Quarterly Report for Quarter Ending March 31, 2024 (Form 10-Q)

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 March 31, 2024
☐	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 May 15, 2024was 23,969,148.

CLEARONE, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDEDMARCH 31, 2024

INDEX​

	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023	3
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023	5
	Unaudited Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25

CLEARONE, INC

(Dollars in thousands, except par value)

See accompanying notes

CLEARONE, INC.

COMPREHENSIVE LOSS

(Dollars in thousands, except per share amounts)

See accompanying notes

CLEARONE, INC.

(Dollars in thousands, except per share amounts)

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:

See accompanying notes

CLEARONE, INC.

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

2. Revenue Information

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

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 the 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 March 31,
		2024			2023
Numerator:
Net loss		$	(1,898	)		$	(832	)
Denominator:
Basic weighted average shares outstanding			23,969,148				23,955,767
Dilutive common stock equivalents using treasury stock method			-				-
Diluted weighted average shares outstanding			23,969,148				23,955,767
Basic loss per common share		$	(0.08	)		$	(0.03	)
Diluted loss per common share		$	(0.08	)		$	(0.03	)
Weighted average options, warrants and convertible portion of senior convertible notes outstanding			6,420,553				6,368,420
Anti-dilutive options, warrants and convertible portion of senior convertible notes not included in the computation			6,420,553				6,368,420

5. Intangible Assets

Intangible assets as of March 31, 2024and December 31, 2023consisted of the following:

		Estimated useful lives (years)			March 31, 2024			December 31, 2023
Tradename		5	to	7			$	555			$	555
Patents and technological know-how		10	to	20				7,224				7,187
Proprietary software		3	to	15				2,981				2,981
Other		3	to	5				323				324
Total intangible assets								11,083				11,047
Accumulated amortization								(9,468	)			(9,358	)
Total intangible assets, net							$	1,615			$	1,689

The amortization of intangible assets for the threemonths ended March 31, 2024and 2023was as follows:

		Three months ended March 31,
		2024			2023
Amortization of intangible assets		$	110			$	118

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

Years ending December 31,		Amount
2024(Remainder)		$	147
2025			196
2026			195
2027			65
2028			21
Thereafter			991
Total		$	1,615

6. Inventories

Inventories, net of reserves, as of March 31, 2024and December 31, 2023consisted of the following:

		March 31, 2024			December 31, 2023
Current:
Raw materials		$	1,765			$	2,086
Finished goods			9,669				8,539
		$	11,434			$	10,625
Long-term:
Raw materials		$	2,259			$	1,789
Finished goods			1,902				1,354
		$	4,161			$	3,143

Long-term inventory represents inventory held in excess of our current (next 12months) 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 forthreemonths ended March 31, 2024and 2023was as follows:

		Three months ended March 31,
		2024			2023
Net loss incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory		$	193			$	23

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 threemonths ended March 31, 2024 and 2023 was as follows: The Company occupies a9,402 square-foot facility in Salt Lake City, Utah under the terms of an operating lease expiring in February 2028. The facility supports the Company's principal administrative, sales, marketing, customer support, and research and product development activities. The Company occupies a 6,175 square-foot facility in Chennai, India under the terms of an operating lease expiring in August 2024. This facility supportsthe Company's administrative, marketing, customer support, and research and product development activities. The Company is planning to renew the lease. The Company occupies a 40,000 square-foot warehouse in Salt Lake City, Utah under the terms of an operating lease expiring in April 2025, which serves as the Company's primary inventory fulfillment center.

Supplemental cash flow information related to leases was as follows:

Supplemental balance sheet information related to leases was as follows:

The following represents maturities of operating lease liabilities as of March 31, 2024:

Years ending December 31,
2024(Remainder)		$	324
2025			272
2026			211
2027			216
2028			36
Thereafter			-
Total lease payments			1,059
Less: Imputed interest			110
Total		$	949

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

9. Share-based Compensation

As of March 31, 2024, the Company had 217,810options with contractual lives of ten years and 370,000 options with contractual lives of six yearsoffered under the Company's 2007Equity Incentive Plan (the "2007Plan"), which was restated and approved by the shareholders on December 12, 2015.As of March 31, 2024, the 2007Plan had 857,044authorized unissued options.

