CLEARONE INC - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

[ ] 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)



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

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 [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [x] No [ ]

See the definition of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Larger Accelerated Filer [ ]	Accelerated Filer [x]
Non-Accelerated Filer [ ] (Do not check if a smaller reporting company)	Smaller Reporting Company [ ]

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares of ClearOne common stock outstanding as of April 30, 2016 was 9,253,578.

CLEARONE, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2016

INDEX



	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, 2016 Unaudited and December 31, 2015	1
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 Unaudited	2
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 Unaudited	3
	Notes to Condensed Consolidated Financial Statements Unaudited	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	21
Item 6.	Exhibits	21

Table of Contents

PART I – FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)



	March 31, 2016			December 31, 2015
ASSETS	Unaudited
Current assets:
Cash and cash equivalents	$	13,913		$	13,412
Marketable securities	5,890			7,161
Receivables, net of allowance for doubtful accounts of $77 and $54, respectively	8,133			8,692
Inventories	14,470			13,447
Distributor channel inventories	1,445			1,628
Prepaid expenses and other assets	2,427			1,806
Total current assets	46,278			46,146
Long-term marketable securities	20,347			19,204
Long-term inventories, net	2,021			2,018
Property and equipment, net	1,468			1,589
Intangibles, net	6,368			6,638
Goodwill	12,724			12,724
Deferred income taxes	5,020			5,093
Other assets	127			117
Total assets	$	94,353		$	93,529
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,195		$	2,815
Accrued liabilities	2,144			2,243
Deferred product revenue	4,203			4,549
Total current liabilities	10,542			9,607
Deferred rent	154			150
Other long-term liabilities	1,152			1,203
Total liabilities	11,848			10,960
Shareholders' equity:
Common stock, par value $0.001, 50,000,000 shares authorized, 9,219,978 and 9,183,957 shares issued and outstanding	9			9
Additional paid-in capital	45,568			46,291
Accumulated other comprehensive (loss)	(12		)	(166		)
Retained earnings	36,940			36,435
Total shareholders' equity	82,505			82,569
Total liabilities and shareholders' equity	$	94,353		$	93,529

See accompanying notes

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)



	Three months ended March 31,
	2016		2015
Revenue	$	13,033	$	13,586
Cost of goods sold	4,568		5,124
Gross profit	8,465		8,462

Operating expenses:
Sales and marketing	2,625		2,622
Research and product development	2,270		1,941
General and administrative	1,598		2,000
Total operating expenses	6,493		6,563

Operating income	1,972		1,899
Other income, net	11		104
Income before income taxes	1,983		2,003
Provision for income taxes	615		731
Net income	$	1,368	$	1,272

Basic earnings per common share	$	0.15	$	0.14
Diluted earnings per common share	$	0.14	$	0.13

Basic weighted average shares outstanding	9,196,522		9,100,107
Diluted weighted average shares outstanding	9,513,440		9,508,479

Comprehensive income:
Net income	$	1,368	$	1,272
Other comprehensive income:
Unrealized gain on available-for-sale securities, net of tax	121		55
Change in foreign currency translation adjustment	33		(180		)
Comprehensive income	$	1,522	$	1,147

See accompanying notes

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)



	Three months ended March 31,
	2016			2015
Cash flows from operating activities:
Net income	$	1,368		$	1,272
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense	483			521
Amortization of deferred rent	(20		)	(23		)
Stock-based compensation expense	148			238
Provision for doubtful accounts, net	25			21
Write-down of inventory to net realizable value	119			47
Loss on disposal of assets	49			—
Tax benefit from exercise of stock options	(583		)	(7		)
Deferred income taxes	47			—
Changes in operating assets and liabilities:
Receivables	562			1,205
Inventories	(964		)	(806		)
Prepaid expenses and other assets	(144		)	877
Accounts payable	1,378			820
Accrued liabilities	(82		)	(832		)
Income taxes payable	106			338
Deferred product revenue	(354		)	(291		)
Other long-term liabilities	(52		)	(537		)
Net cash provided by operating activities	2,086			2,843

Cash flows from investing activities:
Purchase of property and equipment	(139		)	(76		)
Proceeds from maturities and sales of marketable securities	2,787			2,376
Purchases of marketable securities	(2,538		)	(1,612		)
Net cash provided by investing activities	110			688

Cash flows from financing activities:
Proceeds from the exercise of stock options	318			20
Repurchase and cancellation of stock options	(1,752		)	—
Tax benefit from exercise of stock options	583			7
Dividends paid	(459		)	—
Repurchase and cancellation of stock	(404		)	—
Net cash (used in) provided by financing activities	(1,714		)	27

Effect of exchange rate changes on cash and cash equivalents	19			(133		)
Net increase in cash and cash equivalents	501			3,425
Cash and cash equivalents at the beginning of the period	13,412			7,440
Cash and cash equivalents at the end of the period	$	13,913		$	10,865

See accompanying notes

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

The following is a summary of supplemental cash flow activities:



	Three months ended March 31,
	2016		2015
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	537	$	881

See accompanying notes

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited – Dollars in thousands)


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 company that designs, develops and sells conferencing, collaboration, streaming and digital signage solutions for audio and visual communications. The performance and simplicity of its advanced comprehensive solutions offer unprecedented levels of functionality, reliability and scalability.

