clro-20210930.htm
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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 September 30, 2021

 

 

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 November 11, 2021 was 22,402,970

 CLEARONE, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021

 

INDEX




PART I - FINANCIAL INFORMATION



Item 1. Financial Statements 3




Unaudited Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 3




Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 4




Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 5




Unaudited Notes to Condensed Consolidated Financial Statements 7



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18



Item 3. Quantitative and Qualitative Disclosures About Market Risk 25



Item 4. Controls and Procedures 25




PART II - OTHER INFORMATION



Item 1. Legal Proceedings 26



Item 1A. Risk Factors 26



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26



Item 3. Defaults Upon Senior Securities 26



Item 4. Mine Safety Disclosures 26



Item 5. Other Information 26



Item 6. Exhibits 27

 

 

 

 

 

CLEARONE, INC

(Dollars in thousands, except par value)

 

 

 

September 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,161

 

 

$

3,803

 

Marketable securities

 

 

713

 

 

 

1,117

 

Receivables, net of allowance for doubtful accounts of $505 and $506, respectively

 

 

5,243

 

 

 

5,194

 

Inventories, net

 

 

9,218

 

 

 

10,463

 

Income tax receivable

7,221


7,169

Prepaid expenses and other assets

 

 

2,505

 

 

 

1,536

 

Total current assets

 

 

34,061

 

 

 

29,282

 

Long-term marketable securities

 

 

707

 

 

 

1,762

 

Long-term inventories, net

 

 

3,313

 

 

 

4,590

 

Property and equipment, net

 

 

688

 

 

 

906

 

Operating lease - right of use assets, net

 

 

1,690

 

 

 

1,936

 

Intangibles, net

 

 

23,179

 

 

 

19,248

 

Other assets

 

 

4,599

 

 

 

4,599

 

Total assets

 

$

68,237

 

 

$

62,323

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,015

 

 

$

3,950

 

Accrued liabilities

 

 

2,746

 

 

 

2,352

 

Deferred product revenue

 

 

57

 

 

 

123

 

Short-term debt

3,504


672

Total current liabilities

 

 

10,322

 

 

 

7,097

 

Long-term debt, net

 

 

2,291

 

 

 

3,245

 

Operating lease liability, net of current

 

 

1,181

 

 

 

1,489

 

Other long-term liabilities

 

 

678

 

 

 

678

 

Total liabilities

 

 

14,472

 

 

 

12,509

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.001, 50,000,000 shares authorized, 22,402,970 and 18,775,773 shares issued and outstanding, respectively

 

 

22

 

 

 

19

 

Additional paid-in capital

 

 

72,756

 

 

 

63,359

 

Accumulated other comprehensive loss

 

 

(225

)

 

 

(186

)

Accumulated deficit

 

 

(18,788

)

 

 

(13,378

)

Total shareholders' equity

 

 

53,765

 

 

 

49,814

 

Total liabilities and shareholders' equity

 

$

68,237

 

 

$

62,323

 

 

See accompanying notes

 

 

CLEARONE, INC.

COMPREHENSIVE LOSS

(Dollars in thousands, except per share amounts)

 

 

 

Three months ended September 30,

 


Nine months ended September 30,


 

 

2021

 

 

2020

 


2021

2020

Revenue

 

$

6,992

 

 

$

8,412

 


$ 21,765

$ 20,503

Cost of goods sold 

 

 

4,141

 

 

 

4,892

 



12,487


11,527

Gross profit

 

 

2,851

 

 

 

3,520

 



9,278


8,976

 

 

 

 

 

 

 

 

 









Operating expenses:

 

 

 

 

 

 

 

 









Sales and marketing

 

 

1,692

 

 

 

1,736

 



5,020


4,932

Research and product development

 

 

1,492

 

 

 

1,501

 



4,253


4,319

General and administrative

 

 

1,676

 

 

 

1,443

 



5,024


4,475

Total operating expenses

 

