Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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, descriptions of our review of strategic alternatives and the timing and impact of any potential strategic transactions, the proposed development, manufacturing, and sale of our products; statements that describe expectations regarding pricing trends, the markets for our products, our anticipated capital expenditures, our cost reduction and operational restructuring initiatives, and future impact of regulatory developments; statements with regard to the nature and extent of competition we may face in the future; statements with respect to the anticipated sources of and need for future financing; and statements with respect to future strategic plans, goals, and objectives and forecasts of future growth and value; 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, 2024. 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, 2024. On September 30, 2025, we classified substantially all operating assets related to our product business as held for sale and began presenting the results of that component as discontinued operations. Accordingly, the discussion below focuses on continuing operations unless otherwise indicated. See Note 2.

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

In September 2025, the Company's Board of Directors approved a plan (the "Strategic Plan") to seek the sale of a significant portion of the Company's operating assets related to its product business, reduce the Company's continuing operations to warranty and product support, and position the Company as a reverse merger vehicle for a possible strategic transaction (a "Strategic Transaction"). Accordingly, as of September 30, 2025, and we classified the related disposal group of assets as held for sale and measured it at the lower of carrying amount or fair value less costs to sell (see Note 2- Discontinued Operations and Assets Held for Sale). Because the planned disposal represents a strategic shift that will have a significant effect on our operations and financial results, we present the results of that component as discontinued operations for all periods shown. Accordingly, this MD&A discusses continuing operations separately from discontinued operations where relevant.

Strategic actions during 2025

• Special stock dividend - Class A Redeemable Preferred Stock. In July 2025, we issued Class A Redeemable Preferred Stock via a one-time special stock dividend designed to distribute 100% of the net proceeds from an asset sale to holders upon redemption (see Note 3- Class A Redeemable Preferred (Temporary Equity)). Class A is presented in temporary equity on the balance sheet.
• In July 2025, our convertible note automatically converted into shares of Class B Convertible Preferred Stock pursuant to its original terms (see Note 4).
• In September 2025, we repurchased and cancelled certain outstanding warrants, including one related-party transaction approved by our Board (see Note 5).
• Disposition status (subsequent event). On October 24, 2025, after quarter-end, we closed the sale of intellectual property and certain inventories to an industry buyer for cash consideration (see Subsequent Events). Any differences between the carrying amounts at September 30, 2025and final closing amounts will be recognized in the subsequent period.

Beginning in the third quarter of 2025:

• The disposal group of assets is presented as assets held for sale (and liabilities held for sale, if any) on the balance sheet.
• The statement of operations includes (loss) income from discontinued operations, net of tax below (loss) from continuing operations; basic and diluted loss per share are presented for continuing operations, discontinued operations, and total (see Note 7- Loss Per Share).
• The statement of cash flows remains consolidated, with supplemental cash-flow information for the discontinued operations disclosed in Note 2.

Operating context

During 2025, our operating results were impacted by constrained liquidity, intermittent supply chain availability, and reduced channel demand relative to the prior year. Management's primary focus through and after quarter-end has been executing the asset sale, aligning our cost structure with the go-forward profile of the business, and preserving liquidity while we evaluate additional strategic alternatives.

Continuing operations and post-disposition plan

Following the classification of our product business as held for sale at September 30, 2025, and the subsequent closing of the asset sale after quarter-end (see Note 2- Discontinued Operations and Assets Held for Sale and Subsequent Events), our continuing operations consist of: (i) executing a restructuring in furtherance of the Asset Disposition to Biamp and a possible Strategic Transaction, including monetization of residual assets not included in the sale (e.g., fixed assets, leaseholds) and collection of accounts receivable and prepaids; (b) maintaining a lean corporate infrastructure to satisfy reporting and governance requirements; (c) providing product support and warranty services with a small service inventory and technical support team; (d) managing and, where feasible, terminating or assigning facility leases to reduce ongoing cash burn; (e) completing the redemption of our Class A Redeemable Preferred Stock in accordance with its terms; and (f) evaluating additional financing or strategic alternatives as necessary to satisfy obligations as they come due.