Basis of Presentation:

The fiscal year for ClearOne is the 12 months ending on December 31^st. The consolidated financial statements include the accounts of ClearOne and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.

These accompanying interim condensed consolidated financial statements for the three months ended March 31, 2016 and 2015, 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 March 31, 2016 and December 31, 2015, the results of operations for the three months ended March 31, 2016 and 2015, and the statements of cash flows for the three months ended March 31, 2016 and 2015. The results of operations for the three months ended March 31, 2016 and 2015 are not necessarily indicative of the results for a full-year period. These interim 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, 2015 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, 2015. There have been no changes to these policies during the three months ended March 31, 2016 that are of significance or potential significance to the Company.

Recent Accounting Pronouncements:

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for the Company on January 1, 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), simplifying the presentation of deferred taxes on the balance sheet by requiring companies to classify everything as either a non-current asset or non-current liability. Early adoption of this ASU is permitted. ClearOne has adopted this standard update early as it would simplify the presentation of taxes on the balance sheet and within the income tax footnote.

In February 2016, FASB released Accounting Standards Update No. 2016-02, Leases (Topic 842) to bring transparency to lessee balance sheets. The ASU will require organizations that lease assets (lessees) to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The standard will apply to both types of leases-capital (or finance) leases and operating leases. Previously, GAAP has required only capital leases to be recognized on lessee balance sheets. The standard will take effect the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application will be permitted for all organizations. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited – Dollars in thousands)

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Shared-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for the Company on January 1, 2017. The Company is currently evaluating the impact that ASU 2016-09 will have on the consolidated financial statements.


2.	Earnings Per Share

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



	Three months ended March 31,
	2016		2015
Numerator:
Net income	$	1,368	$	1,272
Denominator:
Basic weighted average shares outstanding	9,196,522		9,100,107
Dilutive common stock equivalents using treasury stock method	316,918		408,372
Diluted weighted average shares outstanding	9,513,440		9,508,479

Basic earnings per common share	$	0.15	$	0.14
Diluted earnings per common share	$	0.14	$	0.13

Weighted average options outstanding	1,000,571		1,037,137
Anti-dilutive options not included in the computations	289,623		268,709


3.	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 income/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 security at March 31, 2016 and December 31, 2015 were as follows:



			Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses			Estimated fair value
March 31, 2016
	Available-for-sale securities:
		Corporate bonds and notes	$	19,422	$	136	$	(52	)	$	19,506
		Municipal bonds	6,691		41		(1		)	6,731
	Total available-for-sale securities		$	26,113	$	177	$	(53	)	$	26,237

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited – Dollars in thousands)



			Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses			Estimated fair value
December 31, 2015
	Available-for-sale securities:
		Corporate bonds and notes	$	20,827	$	50	$	(133	)	$	20,744
		Municipal bonds	5,608		18		(5		)	5,621
	Total available-for-sale securities		$	26,435	$	68	$	(138	)	$	26,365

Maturities of marketable securities classified as available-for-sale securities were as follows at March 31, 2016:



		Amortized cost		Estimated fair value
March 31, 2016
	Due within one year	$	5,881	$	5,890
	Due after one year through five years	19,247		19,365
	Due after five years through ten years	985		982
	Total available-for-sale securities	$	26,113	$	26,237

Debt securities in an unrealized loss position as of March 31, 2016 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. The available-for-sale marketable securities in a gross unrealized loss position as of March 31, 2016 are summarized as follows:



	Less than 12 months					More than 12 months					Total
(In thousands)	Estimated fair value		Gross unrealized holding losses			Estimated fair value		Gross unrealized holding losses			Estimated fair value		Gross unrealized holding losses
As of March 31, 2016
Corporate bonds and notes	$	3,416	$	(38	)	$	1,644	$	(14	)	$	5,060	$	(52	)
Municipal bonds	—		—			200		(1		)	200		(1		)

	$	3,416	$	(38	)	$	1,844	$	(15	)	$	5,260	$	(53	)


4.	Intangible Assets

Intangible assets as of March 31, 2016 and December 31, 2015 consisted of the following:



	Estimated useful lives	March 31, 2016			December 31, 2015
Tradename	7 years	$	555		$	555
Patents and technological know-how	10 years	5,869			5,850
Proprietary software	3 to 15 years	4,341			4,341
Other	5 years	324			324
		11,089			11,070
Accumulated amortization		(4,721		)	(4,432		)
		$	6,368		$	6,638

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited – Dollars in thousands)

The amortization of intangible assets for the three months ended March 31, 2016 and March 31, 2015 was as follows:



	Three months ended March 31,
	2016		2015
Amortization of intangible assets	$	289	$	315

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



Years ending December 31,
2016 (remainder)	$	831
2017	925
2018	851
2019	778
2020	600
Thereafter	2,383
	$	6,368


5.	Inventories

Inventories, net of reserves, as of March 31, 2016 and December 31, 2015 consisted of the following:



	March 31, 2016		December 31, 2015
Current:
Raw materials	$	3,404	$	2,735
Finished goods	11,066		10,712
	$	14,470	$	13,447
Long-term:
Raw materials	$	438	$	375
Finished goods	1,583		1,643
	$	2,021	$	2,018

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.

