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    CLRO   US18506U1043

CLEARONE, INC.

(CLRO)
  Report
Delayed Nasdaq  -  03:58 2022-11-29 pm EST
0.7453 USD   +6.30%
11/18Clearone Inc : Submission of Matters to a Vote of Security Holders, Financial Statements and Exhibits (form 8-K)
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11/16ClearOne announces 4K UHD smart camera
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11/15Clearone : Q3 Earnings Snapshot
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CLEARONE INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/12/2022 | 11:45am EST
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, 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, 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.  DIALOG 10 USB won its second award in May 2022 by winning the
2022 Top New Technology (TNT) Award in the Microphone category. In June 2022,
at Infocomm 2022 in Las Vegas, Nevada, DIALOG 10 USB won two additional awards -
Commercial Integrator 2022 BEST Award in the Microphones category and 2022 Sound
& Video Contractor Magazine Infocomm Best in Market Award.


During January, at the 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
microphones used for beamforming, and one or more additional microphones that
are not used for beamforming, but instead are used to enhance the audio
performance of the microphone array.


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




In early March 2022, we were awarded a new patent titled "Conferencing
Apparatus", that describes, among other things, a beamforming microphone array
with acoustic echo cancellation and a set of configurable fixed beams. The
patent goes on to describe performing a direction of arrival determination, and
in response to that determination, selecting one or more of those fixed beams
for audio transmission.

In early April 2022, a ClearOne patent issued titled "Ceiling Tile Microphone,"
that claims, among other things, a ceiling tile beamforming microphone that is
powered through Power over Ethernet (PoE). Later in the same month another
ClearOne patent was granted, also titled "Ceiling Tile Microphone," that claims,
among other things, a ceiling tile microphone that includes beamforming,
acoustic echo cancellation, and auto voice tracking.

In May 2022, for the sixth time since its groundbreaking debut in 2020, the
ClearOne BMA 360 microphone has been recognized by the world's most discerning
AV buyers with the prestigious Best in Market Award at ISE 2022. The microphone
was one of only three winners in this year's award program. The Best in Market
Award program is presented by leading industry publication Sound & Video
Contractor at Integrated Systems Europe (ISE), the world's largest AV and
systems integration show. The program recognizes the most innovative technology
within the AV industry, and the judges include respected AV and IT managers,
directors, engineers, industry consultants and integrators.


During the first six months of 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 resulting in the latest in a long string of defeats
for Shure.


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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 decreased by 5% in the second quarter of 2022 when compared to
the second quarter of 2021, primarily due to a significant decrease in revenues
from video products and a further decrease in revenues from microphones, which
were partially offset by an increase in revenues from audio conferencing
products. Overall revenue increased by 1% during the first six months of 2022
when compared to revenue in the first six months of 2021 due to increases in
revenues from audio conferencing products and microphones, which were partially
offset by a decrease in revenues from 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 being 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-Q2 and the first six months of 2022 was
also impacted negatively due to increased costs associated with the electronic
raw material supply shortages that have affected the global manufacturing of
high tech products. We expect these supply shortages and associated increased
costs to continue through at least the end of 2022.


Our gross profit margin decreased to 38.1% during the second
quarter of 2022 from 44.3% during the second quarter of 2021. Our gross profit
margin decreased to 37.7% during the first six months of 2022 compared to 43.5%
during the first six months of 2021.


Net loss decreased from $1.6 million in the second quarter of 2021 to $0.3
million in the second quarter of 2022. Our net loss decreased from $3.2 million
in the first half of 2021 to $2.2 million in the first half of 2022. The
decrease in net loss was mainly due to the recognition of $1.5 million in gain
from the forgiveness of CARES Act Paycheck Protection Program Loan, which was
partially offset by (a) decrease in absolute gross profit dollars as a result of
reduced gross margin, and (b) increased amortization costs relating to our
capitalized patent defense costs.



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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 are 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, a 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 the 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 51% for the year ended
December 31, 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 the ability of 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 the work-from-home market. The extent of COVID-19's effect on our
operational and financial performance keeps evolving and depends on multiple
factors including the severity and infectiousness of current and future virus
strains, the 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
primarily resulting from COVID-19 have caused significant fluctuations in our
costs of goods resulting in a reduction of our gross margins in the first half
of 2022. We expect these fluctuations to continue through at least the end
of 2022. If the global economy's recovery from the pandemic continues to
experience supply chain disruptions, it 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 $43 thousand on June 30, 2022 compared to $54 thousand on December 31, 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, 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, 2022 ("2022-Q2") ("2022-H1") and 2021 ("2021-Q2") ("2021-H1"), respectively,
together with the percentage of total revenue which each such item represents:



                             Three months ended June 30,                             Six months ended June 30,
                                                       Change
(dollars in                                           Favorable                                            Change Favorable
thousands)            2022             2021        (Adverse) in %         2022                 2021         (Adverse) in %
Revenue            $     7,375      $    7,735                  (5 )   $    14,920          $   14,773     $               1
Cost of goods
sold                     4,568           4,311                  (6 )         9,297               8,346                   (11 )
Gross profit             2,807           3,424                 (18 )         5,623               6,427                   (13 )
Sales and
marketing                1,562           1,755                  11           3,122               3,328                     6
Research and
product
development              1,177           1,487                  21           2,530               2,761                     8
General and
administrative           1,717           1,668                  (3 )         3,473               3,348                    (4 )
Total operating
expenses                 4,456           4,910                   9           9,125               9,437                     3
Operating loss          (1,649 )        (1,486 )               (11 )        (3,502 )            (3,010 )                 (16 )
Other income
(expense), net           1,411             (92 )             1,634           1,313                (209 )                 728
Loss before
income taxes              (238 )        (1,578 )                85          (2,189 )            (3,219 )                  32
Provision for
income taxes                19               8                (138 )            35                  22                   (59 )
Net loss           $      (257 )    $   (1,586 )                84          (2,224 )            (3,241 )                  31




Revenue



Our revenue decreased to $7.4 million in 2022-Q2 compared to $7.7 million in
2021-Q2 primarily due to a 31% decline in video products and a 3% decline in
microphones, which were partially offset by a 6% increase in audio conferencing.
Despite the overall decline in microphones, our BMA-CT and BMA 360 solutions
continue to exhibit growth while our traditional ceiling mics suffered
significant revenue decrease. Audio Conferencing category as a whole increased
mainly due to a significantly strong revenue performance of our professional
mixers. Video products suffered declines in 2022-Q2 compared to 2021-Q2 due to
lack of demand for video products. During the second quarter of 2022, revenues
from Americas declined by 13% primarily due to decreased revenues from USA
despite revenue increases from Latin America and Canada, while revenues from
Asia Pacific, including the Middle East, India and Australia increased by a
significant 37% primarily due to overall increase in revenues from India, the
Middle East and Japan, and revenues from Europe and Africa decreased by 25%
primarily due to significant revenue decrease from Southern Europe.


During the six months ended June 30, 2022 our revenues increased from $14.8
million to $14.9 million compared to same period in 2021 due to revenues from
microphones increasing by 9%, video products decreasing by 26% and audio
conferencing increasing by 9%. The increase in revenue from microphones
continued to be led by our BMA-CT and BMA 360 solutions. Audio Conferencing
category as a whole increased mainly due to a strong revenue performance by our
professional mixers. During 2022-H1 Americas declined by 3%, Asia Pacific,
including the Middle East and India increased by 13% and Europe and Africa
declined by 5%. India, the Middle East and Northern Europe led in revenue growth
while USA, China and Southern Europe suffered major revenue decreases.


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



Costs of Goods Sold and Gross Profit




Cost of goods sold includes expenses associated with finished goods purchased
from outsourced manufacturers, the repackaging of our products, our
manufacturing and operations organization, property and equipment depreciation,
warranty expense, freight expense, royalty payments, and the allocation of
overhead expenses.


Our gross profit margin decreased from 44.3% during 2021-Q2 to 38.1% during 2022-Q2. The gross profit margin was negatively impacted due to increase in material costs due to continuing supply chain constraints, which was partially offset by reduced freight and tariff costs and a decrease in inventory obsolescence costs in 2022-Q2.



Our gross profit margin decreased from 43.5% during 2021-H1 to 37.7%
during 2022-H1. The gross profit margin decreased primarily due to increase in
material costs due to continuing supply chain constraints, which was partially
offset by reduced freight and tariff costs and a decrease in
inventory obsolescence costs in 2022-H1.


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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 $0.5 million of wireless
microphone-related finished goods and assemblies, $0.3 million of Converge Pro
and Beamforming microphone array products, $0.7 million of video products, and
$1.4 million of raw materials that will be used primarily for manufacturing
professional audio conferencing products and BMA microphones. 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



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 $4.5 million in 2022-Q2 compared to $4.9
million in 2021-Q2. Total operating expenses were $9.1 million for 2022-H1
compared to $9.4 million for 2021-H1. 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 in 2022-Q2 decreased to $1.6 million from $1.8 million for 2021-Q2.
The decreases in employment expenses and consultant expenses due to a reduction
in the headcount were offset by an increase in trade-show related expenses.


S&M expenses for 2022-H1 decreased to $3.1 million from $3.3 million for 2021-H1. The decreases in employment expenses and consultant expenses due to a reduction in the headcount were offset by increases in trade-show related expenses and advertising.

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 decreased to $1.2 million in 2022-Q2 compared to $1.5 million for
2021-Q2. The decrease was primarily due to reduction in employment expenses due
to reduction in the headcount.


R&D expenses decreased to $2.5 million in 2022-H1, from $2.8 million in 2021-H1. The decrease in employment expenses due to reduction in the headcount was partially offset by increase in project-related expenses.




