ClearOne
Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _________ to _________ Commission file number 001-33660CLEARONE, INC.(Exact name of registrant as specified in its charter) Utah 87-0398877(State or other jurisdiction ofincorporation or organization) (I.R.S. employeridentification number) 5225 Wiley Post Way, Suite 500, Salt Lake City, Utah 84116(Address of principal executive offices) (Zip Code) (Registrant’s telephone number, including area code)801-975-7200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name on each exchange on which registeredCommon Stock, $0.001 par value The NASDAQ Capital Market Securities registered pursuant to Section 12(g) of the Act None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during 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 filingrequirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired 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 suchshorter period that the registrant was required to submit and post such files). [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growthcompany” in Rule 12b-2 of the Exchange Act. (Check one): Larger Accelerated Filer [ ]Accelerated Filer [X]Non-Accelerated Filer [ ]Smaller Reporting Company [ ] (Do not check if a smaller reporting Company)Emerging Growth Company [ ] If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any newor revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ] Table of Contents Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No The aggregate market value of the shares of voting common stock held by non-affiliates was approximately $51.2 million at June 30, 2017 , (theCompany’s most recently completed second fiscal quarter), based on the $9.43 closing price for the Company’s common stock on the NASDAQ CapitalMarket on such date. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Suchdetermination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant. The number of shares of ClearOne common stock outstanding as of April 20, 2018 was 8,301,473. DOCUMENTS INCORPORATED BY REFERENCE Information required by Part III is incorporated by reference from registrant’s proxy statement for the 2017 annual meeting of shareholders or anamendment to this Annual Report on Form 10-K, which will be filed with the Securities and Exchange Commission within 120 days after the end of itsfiscal year ended December 31, 2017. Table of Contents CLEARONE, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017 TABLE OF CONTENTS Page PART I Item 1. Business1Item 1A. Risk Factors12Item 1B. Unresolved Staff Comments21Item 2. Properties21Item 3. Legal Proceedings21Item 4. Mine Safety Disclosures21 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities22Item 6. Selected Financial Data23Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations25Item 7A. Quantitative and Qualitative Disclosures about Market Risk33Item 8. Financial Statements and Supplementary Data33Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure33Item 9A. Controls and Procedures33Item 9B. Other Information34 PART III Item 10. Directors, Executive Officers and Corporate Governance35Item 11. Executive Compensation35Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters35Item 13. Certain Relationships and Related Transactions, and Director Independence35Item 14. Principal Accounting Fees and Services35 PART IV Item 15. Exhibits, Financial Statement Schedules36Item 16. Form 10-K Summary36 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements reflect our viewswith respect to future events based upon information available to us at this time. These forward-looking statements are subject to uncertainties and otherfactors that could cause actual results to differ materially from these statements. Forward-looking statements are typically identified by the use of thewords “believe,” “may,” “could,” “will,” “should,” “expect,” “anticipate,” “estimate,” “project,” “propose,” “plan,” “intend,” and similar words andexpressions. Examples of forward-looking statements are statements that describe 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 andoperational restructuring initiatives, and future impact of regulatory developments; statements with regard to the nature and extent of competition wemay face in the future; statements with respect to the anticipated sources of and need for future financing; and statements with respect to future strategicplans, goals, and objectives and forecasts of future growth and value. Forward-looking statements are contained in this report under “Business” includedin Item 1 of Part I, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of thisAnnual Report on Form 10-K. The forward-looking statements are based on present circumstances and on our predictions respecting events that have notoccurred, that may not occur, or that may occur with different consequences and timing than those now assumed or anticipated. Actual events or resultsmay differ materially from those discussed in the forward-looking statements as a result of various factors, including the risk factors discussed in thisreport under the caption “Item 1A Risk Factors.” These cautionary statements are intended to be applicable to all related forward-looking statementswherever they appear in this report. The cautionary statements contained or referred to in this report should also be considered in connection with anysubsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. Any forward-looking statements are madeonly as of the date of this report and we assume no obligation to update forward-looking statements to reflect subsequent events or circumstances. PART I References in this Annual Report on Form 10-K to “ClearOne,” “we,” “us,” “CLRO” or “the Company” refer to ClearOne, Inc., a Utah corporation, and,unless the context otherwise requires or is otherwise expressly stated, its subsidiaries. ITEM 1. BUSINESS GENERAL ClearOne (the Company) was formed as a Utah corporation in 1983 organized under the laws of the State of Utah. The Company is headquartered in SaltLake City, Utah, with locations in Gainesville, Florida; Austin, Texas; Corvallis, Oregon; Hong Kong; India, Israel, Spain and United Arab Emirates. We are a global company that designs, develops and sells conferencing, collaboration and network streaming solutions for voice and visualcommunications. The performance and simplicity of our advanced comprehensive solutions offer unprecedented levels of functionality, reliability andscalability. We design, develop, market, and service a comprehensive line of high-quality conferencing and collaboration products for personal use, as well astraditional tabletop, mid-tier premium and higher-end professional products for large, medium and small businesses. We occupy the number one globalmarket share position, with more than 50% market share in the professional audio conferencing market for our products used by large businesses andorganizations such as enterprise, healthcare, education and distance learning, government, legal and finance. Our solutions save organizations time andmoney 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 developand introduce innovative new products and enhance our existing products. Our end-users range from some of the world’s largest and most prestigiouscompanies and institutions to small and medium-sized businesses, higher education and government organizations, as well as individual consumers. Wesell 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. | 1 |Table of Contents ITEM 1-BUSINESS Acquisitions We believe that attractive acquisition opportunities may arise in the future. We intend to pursue strategic acquisition opportunities that would grow ourcustomer base, expand our product lines, enhance our manufacturing and technical expertise, or otherwise complement our business or further ourstrategic goals. Company Information Our website address is www.clearone.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and anyamendments to such reports are available, free of charge, on our website in the “Investor Relations” section under “Company.” These reports are madeavailable as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. For a discussion of certain risks applicable to our business, results of operations, financial position, and liquidity, see the risk factors described in “Item1A, Risk Factors” below. Our Business Strategy We currently participate in the following markets: ●Professional audio visual, including audio conferencing, web conferencing and video conferencing and collaboration;●Professional microphones which includes our patented beamforming microphones, ceiling microphones and wireless microphones;●Media collaboration including interactive whiteboarding, webinar, wireless sharing and training tools;●Network streaming which includes audio and video networking, media streaming and video walls; and●Unified communications, including telephony. Our business goals are to: ●Maintain our leading global market share in professional audio conferencing products for large businesses and organizations;●Position ClearOne as the preferred AV channel partner uniquely offering a complete value-chain of natively integrated solutions from audio tovideo maximizing AV partner profitability;●Extend total addressable market from installed audio beachhead to adjacent complementary markets – microphones, video collaboration andnetworked audio and video streaming;●Continue to leverage the video conferencing, collaboration and network streaming technologies to enlarge our current market share;●Focus on the small and medium business (SMB) market with scaled, lower cost and less complex products and solutions;●Capitalize on the growing influence of information technology channels in the audio-visual market and introduce more products to thesechannels;●Capitalize on emerging market trends as audio visual, information technology, and digital signage converge to meet enterprise and commercialmultimedia needs and the users shift from high-priced systems to low cost appliances and cloud solutions;●Leverage software-based platforms to provide disruptive cloud and networked video conferencing, collaboration and streaming solutions thatcomplement our audio solutions;●Expand and strengthen our sales channels;●Consider disciplined strategic acquisitions We will continue to focus on our core strengths, which include the following: ●Providing a superior conferencing and collaboration experience;●Delivering the complete value chain for audio visual communication;●Significantly impacting network streaming and control;●Offering greater innovation, interoperability and 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. | 2 |Table of Contents ITEM 1- BUSINESS PRODUCTS Our products can be broadly categorized into the following: ●Professional audio conferencing including professional microphones●Visual communication products including media collaboration and network streaming●Unified communications audio end points PROFESSIONAL AUDIO CONFERENCING INCLUDING MICROPHONES Our full range of professional audio communication products includes (i) professional conferencing and sound-reinforcement products used in enterprise,healthcare, education and distance learning, government, legal and finance organizations, (ii) mid-tier premium conferencing products for smaller roomsand small and medium businesses which interface with video and web conferencing systems, and (iii) professional microphones used in variousapplications. Our professional audio communication products, including premium conferencing and professional microphones, contributed 73%, 78% and 80% of ourconsolidated revenue in 2017, 2016 and 2015, respectively. Our professional audio communication products and unified communications audio end points feature our proprietary HDConference®, Distributed EchoCancellation® and noise cancellation technologies to enhance communication during a conference call by eliminating echo and background noise. Mostof our products also feature some of our other HDConference proprietary audio processing technologies such as adaptive modeling and first-microphonepriority, which combine to deliver clear, crisp and full-duplex audio. These technologies enable natural and fatigue-free communication between distantconferencing participants. Professional Conferencing, Sound Reinforcement We occupy the number one position in the global professional audio conferencing market with more than 50% of the total global market share. We havebeen developing high-end, professional conferencing products since 1991 and believe we have established strong brand recognition for these productsworldwide. Our professional conferencing products include the CONVERGE® Pro 2, CONVERGE Pro and CONVERGE SR product lines. Our flagship CONVERGE Pro 2 and CONVERGE Pro product lines lead our professionally installed audio products line. The CONVERGE Pro productline includes the CONVERGE Pro 880, CONVERGE Pro 880T, CONVERGE Pro 880TA, CONVERGE Pro 840T, CONVERGE Pro 8i, CONVERGE ProTH20 and CONVERGE Pro VH20, and CONVERGE SR product line including CONVERGE SR1212 and SR1212A which together offer various levels ofintegration and features to allow a commercial system integrator to optimize a system to fit diverse conferencing applications and environments. We started shipping some of the SKUs of the next generation of CONVERGE Pro products broadly called as CONVERGE Pro 2 at the end of 2016. Weadded more SKUs to CONVERGE Pro 2 line which now includes CONVERGE Pro 2 128, CONVERGE Pro 2 128D, CONVERGE Pro 2 128T,CONVERGE Pro 2 128TD, CONVERGE Pro 2 128V, CONVERGE Pro 2 128VD, CONVERGE Pro 2 120, CONVERGE Pro 2 012, CONVERGE Pro 2 48T,CONVERGE Pro 2 48V, CONVERGE Pro 2 128SR and CONVERGE Pro 2 128SRD. We have been shipping all SKUs in the CONVERGE Pro 2 line ofproducts in 2017. | 3 |Table of Contents ITEM 1 - BUSINESS CONVERGE Pro 2’s broad DSP platform satisfies clients’ diverse audio needs with these features:●The very latest and most powerful audio DSP algorithms, including acoustic echo cancellation, noise cancellation, feedback elimination, gain andlevel control, and microphone gating;●More microphone inputs to supply greater flexibility;●Integration of VoIP or telephony, USB, and Dante™ for maximum functionality;●A new expansion bus that delivers increased audio-channel scalability to support large audio projects;●New native interface that enables daisy-chaining for any combination of ClearOne peripheral devices, such as the new Beamforming MicrophoneArray 2, USB Expander unit, GPIO Expander unit and/or the new DIALOG® 20 Wireless Microphone system; and●New software that includes both a traditional matrix view and the unique ClearOne FlowView™. CONVERGE Pro 2 line of products is ably supported by a touch panel controller, a GPIO expansion box and a USB expansion box. CONVERGE Pro 2VoIP SKUs are certified to interoperate with Cisco, Avaya and ShoreTel SIP based VoIP systems. It also interoperates with Microsoft Skype for Business. Mid-Tier Premium Conferencing Our INTERACT® product line is a mid-tier, lower cost, conferencing product line designed to meet the needs of our larger customers with smallerconferencing rooms as well as small and medium businesses. The INTERACT product series is comprised of the INTERACT AT and the INTERACT Pro.Both systems can be easily connected to enterprise telephones, analog POTS lines, existing HD video codecs and soft video clients. These INTERACTsystems also include a USB audio interface to connect to PCs, laptops and tablets, as well as to rich multimedia devices, such as video or webconferencing systems and emerging unified communication systems for enhanced collaboration. Professional Microphones: Beamforming Microphone Array The ClearOne Beamforming Microphone Array is the Pro-Audio industry’s first professional-grade microphone array with Beamforming and smart beamselection and ClearOne’s next-generation Acoustic Echo Cancellation. The ultra-sleek design fits into any conferencing environment and delivers theclearest audio pickup available. The 24 microphone element industry-leading Beamforming Microphone Array has focused acoustic beams, digital signalprocessing, smart beam selection, and acoustic echo canceling to produce the clearest and most intelligible conferencing sound possible. ClearOne beganshipping the Beamforming Microphone Array in March 2013. During the first quarter of 2014, we began shipping the Beamforming Microphone Array,including table, wall and ceiling applications, in black to increase market compatibility. This product works with CONVERGE Pro 880, CONVERGE Pro880T, CONVERGE Pro 880TA and CONVERGE Pro 840T. Beamforming Microphone Array 2, the next generation Beamforming Microphone Arrays started shipping in the last quarter of 2017. The BeamformingMicrophone Array 2 affirms ClearOne’s clear industry leadership in delivering:●Significantly enhanced and new echo cancellation, using direction of arrival determination for demanding acoustic environments;●Faster convergence and better adaptation to changes in room acoustics, such as ambient noise from chairs moving, doors closing, chatter in thebackground, or any spikes in sound that alter the path of the audio, using separate acoustic echo cancellation for each fixed beam andinhibiting beam selection when the far end is active;●Dramatically better mic pickup, including using an augmenting microphone signal, sharpening the capability to detect softer voices;●Natural and clearly intelligible audio, even when two people speak at once; and●Zero consumption of analog mic inputs in the CONVERGE Pro 2 suite of DSP mixers. | 4 |Table of Contents ITEM 1 - BUSINESS Professional Microphones: Ceiling Microphone Array The ClearOne Ceiling Microphone Array enhances almost any professional conferencing application which demands high-quality audio. The CeilingMicrophone Array is easily installed and combines affordability with exceptional audio quality. With three wide-range microphones mounted togetherinto a single unit array, the Ceiling Microphone Array provides the rich sound of three individual unidirectional microphones while maintaining full360-degree coverage. Professional Microphones: Wireless Microphones In 2013 ClearOne introduced WS800 Wireless Microphone Systems, including four new models of wireless microphones/transmitters(Tabletop/boundary, Gooseneck, Handheld, Bodypack) and a base-station receiver with either 4 or 8 channels, which connect to professional audiomixers. Since the Sabine acquisition in 2014, our portfolio of wireless microphone systems was enhanced by the introduction of digital compressedversions, Dante standard compatible versions and more frequency ranges catering to various international markets. During 2017, we started shipping DIALOG® 20, the two-channel wireless microphone system. Leveraging the full power of ClearOne's robust, adaptivefrequency-hopping "spread" spectrum technology within the 2.4 GHz unlicensed spectrum, DIALOG 20 has several advantages over fixed-frequencytransmission. DIALOG 20 incorporates flexible features and multiple options usually available only in much larger systems. While DIALOG 20 worksseamlessly with all commercially available mixers, it boasts additional features when natively interfacing with our new CONVERGE Pro 2 or newBeamforming Microphone Array 2. UNIFIED COMMUNICATIONS AUDIO END POINTS Our unified communications audio end points include (i) traditional tabletop conferencing phones used in conference rooms and offices and (ii)affordable personal conferencing products that can be used with PCs, laptops, tablets, smartphones, and other portable devices. Our unifiedcommunications audio end points contributed approximately 9%, 11% and 13% of our consolidated revenue in 2017, 2016 and 2015, respectively. Tabletop Conferencing Our MAX® product line is comprised of the following product families: MAX EX and MAXAttach® wired conference phones; MAX Wireless andMAXAttach Wireless; and MAX IP and MAXAttach IP tabletop conferencing phones. Designed for use in executive offices or small conference roomswith multiple participants, MAX Wireless can be moved from room to room within 150 feet of its base station. MAXAttach Wireless was the industry’sfirst and remains the only dual-phone, completely wireless solution. This system gives customers tremendous flexibility in covering larger conferenceroom areas. MAX EX and MAXAttach wired phones can be daisy chained together, up to a total of four phones. This provides even distribution ofmicrophones, loudspeakers, and controls for better sound quality and improved user access in medium to large conference rooms. In addition, allMAXAttach wired phones can be used separately when they are not needed in a daisy-chain configuration. MAX IP and MAXAttach IP are VoIP tabletopconference phones which are based on the industry-standard SIP signaling protocol. These phones can also be daisy-chained together, up to a total of fourphones. Speakerphone Our CHAT® product line includes affordable and stylish personal speakerphones and USB headsets. CHAT speakerphones provide full-duplex and richfull bandwidth frequency response for superior audio clarity. CHAT products are designed for a wide variety of applications and devices (fixed orportable) for greatly enhanced collaboration wherever and whenever needed. CHAT speakerphones are offered either as personal speakerphones underCHAT 50, CHAT 60 or CHAT 70 SKUs or as group speakerphones under CHAT 150, CHAT 160 and CHAT 170 SKUs. | 5 |Table of Contents ITEM 1 - BUSINESS CHAT 50/60/70 personal speakerphones are approximately the size of a deck of cards, and connect to PCs and MACs for rich, clear, hands-free audio andplayback. CHAT 150 group speakerphones are designed for small group use. These can also connect many of the same devices and applications as theCHAT personal speakerphones but feature three microphones in larger design for use by a larger number of participants. CHAT 150/160/170 groupspeakerphones have the ability to add high-quality, full-duplex speakerphones to user enterprise telephone handsets such as Avaya and Cisco. CHATgroup speakerphones make it possible to introduce rich, crystal clear conferencing capability without the need for introducing a separate traditionalconference phone. CHATAttach® is comprised of two CHAT 150 group speakerphones which can be daisy-chained together to function