Current finished goods do not include distributor channel inventories in the amounts of approximately $1,445 and $1,628 as of March 31, 2016 and December 31, 2015, respectively. Distributor channel inventories represent inventory at distributors and other customers where revenue recognition criteria have not yet been achieved.

The following table summarizes the losses incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory during the three months ended March 31, 2016 and 2015, respectively.



	Three months ended March 31,
	2016		2015
Net loss (gain) on valuation of inventory and write-off of obsolete inventory	$	119	$	47

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited – Dollars in thousands)


6.	Share-based Compensation

Employee Stock Option Plans

The Company’s share-based incentive plans offering stock options primarily consists of two plans. Under both plans, one new share is issued for each stock option exercised. The plans are described below.

The Company’s 1998 Incentive Plan (the “1998 Plan”) was the Company's primary plan through November 2007. Under this plan shares of common stock was made available for issuance to employees and directors. Through December 1999, 1,066,000 options were granted that would cliff vest after 9.8 years; however, such vesting was accelerated for 637,089 of these options upon meeting certain earnings per share goals through the fiscal year ended June 30, 2003. Subsequent to December 1999 and through June 2002, 1,248,250 options were granted that would cliff vest after 6.0 years; however, such vesting was accelerated for 300,494 of these options upon meeting certain earnings per share goals through the fiscal year ended June 30, 2005.

The Company's 2007 Equity Incentive Plan (the “2007 Plan”) was restated and approved by the shareholders on December 12, 2014. Provisions of the restated 2007 Plan include the granting of up to 2,000,000 incentive and non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units. Options may be granted to employees, officers, non-employee directors and other service providers and may be granted upon such terms as the Compensation Committee of the Board of Directors determines in their sole discretion.

Of the options granted subsequent to June 2002, all vesting schedules are based on 3 or 4-year vesting schedules, with either one-third or one-fourth vesting on the first anniversary and the remaining options vesting ratably over the remainder of the vesting term. Generally, directors and officers have 3-year vesting schedules and all other employees have 4-year vesting schedules. Additionally, in the event of a change in control or the occurrence of a corporate transaction, the Company’s Board of Directors has the authority to elect that all unvested options shall vest and become exercisable immediately prior to the event or closing of the transaction. All options outstanding as of March 31, 2016 had contractual lives of ten years. Under the 1998 Plan, 2,500,000 shares were authorized for grant. As of March 31, 2016, there were 177,000 options outstanding under the 1998 Plan, which includes the cliff vesting and 3 or 4-year vesting options discussed above. As of March 31, 2016, there were 712,992 options outstanding under the 2007 Plan. As of March 31, 2016, the 2007 Plan had 893,698 authorized unissued options, while there were no options remaining that could be granted under the 1998 Plan.

A summary of the stock option activity under the Company’s plans for the three months ended March 31, 2016 is as follows:



	Number of shares	Weighted average exercise price
Options outstanding at beginning of quarter	1,028,935	$6.03
Granted	157,200	11.97
Less:
Exercised	(69,621)	4.21
Repurchased	(225,542)	4.37
Canceled or Expired	(980)	8.51
Options outstanding at end of quarter	889,992	7.64
Options exercisable at end of quarter	550,097	$5.64

As of March 31, 2016, the total remaining unrecognized compensation cost related to non-vested stock options, net of forfeitures, was approximately $340, which will be recognized over a weighted average period of 2.57 years.

Stock Option Repurchase: From March 11, 2016 to March 17, 2016, the Company offered to repurchase eligible vested options to purchase shares under the 1998 Plan and the 2007 Plan from employees. The Company repurchased delivered options at a repurchase price equal to the difference between the closing market price on the date of the employee’s communication of accepting the repurchase offer and the exercise price of such employee’s delivered options, subject to applicable withholding taxes and charges. The Company repurchased 225,542 stock options from employees at an average purchase price of $7.77.

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited – Dollars in thousands)

Employee Stock Purchase Plan

The Company issues shares to employees under the Company's 2014 Employee Stock Purchase Plan (the "ESPP"). The ESPP was approved by the Company’s shareholders on December 12, 2014. As of March 31, 2016, 485,033 of the originally approved 500,000 shares were available for offerings under the ESPP. Offering periods under the ESPP commence on each Jan 1 and July 1, and continue for a duration of six months. The ESPP is available to all employees who do not own, or are deemed to own, shares of stock making up an excess of 5% of the combined voting power of the Company, its parent or subsidiary. During each offering period, each eligible employee may purchase shares under the ESPP after authorizing payroll deductions. Under the ESPP, each employee may purchase up to the lesser of 2,500 shares or $25 of fair market value (based on the established purchase price) of the Company's stock for each offering period. Unless the employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase common stock on the last business day of the period at a price equal to 85% (or a 15% discount) of the fair market value of the common stock on the first or last day of the offering period, whichever is lower.