The Company uses judgment in determining the fair value of the share-based payments on the date of grant using an option-pricing model with assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the risk-free interest rate of the awards, the expected life of the awards, the expected volatility over the term of the awards, and the expected dividends of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of share-based payments granted under the guidelines of ASC Topic 718.

In applying the Black-Scholes methodology to 160,000options granted in June 2023, the Company used the following assumptions:

Risk free interest rate, average	3.91%
Expected option life, average	5 years
Expected price volatility, average	91.47%
Expected dividend yield	0%

A summary of the stock option activity under the Company's plans for the three months ended March 31, 2024,is as follows:

		Number of shares			Weighted average exercise price
Options outstanding at beginning of year			607,810			$	5.03
Granted			-				-
Less:
Exercised			-				-
Forfeited prior to vesting			(20,000	)			-
Canceled or expired			-			-
Options outstanding at March 31, 2024			587,810				5.16
Options exercisable at end of March 31, 2024			416,898			$	6.76

As of March 31, 2024, the total remaining unrecognized compensation cost related to non-vested stock options, net of forfeitures, was approximately $120, which will be recognized over a weighted average period of 2.24years.

Share-based compensation expense has been recorded as follows:

		Three months ended March 31,
		2024			2023
Cost of goods sold		$	2			$	-
Sales and marketing			2				-
Research and product development			12				-
General and administrative			10				-
		$	26			$	-

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

10. Income Taxes

The Company recorded a full valuation allowance against U.S Federal and State deferred tax assets, which results in no income tax benefit for losses in these jurisdictions. The full domestic valuation allowance was recorded as management concluded that it is more likely than not that these deferred tax assets are not realizable due to the Company's recent pre-tax losses and other sources of negative evidence. Provision for income taxes for the three months endedMarch 31, 2024mostly represents income tax expense (benefit) recorded for jurisdictions outside the United States.

The Company had approximately $968 of uncertain tax positions as of March 31, 2024. Due to the inherent uncertainty of the underlying tax positions, it is not possible to forecast the payment of this liability for any particular year, therefore, it is reflected in other long-term liabilities.

11. 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 threelevels:

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 March 31, 2024:

		Level 1			Level 2			Level 3			Total
March 31, 2024
Mutual funds		$	2,123			$	-			$	-			$	2,123
US Treasury securities			-				1,298				-				1,298
Certificates of deposit			-				413				-				413
Corporate debt securities			-				253				-				253
Total	$	2,123	$	1,964	$	-	$	4,087

		Level 1			Level 2			Level 3			Total
December 31, 2023
Mutual funds		$	1,505			$	-			$	-			$	1,505
US Treasury securities			-				1,803				-				1,803
Certificates of deposit			-				103				-				103
Corporate debt securities			-				985				-				985
Total	$	1,505	$	2,891	$	-	$	4,396

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; our expectations regarding the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider; 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, 2023. 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 for the period ended March 31, 2024 and in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023period.

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.

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

On March 11, 2024, we announced a one-time special cash dividend of $0.50 per share of ClearOne common stock, payable on April 10, 2024 to shareholders of record on April 2, 2024.

On January 23, 2024 we launched the DIALOG® 20 USB wireless microphone system at Integrated Systems Europe (ISE) 2024, a major global audiovisual expo. ClearOne's booth at ISE 2024 recorded a 319% increase in unique visitors compared to the number of unique visitors the Company's booth recorded in 2023. The DIALOG® UVHF Wireless Microphone System also received AV Technology Magazine's Best in Show award at ISE 2024, having previously garnered other notable industry awards in 2023.

We 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 13% in the first quarterof 2024when compared to the first quarterof 2023, primarily due to a significant decrease in revenues from the audio conferencing category. The revenue decline was also caused by significantly reduced demand for our products in many regions including USA, Europe and China when compared to 2023-Q1 revenues. We believe this revenue decline was primarily due to the cumulative impact of past production shortages. We believe that lack of product availability has caused some of our channel partners to purchase and install competing brands. Historically, we have seen a lag of several months between the time that our professional conferencing products are specified for installation and the date when those products are installed. Since our product availability was constrained through a significant part of Q4 2023, we believe our revenue could be impacted negatively by these market dynamics through much of Q2 2024. We have also faced sales headwinds from our products' lack of Microsoft Teams certification, despite their longtime functional compatibility with this platform. Our work through early 2024 has focused on mitigating these impacts through maintaining consistent dialogues, product demonstrations, and feedback cycles with end users and channel partners, along with improving our visibility at key industry events.We believe our revenue performance in 2024-Q1 also was to a small extent impacted negatively due to increased costs associated with electronic raw materials that have affected the global manufacturing of high tech products.We expect these increased costs in various degrees to continue through 2024 and 2025.