Warranty support activities

We retained responsibility for legacy product support and warranty obligations; the buyer did not assume these liabilities. As a result, continuing operations will maintain a small technical support function and service inventory (e.g., spare parts and repair units) to honor product support and warranty terms. We do not expect to manufacture new product or pursue new product sales, but we will pursue sale of remaining inventories and any other assets as part of eliminating all assets for cash. Any immaterial service or parts revenue, if recognized, will be reported within continuing operations. We will evaluate our service inventory and warranty accruals each period and adjust estimates based on observed claim rates and resolution costs.

Corporate infrastructure and compliance

To support reporting, governance, and restructuring activities, we expect to maintain a lean corporate staff, including accounting/finance, IT, and senior management (CEO/CFO). Ongoing costs will include audit and tax services, legal and advisory fees, SEC reporting, D&O insurance, IT/licensing, and Board and compliance expenses.

Monetization of residual assets and settlement of obligations

Management's near-term priorities include:

• Monetizing remaining assets not included in the sale, including fixed assets, and leaseholds/fixtures (through sale or lease termination/assignment);
• Collecting outstanding accounts receivable and realizing prepaid balances and deposits where recoverable;
• Settling outstanding trade payables, accrued expenses, warranty obligations, and other liabilities retained at closing;
• Managing leases, including negotiated terminations or assignments to reduce ongoing occupancy costs;
• Completing a restructuring and identifying a Strategic Transaction partner in the fourth quarter of 2025;
• Overseeing redemption mechanics for the Class A Redeemable Preferred Stock, which is designed to receive 100% of the net proceeds from the asset sale upon redemption (see Note 3- Class A Redeemable Preferred (Temporary Equity))

Presentation and comparability

Beginning in the third quarter of 2025, results of the disposed product business are presented as discontinued operations for all periods shown. Continuing operations primarily comprise warranty support, corporate and restructuring costs. The balance sheet reflects assets held for sale (and liabilities held for sale, if any) as of September 30, 2025. The statement of operations presents (loss) from continuing operations separately from (loss) from discontinued operations, net of tax, and basic/diluted loss per share is shown for continuing operations, discontinued operations, and total (see Note 7- Loss Per Share).

Critical accounting estimates

The classification of the disposal group of assets as held for sale and presentation as discontinued operations required management to make significant estimates, including the measurement of fair value less costs to selloff the disposal group of assets (ASC 360) and the warranty obligation retained by the Company (ASC 460). These estimates use assumptions regarding market participant pricing, transaction costs, expected claim rates and unit repair costs. Actual results could differ materially from these estimates.

Liquidity and going-concern considerations

We have incurred net losses and used cash in operations for the periods presented. Our ability to meet obligations as they come due depends on the timing and magnitude of cash available after the asset sale (net of costs), collections of receivables and other assets, management of restructuring costs, and access to additional financing or further strategic transactions, if required. These conditions raise substantial doubt about our ability to continue as a going concern within oneyear after the issuance of these financial statements. Management's plans include executing its restructuring and a Strategic Transaction efficiently, managing warranty exposure, monetizing residual assets, and prioritizing liquidity while completing the Class A redemption process. See Note 1- Basis of Presentation, Note 2, Note 3, and Subsequent Events.

Key risks and uncertainties

Execution of the restructuring and a Strategic Transactioninvolves risks, including warranty claim variability, timing of asset monetization, vendor and customer responses to our transition, and the cost and availability of essential public company services. Actual outcomes may differ materially from our current expectations. We are evaluating lease terminations or assignments associated with facilities formerly used by the disposed business. We will recognize lease exit costs or ROU asset impairments in periods when such actions are probable and amounts are reasonably estimable.

Off-balance sheet arrangements

We had no off-balance sheet arrangements as of September 30, 2025.

Deferred Product Revenue

Deferred product revenue decreased to $12on September 30, 2025compared to $17on December 31, 2024.

A detailed discussion of our results of operations follows below.