Share-based compensation expense has been recorded as follows:



	Three months ended March 31,
	2016		2015
Cost of goods sold	$	4	$	5
Sales and marketing	14		40
Research and product development	27		33
General and administrative	103		160
	$	148	$	238


7.	Shareholders’ Equity

The following table summarizes the change in shareholders’ equity during the three months ended March 31, 2016 and 2015, respectively:



	Three months ended March 31,
	2016			2015
Balance at the beginning of the period	$	82,569		$	76,016
Exercise of stock options	293			20
Stock repurchased	(404		)	—
Options repurchased	(1,752		)	—
Proceeds from stock purchase plan	25			—
Dividends	(459		)	(319		)
Share-based compensation - options	143			238
Share-based compensation - ESPP	5			—
Tax benefit - stock option exercises	563			7
Unrealized gain or loss on investments, net of tax	121			55
Foreign currency translation adjustment	33			(180		)
Net Income during the period	1,368			1,272
Balance at end of the period	$	82,505		$	77,109

On February 25, 2016, the Company announced a quarterly cash dividend of $0.05 per share to be paid on March 18, 2016 to shareholders of record as of March 7, 2016.

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited – Dollars in thousands)


8.	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 substantial majority of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs. The following table sets forth the fair value of the financial instruments re-measured by the Company as of March 31, 2016 and December 31, 2015:



		Level 1		Level 2		Level 3		Total
March 31, 2016
Corporate bonds and notes		$	—	$	19,506	$	—	$	19,506
Municipal bonds		—		6,731		—		6,731
	Total	$	—	$	26,237	$	—	$	26,237



		Level 1		Level 2		Level 3		Total
December 31, 2015
Corporate bonds and notes		$	—	$	20,744	$	—	$	20,744
Municipal bonds		—		5,621		—		5,621
	Total	$	—	$	26,365	$	—	$	26,365


9.	Income Taxes

The Company's forecasted effective tax rate at March 31, 2016 is 35.2%, a 0.6% decrease from the 35.8% effective tax rate recorded at December 31, 2015. The forecasted effective tax rate of 35.2% excludes jurisdictions for which no benefit from forecasted current year losses is anticipated. Including losses from such jurisdictions results in a forecasted effective tax rate of 35.5%. Our forecasted effective tax rate could fluctuate significantly on a quarterly basis and could change, to the extent that earnings in countries with tax rates that differ from that of the U.S. differ, from amounts anticipated at March 31, 2016.

After discrete tax benefit of $93, the effective tax rate for the quarter ended March 31, 2016 is 31.3%. The discrete tax benefit is primarily attributable to tax benefit related to stock-based compensation.


10.	Subsequent Events

The Company evaluated its consolidated financial statements as of and for the three months ended March 31, 2016 for subsequent events through the date the financial statements were issued. The Company is not aware of any subsequent event which would require recognition or disclosure in the financial statements.

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

This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, 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, 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 press releases and reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2015. All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015.

BUSINESS OVERVIEW

We are a global company that designs, develops and sells conferencing, collaboration, streaming and digital signage solutions for audio/voice and visual communications. The performance and simplicity of our advanced comprehensive solutions enhance the quality of life and offer unprecedented levels of functionality, reliability and scalability.

We design, develop, market, and service a comprehensive line of high-quality conferencing products for personal use, as well as traditional tabletop, mid-tier premium and higher-end professional products for large, medium and small businesses. We occupy the number one global market share position, with more than 50% market share in the professional audio conferencing market for our products used by large businesses and organizations such as enterprise, healthcare, education and distance learning, government, legal and finance. Our solutions save organizations time and money by creating a natural environment for collaboration and communication.

We have an established history of product innovation and plan to continue to apply our expertise in audio, video and network engineering to develop and introduce innovative new products and enhance our existing products. Our end-users range from some of the world's largest and most prestigious companies and institutions to small and medium-sized businesses, higher education and government organizations, as well as individual consumers. We sell our commercial products to these end-users primarily through a global network of independent distributors who, in turn, sell our products to dealers, systems integrators and other value-added resellers

Our business goals are to:


•	Maintain our leading global market share in professional audio conferencing products for large businesses and organizations;


•	Leverage the video conferencing & collaboration, streaming and digital signage technologies to enter new growth markets;


•	Focus on the small and medium business (SMB) market with scaled, lower cost and less complex products and solutions;


•	Capitalize on the growing adoption of unified communications and introduce new products through emerging information technology channels;

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


•	Capitalize on emerging market opportunities as audio visual, information technology, unified communications and traditional digital signage converge to meet enterprise and commercial multimedia needs; and


•	Expand and strengthen our sales channels.

We will continue to focus on our core strengths, which include the following:


•	Providing a superior conferencing and collaboration experience;


•	Significantly impacting multimedia distribution and control;


•	Offering greater value to our customers and partners;


•	Leveraging and extending ClearOne technology, leadership and innovation;


•	Leveraging our strong domestic and international channels to distribute new products; and


•	Strengthening existing customer and partner relationships through dedicated support.

