PART I - FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

 

 

See accompanying notes

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(Dollars in thousands, except per share amounts)

 

 

See accompanying notes

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share amounts)

 

 

See accompanying notes

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share amounts)

 

The following is a summary of supplemental cash flow activities:

 

 

See accompanying notes

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 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, 2017. All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 and in Part II. Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.

 

BUSINESS OVERVIEW

 

ClearOne is a global market leader enabling conferencing, collaboration, and network streaming solutions. The performance and simplicity of our advanced, comprehensive solutions offer unprecedented levels of functionality, reliability and scalability.

 

We derive most of our revenue from professional audio conferencing products by promoting our products in the professional audio-visual channel. We have extended our total addressable market from installed audio conferencing market to adjacent complementary markets – microphones, video collaboration and networked audio and video streaming. We have achieved this through strategic technological acquisitions as well as by internal product development.

 

During the nine months ended September 30, 2018, seven more patents related to video synchronization, speech technology, integrated microphone array and ceiling or wall tile, echo cancellation with beamforming microphone array, audio distribution over local area networks, and USB to Bluetooth audio bridging were issued to us. During the nine months ended September 30, 2018, we continued our serious litigation efforts to stop infringement of two of our strategic patents. We introduced a new ceiling microphone array product line and made improvements to our VIEW Pro and Converge Pro 2 product lines. We also launched many new products including Collaborate Space, Converge Amplifier and wireless microphone systems in 537-563 MHz range at our industry’s largest trade show in North America. We have also been focusing on company-wide cost cutting programs and speeding up product development that we believe will enable us to surpass our competitors.

 

Overall revenue declined in the three and nine months ended September 30, 2018 when compared to the three months and nine months ended September 30, 2017, with declines seen in all product categories. Our gross profit margin decreased to 45% during the three months ended September 30, 2018 from 62% for the three months ended September 30, 2017. Gross profit margin decreased primarily due to an increase in inventory obsolescence costs, a decline in licensing revenues and reduced overhead absorption into inventory as we continue to reduce our net spend on inventory.  Our gross profit margin decreased to 49% during the nine months ended September 30, 2018 from 59% for the nine months ended September 30, 2017. Gross profit margin decrease was primarily due to an increase in inventory obsolescence costs, a decline in licensing revenues, and reduced overhead absorption into inventory.  The proportion of overhead costs absorbed into inventory has declined due to a sharp decline in our inventory purchasing activity causing increased amounts of overhead costs to be expensed.

 

 

 

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

 

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 the influx of venture capitalist funded start-ups and private companies keen to win market share even at the expense of mounting financial losses.

 

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. The adoption of Beamforming Microphone Array 2, along with our Converge Pro 2, our new platform for professional audio conferencing, remains challenged in large part because of our competitors’ product offering that directly infringes our strategic patents. The patent infringement also has had a material adverse effect on revenue from ClearOne’s other products like wireless microphones, ceiling microphones and video products.

 

Our revenues in the near term may also be adversely affected by the resignation of a large US distributor in June 2018.

 

Our strength in the professional audio visual space is largely due to our industry leading conferencing technologies and the full suite of professional microphone products, especially Beamforming Microphone Arrays. Despite our strong leadership position in the professional audio communications products market, we face challenges to revenue growth due to the infringement of our patents by competitors, the limited size of the market and pricing pressures from new competitors attracted to the commercial market.

 

During 2018, revenue from our video products has generally shown lesser decline than revenue from audio conferencing products. However, this is not an identifiable trend given the continuing change in the competitive landscape and also the uncertainty relating to revenue from our core product set due to patent infringement and ensuing litigation.  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 Spontania, our cloud-based video conferencing product, Collaborate, our appliance-based media collaboration product and our high-end audio conferencing technology to distinguish us from our competitors' product offerings.

 

We derive a large portion of our revenue (about 47%) from international operations and expect this trend to continue in the future. Most of our revenue from outside the U.S. is billed in US Dollars and is not exposed to any significant currency risk.