 

4,860

 

 

 

4,680

 



14,297


13,726

 

 

 

 

 

 

 

 

 









Operating loss

 

 

(2,009

)

 

 

(1,160

)



(5,019 )

(4,750 )

 

 

 

 

 

 

 

 

 









Interest expense

(150 )

(108 )

(369 )

(325 )

Other income, net

 

 

7

 

 

19

 



17


70

 

 

 

 

 

 

 

 

 









Loss before income taxes

 

 

(2,152

)

 

 

(1,249

)

(5,371 )

(5,005 )

 

 

 

 

 

 

 

 

 









Provision for income taxes

 

 

17

 

 

 

11

 



39


39

 

 

 

 

 

 

 

 

 









Net loss

 

$

(2,169

)

 

$

(1,260

)
$ (5,410 )
$ (5,044 )

 

 

 

 

 

 

 

 

 









Basic weighted average shares outstanding

 

 

19,449,283

 

 

 

17,000,215

 



19,002,758


16,768,088

Diluted weighted average shares outstanding

 

 

19,449,283

 

 

 

17,000,215

 



19,002,758


16,768,088

 

 

 

 

 

 

 

 

 









Basic loss per share

 

$

(0.11

)

 

$

(0.07

)
$ (0.28 )
$ (0.30 )

Diluted loss per share

 

$

(0.11

)

 

$

(0.07

)


$ (0.28 )
$ (0.30 )

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

 









Comprehensive loss:

 

 

 

 

 

 

 

 









Net loss

 

$

(2,169

)

 

$

(1,260

)
$ (5,410 )
$ (5,044 )

Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

(8

)

 

 

4



(13 )

11

Change in foreign currency translation adjustment

 

 

(4

)

 

 

17



(26 )

(25 )

Comprehensive loss

 

$

(2,181

)

 

$

(1,239

)


$ (5,449 )
$ (5,058 )

 

See accompanying notes

 

 

CLEARONE, INC.

(Dollars in thousands, except per share amounts)

 

 

 

Nine months ended September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(5,410

)

 

$

(5,044

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

2,042

 

 

 

1,682

 

Amortization of right-of-use assets

 

 

458

 

 

 

417

 

Share-based compensation expense

 

 

100

 

 

 

55

 

Provision for doubtful accounts, net

 

 

(1

)

 

 

82

 

Change of inventory to net realizable value

 

 

798

 

 

 

937

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(48

)

 

 

(1,319

)

Inventories

 

 

1,724

 

 

 

2,667

 

Prepaid expenses and other assets

 

 

(973

)

 

 

(985

)

Accounts payable

 

 

65

 

 

1,484


Accrued liabilities

 

 

360

 

 

179

Income taxes receivable

 

 

(52

)

 

 

Deferred product revenue

 

 

(66

)

 

 

(14

)

Operating lease liabilities

 

 

(474

)

 

 

(421

)
Other long-term liabilities



(29 )

Net cash used in operating activities

 

 

(1,477

)

 

 

(309

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(39

)

 

 

(266

)

Purchase of intangibles

 

 

(220

)

 

 

(140

)

Capitalized patent defense costs

 

 

(5,348

)

 

 

(5,565

)

Proceeds from maturities and sales of marketable securities

 

 

1,971

 

 

 

3,697

 

Purchases of marketable securities

 

 

(526

)

 

 

(2,155

)

Net cash used in investing activities

 

 

(4,162

)

 

 

(4,429

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from issuance of common stock and warrants

 

 

  9,288

 

 

 

4,764

 

Proceeds from issuance of short-term notes

2,000



Net proceeds from Paycheck Protection Program loan




1,499

Net proceeds from equity-based compensation programs

 

 

12

 

 

 

11

 

Principal payments of long-term debt

(270 )


Net cash provided by financing activities

 

 

11,030

 

 

6,274

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(33

)

 

 

(17

)

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents 

 

 

5,358

 

 

1,519

  

Cash and cash equivalents at the beginning of the period

 

 

3,803

 

 

 

4,064

 

Cash and cash equivalents at the end of the period 

 

$

9,161

 

 

$

5,583

 

  

See accompanying notes

 



 CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share amounts)

 

The following is a summary of supplemental cash flow activities:

 

 

 

Nine months ended September 30,

 

 

 

2021

 

 

2020

 

Cash paid for income taxes

 

$

91

 

 

$

23

 

Cash paid for interest 200 189

 

See accompanying notes

 


CLEARONE, INC.