Our revenues were $13.0 million and $13.6 million during the three months ended March 31, 2016 and 2015, respectively. The decrease in revenues was due to all-around weakness in the global economy especially in APAC, Europe and Africa. Our gross profit remained essentially unchanged between the three months ended March 31, 2016 and the three months ended March 31, 2015. Net income increased by $96 thousand during the three months ended March 31, 2016 compared to the three months ended March 31, 2015. Net income for the three months ended March 31, 2016 increased primarily due to reduced operating expenses and tax expenses compared to the three months ended March 31, 2015.

Our revenue growth and income growth is dependent on the recovery of the global economy. We closely monitor the economic situation around the world and have developed sound operating and financial plans to overcome the challenges posed by the weak economy.

A detailed discussion of our results of operations follows below.

ANALYSIS OF RESULTS OF OPERATIONS

Results of Operations for the three months ended March 31, 2016, and 2015

The following table sets forth certain items from our unaudited condensed consolidated statements of operations (dollars in thousands) for the three months ended March 31, 2016 and 2015, respectively, together with the percentage of total revenue which each such item represents:



	Three months ended March 31,
	2016		% of Revenue	2015		% of Revenue
Revenue	$	13,033	100%	$	13,586	100%
Cost of goods sold	4,568		35%	5,124		38%
Gross profit	8,465		65%	8,462		62%
Sales and marketing	2,625		20%	2,622		19%
Research and product development	2,270		17%	1,941		14%
General and administrative	1,598		12%	2,000		15%
Operating income	1,972		15%	1,899		14%
Other income (expense), net	11		0%	104		1%
Income before income taxes	1,983		15%	2,003		15%
Provision for income taxes	615		5%	731		5%
Net income	$	1,368	10%	$	1,272	9%

Revenue

Revenue for the three months ended March 31, 2016 was approximately $13.0 million, a decrease of approximately 4% from the three months ended March 31, 2015. The decrease in revenue was due to reduced demand across all regions except USA. The decrease was especially stronger in Asia Pacific, Southern and Central Europe, Canada and South Africa. On the products

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

side, the increase in revenues from microphones and video products was more than offset by a decline in revenues from all other product lines.

The net change in deferred revenue during the three months ended March 31, 2016 and March 31, 2015 was a net decrease in deferred revenue of $0.3 million and a net decrease in deferred revenue of $0.5 million, respectively. See “Critical Accounting Policies and Estimates” under “Revenue and Associated Allowance for Revenue Adjustments and Doubtful Accounts” below for a detailed discussion of deferred revenue.

Costs of Goods Sold and Gross Profit

Costs of goods sold include expenses associated with finished goods purchased from electronic manufacturing services (EMS) providers, in addition to other operating expenses, which include material and direct labor, our manufacturing and operations organization, property and equipment depreciation, warranty expenses, freight expenses, royalty payments, and the allocation of overhead expenses.

Our gross profit margin (GPM), which is gross profit as a percentage of revenue, was 65% and 62% for the three months ended March 31, 2016 and 2015, respectively. The 3% increase in gross margin was primarily due to the increase of higher margin products in our revenue mix and the contribution of licensing fees to the revenue.

Our profitability in the near-term continues to depend significantly on our revenues from professional audio conferencing products, which includes wired and wireless microphones. 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.

Operating Expenses

Operating expenses for the three months ended March 31, 2016 decreased by approximately $70 thousand to $6.5 million, compared to $6.6 million for the three months ended March 31, 2015.

Sales and Marketing (“S&M”) Expenses. 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 of approximately $2.6 million remained essentially unchanged for the three months ended March 31, 2016, when compared to S&M expenses for the three months ended March 31, 2015. The decrease in employee related costs and commissions were equally offset by marketing, trade-show costs and consulting expenses.

Research and Development (“R&D”) Expenses. R&D expenses include research and development and product line management, including employee-related costs, outside services, expensed materials and depreciation, and an allocation of overhead expenses.

R&D expenses of approximately $2.3 million for the three months ended March 31, 2016 increased by $0.4 million, or 17%, when compared to R&D expenses of approximately $1.9 million for the three months ended March 31, 2015. R&D expenses increased primarily due to increases in costs for various R&D projects.

General and Administrative (“G&A”) Expenses. G&A expenses include employee-related costs, professional service fees, allocations of overhead expenses, litigation costs, and corporate administrative costs, including finance, information technology and human resources.

G&A expenses of approximately $1.6 million for the three months ended March 31, 2016 decreased by $0.4 million, or 20%, when compared to G&A expenses of approximately $2.0 million for the three months ended March 31, 2015. G&A expenses decreased mainly due to a decrease in amortization of intangibles, reduced legal expenses and reduction in audit and accounting fees.

Other income (expense), net

Other income (expense), net, includes interest income, interest expense, and currency gain (loss).