as a singleconferencing system for much larger coverage than a single CHAT 150. VISUAL COMMUNICATIONS Our visual communication products include media collaboration and network streaming products. Our visual communication products contributed 18%,11% and 7% of our consolidated revenue in 2017, 2016 and 2015, respectively. Media Collaboration: Our Media Collaboration suite of products is led by our comprehensive portfolio of industry-leading COLLABORATE® branded HD videoconferencingsolutions. COLLABORATE Pro 300: includes video appliance, UNITE® 150 camera, CHAT® 150C speakerphone and 90-days subscription to Spontania cloudvideo, audio and web conferencing, SIP/H.323 video conferencing, in-room wireless presentation and optional Skype® for Business native integration.This solution is targeted for huddle and small-size rooms. COLLABORATE Pro 600: includes video appliance, UNITE 200 camera, CHATAttach® 150 speakerphones, and 90-days subscription to Spontaniacloud video, audio and web conferencing, SIP/H.323 video conferencing with 4-way built-in MCU, in-room wireless presentation, optional Skype forBusiness native integration, capture recording and streaming. This solution is targeted at medium-size rooms. COLLABORATE Pro 900: includes video appliance, UNITE 200 camera, CONVERGE® Pro installed audio endpoint, Beamforming Microphone Arrayand 90-days subscription to Spontania cloud video, audio and web conferencing, SIP/H.323 video conferencing with 4-way built-in MCU, multi-userin-room wireless presentation, optional Skype for Business native integration, capture recording and streaming. This solution is targeted at medium andlarge-size rooms. Our Media Collaboration series also includes Spontania cloud video, audio and web conferencing service that can be deployed on-premises or in thecloud. Spontania offers all sort of collaboration tools such as screen sharing, application sharing, whiteboard, annotation over presentation, recording,hand-raise and chat. The service is targeted for any workspace including mobile, desktop and rooms of any size; and multiple use cases includingmeetings, classrooms and training sessions. Bring your own video and web conferencing – COLLABORATE Versa 150 includes USB PTZ camera, speakerphone and central hub that connects thelaptop to the meeting room peripherals via single USB 3.0 connectivity. COLLABORATE Versa 150, compatible with Cisco WebEx, Google Hangouts,Microsoft Skype for Business and more, is also bundled with 90-days free subscription of Spontania cloud video, audio and web conferencing. Thissolution is targeted at huddle spaces and medium conference rooms. UNITE 200/150 is a professional-grade PTZ camera series supporting USB, HDMI and IP connectivity. It delivers 1080p HD resolution, 12X opticalzoom and is compatible with PC-based and Pro-AV applications, supporting wide range of meeting spaces. | 6 |Table of Contents ITEM 1 - BUSINESS Network Media Streaming and Digital Signage: Our network media streaming products are primarily sold under VIEW™ and VIEW Pro brands deliver the ultimate IP A/V experience by streaming timesensitive high definition audio and video and control over TCP/IP networks. By combining audio and/or video content, meta-data and control signalsinto one digital stream in harmony with industry standards, its distributed, edge of the network architecture allows the hardware and the processing powerto be distributed across any existing TCP/IP network. This leverages many of the advantages of using TCP/IP over traditional analog systems and othercentrally controlled IP-based systems. The ClearOne VIEW and VIEW Pro products are powered by ClearOne’s patented StreamNet® technology. A usercan activate and control a single audio source or combination of audio sources, video sources, security systems, HVAC systems, lighting, and other roomor facility monitoring functions such as paging or security access by just a single touch to its attractive touch screens. Alternatively, any PC, laptop,tablet, iPod, or other device with a built-in web browser with Flash can control the equipment connected to the system. The VIEW and VIEW Pro systemshave no limits on the numbers of sources, displays, or amplifiers in a project and can be used in venues from high-end residential homes to large-scalecommercial projects. The number of devices could be determined by the network bandwidth availability, number of media streams and its bandwidthrequirements. Converting an audio or video signal to TCP/IP preserves the digital quality of the signal across the network. Unlike analog systems, which lose qualityover long distances, TCP/IP packets are decoded to retain the same digital quality as contained when they were encoded. The addition of Digital Encoderand Digital Decoder products with DVI/HDMI input and output enhances the flexibility of complete AV distribution system and makes it as easy to use asanalog devices. VIEW Pro solution provides 1080p60, H.264 high definition HDMI video-audio, 4:4:4 true-color, 24 bit per pixel video output. It comes with dual inputsencoder, single input encoder and single output decoder with balanced audio, general purpose control ports and clock synchronized video output. VIEWPro system also provides PANORAMATM , a multi-view video composition and video-wall software application using its built-in video processingengine, without using external expensive hardware video processors. This continues to be truly differentiated in the professional market by offeringcomplete AV streaming and distribution systems that can scale to fulfill projects of any size and complexity, from light commercial to the very largestenvironments. VIEW Pro products include E110 and E120 encoders and D110, D210 and D310 decoders. VIEW Pro solution also comes with multiplelicense options including audio mixing, video composition, video wall, multicast RTSP and local playback. During the second quarter of 2016, we introduced the new VIEW CONSOLE configuration management software. This software gives integrators acomprehensive platform from which to configure, manage, monitor, and control VIEW system installation using an easy, modern interface. The newtoolset, which spotlights the latest in advanced software development technologies, works across ClearOne’s full line of VIEW/VIEW Pro products. In2017, we released an updated version of VIEW CONSOLE and PANORAMA software applications. At the end of May 2016, we introduced a new flexible and single-channel-priced VIEW® Pro E110 Encoder — designed for single-media input settings.E110 Encoder delivers high-quality video with configurable 4:4:4 and 4:2:0 color sampling; standards-based streaming formats; 1080p60, H.264-based,high-profile encoding with lossless compression; very low end-to-end latency; and full HDCP support. We also introduced the innovative new entry-levelVIEW Pro D310 Decoder featuring all the basic functionality to fully satisfy simple applications while delivering superb price-to-performance value.D310 Decoder features convenience in its small footprint and easy mounting behind any display. It delivers full-screen, single-image video; high-qualityvideo with 4:2:0 video color sampling; and 1080p60, H.264-based high-profile decoding with lossless compression. | 7 |Table of Contents ITEM 1 - BUSINESS MARKETING AND SALES We primarily use a two-tier channel model through which we sell our commercial products to a worldwide network of independent professionalaudiovisual, information technology and telecommunications distributors, who then sell our products to independent systems integrators, dealers, andvalue-added resellers, who in turn work directly with the end-users of our products for product fulfillment and installation, if needed. Our products arealso specified and recommended by professional audio-video consultants. We also sell our commercial products directly to certain dealers, systemsintegrators, value-added resellers, and end-users. Our product sales generated in the United States and outside the United States for the years ended December 31 are as follows: Revenue in millions 2017 2016 2015 Revenue % Revenue % Revenue % In the United States $24.6 59% $31.8 65% $39.6 68%Outside United States $17.2 41% $16.8 35% $18.2 32% $41.8 100% $48.6 100% $57.8 100% We sell directly to our distributors, resellers and end-users in approximately 61 countries worldwide. We anticipate that the portion of our total productrevenue from international sales will continue to be a significant portion of our total revenue as we further enhance our focus on developing newproducts, establishing new channel partners, strengthening our presence in key growth areas, complying with regional environmental regulatorystandards, and improving product localization with country-specific product documentation and marketing materials. Distributors, Resellers and Independent Integrators We sold our products directly to approximately 378 distributors and direct resellers throughout the world during 2017. Distributors and resellers purchaseour products at a discount from list price and resell them worldwide to hundreds of independent systems integrators, telephony value-added resellers, ITvalue-added resellers, and PC dealers on a non-exclusive basis. Our distributors maintain their own inventory and accounts receivable and are required toprovide technical and non-technical support for our products to the next level of distribution participants. We work with our distributors and resellers toestablish appropriate inventory stocking levels. We also work with our distributors and resellers to maintain relationships with our existing systemsintegrators, dealers, and other value-added resellers. While dealers, resellers, and system integrators all sell our products directly to the end-users, system integrators typically add significant value to eachsale by combining our products with products from other manufacturers as part of an integrated system solution. Commercial dealers and value-addedresellers usually purchase our products from distributors and may bundle our products with products from other manufacturers for resale to the end-user.We maintain close working relationships with all our reseller partners and offer them education and training on all of our products. Marketing Much of our marketing effort is conducted in conjunction with our channel partners who provide leverage for us in reaching existing and prospectivecustomers worldwide. We also regularly attend industry forums and exhibit our products at multiple regional and international trade shows, often with ourchannel partners. These trade shows provide exposure for our brand and products to a wide audience. We market our ClearOne-branded commercialproducts on our website www.clearone.com. We also conduct public relations initiatives to get press coverage and product reviews in industry and non-industry publications alike. Customers We do not get comprehensive reports from our distributors and resellers that identify our end-users. As a result, we do not know whether any end-useraccounted for more than 10 percent of our total revenue during any of the periods reported in this Annual Report. However, revenues included sales toStarin Marketing, which represented approximately 16% of consolidated revenue during the year ended December 31, 2017 with no other customeraccounting for more that 10 percent. During the year ended December 31, 2016 sales to Starin Marketing represented approximately 16.3% ofconsolidated revenue with no other customer accounting for more that 10 percent. During the year ended December 31, 2015 sales to Starin Marketingand VSO represented approximately 14.2% and 10.4% of consolidated revenue with no other customer accounting for more that 10 percent. As discussed above, distributors facilitate product sales to a large number of independent systems integrators, dealers, and value-added resellers, andsubsequently to their end-users. The loss of one or more distributors could reduce revenue and have a material adverse effect on our business and resultsof operations. Our shipped orders on which we had not recognized revenue were $4.6 million and $3.9 million as of December 31, 2017 and 2016,respectively. We had a backlog of unshipped orders of approximately $0.2 million and $0.6 million as of December 31, 2017 and 2016, respectively. | 8 |Table of Contents ITEM 1 - BUSINESS Competition The audio-visual product markets are characterized by intense competition, rapidly evolving technology, and increased business consolidation. Wecompete with businesses having substantially greater financial, research and product development, manufacturing, marketing, and other resources. If weare not able to continually design, manufacture, and successfully market new or enhanced products or services that are comparable or superior to thoseprovided by our competitors and at comparable or better prices, we could experience pricing pressures and reduced sales, gross profit margins, profits, andmarket share, each of which could have a materially adverse effect on our business. Our competitors vary within each product category. We believe we areable to differentiate ourselves and therefore successfully compete as a result of the high audio quality of our products resulting from a combination ofproprietary and highly advanced audio signal processing technologies and networking technology in the form of trade secrets and patented intellectualproperty, technical and channel support services, and the strength of our channels and brands. It is critical for our success to be able to defend ourintellectual property including trademarks, trade secrets and patents from our competitors who have far more resources. We believe the principal factors driving sales are the following: ●Quality, features and functionality, and ease of use of the products;●Broad and deep global channel partnerships;●Significant established history of successful worldwide installations for diverse vertical markets;●Brand name recognition and acceptance;●Quality of customer and partner sales and technical support services; and●Effective sales and marketing. In the professional audio conferencing system and sound reinforcement markets our main competitors include AcousticMagic, AMX Harman, AudioTechnica, Biamp, BOSE, Crestron, Extron, BSS Harman, Peavey, Phoenix Audio, Polycom, QSC, Shure, Symetrix, Vaddio and Yamaha and their originalequipment manufacturing (OEM) partners, along with several other companies potentially poised to enter the market. We occupy the number oneposition in the global professional audio conferencing market with more than 50% of the global market share. In the professional microphones market, our primary competitors include AKG, Audio Technica, Audix, Avlex/Mipro, Beyerdynamic, Biamp, ClockAudio, Lectrosonics, Nureva, Mediavision/Taiden, Polycom, Phoenix Audio, Sennheiser, Shure, TeachLogic, TOA, Yamaha/Revolabs and Vaddio andtheir OEM partners. In the traditional tabletop conferencing market, we face significant competition from Avaya/Konftel, Phoenix Audio, Polycom and Yamaha, andespecially from their OEM partnerships. A significant portion of the tabletop market is covered by sales through OEM partnerships. While we believeMAX products have unique features and superior quality, our limited OEM partnerships and pricing pressures from higher volume competitors limit ourability to expand our existing share of this market. Our primary competitors in the personal conferencing market are GN Netcom (Jabra), Logitech, Phoenix Audio, Plantronics, Polycom, Sennheiser andYamaha and their OEM partners. Our video conferencing products face tremendous competition from well established players as well as emerging players, including Acano, AdobeConnect, Amazon Chime, Avaya (Radvision), Aver, Barco, Blackboard Collaborate, Blue Jeans, Christie Digital, Cisco, Citrix, Fuze, Huawei, IDK AV,InFocus, Kramer, LifeSize, Magor, Pexip, Polycom, Microsoft Skype for Business, Starleaf, Telylabs, UNIFY, Videxio, Vidyo, Yealink, Zoom, ZTE,Highfive, Google, Tixeo and Owl Labs. We believe the migration of video conferencing from hardware-based codecs to software-based codecs providesan opportunity for us to differentiate our products and gain market share. Our network streaming products which includes digital signage products face intense competition from a few well-established corporations of diversifiedcapabilities and strengths, including AMX, Atlona, Aurora Multimedia, Barco, Biamp, Broadsign, Cisco, Christie Digital, Crestron, Extron, Gefen,Goopie, Haivision, Hall Research, IDK AV, Infocus (Jupiter), Key Digital, Kramer, Liberty AV, Magenta Research, Matrox, Mediasite, Ncast, RGBSpectrum, Scala, Spinetix, SVSi, voLANte, Tightrope, Teracue, tvONE, UCView, VBrick, Visionary Solutions, Visix, WyreStorm and ZeeVee. We believethat our software based patented technology delivers superior audio and video streaming performance and flexibility and provides us with a competitiveedge over other industry players.| 9 |Table of Contents ITEM 1 - BUSINESS Regulatory Environment Regulations regarding product safety, product operational agency compliance, the materials used in manufacturing, the process of disposing of electronicequipment and the efficient use of energy may require extensive lead-time to obtain regulatory approvals of new products in both domestic andinternational markets. Such regulations may impact our ability to expand our sales in a timely and cost-effective manner and, as a result, our businesscould be harmed. Sources and Availability of Raw Materials We manufacture our products through electronics manufacturing services (“EMS”) providers, who are generally responsible for sourcing and procuringrequired raw materials and components. Most of the components that our EMS providers require for manufacturing our products are readily available froma number of sources. During 2017, we witnessed a significant tightening of the electronics market with demand for electronic products especially formemories and processors far exceeding the supply caused price increases and longer fulfillment cycles. We continually work with our EMS providers to seek alternative sources for all our components and raw material requirements to ensure higher qualityand better pricing. Most of our EMS providers and their vendors are duly qualified by our corporate quality assurance process. We work with our EMSproviders to ensure that raw materials and components conform to our specifications. Manufacturing Currently, all of our products are manufactured by EMS providers. Our primary EMS provider is Flextronics. The digital signage products are assembledin our Salt Lake City, Utah facility. Seasonality We do not recognize a consistent pattern between the quarters to identify seasonality. Research and Product Development We are committed to research and product development and view our continued investment in research and product development as a key ingredient toour long-term business success. Our research and product development expenditures were approximately $9.3 million, $8.6 million and $8.3 million,during the years ended December 31, 2017, 2016 and 2015, respectively. Our core competencies in research and product development include (a) many audio technologies, including acoustic echo cancellation, noisecancellation and other advanced adaptive digital signal processing technologies, (b) networking and multimedia streaming technologies, and (c) videotechnologies. We also have expertise in wireless technologies, VoIP, software and network application, and digital signage system development. Webelieve that continued investment in our core technological competencies is vital to developing new products and to enhancing existing products. | 10 |Table of Contents ITEM 1 - BUSINESS Intellectual Property and Other Proprietary Rights We believe that our success depends in part on our ability to protect our proprietary rights. We rely on a combination of patent, copyright, trademark,and trade secret laws and confidentiality agreements and processes to protect our proprietary rights. As of December 31, 2017, we had approximately 87 patents and 21 pending patent applications, including foreign counterpart patents and foreignapplications. Our patents and pending patent applications cover a wide range of our products and services including, but not limited to acoustic echocancellation, beamforming microphone arrays, systems that enable streaming media over IP networks, algorithms for video processing, wirelessconferencing systems, spatial audio, and technologies for the Internet of Things. The durations of our patents are determined by the laws of the countryof issuance. For the U.S., patents may be 17 years from the date of issuance of the patent or 20 years from the date of its filing, depending upon when thepatent application was filed. In addition, we hold numerous trademarks, both in the U.S. and in other countries. The laws of foreign countries may notprotect our intellectual property to the same degree as the laws of the United States. We will obtain patents and other intellectual property rights used in connection with our business when practicable and appropriate. Our intellectualproperty policy is to protect our products, technology and processes by asserting our intellectual property rights where appropriate and prudent. Fromtime to time, assertions of infringement of certain patents or other intellectual property rights of others have been made against us. In addition, certainpending claims against a competitor are in various stages of litigation. See Part I, Item 3. Legal Proceedings and Note 8 – Commitments andContingencies of the Notes to Consolidated Financial Statements (Part II, Item 8) for information regarding current legal proceedings involving ourintellectual property rights. We are dependent on our intellectual property. If we are not able to protect our proprietary rights or if those rights are invalidated or circumvented, ourbusiness may be adversely affected. We may be subject to litigation and infringement claims, which could cause us to incur significant expenses orprevent us from selling our products or services. For more information concerning the risks related to patents, trademarks, and other intellectualproperty, please see “Risk Factors-Risks Related to our Business.” We generally require our employees, certain