(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 September 30, 2021 and December 31, 2020, the results of operations for the three and nine months ended September 30, 2021 and 2020, and the cash flows for the nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 2021 and 2020 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 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. There have been no changes to these policies during the nine months ended September 30, 2021 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 September 30, 2021, our cash and cash equivalents were approximately $9,161 compared to $3,803 as of December 31, 2020. Our working capital was $23,739 as of September 30, 2021. Net cash used in operating activities was $1,477 for the nine months ended September 30, 2021, an increase of $1,168 from $309 of cash used in activities in the nine months ended September 30, 2021.

 

We are currently pursuing all available legal remedies to defend our strategic patents from infringement. We have already spent approximately $25,668 from 2016 through September 30, 2021 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. 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.

 

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

  

We have 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 also 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 addition, we have been generating additional cash 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, 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 November 12, 2022. 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.

 

2. Revenue Information 

 

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

 

 

 

Three months ended September 30,

 


Nine months ended September 30,


 

 

2021

 

 

2020

 


2021



2020


Audio conferencing

 

$

2,916

 

 

$

2,766

 


$ 8,847

$
8,201

Microphones

 

 

2,659

 

 

 

2,435

 



8,227


6,469

Video products

 

 

1,417

 

 

 

3,211

 



4,691


5,833

 

 

$

6,992

 

 

$

8,412

 


$ 21,765

$ 20,503

 

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


 

 

Three months ended September 30,

 


Nine months ended September 30,


 

 

2021

 

 

2020

 


2021



2020


North and South America

 

$

3,419

 

 

$

6,215

 


$ 10,583

$ 13,570

Asia Pacific (includes Middle East, India and Australia)

 

 

2,130

 

 

 

1,149

 



6,153


4,145

Europe and Africa

 

 

1,443

 

 

 

1,048

 



5,029


2,788

 

 

$

6,992

 

 

$

8,412

 


$ 21,765

$ 20,503


UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


3. Loss Per Share

 

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 September 30,

 


Nine months ended September 30,


 

 

2021

 

 

2020

 


2021



2020


Numerator:

 

 

 

 

 

 

 

 









Net loss

 

$

(2,169

)

 

$

(1,260

)


$ (5,410 )
$ (5,044 )

Denominator:

 

 

 

 

 

 

 

 









Basic weighted average shares outstanding

 

 

19,449,283

 

 

 

17,000,215

 



19,002,758


16,768,088

Dilutive common stock equivalents using treasury stock method

 

 

 

 

 

 







Diluted weighted average shares outstanding

 

 

19,449,283

 

 

 

17,000,215

 



19,002,758


16,768,088

 

 

 

 

 

 

 

 

 









Basic loss per common share

 

$

(0.11

)

 

$

(0.07

)


$ (0.28 )
$ (0.30 )

Diluted loss per common share

 

$

(0.11

)

 

$

(0.07

)


$ (0.28 )
$ (0.30 )

 

 

 

 

 

 

 

 

 









Weighted average options, warrants and convertible portion of senior convertible notes outstanding

 

 

4,240,247

 

 

 

511,332

 



3,826,807


528,107

Anti-dilutive options, warrants and convertible portion of senior convertible notes not included in the computation

 

 

4,240,247

 

 

 

511,332

 



3,826,807


528,107

 


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 September 30, 2021 and December 31, 2020 were as follows:

 

 

 

Amortized cost

 

 

Gross unrealized holding gains

 

 

Gross unrealized holding losses

 

 

Estimated fair value

 

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds and notes

 

$

808

 

 

$

11

 

 

$

 

$

819

 

Municipal bonds

 

 

600

 

 

 

1

 

 

 

 

 

 

601

 

Total available-for-sale securities

 

$

1,408

 

 

$

12

 

 

$

 

$

1,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds and notes

 

$

1,312

 

 

$

26

 

 

$


 

$

1,338

 

Municipal bonds

 

 

1,536

 

 

 

5

 

 

 


 

 

1,541

 

Total available-for-sale securities

 

$

2,848

 

 

$

31

 

 

$


 

$

2,879

 

 

 Maturities of marketable securities classified as available-for-sale securities were as follows at September 30, 2021:

 

 

 

Amortized cost

 

 

Estimated fair value

 

Due within one year

 

$

705

 

 

$

713

 

Due after one year through five years

 

 

703

 

 

 

707

 

Due after five years

 

 

 

 

 

 

Total available-for-sale securities

 

$

1,408

 

 

$

1,420

 



UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Debt securities in an unrealized loss position as of September 30, 2021 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 positions. 


5. Intangible Assets

 

Intangible assets as of September 30, 2021 and December 31, 2020 consisted of the following:

 

 

 

Estimated useful lives (years)

 

 

September 30, 2021

 

 

December 31, 2020

 

Tradename

 

 5

to

7

 

 

$

555

 

 

$

555

 

Patents and technological know-how

 

10

 to

20

 

 

 

30,994

 

 

 

25,427

 

Proprietary software

 

 3

to

15

 

 

 

2,981

 

 

 

2,981

 

Other

 

 3

to

5

 

 

 

323

 

 

 

323

 

Total intangible assets

 

 

 

 

 

 

 

34,853

 

 

 

29,286

 

Accumulated amortization

 

 

 

 

 

 

 

(11,674

)

 

 

(10,038

)

Total intangible assets, net

 

 

 

 

 

 

$

23,179

 

 

$

19,248

 

 

The amortization of intangible assets for the three months ended September 30, 2021 and 2020 was as follows: 

 

 

 

Three months ended September 30,

 


Nine months ended September 30,


 

 

2021

 

 

2020

 


2021



2020


Amortization of intangible assets

 

$

582

 

 

$

446

 


$ 1,636

$ 1,220

 

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

 

Years ending December 31,

 

Amount

 

2021 (Remainder)

 

$

611

 

2022

 

 

2,445

 

2023

 

 

2,438

 

2024

 

 

2,174

 

2025

 

 

2,113

 

Thereafter

 

 

13,398

 

Total

 

 

23,179

 

 

 

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


6. Inventories

 

Inventories, net of reserves, as of September 30, 2021 and December 31, 2020 consisted of the following:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Current:

 

 

 

 

 

 

 

 

Raw materials

 

$

1,772

 

 

$

1,182

 

Finished goods

 

 

7,446

 

 

 

9,281

 

 

 

$

9,218

 

 

$

10,463

 

 

 

 

 

 

 

 

 

 

Long-term:

 

 

 

 

 

 

 

 

Raw materials

 

$

1,648

 

 

$

1,977

 

Finished goods

 

 

1,665

 

 

 

2,613

 

 

 

$

3,313

 

 

$

4,590

 

  

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 nine months ended September 30, 2021 and 2020 was as follows:

 

 

 

Three months ended September 30,

 


Nine months ended September 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

 

$

116

 

 

$

277

 


$ 798

$ 937

 

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 nine months ended September 30, 2021 and 2020 was as follows: 

 

 

 

Three months ended September 30,

 


Nine months ended September 30,


 

 

2021

 

 

2020

 


2021



2020


Rent expense

 

$

181

 

 

$

175

 


$ 540

$ 534

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

 

We occupy a 21,443 square-foot facility in Salt Lake City, Utah under the terms of an operating lease expiring in March 2024, with an option to extend for additional five years. The facility supports our principal administrative, sales, marketing, customer support, and research and product development activities.  