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

Provision for income taxes

During the three months ended March 31, 2016, we accrued income taxes at the forecasted effective tax rate of 35.2% as compared to the forecasted effective tax rate of 35.8% used during the three months ended March 31, 2015. In addition, a discrete tax benefit of $93 thousand is primarily attributable to tax benefit related to stock-based compensation.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2016, our cash and cash equivalents were approximately $13.9 million, an increase of approximately $0.6 million compared to cash and cash equivalents of approximately $13.4 million as of December 31, 2015.

Net cash provided by operating activities was $2.1 million during the three months ended March 31, 2016, a decrease in cash flow of approximately $0.7 million compared to $2.8 million of cash provided by operating activities during the three months ended March 31, 2015. The decrease in operating cash flow was primarily due to a reduction in non-cash charges of $0.5 million, and changes in operating assets and liabilities totaling $0.3 million, partially offset by $0.1 million increase in net income.

Net cash provided by investing activities was approximately $0.1 million during the three months ended March 31, 2016 compared to $0.7 million of cash provided by investing activities during the three months ended March 31, 2015. Net cash provided by investing activities during the three months ended March 31, 2016 and 2015 included proceeds from maturities and sales of marketable investment securities, purchases of marketable securities and purchase of property and equipment.

Net cash used in financing activities was approximately $1.7 million during the three months ended March 31, 2016, when compared to $27 thousand of cash provided by investing activities during the three months ended March 31, 2015. Financing activities in the first quarter of 2016 primarily consisted of cash inflows of about $0.3 million proceeds from stock based compensation plans and $0.6 million from tax benefits from equity based compensation programs and cash outflows of $1.8 million on repurchase of stock options, $0.5 million for dividend payments and $0.4 million towards stock repurchases. Financing activities in the same period in 2015 consisted mostly of cash inflows of about $20 thousand from the exercise of stock options.

From March 11, 2016 to March 17, 2016, the Company offered to repurchase eligible vested options to purchase shares under the 1998 Plan and the 2007 Plan from employees. On March 9, 2016, the Board of Directors of the Company authorized the repurchase of up to $10 million of the company’s outstanding shares of common stock under a new stock repurchase program. The repurchase program may be suspended or discontinued at any time without prior notice. There are no future repurchases planned at this time.

On December 2, 2014, ClearOne, Inc. issued a press release announcing the declaration of future cash dividends by the Company's Board of Directors. The most recent of these dividends was announced on February 25, 2016 when the company announced a quarterly cash dividend of $0.05 per share to be paid on March 18, 2016 to shareholders of record as of March 7, 2016.

As of March 31, 2016, our working capital was $35.7 million as compared to $36.5 million as of December 31, 2015.

We believe that future income from operations and effective management of working capital will provide the liquidity needed to meet our short-term and long-term operating requirements and finance our growth plans. We also believe that our strong financial position and sound business structure will enable us to raise additional capital if and when needed to meet our short and long-term financing needs. In addition to capital expenditures, we may use cash in the near future for selective infusions of technology, sales & marketing, infrastructure, and other investments to fuel our growth, as well as acquisitions that may strategically fit our business and are accretive to our performance. We may also use cash to pay cash dividends or repurchase stock.

At March 31, 2016, we had open purchase orders related to our electronics manufacturing service providers of approximately $4.0 million, primarily related to inventory purchases.

At March 31, 2016, we had inventory totaling $16.5 million, of which non-current inventory accounted for $2.0 million. This compares to total inventories of $15.5 million and non-current inventory of $2.0 million as of December 31, 2015.

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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 consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations. We believe that the estimates we use are reasonable; however, actual results could differ from those estimates. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2015. We believe the following critical accounting policies identify our most critical accounting policies, which are the policies that are both important to the representation of our financial condition and results and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Revenue and Associated Allowances for Revenue Adjustments and Doubtful Accounts

Included in continuing operations is product revenue, primarily from product sales to distributors, dealers, and end-users. Product revenue is recognized when (i) the products are shipped and any right of return expires, (ii) persuasive evidence of an arrangement exists, (iii) the price is fixed and determinable, and (iv) collection is reasonably assured.

We provide a right of return on product sales to certain distributors under a product rotation program. Under this seldom-used program, once a quarter, a distributor is allowed to return products purchased during the prior quarter for a total value generally not exceeding 15% of the distributor’s net purchases during the preceding quarter. The distributor is, however, required to place a new purchase order for an amount not less than the value of products returned under the stock rotation program. When products are returned, the associated revenue, cost of goods sold, inventory and accounts receivable originally recorded are reversed. When the new order is placed, the revenue, associated cost of goods sold, inventory and accounts receivable are recorded and the product revenue is subject to the deferral analysis described below. In a small number of cases, the distributors are also permitted to return the products for other business reasons.

Revenue from product sales to distributors is not recognized until the return privilege has expired or until it can be determined with reasonable certainty that the return privilege has expired, which approximates when the product is sold-through to customers of our distributors (dealers, system integrators, value-added resellers, and end-users), rather than when the product is initially shipped to a distributor. At each quarter-end, we evaluate the inventory in the distribution channel through information provided by our distributors. The level of inventory in the channel will fluctuate up-ward or down-ward each quarter based upon our distributors’ individual operations. Accordingly, each quarter-end deferral of revenue and associated cost of goods sold are calculated and recorded based upon the actual channel inventory reported at quarter-end. Further, with respect to distributors and other channel partners not reporting the channel inventory, the revenue and associated cost of goods sold are deferred until we receive payment for the product sales made to such distributors or channel partners.

