was ~~$2.5~~$1.8 million in ~~2021-H1~~2022-Q1 compared to ~~$3.5 million in 2020-H1,~~ ~~a decrease in cash used of $1.0~~ ~~million. The decrease in~~net cash used in investing activities of $1.7 million in 2021-Q1, a change in cash flow of $3.4 million. The change in cash flow was primarily due to (a) an increase in ~~net cash realized~~proceeds from sale of marketable securities net of ~~approximately~~ $~~0.3~~any purchases from $0.1 million in 2021-Q1 to $2.0 million in 2022-Q1, and (b) a decrease in capitalized patent defense costs by ~~$0.6 million.~~$1.5 million.

Net cash used in financing activities in ~~2021-H1~~2022-Q1 was ~~$0.2~~$0.4 million consisting primarily of repayment of principal amounts due on senior convertible notes and Paycheck Protection Program Loans compared to cash ~~provided by~~used in financing activities of ~~$1.5 million~~$86 thousand in ~~2020-H1,~~2021-Q1, which consisted primarily of ~~net proceeds from Paycheck Protection Program.~~repayment of principal amounts due on senior convertible notes.

Capitalization of patent defense costs. We capitalize external legal costs incurred in the defense of our patents when we believe that a significant, discernible increase in value will result from the defense and a successful outcome of the legal action is probable. When we capitalize patent defense costs we amortize the costs over the remaining estimated useful life of the patents,which is 15 to 17 years. During ~~2021-~~2022-Q2Q1 we spent ~~$1.6~~$0.2 million on legal costs related to the defense of our patents and capitalized the entire amount.

We are currently pursuing all available legal remedies to defend our strategic patents from infringement. We have already spent approximately ~~$23.6~~$28.3 million from 2016 through ~~June 30, 2021~~March 31, 2022 towards this litigation and may be required to spend more to continue our legal defense. We believe the decision by the U.S. District Court in August 2019 granting our request for a preliminary injunction to prevent our competitor from manufacturing, marketing, and selling its competing ceiling microphone array in an infringing configuration is an incredibly valuable ruling for ClearOne and its business. We believe that the decision validates the strength and importance of ClearOne’s intellectual property rights, recognizes ClearOne’s innovations in this space, and stops our competitor from further infringing our Graham patent (U.S. Patent No. 9,813,806) pending a full trial. Although there can be no assurance of any outcome of a full trial, we believe this ruling will help pave way for ClearOne’s recovery from the immense harm inflicted by our competitor's infringement of our valuable patents. However, we are not getting the full benefits of the Court’s extraordinary remedy in the form of the preliminary injunction granted against Shure with respect to infringement of our ’806 Patent as we believe that Shure is still infringing ClearOne’s patent. During September 2020, the U.S District Court of Northern Illinois held Shure in contempt for marketing and selling their new design in violation of the preliminary injunction.

We have been actively engaged in preserving cash by suspending our dividend program and allowing our share repurchase program to expire in 2018 and implementingcompany-wide cost reduction measures. We have also raised additional capital of $9.9 million (net of issuance costs) in 2018 by issuing common stock, $2.7 million (net of issuances costs) in 2019 by issuing senior convertible notes, $1.5 million in April 2020 by borrowing through Paycheck Protection Program, $4.8 million (net of issuances costs) in September 2020 by issuing common stock and warrants, ~~and~~ $2.0 million in July 2021 by issuing short-term ~~debt. In addition, we expect to generate additional cash as our inventory levels are brought down to historical levels.~~debt which repaid through issue of common stock in January 2022, and $9.3 million (net of issuances costs) in September 2021 by issuing common stock and warrants.

We also believe that ~~the measures taken by~~our core strategies of product innovation and prudent cost management will bring us ~~will yield higher revenues~~back to profitability in the future. We believe, although there can be no assurance, that all of these measures and effective management of working capital will provide the liquidity needed to meet our operating needs through at least through ~~August 10, 2022.~~May 19, 2023. We also believe that our strong portfolio of intellectual property and our solid brand equity in the market will enable us to raise additional capital if and when needed to meet our short and long-term financing needs; however, there can be no assurance that, if needed, we will be successful in obtaining the necessary funds through equity or debt financing. If we need additional capital and are unable to secure financing, we may be required to further reduce expenses, delay product development and enhancement, or revise our strategy regarding ongoing litigation.