customers and partners to enter into confidentiality and non-disclosure agreements before we disclose anyconfidential aspect of our technology, services, or business. In addition, our employees are required to assign to us any proprietary information,inventions, or other technology created during the term of their employment with us. However, these precautions may not be sufficient to protect usfrom misappropriation or infringement of our intellectual property. On April 25, 2017, the Company was awarded a new patent, U.S. Patent No. 9,635,186 (the “186 Patent”), which relates to a system and methodinvolving the combination of echo cancellation and beamforming microphone arrays. Also on April 25, 2017, the Company filed a lawsuit in the U.S.Federal District Court in the District of Utah against three parties—Shure, Inc. (“Shure”), Biamp Systems Corporation (“Biamp”), and QSC AudioProducts, LLC (“QSC,” together with Shure and Biamp, collectively, the “Defendants”), alleging that the Defendants were jointly and indirectlyinfringing the newly issued ‘186 Patent (the “Infringement Action”). On that same day, Shure filed a separate action in the U.S. Federal District Court inthe Northern District of Illinois (the “Illinois Action”) requesting a declaratory judgment as to the invalidity or non-infringement with respect to the‘186 Patent. The Illinois Action also seeks the same declaratory judgment with respect to another Company patent, United States Patent No. 9,264,553(the “553 Patent”), and which has not been asserted by the Company against any defendant and has been submitted to the USPTO for reissue. In early2018, Shure added a claim that the ‘186 Patent is unenforceable. | 11 |Table of Contents ITEM 1A - RISK FACTORS ITEM 1A. RISK FACTORS Investors should carefully consider the risks described below. The risks described below are not the only ones we face and there are risks that we are notpresently aware of or that we currently believe are immaterial that may also impair our business operations. Any of these risks could harm our business.The trading price of our common stock could decline significantly due to any of these risks, and investors may lose all or part of their investment. Inassessing these risks, investors should also refer to the other information contained or incorporated by reference in this annual report on Form 10-K,including our consolidated financial statements and related notes. Risks Relating to Our Business A material weakness has been identified in our internal control over financial reporting. If we fail to remediate and maintain effective internal controlover financial reporting, we may be unable to report our financial results accurately on a timely basis, investors could lose confidence in our reportedfinancial information, the trading price of our common shares could decline and our access to the capital markets or other financing sources couldbecome limited. In connection with the audit of our consolidated financial statements as of December 31, 2017, our independent registered public accounting firmidentified deficiencies in our system of internal control over financial reporting that it considered to be a material weakness in the operation of certain ofour controls that would have prevented and detected a misstatement on a timely basis, and therefore, affected our ability to ensure timely and accuratereporting of our financial condition and results of operations. The Public Company Accounting Oversight Board's Auditing Standard No. 5 defines amaterial weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. The identifiedmaterial weakness related to our lack of formally designed processes and controls to prevent or mitigate the risk of material errors from occurring withinour consolidated financial statements. See Part II, Item 9A, “Controls and Procedures.” We have initiated remedial measures, however there can be no assurance that these actions, as well as further actions we may take, will allow us toremediate this material weakness and provide a solid foundation to meet our reporting obligations under the Exchange Act. If we fail to implement andmaintain effective internal control over financial reporting (including appropriately and effectively remediating this material weakness), or if additionalmaterial weaknesses in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements maycontain material misstatements, and we could be required to restate our financial results. In addition, if we are unable to successfully remediate thismaterial weakness and if we are unable to produce accurate and timely financial statements, our stock price may be materially adversely affected and wemay be unable to maintain compliance with applicable stock exchange listing requirements. We face intense competition in all markets for our products and services and our operating results will be adversely affected if we cannot competeeffectively against other companies. The markets for our products and services are characterized by intense competition, pricing pressures and rapid technological change. Our competitivelandscape continues to rapidly evolve, in particular with respect to our video-related services and products, as we move into new markets for videocollaboration such as mobile, social and cloud-delivered video. We compete with businesses having substantially greater financial, research and productdevelopment, manufacturing, marketing, and other resources than we do. If we are not able to continually design, manufacture, and successfully introducenew or enhanced products or services that are comparable or superior to those provided by our competitors and at comparable or better prices, we couldexperience pricing pressures and reduced sales, gross profit margins, profits, and market share, each of which could have a materially adverse effect on ourbusiness. Difficulties in estimating customer demand in our products segment could harm our profit margins. Orders from our distributors and other distribution participants are based on demand from end-users. Prospective end-user demand is difficult to measure.This means that our revenue during any fiscal quarter could be adversely impacted by low end-user demand, which could in turn negatively affect orderswe receive from distributors and dealers. Our expectations for both short and long-term future net revenues are based on our own estimates of futuredemand. Revenue for any particular time period is difficult to predict with any degree of certainty. We typically ship products within a short time after wereceive an order; consequently, unshipped backlog has not historically been a good indicator of future revenue. We believe that the level of backlog isdependent in part on our ability to forecast revenue mix and plan our manufacturing accordingly. A significant portion of our customers’ orders arereceived during the last month of the quarter. We budget the amount of our expenses based on our revenue estimates. If our estimates of sales are notaccurate and we experience unforeseen variability in our revenue and operating results, we may be unable to adjust our expense levels accordingly andour gross profit and results of operations will be adversely affected. Higher inventory levels or stock shortages may also result from difficulties inestimating customer demand. If we are unable to protect our intellectual property rights or have insufficient proprietary rights, our business would be materially impaired. We currently rely primarily on a combination of trade secrets, copyrights, trademarks, patents, patents pending, and nondisclosure agreements toestablish and protect our proprietary rights in our products. Our success is dependent in part on obtaining, maintaining and enforcing our intellectualproperty rights If we are unable to obtain, maintain and enforce intellectual property legal protection covering our products, then no assurances can begiven that others will not independently develop technologies similar to ours, or duplicate or design around aspects of our technology. In addition, wecannot assure that any patent or registered trademark owned by us will not be invalidated, circumvented or challenged, or that the rights grantedthereunder will provide competitive advantages to us. Costly litigation may be necessary to enforce our intellectual property rights. We believe ourproducts and other proprietary rights do not infringe upon any proprietary rights of third parties; however, we cannot ensure that third parties will notassert infringement claims in the future. We currently hold only a limited number of patents. To the extent that we have patentable technology that ismaterial to our business and for which we have not filed patent applications, others may be able to use such technology or even gain priority over us bypatenting such technology themselves, which could have a material adverse effect on our business. With respect to any patent application we have filed,we cannot ensure that a patent will be awarded.  | 12 |Table of Contents ITEM 1A - RISK FACTORS We are currently subject to patent litigation, including claims challenging the validity and enforceability of some of our patents, which could cause usto incur significant expenses or prevent us from protecting our products or services against competing products. Our industry is characterized by vigorous protection of intellectual property rights. We have initiated litigation to enforce our intellectual propertyrights, which has resulted in our adversaries in such litigation challenging the validity, scope, and/or enforceability of our intellectual property.Irrespective of the merits of these claims, any resulting litigation could be costly and time consuming and could divert the attention of management andkey personnel from other business issues. The complexity of the technology involved and the uncertainty of intellectual property litigation increasethese risks. See Part I, Item 3. Legal Proceedings and Note 8 – Commitments and Contingencies of the Notes to Consolidated Financial Statements (PartII, Item 8) for information regarding current legal proceedings involving our intellectual property rights. Our sales depend to a certain extent on government funding and regulation. In the audio conferencing products market, the revenue generated from sales of our audio conferencing products for distance learning and courtroomfacilities depends on government funding. In the event government funding for such initiatives was reduced or became unavailable, our sales could benegatively impacted. Additionally, many of our products are subject to governmental regulations. New regulations could impact sales in a materiallyadverse manner. Environmental laws and regulations subject us to a number of risks and could result in significant costs and impact on revenue. Regulations regarding the materials used in manufacturing, the process of disposing of electronic equipment and the efficient use of energy require us totake additional time to obtain regulatory approvals of new products in international markets. Such regulations may impact our ability to expand oursales in a timely and cost-effective manner and, as a result, our business could be harmed. Our profitability may be adversely affected by our continuing dependence on our distribution channels. We market our products primarily through a network of distributors who in turn sell our products to value-added resellers. All of our agreements with suchdistributors and other distribution participants are non-exclusive, terminable at will by both party, and generally short-term. No assurances can be giventhat any or all such distributors or other distribution participants will continue their relationship with us. Distributors and, to a lesser extent, value-addedresellers cannot easily be replaced and any loss of revenues from these and other sources or our inability to reduce expenses to compensate for such loss ofrevenue could adversely affect our net revenue and profit margins. Although we rely on our distribution channels to sell our products, our distributors and other distribution participants are not obligated to devote anyspecified amount of time, resources, or efforts to the marketing of our products, or to sell a specified number of our products. There are no prohibitions ondistributors or other resellers offering products that are competitive with our products, and some do offer competitive products. The support of ourproducts by distributors and other distribution participants may depend on the competitive strength of our products and the price incentives we offer fortheir support. If our distributors and other distribution participants are not committed to our products, our revenue and profit margins may be adverselyaffected. Additionally, we offer our distributors price protection on their inventory of our products. If we reduce the list price of our products, we will compensateour distributors for the respective products that remain in their inventory on the date the price adjustment becomes effective, provided that they havebeen providing inventory reports consistently and the inventory was bought within the six months preceding the price adjustment date. Our net revenueand profit margins could be adversely affected if we reduce product prices significantly or distributors happen to have significant on-hand inventory ofthe affected product at the time of a price reduction. Further, if we do not have sufficient cash resources to compensate distributors on terms satisfactory tothem or us, our price protection obligations may prevent us from reacting quickly to changing market conditions. Product development delays or defects could harm our competitive position and reduce our revenue. We have in the past experienced, and may again experience, technical difficulties and delays with the development and introduction of new products.Many of the products we develop contain sophisticated and complicated circuitry, software and components and utilize manufacturing techniquesinvolving new technologies. Potential difficulties in the development process that we may experience include the following: (a) meeting requiredspecifications and regulatory standards; (b) hiring and keeping a sufficient number of skilled developers; (c) meeting market expectations forperformance; (d) obtaining prototype products at anticipated cost levels; (e) having the ability to identify problems or product defects in the developmentcycle; and (f) achieving necessary manufacturing efficiencies. Once new products reach the market, they may have defects, or may be met by unanticipated new competitive products, which could adversely affectmarket acceptance of these products and our reputation. If we are not able to manage and minimize such potential difficulties, our business and results ofoperations could be negatively affected. | 13 |Table of Contents ITEM 1A - RISK FACTORS We depend on an outsourced manufacturing strategy, and any disruption in outsourced services could negatively impact our product availability andrevenues. We outsource the manufacturing of all of our products except digital signage and wireless microphone products to electronics manufacturing services(“EMS”) providers located outside the U.S. If any of these EMS providers experience (i) difficulties in obtaining sufficient supplies of components, (ii)component prices significantly exceeding anticipated costs, (iii) an interruption in their operations, or (iv) otherwise suffers capacity constraints, wecould experience a delay in production and shipping of these products, which would have a negative impact on our revenue. Should there be anydisruption in services due to natural disaster, economic or political difficulties, transportation restrictions, acts of terror, quarantines or other restrictionsassociated with infectious diseases, or other similar events, or any other reason, such disruption could have a material adverse effect on our business.Operating in the international outsourcing environment exposes us to certain inherent risks, including unexpected changes in regulatory requirementsand tariffs, and potentially adverse tax consequences, which could materially affect our results of operations. Currently, we have no second source ofmanufacturing for a large portion of our products. Switching from one EMS provider to another is an expensive, difficult and a time-consuming process, with serious risks to our ability to successfullytransfer our manufacturing operations. Our operations, and consequently our revenues and profitability, could be materially adversely affected if we areforced to switch from any of our EMS providers to another EMS provider due to any of a number of factors, including financial difficulties faced by themanufacturer, disagreements in pricing negotiations between us and the manufacturer or organizational changes in the manufacturer. The cost of delivered product from our EMS providers is a direct function of their ability to buy components at a competitive price and to realizeefficiencies and economies of scale within their overall business structures. If they are unsuccessful in driving efficient cost models, our delivered costscould rise, affecting our profitability and ability to compete. In addition, if the EMS providers are unable to achieve greater operational efficiencies,delivery schedules for new product development and current product delivery could be negatively impacted. EMS providers often require long range forecasts to help them plan their operations as well as to allocate their resources. We are tied to these forecaststhrough contracts as well as to maintain harmony in business relationships. Our ability to react to actual demand from our customers and order optimumlevels of inventory is severely limited due to these forecasts provided to the EMS providers. Our inability to accurately forecast our future demands couldlead to either excess inventory causing potential inventory obsolescence and cashflow problems or shortage in inventory causing potential loss ofrevenue. Recent regulatory requirements regarding the use of “conflict minerals” could affect the sourcing and availability of raw materials to our EMS providersin the manufacture of certain of our products. We may be subject to costs associated with the new regulations, including for the diligence pertaining tothe presence of any conflict minerals used in our products and the cost of remediation and other changes to products, processes, or sources of supply as aconsequence of such verification activities. The impact of the regulations may result in a limited pool of suppliers who provide conflict free minerals, andwe cannot assure you that we will be able to obtain products in sufficient quantities, at competitive prices, or at all. We may face reputational challengeswith our customers and other stakeholders if we are unable to sufficiently verify the origins for the metals used in the products we sell. As a result, we maynot be able to obtain the materials necessary to manufacture our products, which could force us to cease production or search for alternative supplysources, possibly at a higher cost. Such disruptions may have a material adverse effect on our business, financial condition, results of operations and cashflows. Global economic conditions have adversely affected our business in the past and could adversely affect our revenues and harm our business in thefuture. Adverse economic conditions worldwide have contributed to slowdowns in the communications industry and have caused a negative impact on thespecific segments and markets in which we operate. Adverse changes in general global economic conditions can result in reductions in capitalexpenditures by end-user customers for our products, longer sales cycles, the deferral or delay of purchase commitments for our products and increasedcompetition. These factors have adversely impacted our operating results in prior periods and could also impact us again in the future. Global economicconcerns, such as the varying pace of global economic recovery, European and domestic debt and budget issues, the slowdown in economic growth inlarge emerging markets such as China and India, and international currency fluctuations, may continue to create uncertainty and unpredictability in theglobal and national economy. A global economic downturn would negatively impact technology spending for our products and services and couldmaterially adversely affect our business, operating results and financial condition. Further, global economic conditions may result in a tightening in thecredit markets, low liquidity levels in many financial markets, decrease in customer demand and ability to pay obligations, and extreme volatility incredit, equity, foreign currency and fixed income markets. | 14 |Table of Contents ITEM 1A - RISK FACTORS Such adverse economic conditions could negatively impact our business, particularly our revenue potential, potentially causing losses on investmentsand the collectability of our accounts receivable. These factors potentially include: the inability of our customers to obtain credit to finance purchases ofour products and services, customer or partner insolvencies or bankruptcies, decreased customer confidence to make purchasing decisions resulting indelays in their purchasing decisions, decreased customer demand or demand for lower-end products, or decreased customer ability to pay their obligationswhen they become due to us. We are a smaller Company than some of our competitors and may be more susceptible to market fluctuations, other adverse events, increased costs andless favorable purchasing terms. Since we are a relatively small Company, there is a risk that we may be more susceptible to market fluctuations and other adverse events. In particular, wemay be more susceptible to reductions in government and corporate spending from our government and enterprise customers. We may also experienceincreased costs and less favorable terms from our suppliers than some of our larger competitors who may have greater leverage in their purchasing spend.Any of these outcomes could result in loss of sales or our products being more costly to manufacture and thus less competitive. Any such unfavorablemarket fluctuations, reductions in customer spending or increased manufacturing costs could have a negative impact on our business and