The accuracy of the deferred revenue and costs depend to a large extent on the accuracy of the inventory reports provided by our distributors and other resellers, and any material error in those reports would affect our revenue deferral. However, we believe that the controls we have in place, including periodic physical inventory verifications and analytical reviews, would help us identify and prevent any material errors in such reports.

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

The amount of deferred cost of goods sold was included in distributor channel inventories. The following table details the amount of deferred revenue, cost of goods sold, and gross profit as of March 31, 2016 and December 31, 2015:



	March 31, 2016		December 31, 2015
Deferred revenue	$	4,203	$	4,549
Deferred cost of goods sold	1,445		1,628
Deferred gross profit	$	2,758	$	2,921

We offer rebates and market development funds to certain of our distributors, dealers/resellers, and end-users based upon volume of product purchased by them. We record rebates quarterly as a reduction of revenue in accordance with GAAP.

We offer credit terms on the sale of our products to a majority of our channel partners and perform ongoing credit evaluations of our customers’ financial condition. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability or unwillingness of our channel partners to make required payments based upon our historical collection experience and expected collectability of all accounts receivable. Our actual bad debts in future periods may differ from our current estimates and the differences may be material, which may have an adverse impact on our future accounts receivable and cash position.

Impairment of Goodwill and Intangible Assets

Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. We perform impairment tests of goodwill and intangible assets with indefinite useful lives on an annual basis in the fourth fiscal quarter, or sooner if a triggering event occurs suggesting possible impairment of the values of these assets. There were no impairments recorded in 2016 or 2015 as no impairment indicators existed. However, due to uncertainty in the industrial, technological, and competitive environments in which we operate, we might be required to exit or dispose of the assets acquired through our acquisitions, which could result in an impairment of goodwill and intangible assets.

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets, such as property and equipment and definite-lived intangibles subject to amortization, annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated future undiscounted net cash flows of the related asset or group of assets over their remaining lives. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent of other groups of assets. The impairment of long-lived assets requires judgments and estimates. If circumstances change, such estimates could also change. Assets held for sale are reported at the lower of the carrying amount or fair value, less the estimated costs to sell.

Accounting for Income Taxes

We are subject to income taxes in both the United States and in certain foreign jurisdictions. We estimate our current tax position together with our future tax consequences attributable to temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation, and other reserves for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, prior year carryback, or future reversals of existing taxable temporary differences. To the extent we believe that recovery is not more likely than not, we establish a valuation allowance against these deferred tax assets. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets.

To the extent we establish a valuation allowance in a period, we must include and expense the allowance within the tax provision in the consolidated statement of operations. In accordance with ASC Topic 740, "Accounting for Income Taxes", we analyzed our valuation allowance at December 31, 2015 and determined that based upon available evidence it is more likely than not that certain of our deferred tax assets related to capital loss carryovers, state research and development credits, and foreign net operating loss carryforwards will not be realized and, accordingly, we have recorded a valuation allowance against these deferred tax assets in the amount of $1.1 million.

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

Lower-of-Cost or Market Adjustments and Reserves for Excess and Obsolete Inventory

We account for our inventory on a first-in, first-out basis, and make appropriate adjustments on a quarterly basis to write down the value of inventory to the lower-of-cost or market. In addition to the price of the product purchased, the cost of inventory includes our internal manufacturing costs, including warehousing, material purchasing, quality and product planning expenses.

We perform a quarterly analysis of obsolete and slow-moving inventory to determine if any inventory needs to be written down. In general, we write down our excess and obsolete inventory by an amount that is equal to the difference between the cost of the inventory and its estimated market value if market value is less than cost, based upon assumptions about future product life-cycles, product demand, shelf life of the product, inter-changeability of the product and market conditions. Those items that are found to have a supply in excess of our estimated current demand are considered to be slow-moving or obsolete and classified as long-term. An appropriate reserve is made to write down the value of that inventory to its expected realizable value. These charges are recorded in cost of goods sold. The reserve against slow-moving or obsolete inventory is increased or reduced based on several factors which, among other things, require us to make an estimate of a product’s life-cycle, potential demand and our ability to sell these products at estimated price levels. While we make considerable efforts to calculate reasonable estimates of these variables, actual results may vary. If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of changing technology and customer requirements, we could be required to increase our inventory allowances and our gross profit could be adversely affected.

Share-Based Compensation

In December 2004, the FASB issued guidelines now contained under FASB ASC Topic 718, "Compensation – Stock Compensation". ASC Topic 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Primarily, ASC Topic 718 focuses on accounting for transactions in which an entity obtains employee services in share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

Under ASC Topic 718, we measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide services in exchange for the awards – the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Therefore, if an employee does not ultimately render the requisite service, the costs associated with the unvested options will not be recognized cumulatively.