 

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

 


UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 a 6,175 square-foot facility in Chennai, India under the terms of an operating lease expiring in August 2024. This facility supports our administrative, marketing, customer support, and research and product development activities.

 

We occupy 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 primary inventory fulfillment and repair center.  


Supplemental cash flow information related to leases was as follows: 

 

 

 

Nine months ended September 30,

 

 

 

2021

 

 

2020

 

Cash paid for amounts included in the measurement of lease liabilities

 



 

 



 

Operating cash flows from operating leases
$ 502
$ 537
Right-of-use assets obtained in exchange for lease obligations:







Operating leases
$ 212

$ 97

 

Supplemental balance sheet information related to leases was as follows:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Operating lease right-of-use assets

 

$

 1,690

 

 

 $

 1,936

 


 








Current portion of operating lease liabilities, included in accrued liabilities
$ 625

$ 579

Operating lease liabilities, net of current portion

 

 

1,181

 

 

 

1,489

 

Total operating lease liabilities

 

$

1,806

 

 

$

2,068

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term for operating leases (in years) 

2.87


3.54
Weighted average discount rate for operating leases

5.9 %

6.1 %

  

The following represents maturities of operating lease liabilities as of September 30, 2021:

 

Years ending December 31,

 

 

 

 

2021 (Remainder)

 

$

183

 

2022

 

 

703

 

2023

 

 

671

 

2024

 

 

343

 

2025

 

 

69

 

Thereafter

 

 

 

Total lease payments

 

 

1,969

 

Less: Imputed interest

 

 

163

Total

 

$

1,806

 


 

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

8. Shareholders' Equity

 

 

 

Three months ended September 30,

 


Nine months ended September 30,

 

 

2021

 

 

2020

 


2021

2020

Common stock and additional paid-in capital

 

 

 

 

 

 

 

 









Balance, beginning of period

 

$

63,450

 

 

$

58,597

 


$ 63,378

$ 58,537
Issuance of common stock and warrants, net

                9,288


          4,764


9,288


4,764

Share-based compensation expense

 

 

35

 

 

 

1

 



100


55

Proceeds from employee stock purchase plan

 

 

5

 

 

 

5

 



12


11

Balance, end of period

 

$

72,778

 

 

$

63,367

 


$ 72,778

$ 63,367

 

 

 

 

 

 

 

 

 









Accumulated other comprehensive loss

 

 

 

 

 

 

 

 









Balance, beginning of period

 

$

(213

)

 

$

(211

)


$ (186 )
$ (176 )

Unrealized loss on available-for-sale securities, net of tax 

 

 

(8

)

 

 

4



(13 )

11

Foreign currency translation adjustment

 

 

(4

)

 

 

17



(26 )

(25 )

Balance, end of period

 

$

(225

)

 

$

(190

)


$ (225 )
$ (190 )

 

 

 

 

 

 

 

 

 









Accumulated deficit

 

 

 

 

 

 

 

 









Balance, beginning of period

 

$

(16,619

)

 

$

(17,667

)
$ (13,378 )
$ (13,883 )

Net loss

 

 

(2,169

)

 

 

(1,260

)



(5,410 )

(5,044 )

Balance, end of period

 

$

(18,788

)

 

$

(18,927

)


$ (18,788 )
$ (18,927 )

 

 

 

 

 

 

 

 

 









Total shareholders' equity

 

$

53,765

 

 

$

44,250

 


$ 53,765

$ 44,250

 

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. 



UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


9. 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 were approximately $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%

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 not remeasured while 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:



UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


 

 

September 30, 2021

 

 

December 31, 2020

 

Liability component:

 

 

 

 

 

 

 

 

Principal

 

$

2,730

 

 

$

3,000

 

Less: debt discount and issuance costs, net of amortization

 

 

(434

)

 

 

(581

Net carrying amount

 

$

2,296

 

 

$

2,419

 

Equity component(1):

 

 

 

 

 

 

 

 

Warrants

 

$

318

 

 

$

318

 

Conversion feature

 

122

 

 

122

 

Net carrying amount

 

$

440

 

 

$

440

 










Current portion of liability component included under short-term debt
$ 630

$ 360
Long-term portion of liability component included under long-term debt

1,666


2,059
Liability component total
$ 2,296

$ 2,419

(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 nine months ended September 30, 2021, amortization of debt discount and issuance costs was $49 and $147, respectively and for the three and nine months ended September 30, 2020, amortization of debt discount and issuance costs was $50 and $148, respectively. The following table represents schedule of maturities of principal amount contained in the Notes as of September 30, 2021:

Year ending December 31,

 

Principal Amount Maturing

 

2021 (Remainder)

 

$

90

 

2022

 

 

720

 

2023

 

 

1,920

 

2024

 

 

 

Total principal amount

 

$

2,730

 


Short-term Bridge Loan


On July 2, 2021, the Company obtained a bridge loan in the principal amount of $2,000 from 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 bears interests at a rate of 8.0% 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 expected U.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. 


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 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.


 

 

September 30, 2021

 

 

December 31, 2020

 

Current portion of the PPP Loan included under short-term debt
$ 874

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

625


1,187
Liability component total
$ 1,499

$ 1,499



UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


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 September 30, 2021 and December 31, 2020:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds and notes

 

$

 

 

$

819

 

 

$

 

 

$

819

 

Municipal bonds

 

 

 

 

 

601

 

 

 

 

 

 

601

 

Total

 

$

 

 

$

1,420

 

 

$

 

 

$

1,420

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds and notes

 

$

 

 

$

1,338

 

 

$

 

 

$

1,338

 

Municipal bonds

 

 

 

 

 

1,541

 

 

 

 

 

 

1,541

 

Total

 

$

 

 

$

2,879

 

 

$

 

 

$

2,879

 

 

11. Income Taxes

 

The current year loss did not result in income tax benefit due to recording a full valuation allowance against expected benefits. The valuation allowance was recorded as we concluded that it was more likely than not that our deferred tax assets were not realizable primarily due to the Company's recent pre-tax losses. Provision for income taxes for the nine months ended September 30, 2021 represents income tax expense recorded for jurisdictions outside the United States. 

 

12. Subsequent events

 

None. 

 

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, 2020. 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.

 

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.

 

During the first quarter of 2021, we announced two new powerful cameras that enhance the ease and visual quality 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. 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 to 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.  

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

 

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. 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 July 2021 we introduced UNITE 180 ePTZ professional camera that provides a full 180-degree panoramic field-of-view with “real-time stitching” to achieve a variety of useful viewing modes for any application and environment. Designed for professional-quality visual collaboration, conferencing, UC applications, distance learning, and more, the new UNITE 180 camera provides six viewing mode options as well as panoramic view for the ultimate in camera flexibility. Real-time stitching creates a seamless 180-degree panoramic view of wide spaces by bringing the views of multiple lenses together as one complete image. Large classroom settings, training centers, or any wide conferencing area are all captured and presented with perfect clarity in any of the viewing mode options. A 4x zoom further enhances the UNITE 180 feature set. The UNITE 180 is compatible with all popular cloud-based video collaboration applications including Microsoft Teams, Zoom, WebEx, Google Meet, ClearOne’s COLLABORATE Space and others.