 

A detailed discussion of our results of operations follows below.

 

Results of Operations for the three and nine months ended September 30, 2018

 

The following table sets forth certain items from our unaudited condensed consolidated statements of operations (dollars in thousands) for the three and nine months ended September 30, 2018 (“2018-Q3”) ("2018YTD") and 2017 (“2017-Q3”) ("2017-YTD"), respectively, together with the percentage of total revenue which each such item represents:

 

		Three months ended September 30,												Nine months ended September 30,
		2018				2017				Percentage Change 2018 vs 2017				2018				2017				Percentage Change 2018 vs 2017
Revenue		$	6,683			$	10,560				-37	%		$	20,943			$	32,549				-36	%
Cost of goods sold			3,703				4,051				-9	%			10,614				13,293				-20	%
Gross profit			2,980				6,509				-54	%			10,329				19,256				-46	%
Sales and marketing			2,168				3,006				-28	%			7,796				8,393				-7	%
Research and product development			1,781				2,268				-21	%			5,757				6,947				-17	%
General and administrative			1,341				1,281				5	%			4,500				5,597				-20	%
Impairment of intangibles			—				736				-100	%			—				736				-100	%
Impairment of goodwill			—				12,724				-100	%			—				12,724				-100	%
Operating loss			(2,310	)			(13,506	)			83	%			(7,724	)			(15,141	)			49	%
Other income, net			5				78				-94	%			78				264				-70	%
Loss before income taxes			(2,305	)			(13,428	)			83	%			(7,646	)			(14,877	)			49	%
Provision for (benefit from) income taxes			7,837				(4,152	)			289	%			6,505				(4,313	)			251	%
Net loss		$	(10,142	)		$	(9,276	)			-9	%		$	(14,151	)		$	(10,564	)			-34	%

 

 

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

 

Revenue

 

Our revenue decreased by $3.9 million, or 37%, to $6.7 million in 2018-Q3 compared to $10.6 million in 2017-Q3. All product categories witnessed revenue declines with revenue declines of 31%, 28% and 55% for professional audio conferencing, unified communication end points and video products, respectively. The decline in revenue from professional audio conferencing products was mostly due to slower adoption of our Converge Pro 2 platform, largely caused by our competitors’ product offering that we believe directly infringes our strategic patents and due to a decline in licensing revenue. The share of professional audio communications products (which includes microphone products but not premium products) in our product mix increased from 66% in 2017-Q3 to 72% in 2018-Q3. Share of video products in the revenue during 2018-Q3 decreased from 24% in 2017-Q3 to 17% in 2018-Q3. Share of UC end points in the revenue increased from 10% in 2017-Q3 to 12% in 2018-Q3. During 2018-Q3, revenue declined across all regions except Canada and parts of Europe. The revenue declines for Asia Pacific including Middle East, Europe and Africa, and Americas were 53%, 13% and 30%, respectively.

 

Costs of Goods Sold and Gross Profit

 

Cost of goods sold (“COGS”) includes expenses associated with finished goods purchased from outsourced manufacturers, the manufacture of our products (including material and direct labor), our manufacturing and operations organization, property and equipment depreciation, warranty expense, freight expense, royalty payments, and the allocation of overhead expenses.

 

Our gross profit for 2018-Q3 was approximately $3.0 million or 45% compared to approximately $6.5 million, or 62%, for 2017-Q3. Gross margin for 2018-Q3 declined due to an increase in inventory obsolescence costs, a decline in licensing revenues and reduced overhead absorption into inventory.  The proportion of overhead costs absorbed into inventory has declined due to a sharp decline in our inventory purchasing activity causing increased amounts of overhead costs to be expensed rather than being carried with our inventory.  Even though the total overhead spending has not increased, the combination of lower revenues and lower absorption has caused gross margin as a percentage of revenue to decline. 2017-Q3 included a large overseas project with a high margin - the absence of a similar project in 2018-Q3 also contributed to comparative decline in gross margin in 2018-Q3 and 2018YTD.