Under ASC Topic 718, we recognize compensation cost net of an anticipated forfeiture rate and recognize the associated compensation cost for those awards expected to vest on a straight-line basis over the requisite service period. We use 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, the expected dividends of the awards, and an estimate of the amount of awards that are expected to be forfeited. If assumptions change in the application of ASC Topic 718 and its fair value recognition provisions in future periods, the stock-based compensation cost ultimately recorded under the guidelines of ASC Topic 718 may differ significantly from what was recorded in the current period.

Recent Accounting Pronouncements:

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for the Company on January 1, 2017. The Company has not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on the consolidated financial statements.

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adoption of this ASU is permitted. ClearOne has adopted this standard update early as it would simplify the presentation of taxes on the balance sheet and within the income tax footnote.

In February 2016, FASB released Accounting Standards Update No. 2016-02, Leases (Topic 842) to bring transparency to lessee balance sheets. The ASU will require organizations that lease assets (lessees) to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The standard will apply to both types of leases-capital (or finance) leases and operating leases. Previously, GAAP has required only capital leases to be recognized on lessee balance sheets. The standard will take effect the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application will be permitted for all organizations. The Company has not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Shared-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for the Company on January 1, 2017 and we are currently evaluating the impact that ASU 2016-09 will have on our consolidated financial statements.


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.


Item 4.	CONTROLS AND PROCEDURES

An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2016 was performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective as of March 31, 2016 to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms.

There was no change in our internal control over financial reporting during the quarter ended March 31, 2016 that materially affected, or that we believe is reasonably likely to materially affect, our internal control over financial reporting.

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CLEARONE, INC.

PART II - OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

There are no updates to the status of the legal proceedings and commitments and contingencies reported in our Form 10-K for the year ended December 31, 2015 under Part I, Item 3. Legal Proceedings and Note 8 - Commitments and Contingencies of the Notes to Consolidated Financial Statements (Part II, Item 8).


Item 1A.	RISK FACTORS

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.


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

In May 2012, our Board of Directors authorized a stock repurchase program authorizing the Company to repurchase up to $2 million of our outstanding common stock. On July 30, 2012, the Board of Directors increased the repurchase amount to $3 million from the original $2 million. On February 20, 2013, the Board of Directors again increased the repurchase amount to $10 million from $3 million. On December 2, 2014, ClearOne, Inc. issued a press release announcing the declaration of future cash dividends by the Company's Board of Directors and reported the discontinuance of this stock repurchase program. At the time of the discontinuance of this stock repurchase program, the Company had repurchased approximately $5.4 million of the Company's stock.

On March 9, 2016, the Board of Directors of the Company authorized the repurchase of up to $10 million of the Company’s outstanding shares of common stock under a new stock repurchase program. In connection with the repurchase authorization, the Company was authorized to complete the repurchase through open market transactions or through an accelerated share repurchase program, in each case to be executed at management’s discretion based on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. The repurchase program may be suspended or discontinued at any time without prior notice. The transactions effectuated to date occurred in open market purchases.

During the three months ended March 31, 2016 we acquired the following shares of common stock under the current stock repurchase program:



Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to January 31	—			—	10,000,000
February 1 to February 29	—			—	10,000,000
March 1 to March 31	33,600	$	12.02	33,600	9,596,063
Total	33,600	12.02		33,600	9,596,063

From March 11, 2016 to March 17, 2016, the Company offered to repurchase eligible vested options to purchase shares under the 1998 Plan and the 2007 Plan from employees. The Company repurchased delivered options at a repurchase price equal to the difference between the closing market price on the date of the employee’s communication of accepting the repurchase offer and the exercise price of such employee’s delivered options, subject to applicable withholding taxes and charges.


Item 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.


Item 4.	MINE SAFETY DISCLOSURES

Not applicable.

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CLEARONE, INC.


Item 5.	OTHER INFORMATION

Not applicable.


Item 6.	EXHIBITS



Exhibit No.		Title of Document
10.1		Form of Offer to Repurchase Eligible Options for Cash
31.1		Section 302 Certification of Chief Executive Officer (filed herewith)
31.2		Section 302 Certification of Principal Financial Officer (filed herewith)
32.1		Section 906 Certification of Chief Executive Officer (filed herewith)
32.2		Section 906 Certification of Principal Financial Officer (filed herewith)
101.INS		XBRL Instance Document (filed herewith)
101.SCH		XBRL Taxonomy Extension Schema (filed herewith)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF		XBRL Taxonomy Extension Definitions Linkbase (filed herewith)
101.LAB		XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase (filed herewith)

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CLEARONE, INC.

SIGNATURES

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



		ClearOne, Inc., (Registrant)

May 10, 2016	By:	/s/ Zeynep Hakimoglu
		Zeynep Hakimoglu Chief Executive Officer (Principal Executive Officer)

May 10, 2016	By:	/s/ Narsi Narayanan
		Narsi Narayanan Senior Vice President of Finance (Principal Financial and Accounting Officer)