Our gross profit margin increased to 31.8% during the first quarterof 2024 from 31.5% during the first quarterof 2023. The marginal increase in gross profit is mainly due to savings in freight cost wherein air shipments were reduced and replaced by ocean shipments wherever feasible.

Net loss increased from $0.8million in the first quarterof2023 to $1.9million in the first quarterof 2024. The increase in net loss was mainly due to (a) a decrease in revenues partially offset by a decrease in operating expenses and (b) a recognition of $1.35 million from a one-time legal settlement of a contract dispute in first quarter of 2023.

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

Industry conditions

We operate in a very dynamic and highly competitive industry which is dominated on the onehand by a few players with respect to certain products like traditional video conferencing appliances while on the other hand 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. It has become increasingly important to have higher interoperability with other products in the audio visual market as well as certifications from leading video conferencing service providers like Microsoft and Zoom.

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

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, pricing pressures from new competitors attracted to the commercial market due to higher margins, and the lack of certifications from Microsoft. Notably, the Microsoft Teams device certification program is closed to new meeting room devices and solutions. Although we have requested admission into this certification program on multiple occasions ClearOne has been denied admission by Microsoft so far.

Our video products and beamforming microphone arrays, especially highly advanced BMA 360and BMA-CT 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 making our products more interoperable with other audio-visual products, continuing to improve the quality of our high-end audio conferencing products and microphones, and offering a wide range of innovative professional cameras will generate growth in the near future.

We derive a significant portion of our revenue (approximately 70%in the first three months of 2024)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.

Deferred Product Revenue

Deferred product revenue decreased to $26thousand on March 31, 2024compared to $30thousand on December 31, 2023.

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 threemonths ended March 31, 2024The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the threemonths ended March 31, 2024("2024-Q1") and 2023("2023-Q1"), respectively, together with the percentage of total revenue which each such item represents:

Revenue

Our revenue decreasedto $3.6million in 2024-Q1compared to $4.2million in 2023-Q1due to a 35% declinein audio conferencing and a 19% decline in video products, offset by a 31% increase in microphones. Except for BMA all other product categories suffered revenue declines year over year. Our traditional ceiling mics, personal audio conferencing products, and video cameras suffered revenue declinesdue to lack of demand. During the first quarter of 2024, revenues from Asia including India and the Middle East as a whole increased by 18% while all other regions suffered revenue loss. During 2024-Q1revenues from Americas declinedby 30% and from Europe and Africa declined significantly by 42%.

Costs of Goods Sold and Gross Profit

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

Our gross profit margin increasedfrom 31.5% during 2023-Q1to 31.8% during 2024-Q1.The marginal increase was due to saving in freight cost wherein air freight was controlled by replacing air freight with ocean freight.

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

Our profitability in the near-term continues to depend significantly on our revenues from professional installed audio-conferencing products. We hold long-term inventory and if we are unable to sell our long-term inventory, our profitability might be affected by inventory write-offs and price mark-downs. Our long-term inventory includes approximately $0.2million of Converge Pro and Beamforming microphone array products, $1.0 million of cameras,and $1.6million of raw materials that will be used primarily for manufacturing professional audio conferencing products and BMA microphones. Any business changes that are adverse to these product lines could potentially impact our ability to sell our long-term inventory in addition to our current inventory.

Operating Expenses

Operating expenses include sales and marketing ("S&M") expenses, research and product development ("R&D") expenses and general and administrative ("G&A") expenses. Total operating expenses in 2024-Q1was $3.2million compared to $3.5million in 2023-Q1. The following contains a more detailed discussion of expenses related to sales and marketing, research and product development, general and administrative, and other items.

Sales and Marketing- S&M expenses include selling, customer service, and marketing expenses such as employee-related costs, allocations of overhead expenses, trade shows, and other advertising and selling expenses.

S&M expenses in 2024-Q1increasedmarginally to $1.3million from $1.2million for 2023-Q1. The increase was primarily due to increase in trade-show related expenses.