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

Results of Operations for the three and nine months ended September 30, 2025

We discuss Continuing Operations and Discontinued Operations separately. The following tables set forth certain items from our unaudited condensed consolidated statements of operations for the three and ninemonths ended September 30, 2025("2025-Q3") and 2024("2024-Q3"), respectively, together with the percentage of total revenue which each such item represents:

Continuing Operations

Overview

Continuing operations in the periods presented primarily comprise corporate activities (public-company reporting, governance and compliance), warranty support for legacy products, and restructuring actions associated with the post-disposition profile. As expected, we recorded no product revenue in continuing operations for the threeand nine months ended September 30, 2025and 2024.

Costs of Goods Sold and Gross Profit (Loss)

Cost of goods sold in continuing operations reflects warranty-related parts and labor and immaterial service inventory usage. With no revenue in continuing operations for the periods presented, gross margin percentages are not meaningful; the period-over-period dollar changes reflect timing and volume of warranty claims and repairs.

Operating Expenses

General & administrative (G&A)- G&A increased modestly in Q3-2025versus Q3-2024and increased year-to-date, driven primarily by legal, advisory and regulatory fees associated with the strategic review and disposition process, audit and tax fees, D&O insurance, and incremental US accounting headcount to meet compliance needs.

Sales & marketing (S&M) and research & development (R&D)- Following classification of the product business as held for sale, S&M and R&D expenses in continuing operations were immaterial for the periods presented. To the extent severance or other exit costs were recognized in the quarter, such costs are reflected in the relevant operating expense caption in the period incurred.

Restructuring/exit costs- To the extent actions met ASC 420recognition criteria, we recorded employee termination or contract termination costs; otherwise, such costs will be recognized when probable and reasonably estimable.

Other income (expense), net

Other income (expense), net reflects interest income on cash equivalents, interest expense on the convertible note through its conversion on July 21, 2025, and immaterial gains/losses on asset disposals related to restructuring activities.

Income taxes

We maintained a full valuation allowance against US federal and state deferred tax assets in both periods due to cumulative losses and uncertainty of realization. Accordingly, we did not recognize an income tax benefit for losses in continuing operations.

Outlook

We expect continuing operations to consist mainly of warranty servicing and public-company costs while we monetize remaining assets, manage lease exits, and complete the Class A redemption mechanics. We will continue to evaluate warranty claims experience and service inventory levels and adjust estimates as appropriate.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2025, our cash and cash equivalents were approximately $0.8 million compared to $1.4 million as of December 31, 2024. Our working capital was $4.8 million and $15.2 million as of September 30, 2025 and December 31, 2024, respectively.

Cash used in operating activities was approximately ($3.3) million in the nine months ended September 30, 2025, an increase of approximately $1.2 million from ($2.1) million of cash used in operating activities in the nine months ended September 30, 2024. The increase in cash used was primarily due to increased legal and transaction fees to complete a strategic transaction.

Cash provided by (used in) investing activities was ($0.0) million for the nine months ended September 30, 2025, compared to $2.9million for the nine months ended September 30, 2024. The decrease in cash provided by investing activities for the comparative period primarily reflects the liquidation of the Company's investment portfolio during 2024, which generated $3.2 million of proceeds in the prior year, less amounts paid for property, plant, equipment and software.

Cash provided by financing activities in the nine months ended September 30, 2025 was $4.0 million compared to ($14.5) million of cash used by financing activities in the nine months ended September 30, 2024. The 2025 amount was comprised primarily of a stock sale and the sale of a convertible note, as discussed in Note(s) 1, 3, 4, 11and 12above, and our discussion in the following paragraphs.

In September 2025, the Company's Board of Directors approved a plan (the "Strategic Plan") to seek the sale of a significant portion of the Company's operating assets related to its product business, reduce the Company's continuing operations to warranty and product support, and position the Company as a reverse merger vehicle for a possible strategic transaction (a "Strategic Transaction"). Accordingly, as of September 30, 2025, the Company classified the related disposal group of assets as held for sale, measured at the lower of carrying amount or fair value less costs to sell. After quarter-end, on October 24, 2025, the Company closed the sale of certain inventory and intellectual property for cash consideration (see Subsequent Events). Pursuant to the terms of the Class A Redeemable Preferred Stock issued in July 2025, net proceeds from a qualifying asset sale are payable to Class A holders upon redemption (see Note 3- Class A Redeemable Preferred (Temporary Equity)). As a result, the asset-sale proceeds will not be available to fund ongoing operations other than for permitted transaction costs and restructuring activities.