 

Our gross profit for 2018YTD was approximately $10.3 million or 49% compared to approximately $19.3 million, or 59%, for 2017YTD. Gross margin for 2018YTD declined due to increased inventory obsolescence costs, a decline in licensing revenues and due to lower absorption of overhead costs into inventory.

 

Our profitability in the near-term continues to depend significantly on our revenues from professional 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 $2.7 million of wireless microphones related finished goods and assemblies, $2.4 million of Converge Pro 2 products and about $1.1 million of raw materials that will be used for manufacturing professional audio conferencing products. Any business changes that are adverse to these product lines could potentially impact our ability to sell these 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 $5.3 million for 2018-Q3 compared to $20.0 million for 2017-Q3. Total operating expenses for 2018YTD were $18.1 million compared to $34.3 million for 2017YTD. Total operating expenses in 2017-Q3 and 2017YTD included impairment of the goodwill and intangibles of $13.4 million 

 

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 2018-Q3 decreased to $2.2 million from $3.0 million for 2017-Q3. The decrease was mainly due to decreases in employee related costs, commissions to employees and independent reps, payments to consultants and tradeshow related expenses. S&M expenses for 2018YTD increased to $7.8 million from $8.4 million for 2017YTD. The decrease was mainly due to decreases in employee related costs, commissions to employees and independent reps and payments to consultants.

 

 

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

 

Research and Product Development - R&D expenses include research and development, product line management, engineering services, and test and application expenses, including employee related costs, outside services, expensed materials, depreciation, and an allocation of overhead expenses.

 

R&D expenses were approximately $1.8 million for 2018-Q3, as compared to $2.3 million for 2017-Q3. The decrease was primarily due to reductions in project related expenses and employee costs related to salaries and benefits. R&D expenses were approximately $5.8 million for 2018YTD, as compared to $6.9 million for 2017YTD. The decrease was primarily due to reductions in project related expenses and employee costs related to salaries and benefits.

 

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.

 

G&A expenses remained the same at $1.3 million in 2017-Q3 and 2018-Q3. In 2018-Q3 and 2017-Q3 legal costs related to our defense of strategic patents from infringement amounting to $1.2 and $0.8 million, respectively were capitalized.

 

G&A expenses in 2018YTD was $4.5 million compared to $5.6 million in 2017YTD. The decline of approximately 20% was primarily due to the decrease in legal costs and employee costs related to salaries and benefits. Legal expenses in 2018YTD decreased mostly because of capitalization of legal costs related to our defense of strategic patents from infringement amounting to $3.6 million in 2018YTD compared to $0.8 million capitalized in 2017 YTD.

 

Impairment of Goodwill and an intangible asset - At the end of September 30, 2017, based on the results of the Company’s impairment analysis the Company recognized a charge of $12.7 million towards goodwill impairment and $0.7 million towards the intangible asset impairment for the three and nine months ended September 30, 2017. There were no such impairment charges in 2018-Q3 or 2018YTD.

 

Other income (expense), net

 

Other income (expense), net, includes interest income, interest expense, and foreign currency changes.

 

Other income reduced in 2018-Q3 and 2018YTD due to reduction in interest income caused by decline in the investment holdings and due to higher realized losses on liquidated investments.

 

Provision for income taxes

 

During the nine months ended September 30, 2018, we accrued income taxes at the forecasted effective tax benefit rate of 0% as compared to the forecasted effective tax benefit rate of 36.1% used during the nine months ended September 30, 2017. The 36.1% decrease in the forecasted effective tax benefit rate was primarily due to the recording in 2018-Q3 of a full valuation allowance on the Company’s net deferred tax assets.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2018, our cash and cash equivalents were approximately $2.5 million compared to $5.6 million as of December 31, 2017. Our working capital was $20.2 million and $23.3 million as of September 30, 2018 and December 31, 2017, respectively.