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

R&D expenses decreasedto $0.9million in 2024-Q1compared to $1.0million for 2023-Q1. The decrease was primarily due to decrease in legal expenses and project related expenses.

General and Administrative- G&A expenses include employee-related costs, professional service fees, allocations of overhead expenses, litigation costs, and corporate administrative costs, including costs related to finance and human resources teams.

G&A expenses decreasedto$1.0million in 2024-Q1compared to$1.3million in 2023-Q1.The reduction was primarily due to (a) a decrease in legal expenses, (b) and a decrease in insurance expenses, (c) and a reduction in employee related expenses.

Interest Expense

Interest expense decreased to $0.0 million in 2024-Q1compared to $0.3 million in 2023-Q1. The interest expense declined due to repayment of all the debts in full in 2023.

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

Other income (expense), net

Other income (expense), net includes interest income, foreign currency changes and gain or loss on disposal of assets.Other income for 2024-Q1 included $0.2 million of interest income received on marketable securities. Other income in 2023-Q1included a receipt of $1.35 million from a one-time legal settlement of a contract dispute.

Provision for income taxes

Duringeach of the three months ended March 31, 2024 and 2023, we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2024, our cash and cash equivalents were approximately $18.5 million compared to $17.8million as of December 31, 2023. Our working capital was $21.4 million and $39.1million as of March 31, 2024 and December 31, 2023, respectively. Net cash provided by operating activities was approximately $0.4million in the three months ended March 31, 2024, a decrease of net cash provided by operating activities of approximately $59.9million from $60.3million of net cash used by operating activities in the three months ended March 31, 2023. The decrease in cash inflow was primarily due to $56.4 million in receipts from legal settlements, the receipt of $4.5 million from the return of a bond deposited with a court, and a $1.3 million refund of income taxes with interest in the three months ended March 31, 2023. These receipts were partially offset by operating losses.

Net cash provided by investing activities in the three months ended March 31, 2024was $0.3million compared to $0.1million of net cash used in investing activities in the three months ended March 31, 2023. The increase in cash provided by investing activities was primarily due to an increase in sale of marketable securities (net of purchases) by $0.3 million and an increase in purchase of property and equipment by $0.06 million. These increases were partially offset by the elimination of capitalized legal expenses of $0.03 million.

Net cash provided by financing activities in the three months ended March 31, 2024was $0.007million compared to $2.2 million used in payments of principal amounts due on senior convertible debt in the three months ended March 31, 2023.

As of March 31, 2024, our cash and cash equivalents were approximately $18.5millioncompared to $17.8million as of December 31, 2023. Our working capital was $21.4millionas of March 31, 2024. The Company believes, although there can be no assurance, that the current cash position and effective management of working capital, will provide the liquidity needed to meet our operating needs through at least May 17, 2025. The Company also believes that its strong portfolio of intellectual property and its solid brand equity in the market will enable it to raise additional capital if and when needed to meet its short and long-term financing needs; however, there can be no assurance that, if needed, the Company will be successful in obtaining the necessary funds through equity or debt financing on favorable terms or at all. If the Company needs additional capital and is unable to secure financing, it may be required to further reduce expenses, or delay product development and enhancement.

As ofMarch 31, 2024, we had open purchase orders of approximately $4.5 million mostly for the purchase of inventory.As of March 31, 2024, we had inventory totaling $15.6 million, of which non-current inventory accounted for $4.2 million. This compares to total inventories of $13.8 million, which includes non-current inventory of $3.1 million as of December 31, 2023.

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

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of March 31, 2024(in millions):

		1-3Years			3-5Years			More than 5 years
Operating lease obligations		$	1.0			$	0.3			$	0.7			$	0.0			$	-
Purchase obligations			4.5				4.5				-				-				-
Total		$	5.5			$	4.8			$	0.7			$	0.0			$	-

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our results of operations and financial position are based upon our unaudited condensed consolidated financial statements included under Item 1of this Form 10-Q, which have been prepared in conformity with accounting principles generally accepted in the United States. We review the accounting policies used in reporting our financial results on a regular basis. We believe certain of our accounting policies are critical to understanding our financial position and results of operations. There have been no changes to the critical accounting policies as explained in our Annual Report on Form 10-K for the year ended December 31, 2023.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements, see Note 1: "Business Description, Basis of Presentation and Significant Accounting Policies" in the notes to our unaudited condensed consolidated financial statements included under Item 1of this Form 10-Q.