results ofoperations. Difficulties in integrating past or future acquisitions could adversely affect our business. Any acquisition involves numerous risks and challenges, including difficulties and time involved in integrating the operations, technologies andproducts of the acquired companies, entering new business or product lines, the diversion of our management’s attention from other business concerns,geographic dispersion of operations, generating market demand for expanded product lines and the potential loss of key customers or employees of anacquired Company. Failure to achieve the anticipated benefits of these and any future acquisitions or to successfully integrate the operations of these orany other companies or assets we acquire, could also harm our business, results of operations and cash flows. Additionally, we cannot assure you that wewill not incur material charges in future periods to reflect additional costs associated with these acquisitions or any future acquisitions we may make. Profitability could be negatively impacted if we do not adequately forecast the demand for our products and are unable to monetize our long-terminventories. We hold approximately $8.7 million in long-term inventories. There can be no assurance that we will be able to successfully anticipate changingconsumer preferences and product trends or economic conditions and, as a result, we may not successfully monetize our long-term inventory. Inventorylevels in excess of consumer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could have anadverse effect on the image and reputation of our brands and negatively impact profitability. Conditions in Israel and the Middle East may affect the operations of our subsidiary in Israel. We have a subsidiary located in Israel in connection with the acquisition of the assets of VCON Video Conferencing, Ltd and the subsequentestablishment of a predominantly research and development team. Political, economic, security and military conditions in the Middle East in general, andin Israel in particular, directly affect our Israeli subsidiary’s operations. Since the establishment of the State of Israel in 1948, a number of armed conflictshave taken place between Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problemsfor Israel. Despite negotiations to effect peace between Israel and its Arab neighbors, the future of these peace efforts is uncertain. Recent social unrest in various countries in the Middle East have led to severe political instability in those countries. This continuing instability maylead to deterioration of the political and trade relationships that exist between the State of Israel and these countries. In addition, this instability mayaffect the economy in the Middle East as well as the global economy and marketplace. Any armed conflicts or political instability in the region,including acts of terrorism or any other hostilities involving or threatening Israel, would likely negatively affect business conditions and could make itmore difficult for us to conduct our operations in Israel, which could increase our costs and adversely affect our financial results. | 15 |Table of Contents ITEM 1A - RISK FACTORS Conditions in China, India, Spain and United Arab Emirates may affect our operations. We have different teams working outside the U.S. in China, India, Spain and United Arab Emirates offering various services including research anddevelopment, sales and marketing, and manufacturing operations support. Our ability to operate the company smoothly may be affected significantly ifeither one or more of these countries are adversely impacted by political, economic, security and military conditions in these countries. Product obsolescence could harm demand for our products and could adversely affect our revenue and our results of operations. Our industry is subject to technological innovations that could render existing technologies in our products obsolete and thereby decrease marketdemand for such products. If any of our products becomes slow-moving or obsolete and the recorded value of our inventory is greater than its marketvalue, we will be required to write down the value of our inventory to its fair market value, which would adversely affect our results of operations. Inlimited circumstances, we are required to purchase components that our outsourced manufacturers use to produce and assemble our products. Shouldtechnological innovations render these components obsolete, we will be required to write down the value of this inventory, which could adversely affectour results of operations. International sales account for a significant portion of our net revenue and risks inherent in international sales could harm our business. International sales represent a significant portion of our total product revenue. We anticipate that the portion of our total product revenue frominternational sales will continue to increase as we further enhance our focus on developing new products for new markets, establishing new distributionpartners, strengthening our presence in emerging economies, and improving product localization with country-specific product documentation andmarketing materials. Our international business is subject to the financial and operating risks of conducting business internationally, including thefollowing:●unexpected changes in, or the imposition of, additional legislative or regulatory requirements;●unique or more onerous environmental regulations;●fluctuating exchange rates;●tariffs and other barriers;●difficulties in staffing and managing foreign sales operations;●import and export restrictions;●greater difficulties in accounts receivable collection and longer payment cycles;●potentially adverse tax consequences;●potential hostilities and changes in diplomatic and trade relationships; and●disruption in services due to natural disaster, economic or political difficulties, transportation, quarantines or other restrictions associated withinfectious diseases. We may not be able to hire and retain qualified key and highly-skilled technical employees, which could affect our ability to compete effectively andmay cause our revenue and profitability to decline. We depend on our ability to hire and retain qualified key and highly skilled employees to manage, research and develop, market, and service new andexisting products. Competition for such key and highly-skilled employees is intense, and we may not be successful in attracting or retaining suchpersonnel. To succeed, we must hire and retain employees who are highly skilled in the rapidly changing communications and Internet technologies.Individuals who have the skills and can perform the services we need to provide our products and services are in great demand. Because the competitionfor qualified employees in our industry is intense, hiring and retaining employees with the skills we need is both time-consuming and expensive. We maynot be able to hire enough skilled employees or retain the employees we do hire. In addition, provisions of the Sarbanes-Oxley Act of 2002 and relatedrules of the SEC impose heightened personal liability on some of our key employees. The threat of such liability could make it more difficult to identify,hire and retain qualified key and highly-skilled employees. We have relied on our ability to grant stock options as a means of recruiting and retaining keyemployees. Accounting regulations requiring the expensing of stock options will impair our future ability to provide these incentives without incurringassociated compensation costs. If we are unable to hire and retain employees with the skills we seek, our ability to sell our existing products, systems, orservices or to develop new products, systems, or services could be hindered with a consequent adverse effect on our business, results of operations,financial position, or liquidity. In addition, given the current political climate regarding the U.S. immigration laws, we may not be able attract highly-skilled technical employees from abroad. | 16 |Table of Contents ITEM 1A - RISK FACTORS We rely on third-party technology and license agreements, the loss of any of which could negatively impact our business. We have licensing agreements with various suppliers for software and hardware incorporated into our products. These third-party licenses may notcontinue to be available to us on commercially reasonable terms, if at all. The termination or impairment of these licenses could result in delays of currentproduct shipments or delays or reductions in new product introductions until equivalent designs can be developed, licensed, and integrated, if at allpossible, which would have a material adverse effect on our business. We may have difficulty in collecting outstanding receivables. We grant credit to substantially all of our customers without requiring collateral. In times of economic uncertainty, the risks relating to the granting ofsuch credit will typically increase. Although we monitor and mitigate the risks associated with our credit policies, we cannot ensure that such mitigationwill be effective. We have experienced losses due to customers failing to meet their obligations. Future losses could be significant and, if incurred, couldharm our business and have a material adverse effect on our operating results and financial position. Interruptions to our business could adversely affect our operations. As with any Company, our operations are at risk of being interrupted by earthquake, fire, flood, and other natural and human-caused disasters, includingdisease and terrorist attacks. Our operations are also at risk of power loss, telecommunications failure, human error, physical or electronic securitybreaches and computer viruses (which could leave us vulnerable to the loss of confidential proprietary information as well as disruption of our businessactivities) and other infrastructure and technology-based problems. To help guard against such risks, we carry business interruption loss insurance to helpcompensate us for losses that may occur, but we cannot assure that such coverage would protect us from all such possible losses. Changes in tax laws and uncertainties in the interpretation and application of the 2017 Tax Cuts and Job Act could materially affect our financialposition, results of operations and cash flows. In December 2017, the U.S. government enacted comprehensive income tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "2017 TaxAct"). The 2017 Tax Act makes broad and complex changes to the Internal Revenue Code of 1986, as amended (the "Code"), including, among otherchanges, significant changes to the U.S. corporate tax rate and certain other changes to the Code that impact the taxation of corporations. In certaininstances the 2017 Tax Act requires complex computations to be performed that generally were not previously required by the Code and the regulationspromulgated thereunder; significant judgments to be made in interpreting the provisions of the 2017 Tax Act significant estimates to be made in certaincalculations; and the preparation and analysis of information generally not previously relevant or regularly produced. The U.S. Treasury Department, theInternal Revenue Service ("IRS"), and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will beapplied or otherwise administered that differs from our interpretation. As we complete our analysis of the 2017 Tax Act, collect and prepare necessarydata, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact ourprovision for income taxes in the period in which the adjustments are made. Additionally, there is risk relating to assumptions regarding the outcome oftax matters, based in whole or in part upon consultation with outside advisors; risk relating to potential unfavorable decisions in tax proceedings; andrisks regarding changes in, and/or interpretations of federal and state income tax laws. Any such changes, interpretations or alternative outcomes couldresult in more unpredictability and variability to our future effective tax rates. | 17 |Table of Contents ITEM 1A - RISK FACTORS We may not be able to hire and retain qualified key and highly-skilled technical employees, which could affect our ability to compete effectively andmay cause our revenue and profitability to decline. We depend on our ability to hire and retain qualified key and highly skilled employees to manage, research and develop, market, and service new andexisting products. Competition for such key and highly-skilled employees is intense, and we may not be successful in attracting or retaining suchpersonnel. To succeed, we must hire and retain employees who are highly skilled in the rapidly changing communications and Internet technologies.Individuals who have the skills and can perform the services we need to provide our products and services are in great demand. Because the competitionfor qualified employees in our industry is intense, hiring and retaining employees with the skills we need is both time-consuming and expensive. Wemay not be able to hire enough skilled employees or retain the employees we do hire. In addition, provisions of the Sarbanes-Oxley Act of 2002 andrelated rules of the SEC impose heightened personal liability on some of our key employees. The threat of such liability could make it more difficult toidentify, hire and retain qualified key and highly-skilled employees. We have relied on our ability to grant stock options as a means of recruiting andretaining key employees. Accounting regulations requiring the expensing of stock options will impair our future ability to provide these incentiveswithout incurring associated compensation costs. If we are unable to hire and retain employees with the skills we seek, our ability to sell our existingproducts, systems, or services or to develop new products, systems, or services could be hindered with a consequent adverse effect on our business,results of operations, financial position, or liquidity. Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation tosuffer. In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that ofour employees, customers, licensors, vendors and business partners, including personally identifiable information of our customers and employees, in ourdata centers and on our networks. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers orbreached due to employee error, malfeasance or other disruptions. Security breaches have occurred with increased frequency and sophistication in recentyears. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any suchaccess, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personalinformation, disrupt our operations, and damage our reputation, which could adversely affect our business. | 18 |Table of Contents ITEM 1A - RISK FACTORS Risks Relating to Share Ownership Our stock price fluctuates as a result of the conduct of our business and stock market fluctuations. The market price of our common stock has experienced significant fluctuations and may continue to fluctuate significantly. The market price of ourcommon stock may be significantly affected by a variety of factors, including the following: ●statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the market in whichwe do business or relating to us specifically;●disparity between our reported results and the projections of analysts;●the shift in sales mix of products that we currently sell to a sales mix of lower-gross profit product offerings;●the level and mix of inventory held by our distributors;●the announcement of new products or product enhancements by us or our competitors;●technological innovations by us or our competitors;●success in meeting targeted availability dates for new or redesigned products;●the ability to profitably and efficiently manage our supply of products and key components;●the ability to maintain profitable relationships with our customers;●the ability to maintain an appropriate cost structure;●quarterly variations in our results of operations;●general consumer confidence or market conditions, or market conditions specific to technology industry;●domestic and international economic conditions;●unexpected changes in regulatory requirements and tariffs;●our ability to report financial information in a timely manner;●the markets in which our stock is traded;●our ability to integrate the companies we have acquired; and●our ability to successfully utilize our cash reserves resulting from the settlement of litigation and arbitration matters. Rights to acquire our common stock could result in dilution to other holders of our common stock. As of December 31, 2017, there were outstanding options to acquire approximately 764,430 shares of our common stock at a weighted average exerciseprice of $8.78 per share. During the terms of these options, the holders thereof will have the opportunity to profit from an increase in the market price ofthe common stock. The existence of these options may adversely affect the terms on which we can obtain additional financing, and the holders of theseoptions can be expected to exercise such options at a time when we, in all likelihood, would be able to obtain additional capital by offering shares of ourcommon stock on terms more favorable to us than those provided by the exercise of these options. The sale of additional shares of our common stock could have a negative effect on the market price of our common stock. The sale of substantial amounts of our common stock in the public market could adversely affect prevailing market prices and could impair our ability toraise capital through the sale of our equity securities. Most shares of common stock currently outstanding are eligible for sale in the public market,subject in certain cases to compliance with the requirements of Rule 144 under the securities laws. Shares issued upon the exercise of stock optionsgranted under our stock option plan generally will be eligible for sale in the public market. We also have the authority to issue additional shares ofcommon stock and shares of one or more series of preferred stock. The issuance of such shares could dilute the voting power of the currently outstandingshares of our common stock and could dilute earnings per share. | 19 |Table of Contents ITEM 1A - RISK FACTORS If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our commonstock, the price of our common stock could decline. The liquidity of the trading market for our common stock may be affected in part by the research and reports that equity research analysts publish aboutus and our business. We do not control the opinions of these analysts. The price of our stock could decline if one or more equity analysts downgrade ourstock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. Write off of capitalized legal expenses related to our defense of patents could negatively impact our net income and stockholders' equity. Our intangible assets include capitalized legal expenses net of amortization of $2.3 million related to our defense of patents from infringement by ourcompetitors. Legal expenses have been capitalized upon satisfaction of two conditions: (a) a determination being made that a successful defense of thislitigation is probable, and (b) that the monetary benefits arising out of such successful defense will be in excess of the costs for the defense. If either oneof these conditions fail to be satisfied in the future, the carrying amount in the books may have to be written off either completely or partially. There canbe no assurance that we will be successful in the defense of these litigation claims, in whole or in part. | 20 |Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2. PROPERTIES We occupy a 5,000 square-foot facility in Gainesville, Florida under the terms of an operating lease that expires in February 2021 with the possibility ofrenewing the lease for 10 more years. The Gainesville facility was used primarily to support out research and development activities. We lease a 4,700 square-foot office facility in Hod Hasharon, Israel under the terms of an operating lease expiring in December 2019 which serves tosupport our research and development activities. Upon expiration, we will have the option to extend the lease for two additional years. We currently occupy a 31,000 square-foot facility in Salt Lake City, Utah under the terms of an operating lease expiring in May 2019, which supports ourprincipal administrative, sales, marketing, customer support, and research and product development activities. We occupy a 10,700 square-foot warehouse in Shenzhen, China under the terms of an operating lease expiring in September 2019, which serves as ourprimary inventory fulfillment and repair center. We occupy a 7,070 square-foot facility in Austin, Texas - under the terms of an operating lease expiring in October 2019. This facility support ouradministrative, sales, marketing, customer support, and research and development activities. We occupy a 40,000 square-foot warehouse in Salt Lake City, Utah under the terms of an operating lease expiring in December 2021, which serves as ourprimary inventory fulfillment and repair center. This facility also serves as our assembly workshop for digital signage products. We believe our current facilities are adequate to meet our needs for the foreseeable future and that suitable additional or alternative space will beavailable in the future on commercially reasonable terms as needed. ITEM 3. LEGAL PROCEEDINGS See Note 8 – Commitments and Contingencies of the Notes to Consolidated Financial Statements (Part II, Item 8) for information regarding legalproceedings in which we are involved, which is incorporated in this Item 3 by reference. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. | 21 |Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES Market Information Our common stock is traded on the NASDAQ Capital Market under the symbol CLRO. On March 30, 2018, there were 8,301,473 shares of our commonstock issued and outstanding held by approximately 323 shareholders of record. Each broker dealer or a clearing corporation that holds shares forcustomers is counted as a single shareholder of record. The high and low common stock sales prices per share were as follows: FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Full Year 2017 High $12.60 $11.10 $10.10 $9.00 $12.60 Low 9.70 9.25 7.40 6.70 6.70 2016 High $13.15 $11.68 $12.36 $11.40 $13.15 Low 10.60 10.21 10.32 10.40 10.21 Dividends During 2017 and 2016, our Board of Directors declared the following dividends: Declaration Date Record Date Payment Date Dividendper share Dividends(S thousands) February 25, 2016 March 07, 2016 March 18, 2016 0.050 459 May 17, 2016 June 01, 2016 June 15, 2016 0.050 465 August 02, 2016 August 17, 2016 August 31, 2016 0.050 449 November 01, 2016 November 16, 2016 November 30, 2016 0.050 444 January 31, 2017 February 15, 2017 March 1, 2017 0.050 439 May 4, 2017 May 17, 2017 May 31, 2017 0.070 612 August 7, 2017 August 22, 2017 September 7, 2017 0.070 599 November 8, 2017 November 22, 2017 December 6, 2017 0.070 589 In addition, on March 1, 2017, our Board of Directors authorized an increase in our quarterly dividend from $0.05 per share to $0.07 per share beginningwith the second quarter dividend in 2017. Issuer Purchases of Equity Securities In May 2012, our Board of Directors authorized a stock repurchase program authorizing the Company to repurchase up to $2 million of our outstandingcommon 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 pressrelease announcing the declaration of future cash dividends by the Company’s Board of Directors and reported the discontinuance of this stockrepurchase program. At the time of the discontinuance of this stock repurchase program, the Company had repurchased approximately $5.4 million of theCompany’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 ofcommon stock under a new stock repurchase program. In connection with the repurchase authorization, the Company was authorized to complete therepurchase through open market transactions or through an accelerated share repurchase program, in each case to be executed at management’s discretionbased on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. The repurchase program may besuspended or discontinued at any time without prior notice. The transactions effectuated to date occurred in open market purchases. | 22 |Table of Contents On March 1, 2017, the Board of Directors of the Company renewed and extended the repurchase program until March 8, 2018 for up to an additional $10million of common stock over the next twelve months. In connection with the repurchase extension authorization, the Company was authorized tocomplete the repurchase through open market transactions or through an accelerated share repurchase program, in each case to be executed atmanagement’s discretion based on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. The repurchaseprogram 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 December 31, 2017 we acquired the following shares of common stock under the current stock repurchase program: Period (a)Total Numberof SharesPurchased (b)Average PricePaid perShare (c)Total NumberofSharesPurchasedas Part ofPubliclyAnnouncedPlansor Programs (d)ApproximateDollar Value ofShares that MayYet Be PurchasedUnder the Plansor Programs(in $ millions) October 2017 19,460 $7.47 19,460 $6.5 November 2017 29,855 7.01 29,855 6.3 December 2017 69,229 8.88 69,229 5.7 Total 118,544 8.18 118,544 From March 11, 2016 to March 17, 2017, the Company offered to repurchase eligible vested options to purchase shares under the 1998 Plan and the 2007Plan from employees and directors. The Company repurchased delivered options at a repurchase price equal to the difference between the closing marketprice on the date of the employee’s communication of accepting the repurchase offer and the exercise price of such employee’s delivered options, subjectto applicable withholding taxes and charges. The Company repurchased 225,542 stock options from employees and directors between March 11, 2016and March 17, 2017 at an average purchase price of $7.77. The repurchase program expired on March 8, 2018 and the Board of Directors determined notto renew or extend it at that time. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Selected Financials(Dollar in thousands, except per share data) Year Ended December 31, 2017 2016 2015 2014 2013 Revenue $41,804 $48,637 $57,796 $57,909 $49,592 Gross profit 24,009 29,487 36,719 35,323 29,897 Operating income/(loss) (16,193) 3,566 10,292 7,975 7,622 Net income/(loss) (14,172) 2,444 6,776 5,596 5,179 Diluted earnings/(loss) per share (1.65) 0.26 0.71 0.58 0.55 Cash dividends declared per share 0.26 0.20 0.155 0.10 0.00 Cash, cash equivalents, and short-term investments 8,260 17,130 20,573 14,434 20,392 Working capital 23,286 30,819 36,539 30,202 39,417 Total assets 67,877 88,124 93,529 88,860 81,061 Long-term obligations 710 1,354 1,353 2,089 2,077 Stockholders’ equity 56,567 77,449 82,569 76,016 70,335 Quarterly Data for 2017 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenue $11,678 $10,311 $10,560 $9,255 Gross profit 6,678 6,069 6,509 4,753 Net loss (469) (820) (9,276) (3,607)Diluted loss per common share (0.05) (0.09) (1.09) (0.43) | 23 |Table of Contents Quarterly Data for 2016 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenue $13,033 $11,966 $12,908 $10,730 Gross profit 8,465 7,664 7,668 5,590 Net income (loss) 1,368 955 1,209 (1,088)Diluted earnings(loss) per common share 0.14 0.10 0.13 (0.12) | 24 |Table of Contents ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this report, as well as ourother filings with the SEC. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties, suchas our plans, objectives, expectations, and intentions, as set forth under “Disclosure Regarding Forward-Looking Statements.” Our actual results and thetiming of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forthin the following discussion and under the caption “Risk Factors” in Item 1A and elsewhere in this report. OVERVIEW ClearOne is a global Company that designs, develops and sells conferencing, collaboration, and network streaming solutions for voice and visualcommunications. The performance and simplicity of our advanced, comprehensive solutions offer a high level of functionality, reliability and scalability. We derive most of our revenue from professional audio conferencing products by promoting our products in the professional audio-visual channel. Wehave extended our total addressable market from installed audio conferencing market to adjacent complementary markets – microphones, videocollaboration and networked audio and video streaming. We have achieved this through strategic technological acquisitions as well as by internalproduct development. During 2017, we devoted most of our attention to the transition of our flagship professional audio conferencing products from CONVERGE Pro andBeamforming Microphone Array platform to CONVERGE Pro 2, our full line of next-gen DSP conferencing platform and Beamforming MicrophoneArray 2 platform. A number of CONVERGE Pro 2 SKUs were introduced and shipped during 2017 along with accessories like touch panel controllers,GPIO expansion box and USB expansion box. On the operations side, we successfully transitioned the manufacture of our professional audioconferencing products by our Electronics Manufacturer Services provider in the US to outside the US. On the sales and marketing front, our initiativesincluded focusing on smaller regional arenas, adding headcount to the sales team for increased feet on the street, and bringing on new regional channelpartners to boost sales opportunity funnels. Overall revenue declined in 2017 despite a significant increase in revenue from video products. The declines in revenue from professional audio productsand unified communications end points more than offset the increase in revenue from video products. Our revenue decline in professional audio productsreflects the challenges in transition to the next generation professional audio conferencing platform, and the on-going harm of infringement of ClearOne’spatents to our professional audio conferencing products. Our gross profit margin decreased in 2017 to 57% compared to 61% in 2016 primarily due to the reduced margins associated with CONVERGE Pro 1consequent to price reductions announced in the fourth quarter of 2016. Net income decreased from $2.4 million in 2016 to a loss of $14.2 million in2017. Net loss in 2017 was primarily due to $13.5 million in impairment of goodwill and intangible assets. Industry conditions We operate in a very dynamic and highly competitive industry which is dominated on the one hand by a few players with respect to certain products liketraditional video conferencing appliances while on the other influenced heavily by a fragmented reseller market consisting of numerous regional andlocal players. The industry is also characterized by the influx of venture capitalist funded start-ups and private companies keen to win market share evenat the expense of mounting financial losses. Economic conditions, challenges and risks The audio-visual products market is characterized by intense competition and rapidly evolving technology. Our competitors vary within each productcategory. Our professional audio communication products, which contribute the most to our revenue, continues to be ahead of the competition despitethe reduction in revenues through our transition from the CP1 platform to the next generation CP2 platform. Our strength in this space is largely due toour fully integrated suite of products consisting of DSP mixers, wide range of professional microphone products and video collaboration products.Despite our strong leadership position in the professional audio communications products market, we face challenges to revenue growth due to thelimited size of the market and pricing pressures from new competitors attracted to the commercial market due to higher margins. | 25 |Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Revenue from our video products in the overall revenue mix has been improving on the back of a strong growth for our media collaboration products in2017. We face intense competition in this market from well-established market leaders as well as emerging players rich with marketing funds. We expectour strategy of combining Spontania, our cloud-based video conferencing product, Collaborate, our appliance-based media collaboration product and ourhigh-end audio conferencing technology to continue to generate high growth in revenue. We believe we are also well positioned to capitalize on thecontinuing migration away from the traditional hardware-based video conferencing systems to software-based video conferencing applications. We derive a major portion of our revenue (approximately 39% for the year ended December 31, 2017) from international operations and expect thistrend to continue in the future. Most of our revenue from outside the U.S. is billed in US dollars and is not exposed to any significant currency risk.However, we are exposed to foreign exchange risk if the US dollar is strong against other currencies as it will make U.S. Dollar denominated prices of ourproducts less competitive. Deferred Revenue Each quarter-end, we evaluate the inventory in the distribution channel through information provided by certain of our distributors. The level ofinventory in the channel fluctuates up or down each quarter based upon our distributors’ individual operations. Accordingly, each quarter-end revenuedeferral is calculated and recorded based upon the underlying channel inventory at quarter-end. Deferred revenue increased by $0.7 million to $4.6million in 2017, due to higher orders placed in December. In 2016 deferred revenue decreased by $0.7 million from $4.6 million at the end of 2015 to$3.9 million at the end of 2016. DISCUSSION OF RESULTS OF OPERATIONS The following table sets forth certain items from our consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015,together with the percentage change each item represents. Throughout this discussion, we compare results of operations for the year ended December 31,2017 (“2017”) to the year ended December 31, 2016 (“2016” or “the comparable period”) and to the year ended December 31, 2015 (“2015” or “thecomparable period”). (In thousands, except percentages) 2017 2016 2015 Percentage Change2017 vs 2016 Percentage Change2016 vs 2015 Revenue $41,804 $48,637 $57,796 -14% -16%Cost of goods sold 17,795 19,150 21,077 -7% -9%Gross profit 24,009 29,487 36,719 -19% -20%Sales and marketing 10,996 10,032 10,646 10% -6%Research and product development 9,342 8,564 8,318 9% 3%General and administrative 7,161 7,325 7,493 -2% -2%Impairment of intangible assets 769 - - 100% -%Impairment of goodwill 12,724 - - 100% -%Legal settlement 790 - - -100% _%Operating expenses 40,202 25,921 26,457 55% -2%Operating income/(loss) (16,193) 3,566 10,262 -554% -65%Income/(loss) before income taxes (15,893) 3,878 10,551 -510% -63%Provision for/(benefit from) incometaxes (1,721) 1,434 3775 -220% -62%Net income/(loss) (14,172) 2,444 6,776 -680% -64% Revenue Our revenue decreased to $41.8 million in 2017 compared to $48.6 million in 2016. The 38% increase in revenue from video products was more thanoffset by a 19% decline in professional audio conferencing revenue and a 27% decline in revenue from unified communication end points. Premiumproducts consisting of Interact AT line of products declined the most while media collaboration products increased the most. The decline in revenue fromprofessional audio conferencing products was mostly due to price reductions to CONVERGE Pro 1 platform in the fourth quarter of 2016, delay intransitioning to the next generation professional audio conferencing platform, and the on-going harm of infringement of ClearOne’s patents to ourprofessional audio conferencing products. The share of professional audio communications products (which includes microphone products but notpremium products) in our product mix declined from 77% in 2016 to 72% in 2017. Share of video products in the revenue mix increased from 11% in2016 to 17% in 2017. The increase in revenue from video products was due to the success of media collaboration products, especially Unite camera, andincreasing acceptance of View Pro in major projects, especially in Asia and Middle East. Share of UC end points declined marginally from 12% in 2016to 11% in 2017. | 26 |Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During 2017, revenue declined across all major markets except India, Middle East, China and parts of Europe. The decline was pronounced in the USA,Canada, South Asia, Korea and Northern Europe. Asia Pacific including Middle East increased by 18%, Europe and Africa declined by 12% and Americasdeclined by about 23%. The revenue decline was primarily caused by the delay in the transition to our next generation audio platform, CONVERGE Pro 2and Beamforming Microphone Array 2 combined with price reduction effected to Converge Pro 1 platform in 2016 and the on-going harm ofinfringement of ClearOne’s patents to our professional audio conferencing products. We believe, although there can be no assurance, that we will returnto growth path when the transition from CONVERGE Pro 1 platform to CONVERGE Pro 2 platform is complete which we anticipate may happen in thenext 12 months. Our revenue decreased to $48.6 million in 2016 compared to $57.8 million in 2015. The 40% increase in revenue from video products was more thanoffset by a 19% decline in professional audio conferencing revenue and a 23% decline in revenue from unified communication end points. Tabletopaudio conferencing products declined the most while media collaboration products increased the most. The decline in revenue from professional audioconferencing products was mostly due to overall weakness in the economy, decline in orders due to transition from CONVERGE Pro 1 to CONVERGEPro 2 and reductions in CONVERGE Pro 1 pricing in the last quarter of 2016. The share of professional audio communications products (which includesmicrophone products but not premium products) in our product mix declined from 80% in 2015 to 77% in 2016. Share of video products in the revenuemix increased from 6.5% in 2015 to 11% in 2016. The increase in revenue from video products was due to the success of Unite camera, favorablereception to the new Collaborate SKUs containing integrated audio solutions and increasing acceptance of View Pro in major projects. Share of UC endpoints declined marginally from 13% in 2016 to 12% in 2015. Cost of Goods Sold and Gross Profit Cost of goods sold (“COGS”) includes expenses associated with finished goods purchased from outsourced manufacturers, the manufacture of ourproducts (including material and direct labor), our manufacturing and operations organization, property and equipment depreciation, warranty expense,freight expense, royalty payments, and the allocation of overhead expenses. Our gross profit during 2017 was approximately $24.0 million or 57% compared to approximately $29.5 million or 61% in 2016. Gross margin declinedmainly due to the price reductions made to CONVERGE Pro 1 products in the fourth quarter of 2016 and the decline in higher margin professional audioconferencing products in the mix Our gross profit during 2016 was approximately $29.5 million or 61% compared to approximately $36.7 million or 64% in 2015. This increase in marginwas mainly due to favorable change in product mix and 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. We hold long-terminventory 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 and Profits (Losses) Operating income/(loss), or income/(loss from operations, is the surplus or deficit after operating expenses are deducted from gross profits. Operatingexpenses include sales and marketing (“S&M”) expenses, research and product development (“R&D”) expenses and general and administrative (“G&A”)expenses. Total operating expenses were $40.2 million in 2017, which included $13.5 million in impairment of goodwill and intangible assets, comparedto $25.9 million in 2016 and $26.5 million in 2014. 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 sales, customer service, and marketing expenses such as employee-related costs, allocations of overheadexpenses, trade shows, and other advertising and selling expenses. S&M expenses in 2017 increased by 10% from $10.0 million in 2016 to $11 million in 2017 mainly due to an augmentation in headcount and employee-related salaries, and benefits. S&M expenses in 2016 declined by 6% from $10.6 million in 2015 to $10.0 million in 2016 mainly due to reductions in commissions paid toindependent agents and reductions in employee-related salaries, benefits. | 27 |Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Research and Product Development R&D expenses include research and development, product line management, engineering services, and test andapplication expenses, including employee-related costs, outside services, expensed materials, depreciation, and an allocation of overhead expenses. R&D expenses increased during 2017 to $9.3 million from $8.6 million in 2016. The increase was primarily due to an increase in R&D project costs andemployee-related costs partially offset by a reduction in overhead allocated to R&D. R&D expenses increased marginally during 2016 to $8.6 million from $8.3 million in 2015. The increase was primarily due to an increase in R&D projectcosts and employee-related costs partially offset by a reduction in overhead allocated to R&D. General and Administrative G&A expenses include employee-related costs, professional service fees, allocations of overhead expenses, litigation costs,and corporate administrative costs, including costs related to finance and human resources. G&A expenses were approximately $7.2 million in 2017 compared with approximately $7.3 million in 2016. G&A expenses was practically unchangedwith main expenses relating to audit, accounting fees and legal expenses. G&A expenses were approximately $7.3 million in 2016 compared with approximately $7.5 million in 2015. The decrease in G&A expenses wasprimarily due to a reduction in audit and accounting fees and employee-related costs partially offset by an increase in legal expenses, especially in thefourth quarter. Impairment of Goodwill and Intangibles We recognized impairment of goodwill of $12.7 million and intangibles of $0.7 million during the twelve months ended December 31, 2017. There wereno such impairment charges during the years ended December 31, 2016 and 2015. The analysis for impairment was mainly triggered due to the decrease ofour market capitalization. We recorded impairment charges upon determination that the carrying value of certain intangibles and goodwill is in excessof the implied fair value of such assets. Provision for income taxes The tax benefit of $1.7 million during 2017 was primarily the result of the tax benefit on current year losses, offset by additional tax expense related tothe impact of the tax rate change on net deferred tax assets. This compared to tax expense of $1.4 million during 2016, which was primarily the result oftax on current year income. This increase in tax benefit of $3.1 million resulted primarily from changing from income in 2016 to losses in 2017. The tax expense of $1.4 million during 2016 was primarily the result of tax on current year income. This compared to tax expense of $3.8 million during2015, also primarily the result of tax on current year income. This decrease of $2.4 million resulted primarily from a decrease in the overall pre-taxincome for the period, as well as reduced R&D tax credit utilization. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION As of December 31, 2017, our cash and cash equivalents were approximately $5.6 million compared to $12.1 million as of December 31, 2016. Ourworking capital was $23.3 million and $30.8 million as of December 31, 2017 and 2016, respectively. Net cash flows used by operating activities were approximately $9.3 million during 2017, a decrease of approximately $17.1 million from $7.8 millionprovided by operating activities in 2016. The decrease was primarily due to reduction in net income of $16.6 million and an increase in inventory of$12.6 million partially offset by an increase in non-cash charges of $11.6 million consisting mostly of impairment charges. Net cash flows provided by investing activities were $10.2 million during 2017 compared to net cash flows used in investing activities of $0.9 millionduring 2016, an increase of $11.1 million during 2017. The increase was primarily due to an increase in net sales of marketable securities of $13.4 millionpartially offset by $2.3 million of capitalized patent defense costs. Net cash used in financing activities increased in 2017 by $0.7 million primarily due to a decrease in payments for stock repurchases and cancellation ofstock options of $2.4 million offset by an increase in dividend payments of $0.4 million and an increase in proceeds from equity-based compensationprograms and related tax benefits of $1.3 million. | 28 |Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net cash flows provided by operating activities were approximately $7.8 million during 2016, an increase of approximately $0.2 million from $7.6million provided by operating activities in 2015. The increase was primarily due to increase in cash inflows due to change in operating assets andliabilities of $4.8 million mostly offset by a decrease in non-cash charges of $0.2 million and a reduction in net income of $4.3 million. Net cash flows used in investing activities were $0.9 million during 2016 compared to net cash flows used in investing activities of $0.6 million during2015, an increase of $0.3 million during 2016. The increase was primarily due to an increase of $0.5 million in purchases of property, plant andequipment and intangibles partially offset by a reduction in net purchases of marketable securities. Net cash used in financing activities increased in 2016by $7.3 million primarily due to payments for stock repurchases and cancellation of stock options of $7.8 million and increased dividend payments of$0.4 million partially offset by increased proceeds from equity-based compensation programs and related tax benefits of $1.0 million. Please refer to Note3 - Business Combinations, Goodwill and Intangibles in the Notes to Consolidated Financial Statements (Part IV) for details on the Company’sacquisitions. Net cash used in financing activities in 2016 consisted of proceeds received from the exercise of stock options amounting to $0.5 million and associatedtax benefits of $41 thousand, offset by cash dividends of $1.4 million. Net cash used in financing activities in 2015 consisted of proceeds from theexercise of stock options totaling $1.3 million and associated tax benefits totaling $0.2 million, offset by the acquisition of outstanding stock totaling$2.6 million under the stock repurchase program. We believe that future income from operations and effective management of working capital will provide the liquidity needed to meet our short-term andlong-term operating requirements and finance our growth plans. We also believe that our strong financial position and sound business structure willenable 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 usecash in the near future for selective infusions of technology, sales and marketing, infrastructure, and other investments to fuel our growth, as well asacquisitions that may strategically fit our business and are accretive to our performance. We also intend to use cash to pay quarterly cash dividends andrepurchase stock under our repurchase program expired in March 2018. At December 31, 2017, we had open purchase orders related to our electronics manufacturing service providers of approximately $3.4 million, primarilyrelated to inventory purchases. At December 31, 2017, we had inventory totaling $23.1 million, of which non-current inventory accounted for $8.7 million. This compares to totalinventories of $13.0 million and non-current inventory of $1.7 million as of December 31, 2016. 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 orliquidity. 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 beenprepared in conformity with U.S. generally accepted accounting principles. We review the accounting policies used in reporting our financial results on aregular basis. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expensesduring 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 aredescribed in Note 1 - Business Description, Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements includedin Part IV of this report. We believe the following critical accounting policies identify our most critical accounting policies, which are the policies thatare both important to the representation of our financial condition and results and require our most difficult, subjective or complex judgments, often as aresult of the need to make estimates about the effect of matters that are inherently uncertain. | 29 |Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 recognizedwhen (i) the products are shipped and any right of return expires, (ii) persuasive evidence of an arrangement exists, (iii) the price is fixed anddeterminable, 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, adistributor is allowed to return products purchased during the prior quarter for a total value generally not exceeding 15% of the distributor’s net purchasesduring the preceding quarter. The distributor is, however, required to place a new purchase order for an amount not less than the value of productsreturned under the stock rotation program. When products are returned, the associated revenue, cost of goods sold, inventory and accounts receivableoriginally recorded are reversed. When the new order is placed, the revenue, associated cost of goods sold, inventory and accounts receivable are recordedand the product revenue is subject to the deferral analysis described below. In a small number of cases, the distributors are also permitted to return theproducts 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 certaintythat 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 inthe distribution channel through information provided by our distributors. The level of inventory in the channel will fluctuate up-ward or down-wardeach quarter based upon our distributors’ individual operations. Accordingly, each quarter-end deferral of revenue and associated cost of goods sold arecalculated and recorded based upon the actual channel inventory reported at quarter-end. Further, with respect to distributors and other channel partnersnot reporting the channel inventory, the revenue and associated cost of goods sold are deferred until we receive payment for the product sales made tosuch 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 otherresellers, and any material error in those reports would affect our revenue deferral. However, we believe that the controls we have in place, includingperiodic physical inventory verifications and analytical reviews, would help us identify and prevent any material errors in such reports. As part of thesecontrols, we sample test the inventory of a limited number of distributors on an annual basis, most recently in the fourth quarter of 2017, to verifyinventory levels reported. 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 December 31, 2017 2016 2015 Deferred revenue $4,635 $3,882 $4,549 Deferred cost of goods sold 1,555 1,530 1,628 Deferred gross profit $3,080 $2,352 $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 bythem. 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’ financialcondition. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability or unwillingness of our channel partners tomake required payments based upon our historical collection experience and expected collectability of all accounts receivable. Our actual bad debts infuture periods may differ from our current estimates and the differences may be material, which may have an adverse impact on our future accountsreceivable and cash position. | 30 |Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Impairment of Goodwill and Intangible Assets 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 atriggering event occurs suggesting possible impairment of the values of these assets. Impairment testing for these assets involves a two-step process. In thefirst step, the fair value of the reporting unit holding the assets is compared to its carrying amount. If the carrying amount of the reporting unit exceeds itsfair value, the second step of the impairment test is performed to measure the amount of the impairment loss, if any. In the second step, the fair value of thereporting unit is allocated to all of its assets and liabilities, including intangible assets and liabilities not recorded on the balance sheet. The excess, ifany, of the fair value of the reporting unit over the sum of the fair values allocated to identified assets and liabilities is the value of goodwill to becompared to its carrying value. Based on the third quarter results of the Company’s recent impairment analysis triggered by the fall in the Company’s stock price and recent financialresults, the Company determined that goodwill and an intangible asset consisting of customer relationships were impaired and recognized a charge of$12.7 million towards goodwill impairment and $0.7 million towards the intangible asset impairment for the three and nine months ended September 30,2017. Impairment of Long-Lived Assets We assess the impairment of long-lived assets, such as property and equipment and definite-lived intangible assets subject to amortization, wheneverevents or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used ismeasured 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 groupof assets over their remaining lives. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge isrecognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of long-lived assets is assessed at thelowest levels for which there are identifiable cash flows that are independent of other groups of assets. The impairment of long-lived assets requiresjudgments and estimates. If circumstances change, such estimates could also change. Assets held for sale are reported at the lower of the carrying amountor 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 non-U.S. jurisdictions. We estimate our current tax position together with ourfuture tax consequences attributable to temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation, andother reserves for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities. We must then assess thelikelihood that our deferred tax assets will be recovered from future taxable income, prior year carryback, or future reversals of existing taxabletemporary differences. To the extent we believe that recovery is not more likely than not, we establish a valuation allowance against these deferred taxassets. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuationallowance 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 consolidatedstatement of operations. In accordance with ASC Topic 740, “Accounting for Income Taxes”, we analyzed our valuation allowance at December 31,2017 and determined that based upon available evidence it is more likely than not that certain of our deferred tax assets related to foreign net operatingloss carryovers, foreign intangible assets, state R&D tax credit carryovers, and capital loss carryovers will not be realized and, accordingly, we haverecorded a valuation allowance against these deferred tax assets in the amount of $2.2 million. Please refer to Note 12 - Income Taxes in the Notes toConsolidated Financial Statements for additional information. | 31 |Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 ifmarket value is less than cost, based upon assumptions about future product life-cycles, product demand, shelf life of the product, inter-changeability ofthe 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 factorswhich, 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 estimatedprice levels. While we make considerable efforts to calculate reasonable estimates of these variables, actual results may vary. If there were to be a suddenand significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of changing technology andcustomer requirements, we could be required to increase our inventory allowances, and our gross profit could be adversely affected. Share-Based Payments We estimate the fair value of stock options using the Black-Scholes option pricing model, which requires certain estimates, including an expectedforfeiture rate and expected term of options granted. We also make decisions regarding the method of calculating expected volatilities and the risk-freeinterest rate used in the option-pricing model. The resulting calculated fair value of stock options is recognized as compensation expense over therequisite service period, which is generally the vesting period. When there are changes to the assumptions used in the option-pricing model, includingfluctuations in the market price of our common stock, there will be variations in the calculated fair value of our future stock option awards, which resultsin variation in the compensation cost recognized. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For descriptions of recently issued accounting standards, see Note 1. Business Description, Basis of Presentation and Significant Accounting Policies ofour Notes to Consolidated Financial Statements. | 32 |Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of changes in the value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates,foreign exchange rates, and equity prices. Changes in these factors could cause fluctuations in the results of our operations and cash flows. In the ordinarycourse of business, we are exposed to foreign currency and interest rate risks. These risks primarily relate to the sale of products and services to foreigncustomers and changes in interest rates on any interest-bearing investments or notes receivable, notes payable, or capital leases. Financial instruments which potentially expose us to concentrations of credit risk primarily consist of cash and cash equivalents, short-term and long-term investments, accounts receivable and unbilled accounts receivable. Our fixed-income portfolio consisting primarily of investment-grade securities is managed by professional money managers. Our investment securitiesalso consist of triple-A rated short-term money market funds that typically invest in U.S. Treasury, U.S. government agency, and highly rated corporatesecurities. Since these funds are managed in a manner designed to preserve capital we do not expect any material changes in market values, as a result ofincrease or decrease in interest rates. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties and,accordingly, do not require collateral. Credit losses and write-offs of accounts receivable balances have historically not been material to our financialstatements and have not exceeded our expectations. We did not have any notes payable and capital lease obligations as of December 31, 2017. Accordingly, we do not have significant exposure to changinginterest rates. We have not undertaken any additional actions to cover market interest rate market risk and are not a party to any other interest rate marketrisk management activities. We do not purchase or hold any derivative financial instruments. Although we enter into non-US Dollar transactions, foreign currency exposures arising from these transactions are not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data required by this are included herein as a separate section of this Form 10-K, beginning on page F-1, and areincorporated in this Item 8 by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the required time periods, and thatsuch information is accumulated and communicated to our management, including our Chief Executive Officer and Senior Vice President of Finance, asappropriate, to allow for timely decisions regarding required disclosure. As required by Rule 13a-15 under the Exchange Act, we have completed anevaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Senior Vice President ofFinance, of the effectiveness and the design and operation of our disclosure controls and procedures as of December 31, 2017. Our disclosure controlsand procedures are designed to provide reasonable assurance of achieving their objectives. Based upon this evaluation, our Chief Executive Officer andSenior Vice President of Finance concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures werenot effective at a reasonable assurance level as of December 31, 2017 due to the material weakness in internal control over financial reporting asdescribed below. Despite the existence of this material weakness, the Company believes the financial information presented herein is materially correctand in accordance with generally accepted accounting principles in the United States of America, and do not contain any untrue statement of a materialfact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under whichit was made. The consolidated financial statements together with the other financial information included in the consolidated financial statements andthis Annual Report on Form 10-K fairly present, in all material respects, the financial condition, financial performance and cash flows of the Companyfor the year ended December 31, 2017. | 33 |Table of Contents The effectiveness of any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing,implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability toeliminate improper conduct completely. A controls system, no matter how well designed and operated, cannot provide absolute assurance that theobjectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, ifany, within a Company have been detected. As a result, there can be no assurance that our disclosure controls and procedures will detect all errors orfraud. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accountingprinciples. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017 based on theframework set forth in Internal Control - Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of theTreadway Commission. The Public Company Accounting Oversight Board's Auditing Standard No. 5 defines a material weakness as a deficiency, or acombination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annualor interim financial statements will not be prevented or detected on a timely basis. Management identified a material weakness in the operatingeffectiveness of internal control over financial reporting relating to the accurate and timely reporting of its financial results and disclosures for the fiscalyear ended December 31, 2017 and its testing and assessment of the design and effectiveness of internal controls over financial reporting in a timelymanner. This material weakness was identified prior to the issuance of our consolidated financial statements for the year ended December 31, 2017, andcould result in material misstatements in the Company’s annual or interim consolidated financial statements that would not be prevented or detected. As a result of the material weakness described above, management concluded that our internal control over financial reporting was not effective as ofDecember 31, 2017. The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by Tanner, LLC, ourindependent registered public accounting firm, as stated in their report appearing on page F-1. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting. Remediation Activities To address the material weakness, management is working with our third party internal controls consultant to assist with the implementation of aremediation plan which will supplement the existing controls. The remediation plan will include an assessment of personnel levels andresponsibilities, additional training of financial reporting personnel and ability to handle new requirements and projects on a timely basis with respectto the preparation of the consolidated financial statements and public company reporting requirements and timelines. The material weakness will befully remediated when, in the opinion of management, the control processes have been operating for a sufficient period of time to provide reasonableassurance as to their effectiveness. The remediation and ultimate resolution of the material weakness will be reviewed with the Audit Committee of theBoard of Directors. ITEM 9B. OTHER INFORMATION None. | 34 |Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2017 annual meeting of shareholders oran amendment to this Annual Report on Form 10-K, which will be filed with the Securities and Exchange Commission within 120 days after the end ofour fiscal year covered by this Annual Report on form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2017 annual meeting of shareholders oran amendment to this Annual Report on Form 10-K, which will be filed with the Securities and Exchange Commission within 120 days after the end ofour fiscal year covered by this Annual Report on form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2017 annual meeting of shareholders oran amendment to this Annual Report on Form 10-K, which will be filed with the Securities and Exchange Commission within 120 days after the end ofour fiscal year covered by this Annual Report on form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2017 annual meeting of shareholders oran amendment to this Annual Report on Form 10-K, which will be filed with the Securities and Exchange Commission within 120 days after the end ofour fiscal year covered by this Annual Report on form 10-K. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2017 annual meeting of shareholders oran amendment to this Annual Report on Form 10-K, which will be filed with the Securities and Exchange Commission within 120 days after the end ofour fiscal year covered by this Annual Report on form 10-K. | 35 |Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1.Financial Statements: Financial statements set forth under Part II, Item 8 of this Annual Report on Form 10-K are filed in a separate section of thisForm 10-K. See the “Index to Consolidated Financial Statements”. 2.Financial Statement Schedules: All schedules are omitted since they either are not required, not applicable or the information is presented in theaccompanying consolidated financial statements and notes thereto. 3.Exhibits: The exhibits listed under the Index of exhibits in the next page are filed or incorporated by reference as part of this Form 10-K. ITEM 16. FORM 10-K SUMMARY Not applicable. | 36 |Table of Contents INDEX TO EXHIBITS ExhibitNumber Exhibit Description Form Exhibit IncorporatedHerein by Reference Filing Date2.1 Agreement and Plan of Merger, dated as of November 3, 2009, by andamong ClearOne Communications, Inc., Alta-Wasatch AcquisitionCorporation, NetStreams, Inc., Austin Ventures VIII, L.P., and Kevin A.Reinis. 