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


During July 2021 we also announced the market introduction of Versa Mediabar, the company’s first professional quality all-in-one audio and video capture device that combines the elegance and simplicity of a soundbar with the power of ClearOne’s intelligent audio capture and 4K camera technologies. Versa Mediabar provides high-quality visual collaboration, audio conferencing, and UC applications from a single integrated device, offering the simplest solution available for offices, conference rooms and home offices with virtually no setup required. With a compact design that can be mounted on a wall or attached to a video display, the Versa Mediabar connects via a single USB cable to elevate the soundbar concept into a powerful tool for virtual collaboration that includes AI-enabled auto-framing and people tracking. The Versa All-In-One Mediabar features a built-in 4K Ultra HD camera with a 110-degree ultra wide-angle field of view and a four-element microphone array with 360-degree voice pickup and intelligent DSP that provides acoustic echo cancellation (AEC) and automatic noise reduction to ensure crystal clear audio capture. The camera combines electronic pan, tilt and zoom functions (ePTZ) with artificial intelligence to enable auto-framing and people tracking that keeps the speaker in view even if they move around the room. From huddle spaces and small meeting rooms to executive offices and home offices, the compact Versa Mediabar delivers all the power and clarity needed for daily virtual communications. In addition to its professional-quality audio and video capture, the Versa Mediabar also features a powerful built-in speaker with Bluetooth connectivity that allows it to serve double duty as a fully-featured conferencing solution or a Bluetooth speaker for impromptu calls using any Bluetooth device. These attributes make the Versa Mediabar perfect for popular cloud-based collaboration applications such as Microsoft Teams, Zoom, WebEx, Google Meet, and ClearOne’s COLLABORATE® Space. The Versa Mediabar supports standard UVC commands for control, making it a great addition to existing systems, while dual wall and display mounting options deliver freedom of placement and movement.


During the first nine months of 2021, 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 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. 


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 17% in the third quarter of 2021 when compared to the third quarter of 2020, primarily due to a sharp decline in revenues from video products partially offset by increase in revenues from microphones and audio conferencing products. Overall revenue increased by 6% during the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to increase in revenue from microphones, especially the BMA based solutions and audio conferencing products partially offset by a decline in revenues from video products.  Revenue from video products was impacted negatively during 2021-Q3 when compared to 2020-Q3 due to lack of demand for video products and personal audio conferencing products at the same level as it was in latter half of 2020 when the demand from work from home and learn from home markets was boosted by stimulus funding through CARES Act.


Our revenue performance in 2021-Q3 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.  


Our gross profit margin decreased to 40.8% during the third quarter of 2021 from 41.8% during the third quarter of 2020. Net loss increased from $1.3 million in the third quarter of 2020 to $2.2 million in the third quarter of 2021The increase in net loss was mainly due to (a) decrease in absolute gross profit dollars as a result of lower revenue (b) increased amortization costs relating to our capitalized patent defense costs, and (c) increase in trade show related marketing expenses. During the nine months ended September 30, 2021, our absolute gross profit dollars increased to $9.3 million from $9.0 million in the same period in 2020 despite gross profit margin declining to 42.6% from 43.8% due to increase in revenues. During the nine months ended September 30, 2021, net loss increased to  $5.4 million compared to $5.0 million during the same period in 2020 mainly due to increased amortization costs relating to our capitalized patent defense costs, partially offset by higher gross profit dollars from higher revenue.

 


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 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% for the year ended December 31, 2020) 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 on future developments, including the vaccination rate, 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. 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 $57 thousand on September 30, 2021 compared to $123 thousand on December 31, 2020.

 

A detailed discussion of our results of operations follows below.

 

 

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

 

Results of Operations for the three and nine months ended September 30, 2021

 

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021 (“2021-Q3”) ("2021-YTD") and 2020 ("2020-Q3") ("2020-YTD"), respectively, together with the percentage of total revenue which each such item represents:   


   

Three months ended September 30,



Nine months ended September 30,
(dollars in thousands)  

2021

   

2020

   

Percentage Change 2021 vs 2020



2021

2020

Percentage Change 2021 vs 2020

Revenue

  $ 6,992     $ 8,412