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 remained the same at $1.7 million in 2021-Q2 and 2022-Q2. The increase in amortization costs relating to our capitalized patent defense costs were partially offset by a reduction in legal expenses and consulting expenses.




G&A expenses increased from $3.3 million in 2021-H1 to $3.5 million in 2022-H1.
The increases in amortization costs relating to our capitalized patent defense
costs and insurance costs were partially offset by decreases in legal expenses
and consulting expenses.


Other income (expense), net


Other income (expense), net includes interest income and foreign currency changes. Other income in 2022-Q2 and 2022-H1 includes $1.5 million recognized on the gain arising from the CARES Act Paycheck Protection Program loan forgiveness. Other items remained immaterial during the second quarter of 2022 and 2021.

Interest expense almost remained unchanged at $0.1 million in 2022-Q2 when compared to 2021-Q2. Interest expense remained consistent at $0.2 million in 2022-H1 and 2021-H1.

Provision for income taxes

During the six months ended 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 2022-Q2 and 2022-H1 primarily relates to foreign jurisdictions.




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LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2022, our cash and cash equivalents were approximately $1.2 million compared to $1.1 million as of December 31, 2021. Our working capital was $20.2 million and $18.0 million as of June 30, 2022 and December 31, 2021, respectively.




Net cash used in operating activities was approximately $2.7 million in 2022-H1,
an increase of cash used in operating activities of approximately $3.7 million
from $1.0 million of cash provided by operating activities in 2021-H1. The
increase in cash outflow was due to a negative change in operating assets and
liabilities of $2.8 million, and increase in net loss by $0.9 million after
adjusting for non-cash charges.



Net cash provided by investing activities was $2.4 million in 2022-H1compared to
net cash used in investing activities of $2.5 million in 2021-H1, a change in
cash flow of $4.9 million. The change in cash flow was primarily due to (a) an
increase in proceeds from sale of marketable securities net of any purchases
from $0.9 million in 2021-H1 to $3.0 million in 2022-H2, and (b) a decrease in
capitalized patent defense costs by $2.7 million.


Net cash provided by financing activities in 2022-H1 was a $0.4 million,
comprised of a $0.8 million refund of the CARES Act Paycheck Protection Program
Loan with interest offset by $0.4 million repayment of principal amounts due on
senior convertible notes compared to cash used in financing activities of
$0.2 million in 2021-H1, which consisted primarily of 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 10 to 20 years. During 2022-Q2 we spent $0.3 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 $28.7 million
from 2016 through June 30, 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 the 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.



As of June 30, 2022, our cash and cash equivalents were approximately
$1,203 compared to $1,071 as of December 31, 2021. Our working capital
was $20,162 as of June 30, 2022. Net cash used in operating activities was
$2,692 for the six months ended June 30, 2022, an increase of $3,677 from
$985 of cash provided by operating activities in the six months ended June 30,
2021. We are currently pursuing all available legal remedies to defend our
strategic patents from infringement. We have already spent approximately
$28,653 from 2016 through June 30, 2022 towards this litigation and may be
required to spend more to continue our legal defense.  In order to maintain
liquidity, we have been actively engaged in preserving cash
by implementing company-wide cost reduction measures and raising additional
capital. We raised additional capital in 2019 by issuing senior convertible
notes, 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, we issued $2,000 in
common stock as consideration for the cancellation and termination of the
short-term notes. In addition, we have been generating additional cash as our
inventory levels are brought down to historical levels.


We also believe that our core strategies of product innovation and prudent cost
management will bring us 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, including collecting on the income tax receivable
balance, will provide the liquidity needed to meet our operating needs through
at least August 12, 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.


As of June 30, 2022, we had open purchase orders of approximately $6.4 million mostly for purchase of inventory.

As of June 30, 2022, we had inventory totaling $12.8 million, of which non-current inventory accounted for $3.0 million. This compares to total inventories of $13.6 million and non-current inventory of $3.6 million as of December 31, 2021.



24


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Table of Contents

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

Contractual Obligations and Commitments




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



                                                             Payment Due by Period
                                              Less Than                                             More than 5
                                Total           1 Year         1-3 Years         3-5 Years             years
Senior convertible notes      $      2.7     $        0.8     $        1.9     $            -     $             -
Operating lease obligations          1.4              0.6              0.8                  -                   -
Purchase obligations                 6.4              6.4                -                  -                   -
Total                         $     10.5     $        7.8     $        2.7     $            -     $             -



OFF-BALANCE SHEET ARRANGEMENTS




We have no off-balance-sheet arrangements that have or are reasonably likely to
have a current or future material effect on our financial condition, changes in
financial conditions, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources, results of operations or liquidity.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES




Our 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, 2021.



RECENT ACCOUNTING PRONOUNCEMENTS

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.

© Edgar Online, source Glimpses

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