 

Net cash used in operating activities was approximately $3.5 million for the nine months ended September 30, 2018, a decrease of cash used of approximately $4.1 million from $7.6 million of cash used in operating activities in the nine months ended September 30, 2017. The decrease in cash used was primarily due to an increase in cash inflows due to change in operating assets and liabilities of $9.0 million partially offset by an increase in net loss by $3.6 million and decrease in non-cash charges of $1.3 million.

 

Net cash provided by investing activities was $1.3 million for the nine months ended September 30, 2018 compared to net cash flows provided by investing activities of $4.4 million during the nine months ended September 30, 2017, a decrease in cash provided of $3.2 million. The decrease was due to increase in capitalization of patent defense costs by $2.7 million and decrease in proceeds from marketable securities net of purchases of approximately $0.8 million, partially offset by a decline in purchases of property and equipment and intangibles.

 

 

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

 

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 patent, which is 15 to 17 years. During the nine months ended September 30, 2018 we spent $3.6 million of legal costs related to the defense of our patents and capitalized the entire amount.

 

Net cash used in financing activities was approximately $0.7 million during the nine months ended September 30, 2018, which mainly consisted of cash outflows of $0.1 million on repurchase and cancellation of stock and $0.6 million for dividend payments. Net cash used in financing activities was approximately $6.0 million during the nine months ended September 30, 2017, which consisted of cash outflows of $4.4 million on repurchase and cancellation of stock and stock options and $1.7 million for dividend payments.

 

We are currently pursuing all available legal remedies to defend our strategic patents from infringement. We have already incurred approximately $7.4 million in expenses from 2016 through September 30, 2018 towards this litigation and may be required to incur more to continue to enforce our patents. We have been actively engaged in preserving cash by suspending our dividend program, allowing the share repurchase program to expire and implementing company-wide cost reduction measures. In addition, we expect to generate additional cash from our rights offering that we commenced on November 5, 2018 and as our inventory levels are brought down to historical levels. We also believe that the measures taken by us will yield higher revenues in the future. We believe all of these and effective management of working capital will provide the liquidity needed to meet our short-term and long-term operating requirements and finance our growth plans. 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. In addition to capital expenditures, we may use cash in the near future for selective infusions of technology, sales and marketing, infrastructure, and other investments to fuel our growth.

 

At September 30, 2018, we had open purchase orders related to our electronics manufacturing service providers of approximately $2.7 million, primarily related to inventory purchases.

 

At September 30, 2018, we had inventory totaling $21.6 million, of which non-current inventory accounted for $8.3 million. This compares to total inventories of $24.7 million and non-current inventory of $8.7 million as of December 31, 2017. Our non-current inventory includes approximately $2.7 million of wireless microphones related finished goods and assemblies, $2.4 million of Converge Pro 2 products and about $1.1 million of raw materials that will be used for manufacturing professional audio conferencing products. Any business changes that are adverse to these product lines could potentially impact our ability to sell these long-term inventory in addition to our current inventory.

 

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 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. Except with respect to our revenue recognition practices included in Note 1. “Business Description, Basis of Presentation and Significant Accounting Policies” under Item 1 of this Form 10-Q, there have been no changes to the critical accounting policies as explained in our 2017 Form 10-K.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

For a discussion of recent accounting pronouncements, see Note 3: “Recent Accounting Pronouncements” in the notes to our unaudited consolidated financial statements included under Item 1 of this Form 10-Q.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2018 was performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Financial and Accounting Officer. Based upon this evaluation, our Chief Executive Officer and Senior Vice President of Finance concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2018 due to the material weakness in internal control over financial reporting as described below.

 

Management identified a material weakness in the operating effectiveness of internal control over financial reporting relating to the accurate and timely reporting of its financial results and disclosures and its testing and assessment of the design and effectiveness of internal controls over financial reporting in a timely manner.