These conditions, including (i) historical operating losses and negative operating cash flows, (ii) limited liquidity at September 30, 2025, (iii) the requirement to redeem Class A from asset-sale net proceeds, and (iv) the Company's go-forward profile consisting primarily of warranty support, public-company compliance, and restructuring activities, raise substantial doubt about the Company's ability to continue as a going concern within oneyear after the issuance of these financial statements.

Management is (a) executing a structured restructuring, including monetization of residual assets not included in the sale (e.g., fixed assets, leaseholds) and collection of accounts receivable and prepaids; (b) maintaining a lean corporate infrastructure to satisfy reporting and governance requirements; (c) administering warranty obligations with a small service inventory and technical support team; (d) managing and, where feasible, terminating or assigning facility leases to reduce ongoing cash burn; (e) completing the Class A redemption in accordance with its terms; and (f) evaluating additional financing or strategic alternatives as necessary to satisfy obligations as they come due. There can be no assurance these plans will be successful, timely, or sufficient to alleviate the conditions raising substantial doubt.

Accordingly, management has concluded that substantial doubt exists about the Company's ability to continue as a going concern for the twelve-month period following the issuance of these unaudited condensed consolidated financial statements. The financial statements do not include any adjustments to the carrying amounts and classification of assets and liabilities that might result if the Company were unable to continue as a going concern.

In furtherance of the Asset Sale pursuit, the Company completed a one-time special stock dividend of Class A Redeemable Preferred Stock, payable July 18, 2025 to holders of record of our common stock on July 11, 2025, which entitles holders of the Class A Redeemable Preferred Stock to 100% of net proceeds from any Asset Sale upon redemption. This structure aligns stockholder interests with the strategic process but depends on the successful completion of the Asset Sale for value realization.

As of September 30, 2025, First Finance Ltd. beneficially owned approximately 32.4% of our common stock on an as-converted basis and has the right to nominate twodirectors to our Board. This concentration may influence strategic decisions, including the ongoing restructuring and possible Strategic Transactions, and could affect our ability to attract alternative financing or partners.

As of September 30, 2025, we had no open purchase orders.

As of September 30, 2025, we had inventory totaling $0.4 million, of which non-current inventory accounted for $0.0 million. This compares to total inventories of $0.4 million, which includes non-current inventory of $0.0 million as of December 31, 2024.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of September 30, 2025 (in millions):

		1-3 Years				3-5 Years				More than 5 years
Operating lease obligations		$	0.6			$	0.2			$	0.4			$	-			$	-
Purchase obligations			-				-				-				-				-
Total		$	0.6			$	0.2			$	0.4			$	-			$	-

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 are based on unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Actual results could differ materially from those estimates. The estimates that we believe involve the most judgment and have the most significant potential to materially affect our results are summarized below; see the referenced notes for additional information.

Held for sale measurement and impairment (ASC 360)

As of September 30, 2025, we classified a disposal group of assets (intellectual property and certain inventories) as held for sale and measured it at the lower of carrying amount or fair value less costs to sell (FVLCTS). The determination of FVLCTS involves significant judgment, including consideration of an executed asset purchase agreement, market-participant assumptions, condition and salability of inventory, and estimated transaction costs. Changes in these inputs, including final closing adjustments, could result in additional impairment or reversal within discontinued operations. See Note 2- Discontinued Operations and Assets Held for Sale.

Discontinued operations presentation (ASC 205-20)

We determined that disposal of the product business represents a strategic shift with a major effect on operations and financial results. Accordingly, we present the disposed component as discontinued operations for all periods shown. This requires management judgment in identifying direct vs. indirect costs, ceasing depreciation/amortization within the disposal group of assets, and recasting prior periods. See Note 2.

Warranty obligations (ASC 460)

We retained responsibility for legacy product warranties. The warranty liability reflects estimates of expected claim rates, parts and labor costs, and logistics, informed by historical experience and current product information. Actual experience could differ, requiring increases or decreases to the liability and impacting continuing operations. See Note 1and MD&A - Continuing Operations.