~~At June 30, 2021,~~As of March 31, 2022, we had open purchase orders of approximately ~~$1.8~~$4.8 million mostly for purchase of inventory.

~~At June 30, 2021,~~As of March 31, 2022, we had inventory totaling ~~$13.2~~$13.1 million, of which non-current inventory accounted for ~~$4.0~~$3.2 million. This compares to total inventories of ~~$15.1~~$13.6 million and non-current inventory of ~~$4.6~~$3.6 million as of December 31, ~~2020.~~2021.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table summarizes our contractual obligations as of ~~June 30, 2021~~March 31, 2022 (in millions):

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.

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, ~~2020.~~2021.

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.

	June 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
Operating lease right-of-use assets	$	1,645		$	1,936		$	1,383		$	1,537

Current portion of operating lease liabilities, included in accrued liabilities	$	554		$	579		$	618		$	623
Operating lease liabilities, net of current portion		1,214			1,489			871			1,026
Total operating lease liabilities	$	1,768		$	2,068		$	1,489		$	1,649

Weighted average remaining lease term for operating leases (in years)		3.12			3.54			2.42			2.64
Weighted average discount rate for operating leases		6.1	%		6.1	%		5.89	%		5.87	%

Exhibit No.		Title of Document

10.1		~~Promissory Note~~Securities Purchase Agreement dated ~~July 2, 2021~~January 4, 2022 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on ~~July 9, 2021~~January 4, 2022 and incorporated herein by reference).

10.2		Registration Rights Agreement dated January 4, 2022 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on January 4, 2022 and incorporated herein by reference).

31.1		Section 302 Certification of Chief Executive Officer (filed herewith)

31.2		Section 302 Certification of Principal Financial Officer (filed herewith)

32.1		Section 906 Certification of Chief Executive Officer (filed herewith)

32.2		Section 906 Certification of Principal Financial Officer (filed herewith)

101.INS		XBRL Instance Document (filed herewith)

101.SCH		XBRL Taxonomy Extension Schema (filed herewith)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase (filed herewith)

101.DEF		XBRL Taxonomy Extension Definitions Linkbase (filed herewith)

101.LAB		XBRL Taxonomy Extension Label Linkbase (filed herewith)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase (filed herewith)

104.1		The cover page of this Quarterly Report on Form 10-Q, formatted in Inline XBRL.

	ClearOne, Inc., (Registrant)

	By:	/s/ Zeynep Hakimoglu
~~August 10, 2021~~May 19, 2022		Zeynep Hakimoglu President and Chief Executive Officer ~~and Chairman of the Board~~ (Principal Executive Officer)

	By:	/s/ Narsi Narayanan
~~August 10, 2021~~May 19, 2022		Narsi Narayanan Senior Vice President of Finance (Principal Accounting and Principal Financial Officer)

	June 30, 2021		December 31, 2020
Current portion of the PPP Loan included under short-term debt	$	687	$	312
Long-term portion of the PPP Loan included under long-term debt		812		1,187
Liability component total	$	1,499	$	1,499

	Payment Due by Period										Payment Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 years		Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 years
Senior convertible notes	$	2.80	$	0.50	$	2.30	$	—	$	—	$	2.4	$	0.5	$	1.9	$	—	$	—
Payroll Protection Plan loan		1.50		0.70		0.80		—		—		0.6		0.6		—		—		—
Operating lease obligations		1.90		0.60		1.10		0.20		—		1.6		0.6		0.9		0.1		—
Purchase obligations		1.80		1.80		—		—		—		4.8		4.8		—		—		—
Total	$	8.00	$	3.60	$	4.20	$	0.20	$	—	$	9.4	$	6.5	$	2.8	$	0.1	$	—