 

To address the material weakness, management is working with our third party internal controls consultant to assist with the implementation of a remediation plan which will supplement the existing controls. The remediation plan will include an assessment of personnel levels and responsibilities, additional training of financial reporting personnel and ability to handle new requirements and projects on a timely basis with respect to the preparation of the consolidated financial statements and public company reporting requirements and timelines. The material weakness will be fully remediated when, in the opinion of management, the control processes have been operating for a sufficient period of time to provide reasonable assurance as to their effectiveness. The remediation and ultimate resolution of the material weakness will be reviewed with the Audit Committee of the Board of Directors.

 

Except as noted above, there has been no change in the Company's internal control over financial reporting as of September 30, 2018, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

The following risk factor supplements the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017:

 

Our stock price may in the future not meet the minimum bid price for continued listing on the Nasdaq Capital Market. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from The Nasdaq Capital Market.

 

Nasdaq Listing Rule 5450(a)(1) provides that the closing bid price for our common stock may not be below $1.00 per share for any period of 30 consecutive trading days to maintain our continued listing on The Nasdaq Capital Market (“Minimum Bid Price Rule”). Although we are currently in compliance with the Minimum Bid Price Rule, there can be no assurance that our common stock will continue to satisfy this rule. If we were to fail to comply with the Minimum Bid Price Rule in the future and became subject to delisting, such delisting from Nasdaq would adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting also could have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

 

There have been no material developments in the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

Item 1A. RISK FACTORS 

 

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(a) None.

 

(b) Not applicable.

 

(c) None.

 

Upon expiry of this repurchase program in March 2018, the program was not renewed again.

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

Item 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

Item 5. OTHER INFORMATION

 

Not applicable.

 

 

Item 6. EXHIBITS

 

Exhibit No.		Title of Document
3.1		Certificate of Incorporation of ClearOne, Inc., as filed with the Secretary of the State of Delaware on October 25, 2018 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on October 29, 2018 and incorporated herein by reference).
3.2		Bylaws of ClearOne, Inc. (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the SEC on October 29, 2018 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)

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	ClearOne, Inc., (Registrant)
	By:	/s/ Zeynep Hakimoglu
November 9, 2018		Zeynep Hakimoglu President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)
	By:	/s/ Narsi Narayanan
November 9, 2018		Narsi Narayanan Senior Vice President of Finance (Principal Accounting and Principal Financial Officer)

  

22

EXHIBIT 31.1

 

CERTIFICATION

 

I, Zeynep Hakimoglu, certify that:

 

1.	I have reviewed this quarterly report of ClearOne, Inc. on Form 10-Q;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

	By:	/s/ Zeynep Hakimoglu
November 9, 2018		Zeynep Hakimoglu Chief Executive Officer (Principal Executive Officer)

 

 EXHIBIT 31.2

 

CERTIFICATION

 

I, Narsi Narayanan, certify that:

 

1.	I have reviewed this quarterly report of ClearOne, Inc. on Form 10-Q;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

	By:	/s/ Narsi Narayanan
November 9, 2018		Narsi Narayanan Senior Vice President of Finance (Principal Accounting and Principal Financial Officer)

 

 EXHIBIT 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

Pursuant to 18 U.S.C. Section 1350,

As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

I, Zeynep Hakimoglu, certify, to my best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ClearOne, Inc. on Form 10-Q for the quarter ended September 30, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ClearOne, Inc.

 

	By:	/s/ Zeynep Hakimoglu
November 9, 2018		Zeynep Hakimoglu Chief Executive Officer (Principal Executive Officer)

 

EXHIBIT 32.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

 

Pursuant to 18 U.S.C. Section 1350,

As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

I, Narsi Narayanan, certify, to my best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ClearOne, Inc. on Form 10-Q for the quarter ended September 30, 2018, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ClearOne, Inc.

 

	By:	/s/ Narsi Narayanan
November 9, 2018		Narsi Narayanan Senior Vice President of Finance (Principal Accounting and Principal Financial Officer)