Going concern (ASC 205-40)

We evaluate conditions and events that raise substantial doubt about our ability to continue as a going concern within oneyear after financial statement issuance, including historical losses, liquidity levels, the requirement to redeem Class A from net asset-sale proceeds, and the profile of continuing operations (warranty, public-company costs, restructuring). Our conclusions require judgment about the timing and success of plans (asset monetization, lease exits, financing). See Note 1- Going Concern and Liquidity.

Temporary equity - Class A Redeemable Preferred (ASC 480-10-S99)

Class A is mandatorily redeemable upon a qualifying asset sale for 100% of net proceeds and is presented in temporary equity. Judgment is required to assess accretion to redemption value (e.g., when redemption becomes probable and reasonably estimable) and to evaluate EPS participation. See Note 3- Class A Redeemable Preferred.

Discontinued Operations

Revenue

Our revenue decreasedto $1.3million in 2025-Q3 compared to $2.5million in 2024-Q3 due to a 72% declinein audio conferencing, a 49% declinein video products, and a 32% decreasein microphones. Our revenue decreased to $5.5million in 2025year-to-date compared to $8.4million in 2024year-to-date due to a 45% decline in audio conferencing, a 40% decline in video products, and a 24% decrease in microphones. Our traditional ceiling mics, personal audio-conferencing products, and video cameras suffered revenue declines due to decreasing demand and a reduction of the sales force in anticipation of an asset transaction for a strategic restructuring.

Costs of Goods Sold and Gross Profit

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

Our gross profit decreasedfrom $639 during 2024-Q3to a loss of $(886) during 2025-Q3.

The reduction in gross profit is the result of revenue decreasing by a higher percentage than cost of goods sold. The Company experienced a significant reduction in inventory levels, with a decrease of approximately $3.2million compared to December 31, 2024. This reduction was primarily driven by supply chain pauses from our cash flow constraints. As a result, there was insufficient new inventory to absorb the Company's standard overhead allocation, which is typically applied to inventory production. This led to unabsorbed overhead costs being recognized as an expense in the period, directly impacting cost of goods sold.

The increase in unabsorbed overhead reflects the misalignment between production levels and fixed overhead costs, which are generally allocated to inventory under our standard costing methodology.

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 2025-Q3were $1.2million compared to $2.0million in 2024-Q3. Total operating expenses thru 2025-YTD were $6.2million compared to $6.5million observing the same 9-month period in 2024. 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 were $0.4million in Q3-2025, compared to $1.1million in Q3-2024, while the year-to-date results for the nine months ended September 30, showed $2.9million in 2025compared to $3.6million in 2024. Both comparisons are the result of decreased sales commissions on fewer sales as well as lowered marketing spend that was offset by severance expense from 2025 Q3reduction in force being recognized.

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

R&D expenses were, $0.7 million in Q3-2025, compared to $0.8million in Q3-2024, while the year-to-date results for the nine months ended September 30, showed $2.7million in 2025compared to $2.5million in 2024. The decrease in comparing the quarterly results was due to a decrease in headcount. The increase in comparing the year-to-date results was primarily due to severance payments made in the Indian subsidiary and severance expense accrued in the US in 2025-Q2partially offset by reduction in personnel in the US.

General and Administrative- G&A expenses include employee-related costs, allocations of overhead expenses, litigation costs, and corporate administrative costs, including costs related to operational teams.

G&A expenses were $0.1 million in Q3-2025, compared to $0.1million in Q3-2024, while the year-to-date results for the nine months ended September 30, showed $0.5million in 2025compared to $0.4million in 2024. The increases in comparing both periods were due to increased expenses related to the exploration of strategic alternatives and moving between facilities.

Other income (expense), net

Other income (expense), net includes gain or loss on disposal of assets and impairment charges related to assets being held for sale. Other income for the three and ninemonths ended September 30, 2025 included a $10.7 million charge to impairment related to marking inventory and IP held for sale for fair market value, compared to $0.0 million for the three and ninemonths ended September 2024.

Provision for income taxes

During each of the nine months ended September 30, 2025 and 2024, we did not recognize any benefit from the losses incurred due to having a full valuation allowance on net deferred income taxes.