8-K 2.2 11/09/093.1 Amended and Restated Articles of Incorporation of ClearOne, Inc. 10-K 3.1 03/25/133.2 Bylaws 10-K 3.2 03/31/1110.1 1997 Employee Stock Purchase Plan S-8 4.9 10/06/0610.2 1998 Stock Option Plan S-8 4.8 10/06/0610.3 2007 Equity Incentive Plan S-8 4.7 01/22/0810.4 ClearOne, Inc. Equity Incentive Plan S-8 4.8 01/26/1610.5 Amendment No. 1 to the ClearOne, Inc. Equity Incentive Plan S-8 4.11 06/30/1510.6 ClearOne, Inc. Employee Stock Purchase Plan S-8 4.3 06/30/1510.7 Office Lease between Edgewater Corporate Park, LLC and ClearOneCommunications, Inc. dated June 5, 2006 10-K 10.19 09/14/0610.8 Stock Purchase Agreement Between ClearOne, Inc. and Doran M. OsterDated March 4, 2014 for the Sabine Acquisition. 10-K 10.7 03/20/1410.9 Manufacturing Services Agreement between Flextronics Industrial, Ltd.and ClearOne Communications, Inc. dated November 3, 2008 10-K 10.21 10/13/0910.10 Framework Agreement between ClearOne, Inc. and Dialcom NetworksS.L., dated December 20, 2013 8-K 10.1 04/07/1410.11 Amendment to Framework Agreement between ClearOne, Inc. andDialcom Networks S.L., dated March 31, 2014 8-K 10.2 04/07/1410.12 Purchase Agreement between ClearOne, Inc. and Dialcom Networks S.L.,dated March 31, 2014 10-Q 10.3 05/14/1410.13 Form of Offer to Repurchase Eligible Options for Cash 10-Q 10.1 05/10/1614.1 Code of Ethics, approved by the Board of Directors on August 23, 2006 10-K 14.1 09/14/0621.1† Subsidiaries of the registrant 23.1† Consent of Tanner LLC, Independent Registered Public AccountingFirm 31.1† Section 302 Certification of Chief Executive Officer 31.2† Section 302 Certification of Chief Financial Officer 32.1† Section 906 Certification of Chief Executive Officer 32.2† Section 906 Certification of Chief Financial Officer 101.INS‡ XBRL Instance Document 101.SCH‡ XBRL Taxonomy Extension Schema 101.CAL‡ XBRL Taxonomy Extension Calculation Linkbase 101.DEF‡ XBRL Taxonomy Extension Definitions Linkbase 101.LAB‡ XBRL Taxonomy Extension Label Linkbase 101.PRE‡ XBRL Taxonomy Extension Presentation Linkbase * Constitutes a management contract or compensatory plan or arrangement.† Filed herewith‡ Information furnished herewith shall not be deemed to be “filed” for the purposes of Section 18 of the 1934 Act | 37 |Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. CLEARONE, INC.Registrant /s/ Zeynep Hakimoglu Zeynep Hakimoglu President, Chief Executive Officer and Chairman of the Board April 20, 2018 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. /s/ Zeynep Hakimoglu /s/ Narsi NarayananZeynep Hakimoglu Narsi NarayananPresident, Chief Executive Officer and Chairman of the Board Senior Vice President of Finance(principal executive officer) (principal accounting and principal financial officer)April 20, 2018 April 20, 2018 /s/ Brad R. Baldwin /s/ Larry R. HendricksBrad R. Baldwin Larry R. HendricksDirector DirectorApril 20, 2018 April 20, 2018 /s/ Eric L. Robinson Eric L. Robinson Director April 20, 2018 | 38 |Table of Contents CLEARONE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReports of Independent Registered Public Accounting FirmF-1 Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016F-2 Consolidated Statements of Operations and Comprehensive Income/(Loss) for the years ended December 31, 2017, 2016 and 2015F-3 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015F-5 Notes to Consolidated Financial StatementsF-7 | 39 |Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of DirectorsClearOne, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of ClearOne, Inc. and subsidiaries (collectively, ClearOne) as of December 31, 2017and 2016, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of theyears in the three-year period ended December 31, 2017, and the related notes to the consolidated financial statements (collectively referred to as the“consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects, thefinancial position of ClearOne as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theCompany’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April XX, 2018expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securitiesand Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud. Our auditsincluded performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts anddisclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonablebasis for our opinion. We have served as the Company’s auditor since October 14, 2015. /s/ TANNER LLC Salt Lake City, Utah April 20, 2018 | F- 1 |Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of DirectorsClearOne, Inc. Opinion on Internal Control Over Financial Reporting We have audited ClearOne, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteriaestablished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.In our opinion, because of the effect of the material weakness noted below, the Company did not maintain, in all material respects, effective internalcontrol over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theconsolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensiveincome (loss), stockholders’ equity and cash flows for the each of the years in the three-year period ended December 31, 2017, and the related notes tothe consolidated financial statements (collectively referred to as the “consolidated financial statements”), and our report dated April 20, 2018expressed an unqualified opinion on those consolidated financial statements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to the accurate and timely reporting of its financial results and disclosures for the fiscal year ended December 31,2017 and its testing and assessment of the design and effectiveness of internal controls over financial reporting in a timely manner has been identifiedand included in management’s assessment. The material weakness was considered in determining the nature, timing, and extent of audit tests appliedin our audit of the 2017 consolidated financial statements, and this report does not affect our report on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We area public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit alsoincluded performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis forour opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receiptsand expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assetsthat could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate. /s/ TANNER LLCSalt Lake City, UtahApril 20, 2018  CLEARONE, INC.CONSOLIDATED BALANCE SHEETS(Dollars in thousands, except par value) December 31,2017 December 31,2016 ASSETS Current assets: Cash and cash equivalents $5,571 $12,100 Marketable securities 2,689 5,030 Receivables, net of allowance for doubtful accounts of $472 and $187, as of December 31, 2017 and 2016respectively 7,794 7,461 Inventories 14,415 11,377 Distributor channel inventories 1,555 1,530 Prepaid expenses and other assets 1,862 2,642 Total current assets 33,886 40,140 Long-term marketable securities 10,349 21,365 Long-term inventories, net 8,708 1,664 Property and equipment, net 1,549 1,513 Intangible assets, net 6,543 5,677 Goodwill — 12,724 Deferred income taxes 6,531 4,654 Other assets 311 387 Total assets $67,877 $88,124 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $4,122 $3,545 Accrued liabilities 1,843 1,894 Deferred product revenue 4,635 3,882 Total current liabilities 10,600 9,321 Deferred rent 103 103 Other long-term liabilities 607 1,251 Total liabilities 11,310 10,675 Shareholders’ equity: Common stock, par value $0.001, 50,000,000 shares authorized, 8,319,022 and 8,812,644 shares issued andoutstanding as of December 31, 2017 and 2016 respectively 8 9 Additional paid-in capital 47,464 46,669 Accumulated other comprehensive loss (65) (205)Retained earnings 9,160 30,976 Total shareholders’ equity 56,567 77,449 Total liabilities and shareholders’ equity $67,877 $88,124 See accompanying notes | F- 2 |Table of Contents CLEARONE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(Dollars in thousands, except per share amounts) Year ended December 31, 2017 2016 2015 Revenue $41,804 $48,637 $57,796 Cost of goods sold 17,795 19,150 21,077 Gross profit 24,009 29,487 36,719 Operating expenses: Sales and marketing 10,996 10,032 10,646 Research and product development 9,342 8,584 8,318 General and administrative 7,161 7,325 7,493 Impairment of an intangible asset 769 — — Impairment of goodwill 12,724 — — Legal settlement (790) — — Total operating expenses 40,202 25,921 26,457 Operating income/(loss) (16,193) 3,566 10,262 Other income, net 300 312 289 Income/(loss) before income taxes (15,893) 3,878 10,551 Benefit from/(provision for) income taxes 1,721 (1,434) (3,775)Net income/(loss) $(14,172) $2,444 $6,776 Basic earnings/(loss) per common share $(1.65) $0.27 $0.74 Diluted earnings/(loss) per common share $(1.65) $0.26 $0.71 Basic weighted average shares outstanding 8,576,588 9,021,980 9,127,385 Diluted weighted average shares outstanding 8,576,588 9,306,034 9,594,659 Comprehensive income: Net income/(loss) $(14,172) $2,444 $6,776 Other comprehensive income: Unrealized gain (loss) on available-for-sale securities, net of tax 36 (1) (81)Change in foreign currency translation adjustment 104 (38) (77)Comprehensive income/(loss) $(14,032) $2,405 $6,618 See accompanying notes | F- 3 |Table of Contents CLEARONE, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(Dollars in thousands, except per share data) Common Stock AdditionalPaid-in AccumulatedOtherComprehensive Retained TotalShareholders’ Shares Amount Capital Income (Loss) Earnings Equity Balances at December 31, 2014 9,097,827 9 44,939 (8) 31,076 76,016 Exercise of stock options 56,143 - 308 - - 308 Cash dividends, $0.155 per share - - - - (1,417) (1,417)Tax benefit - stock option exercises - - 41 - - 41 Stock-based compensation expense 15,005 - 848 - - 848 Proceeds from employee stockpurchase plan 14,982 - 155 - - 155 Unrealized loss on available-for-salesecurities, net of tax - - - (81) - (81)Foreign currency translationadjustment - - - (77) - (77)Net income - - - - 6,776 6,776 Balances at December 31, 2015 9,183,957 9 46,291 (166) 36,435 82,569 Exercise of stock options 149,315 - 686 - 686 Repurchased and cancellation of stockoptions - - (1,752) - - (1,752)Stock repurchased (542,259) - - - (6,086) (6,086)Cash dividends, $0.20 per share - - - - (1,817) (1,817)Stock-based compensation expense 12,491 - 667 - - 667 Tax benefit - stock option exercises - - 690 - - 690 Proceeds from employee stockpurchase plan 9,140 - 87 - - 87 Unrealized loss on available-for-salesecurities, net of tax - - - (1) - (1)Foreign currency translationadjustment - - - (38) - (38)Net income - - - - 2,444 2,444 Balances at December 31, 2016 8,812,644 9 46,669 (205) 30,976 77,449 Exercise of stock options 45,260 - 64 - - 64 Stock repurchased (551,936) (1) - - (5,118) (5,119)Restricted stock granted 5,000 - - - - - Cash dividends, $0.26 per share - - - - (2,239) (2,239)Stock-based compensation expense - - 665 - - 665 Cancellation of restricted stock andstock options (1,056) - - (287) (287)Proceeds from employee stockpurchase plan 9,110 - 66 - - 66 Unrealized loss on available-for-salesecurities, net of tax - - - 36 - 36 Foreign currency translationadjustment - - - 104 - 104 Net loss - - - - (14,172) (14,172)Balances at December 31, 2017 8,319,022 $8 $47,464 $(65) $9,160 $56,567 See accompanying notes | F- 4 |Table of Contents CLEARONE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2017 2016 2015 Cash flows from operating activities: Net income $(14,172) $2,444 $6,776 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 1,531 1,873 2,058 Impairment of goodwill and intangible assets 13,493 - - Amortization of deferred rent (44) (73) (95)Stock-based compensation expense 665 667 848 Provision for (recoveries of) doubtful accounts, net 252 132 (4)Write-down of inventory to net realizable value 649 653 496 Loss on disposal of assets 7 54 7 Tax benefit from exercise of stock options - (690) (41)Deferred income taxes (1,877) 439 (4)Changes in operating assets and liabilities: Receivables (526) 1,085 1,201 Inventories (10,756) 1,869 (2,249)Prepaid expenses and other assets 9 (209) 824 Accounts payable 572 733 (242)Accrued liabilities (23) (319) (1,219)Income taxes payable 853 (207) 323 Deferred product revenue 740 (665) (447)Other long-term liabilities (644) 48 (638)Net cash provided/(used) by operating activities (9,271) 7,834 7,594 Cash flows from investing activities: Capitalized patent defense costs (2,289) - - Purchase of property and equipment (638) (730) (359)Purchase of intangible assets (278) (161) - Proceeds from maturities and sales of marketable securities 17,640 9,795 7,341 Purchase of marketable securities (4,248) (9,826) (7,630)Net cash used/(provided) in investing activities 10,187 (922) (648) Cash flows from financing activities: Net proceeds from equity-based compensation programs 130 773 463 Repurchase and cancellation of stock options (287) (1,752) - Tax benefits from equity-based compensation programs - 690 41 Dividend payments (2,239) (1,817) (1,417)Payments for stock repurchases (5,119) (6,086) - Net cash used in financing activities (7,515) (8,192) (913) Effect of exchange rate changes on cash and cash equivalents 70 (32) (61)Net increase (decrease) in cash and cash equivalents (6,529) (1,312) 5,972 Cash and cash equivalents at the beginning of the year 12,100 13,412 7,440 Cash and cash equivalents at the end of the year $5,571 $12,100 $13,412 | F- 5 |Table of Contents CLEARONE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2017 2016 2015 Supplemental disclosure of cash flow information: Cash paid for income taxes $6 $1,154 $3,730 See accompanying notes | F- 6 |Table of Contents CLEARONE, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) 1. Business Description, Basis of Presentation and Significant Accounting Policies Business Description: ClearOne, Inc., together with its subsidiaries (collectively, “ClearOne” or the “Company”), is a global Company that designs, develops and sellsconferencing, collaboration, network streaming and digital signage solutions for audio and visual communications. The performance and simplicity ofour advanced comprehensive solutions offer unprecedented levels of functionality, reliability, and scalability. Basis of Presentation: Fiscal Year – This report on Form 10-K includes consolidated balance sheets for the years ended December 31, 2017 and 2016 and the relatedconsolidated statements of operations and comprehensive income/(loss), cash flows, and shareholders’ equity for each of the years 2017, 2016 and 2015. Consolidation – These consolidated financial statements include the financial statements of ClearOne, Inc. and its wholly owned subsidiaries. All inter-Company accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the currentyear presentation. Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assetsand liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Key estimates in theaccompanying consolidated financial statements include, among others, revenue recognition, allowances for doubtful accounts and product returns,provisions for obsolete inventory, potential impairment of goodwill and of long-lived assets, and deferred income tax asset valuation allowances. Actualresults could differ materially from these estimates. Foreign Currency Translation – We are exposed to foreign currency exchange risk through our foreign subsidiaries. Other than our Spain subsidiary, ourforeign subsidiaries are U.S. dollar functional, for which gains and losses arising from remeasurement are included in earnings. Our Spain subsidiary isEuro functional, for which gains and losses arising from translation are included in accumulated other comprehensive income or loss. We translate andremeasure foreign assets and liabilities at exchange rates in effect at the balance sheet dates. We translate revenue and expenses using average rates duringthe year. Concentration Risk – We depend on an outsourced manufacturing strategy for our products. We outsource the manufacture of all of our products (exceptdigital signage products) to third party manufacturers located in both the U.S. and Asia. If any of these manufacturers experience difficulties in obtainingsufficient supplies of components, component prices significantly exceeding the anticipated costs, an interruption in their operations, or otherwise suffercapacity constraints, we would experience a delay in production and shipping of these products, which would have a negative impact on our revenues.Should there be any disruption in services due to natural disaster, economic or political difficulties, transportation restrictions, acts of terror, quarantine orother restrictions associated with infectious diseases, or other similar events, or any other reason, such disruption may have a material adverse effect onour business. Operating in the international environment exposes us to certain inherent risks, including unexpected changes in regulatory requirementsand tariffs, and potentially adverse tax consequences, which could materially affect our results of operations. Currently, we have no second source ofmanufacturing for a portion of our products. Significant Accounting Policies: Cash Equivalents – The Company considers all highly-liquid investments with a maturity of three months or less, when purchased, to be cashequivalents. The Company places its temporary cash investments with high-quality financial institutions. At times, such investments may be in excess ofthe Federal Deposit Insurance Corporation insurance limits. | F- 7 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) Marketable Securities - The Company has classified its marketable securities as available-for-sale securities. These securities are carried at estimated fairvalue with unrealized holding gains and losses included in accumulated other comprehensive income/(loss) in shareholders’ equity until realized. Gainsand losses on marketable security transactions are reported on the specific-identification method. Dividend and interest income are recognized whenearned. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings andestablishes a new cost basis for the security. Losses are charged against “Other income” when a decline in fair value is determined to be other thantemporary. We review several factors to determine whether a loss is other than temporary. These factors include, but are not limited to: (i) the extent towhich the fair value is less than cost and the cause for the fair value decline, (ii) the financial condition and near term prospects of the issuer, (iii) thelength of time a security is in an unrealized loss position and (iv) our ability to hold the security for a period of time sufficient to allow for any anticipatedrecovery in fair value. There were no other-than-temporary impairments recognized during the years ended December 31, 2017, 2016 and 2015. Accounts Receivable – Accounts receivable are recorded at the invoiced amount. Generally, credit is granted to customers on a short-term basis withoutrequiring collateral, and as such, these accounts receivable, do not bear interest, although a finance charge may be applied to such receivables that arepast due. The Company extends credit to customers who it believes have the financial strength to pay. The Company has in place credit policies andprocedures, an approval process for sales returns and credit memos, and processes for managing and monitoring channel inventory levels. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accountsreceivable. Management regularly analyzes accounts receivable including current aging, historical write-off experience, customer concentrations,customer creditworthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. We review customeraccounts quarterly by first assessing accounts with aging over a specific duration and balance over a specific amount. We review all other balances on apooled basis based on past collection experience. Accounts identified in our customer-level review as exceeding certain thresholds are assessed forpotential allowance adjustment if we conclude the financial condition of that customer has deteriorated, adversely affecting their ability to makepayments. Delinquent account balances are written off if the Company determines that the likelihood of collection is not probable. If the assumptions thatare used to determine the allowance for doubtful accounts change , the Company may have to provide for a greater level of expense in future periods orreverse amounts provided in prior periods. The Company’s allowance for doubtful accounts activity for the years ended as follows: Year Ended December 31, 2017 2016 2015 Balance at beginning of the year $187 $54 $58 Allowance increase (decrease) 287 148 36 Write offs , net of recoveries (2) (15) (40)Balance at end of the year $472 $187 $54 Inventories – Inventories are valued at the lower of cost or market, with cost computed on a first-in, first-out (“FIFO”) basis. In addition to the price of theproduct purchased, the cost of inventory includes the Company’s internal manufacturing costs, including warehousing, engineering, material purchasing,quality and product planning expenses and applicable overhead, not in excess of estimated realizable value. Consideration is given to obsolescence,excessive levels, deterioration, direct selling expenses, and other factors in evaluating net realizable value. Distributor channel inventories include products that have been delivered to customers for which revenue recognition criteria have not been met. The inventory also includes advance replacement units (valued at cost) provided by the Company to end-users to service defective products underwarranty. The value of advance replacement units included in the inventory was $76 and $21, as of December 31, 2017 and 2016, respectively. The inventory consists of current inventory of $14,415 and long-term inventory of $8,708. Long term inventory represents inventory held in excess ofour current (next 12 months) requirements based on our recent sales and forecasted level of sales. | F- 8 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) Property and Equipment – Property and equipment are stated at cost less accumulated depreciation and amortization. Expenditures that materiallyincrease values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs, and renewal costs areexpensed as incurred. Gains or losses from the sale, trade-in, or retirement of property and equipment are recorded in current operations and the relatedbook value of the property is removed from property and equipment accounts and the related accumulated depreciation and amortization accounts.Estimated useful lives are generally two to ten years. Depreciation and amortization are calculated over the estimated useful lives of the respective assetsusing the straight-line method. Leasehold improvement amortization is computed using the straight-line method over the shorter of the lease term or theestimated useful life of the related assets. Goodwill and Intangible Assets – Intangible assets acquired in a purchase business combination are amortized over their useful lives unless these livesare determined to be indefinite. Intangible assets are carried at cost, less accumulated amortization. Amortization is computed over the estimated usefullives of the respective assets, which are generally three to ten years. Goodwill represents the excess of costs over the fair value of net assets of businessesacquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized. Impairment of Goodwill - Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to tangible and identifiableintangible assets acquired less liabilities assumed. In accordance with the provisions of FASB ASC Topic 350, Intangibles – Goodwill and Other theCompany performs impairment tests of goodwill on an annual basis in the fourth fiscal quarter, or sooner if a triggering event occurs suggesting possibleimpairment of the values of these assets. We assess the recoverability of our one reporting unit’s carrying value of goodwill by making a qualitative or quantitative assessment. If we begin with aqualitative assessment and are able to support the conclusion that it is not more likely than not that the fair value of the Company is less than its carryingvalue, we are not required to perform the two-step impairment test. Otherwise, using the two−step approach is required (See Note 3 – BusinessCombinations, Goodwill and Intangibles). ClearOne and all of its subsidiaries are considered as one reporting unit for this purpose. In the first step of the goodwill impairment test, we compare the carrying value the Company, including its recorded goodwill, to the estimated fair value.We estimate the fair value using an equity-value based methodology. The principal method used is an equity-value based method in which theCompany’s market-cap is compared to the net book value. This value is then compared to total net assets. If the fair value of the Company exceeds itscarrying value, the goodwill is not impaired and no further review is required. However, if the fair value of the reporting unit is less than its carryingvalue, we perform the second step of the goodwill impairment test to determine the amount of the impairment charge, if any. The second step involves a hypothetical allocation of the fair value of the Company to its net tangible and intangible assets (excluding goodwill) as ifthe business unit were newly acquired, which results in an implied fair value of goodwill. The amount of the impairment charge is the excess of therecorded goodwill over the implied fair value of goodwill. During the third quarter ended September 30, 2017, we recorded $12,724, or the entire value of goodwill, as an impairment charge. Impairment of Long-Lived Assets - Long-lived assets, such as property, equipment, and definite-lived intangible assets subject to depreciation andamortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not berecoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimatedfuture undiscounted net cash flows of the related asset or group of assets over their remaining lives. If the carrying amount of an asset exceeds itsestimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fairvalue 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 othergroups of assets. The impairment of long-lived assets requires judgments and estimates. If circumstances change, such estimates could also change. Assetsheld for sale are reported at the lower of the carrying amount or fair value, less the estimated costs to sell.During the twelve months ended December 31, 2017 we recorded $769 as a charge for impairment of an intangible asset consisting of customerrelationships.Revenue Recognition – Product revenue is recognized when (i) the products are shipped, (ii) persuasive evidence of an arrangement exists, (iii) the price isfixed and determinable, and (iv) collection is reasonably assured. The Company provides a right of return on product sales to certain distributors and other resellers under a product rotation program. Under this seldom-used program, once a quarter, a distributor or reseller is allowed to return products purchased during the prior 180 days for a total value generally notexceeding 15% of the distributor’s or reseller’s net purchases during the preceding quarter. The distributor or reseller is, however, required to place a newpurchase order for an amount not less than the value of products returned under the stock rotation program. When products are returned, the associatedrevenue, cost of goods sold, inventory and accounts receivable originally recorded are reversed. When the new order is fulfilled, the revenue, associatedcost of goods sold, inventory and accounts receivable are recorded and the product revenue is subject to the deferral analysis described below. In a smallnumber of cases, the distributors are also permitted to return products for other business reasons. | F- 9 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) Revenue from product sales to distributors is not recognized until the return privilege has expired or until it can be determined with reasonable certaintythat the return privilege has expired, which approximates when product is sold-through to customers of the Company’s distributors (dealers, systemintegrators, value-added resellers, and end-users) rather than when the product is initially shipped to a distributor. At each quarter-end, the Companyevaluates the inventory in the channel through information provided by our distributors. The level of inventory in the channel will fluctuate up-ward ordown-ward each quarter, based upon its distributors’ individual operations. Accordingly, at each quarter-end, the deferral for revenue and associated costof goods sold are calculated and recorded based upon the actual channel inventory reported at quarter-end. Further, with respect to distributors and otherchannel partners not reporting the channel inventory, the revenue and associated cost of goods sold are deferred until the Company receives payment forthe product sales made to such distributors or channel partners. The amount of deferred cost of goods sold is included in distributor channel inventories. The details of deferred revenue and associated cost of goods sold and gross profit are as follows: As of December 31, 2017 2016 Deferred revenue $4,635 $3,882 Deferred cost of goods sold 1,555 1,530 Deferred gross profit $3,080 $2,352 The Company offers rebates and market development funds to certain of its distributors, dealers/resellers, and end-users based upon the volume of productpurchased by them. The Company records rebates as a reduction of revenue in accordance with GAAP. The Company provides, at its discretion, advance replacement units to end-users on defective units of certain products under warranty. Since the purposeof these units is not revenue generating, the Company tracks the units due from the end-user, until the defective unit has been returned. Any amount duefrom the customer upon failure to return the products is accounted as receivable only after establishing customer's failure to return the products. Theinventory due from the customer is accounted at cost or market value whichever is lower. Sales and Similar Taxes - Taxes collected from customers and remitted to government authorities are reported on a net basis and thus are excluded fromrevenues. Shipping and Handling Costs – Shipping and handling billed to customers is recorded as revenue. Shipping and handling costs are included in cost ofgoods sold. Warranty Costs – The Company accrues for warranty costs based on estimated warranty return rates and estimated costs to repair. These reserve costs areclassified as accrued liabilities on the consolidated balance sheets. Factors that affect the Company’s warranty liability include the number of units sold,historical and anticipated rates of warranty returns, and repair cost. The Company reviews the adequacy of its recorded warranty accrual on a quarterlybasis. The details of changes in the Company’s warranty accrual are as follows: Year Ended December 31, 2017 2016 2015 Balance at the beginning of year $246 $288 $331 Accruals/additions 399 361 442 Usage/claims (400) (403) (485)Balance at end of year $245 $246 $288 Advertising – The Company expenses advertising costs as incurred. Advertising costs consist of trade shows, magazine advertisements, and other forms ofmedia. Advertising expenses for the years ended December 31, 2017, 2016 and 2015 totaled $1,079, $836, and $728, respectively, and are includedunder the caption “Sales and Marketing”. Research and Product Development Costs – The Company expenses research and product development costs as incurred. | F- 10 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) Income Taxes – The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assetsand liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases, and operating loss and tax credit carry-forwards. These temporary differences will result indeductible or taxable amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to berecovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes theenactment date. A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets may not be realized. TheCompany evaluates the realizability of its net deferred tax assets on a quarterly basis and valuation allowances are provided, as necessary. Adjustments tothe valuation allowance increase or decrease the Company’s income tax provision or benefit. As of December 31, 2017 and 2016, the Company had avaluation allowance of $2,236 and $1,404, respectively against foreign net operating losses, foreign intangible assets, capital losses carryforwards, andstate research and development credits. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act").The Tax Act, which is generally effective for tax years beginning on January 1, 2018, makes broad and complex changes to the U.S. tax code, including,but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) eliminating the corporate alternative minimum tax(AMT); (3) bonus depreciation that will allow for full expensing of qualified property; (4) creating a new limitation on deductible interest expense; (5)the repeal of the domestic production activity deduction; (6) the creation of the base erosion anti-abuse tax (BEAT), a new minimum tax; (7) a generalelimination of U.S. federal income taxes on dividends from foreign subsidiaries and imposing a one-time repatriation tax on deemed repatriated earningsand profits of U.S.-owned foreign subsidiaries (the Transition Tax); (8) a new provision designed to tax global intangible low-taxed income (GILTI),which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax liability (subject to somelimitations); and (9) changing rules related to uses and limitation of net operating loss carryforwards created in tax years beginning after December 31,2017. Shortly after enactment, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 ("SAB 118") which provided US GAAPguidance on the accounting for the Act's impact at December 31, 2017. A reporting entity may recognize provisional amounts, where the necessaryinformation is not available, prepared or analyzed (including computations) in reasonable detail or where additional guidance is needed from the taxingauthority to determine the appropriate application of the Act. A reporting entity's provisional impact analysis may be adjusted within the 12-monthmeasurement period provided for under SAB 118. The Transition Tax is based on the Company's post-1986 earnings and profits (E&P) of U.S.-owned foreign subsidiaries for which the Company hadpreviously deferred U.S. income taxes. Due to the aggregate loss position of these subsidiaries, the Company estimates that the Transition Tax will notresult in additional U.S. tax. The reduction in the corporate tax rate to 21 percent due to the Tax Act is effective January 1, 2018. Consequently, the Company has recorded a decreaserelated to the net deferred tax assets of approximately $3.3 million with a corresponding net adjustment to deferred income tax expense of approximately$3.3 million for the year ended December 31, 2017. The impact of the Tax Act may differ from amounts currently recorded, possibly materially, during the 12-month measurement period due to, among otherthings, further refinement of the Company's calculations, changes in interpretations and assumptions the Company has made, guidance that may be issuedand actions the Company may take as a result of the Tax Act. The Company follows the provisions contained in ASC Topic 740, Income Taxes. The Company recognizes the tax benefit from an uncertain tax positiononly if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits ofthe position. Judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course ofbusiness, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Company’s tax returns are subject to auditby various tax authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates. | F- 11 |Table of Contents Earnings Per Share – The following table sets forth the computation of basic and diluted earnings per common share: Year Ended December 31, 2017 2016 2015 Numerator: Net income/(loss) $(14,172) $2,444 $6,776 Denominator: Basic weighted average shares 8,576,588 9,021,980 9,127,385 Dilutive common stock equivalents using treasury stock method - 284,054 467,274 Diluted weighted average shares 8,576,588 9,306,034 9,594,659 Basic earnings per common share: $(1.65) $0.27 $0.74 Diluted earnings per common share: $(1.65) $0.26 $0.71 Weighted average options outstanding 815,870 885,163 1,053,785 Anti-dilutive options not included in the computation 815,870 323,644 177,125 Share-Based Payment – We estimate the fair value of stock options using the Black-Scholes option-pricing model, which requires certain estimates,including an expected forfeiture rate and expected term of options granted. We also make decisions regarding the method of calculating expectedvolatilities and the risk-free interest rate used in the option-pricing model. The resulting calculated fair value of stock options is recognized ascompensation expense over the requisite service period, which is generally the vesting period. When there are changes to the assumptions used in theoption-pricing model, including fluctuations in the market price of our common stock, there will be variations in the calculated fair value of our futurestock option awards, which results in variation in the compensation cost recognized. | F- 12 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) Recent Accounting Pronouncements - Recent Accounting Standards Not Yet Effective as of Fiscal Year End. In May 2014, the FASB issued ASU2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitledfor the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAPwhen it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption ispermitted. The updated standard becomes effective for the Company on January 1, 2018. The Company expects to adopt this accounting standard updateon a modified retrospective basis in the first quarter of fiscal 2018, and it is currently evaluating the impact of this accounting standard update on theconsolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to bring transparency to lessee balance sheets. The ASU will requireorganizations that lease assets (lessees) to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases withterms of more than 12 months. The standard will apply to both types of leases-capital (or finance) leases and operating leases. Previously, GAAP hasrequired only capital leases to be recognized on lessee balance sheets. The standard is effective for fiscal years beginning after December 15, 2018 andinterim periods within fiscal years beginning after December 15, 2018. Early application will be permitted for all organizations. The Company has not yetselected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-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 was effective for the Company on January 1, 2017. As a result of the adoptionof ASU 2016-09, excess tax benefits or deficiencies related to stock-based compensation are now reflected in the Consolidated Statements of Operationsas a component of the provision for income taxes, whereas they previously were recognized in additional paid-in capital. In addition, our ConsolidatedStatements of Cash Flows will now present, on a prospective basis, excess tax benefits as an operating activity. Finally, we have elected to account forforfeitures as they occur, rather than estimate expected forfeitures. In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flowissues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for the Company beginning January 1, 2018 and theCompany is currently evaluating the impact that ASU 2016-15 will have on the consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The newguidance provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718,Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The accounting standard update will beeffective for The Company beginning January 1, 2018 on a prospective basis, and early adoption is permitted. The Company has not yet selected atransition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements. | F- 13 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) 2. Marketable Securities The Company has classified its marketable securities as available-for-sale securities. These securities are carried at estimated fair value with unrealizedholding gains and losses included in accumulated other comprehensive income/loss in shareholders’ equity until realized. Gains and losses onmarketable 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 typeand class of security at December 31, 2017 and 2016 were as follows: Amortizedcost Gross unrealizedholdinggains Gross unrealizedholdinglosses Estimated fairvalue December 31, 2017 Available-for-sale securities: Corporate bonds and notes $8,458 $19 $(49) $8,428 Municipal bonds 4,637 1 (28) 4,610 Total available-for-sale securities $13,095 $20 $(77) $13,038 December 31, 2016 Available-for-sale securities: Corporate bonds and notes $20,028 $64 $(122) $19,970 Municipal bonds 6,463 6 (44) 6,425 Total available-for-sale securities $26,491 $70 $(166) $26,395 | F- 14 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) Maturities of marketable securities classified as available-for-sale securities were as follows at December 31, 2017: Amortized Estimated cost fair value Due within one year $2,688 $2,688 Due after one year through five years 10,408 10,350 Total available-for-sale securities $13,096 $13,038 Debt securities in an unrealized loss position as of December 31, 2017 were not deemed impaired at acquisition and subsequent declines in fair value arenot deemed attributed to declines in credit quality. Management believes that it is more likely than not that the securities will receive a full recovery ofpar value. The available-for-sale marketable securities in a gross unrealized loss position as of December 31, 2017 are summarized as follows: Less than 12 months More than 12 months Total Estimatedfair value Grossunrealizedholdinglosses Estimatedfair value Grossunrealizedholdinglosses Estimatedfair value Grossunrealizedholdinglosses As of December 31, 2017 Corporate bonds and notes $3,799 $(20) 2,125 $(30) $5,924 $(50)Municipal bonds 3,341 (18) 657 (9) 3,998 (27) $7,140 $(38) $2,782 $(39) $9,922 $(77) | F- 15 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) 3. Business Combinations, Goodwill and Intangible Assets Goodwill impairment There was a decrease in goodwill during the twelve months ended from $12,724 as of December 31, 2016 to $0 as of December 31, 2017 due to theimpairment of goodwill. During the third quarter ended September 30, 2017, there was a decrease in the Company’s market capitalization which wasdetermined to be a triggering event for potential goodwill impairment. Accordingly, the Company performed a goodwill impairment analysis. TheCompany utilized the market capitalization to estimate the fair value. Our total stockholders’ equity exceeded the estimated fair value. The failure of stepone of the goodwill impairment test triggered a step two impairment test. As a result of step two of the impairment test, the Company determined theimplied fair value of goodwill and concluded that the carrying value of goodwill exceeded its implied fair value as of September 30, 2017. Accordingly,an impairment charge of $12,724, which represents a full impairment charge, was recognized in the third quarter ended September 30, 2017. Intangible Assets Intangible assets as of December 31, 2017, and 2016 consisted of the following: Estimateduseful lives As of December 31, (in years) 2017 2016 Tradename 5to7 $555 $555 Patents and technological know-how 10 8,578 6,010 Proprietary software 3to15 2,981 4,341 Other 3to5 323 324 Total intangible assets, gross 12,437 11,230 Accumulated amortization (5,894) (5,553)Total intangible assets, net $6,543 $5,677 During the years ended December 31, 2017, 2016 and 2015, amortization of these intangible assets were $932, $1,121, and $1,258 respectively. The estimated future amortization expense of intangible assets is as follows: Years ending December 31, 2018 $935 2019 831 2020 652 2021 652 2022 652 Thereafter 2,821 Total $6,543 | F- 16 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) 4. Inventories Inventories, net of reserves, consisted of the following: As of December 31, 2017 2016 Current: Raw materials $197 $2,291 Finished goods 14,218 9,086 Total $14,415 $11,377 Long-term: Raw materials $2,682 $599 Finished goods 6,026 1,065 Total $8,708 $1,664 Long-term inventory represents inventory held in excess of our current (next 12 months) requirements based on our recent sales and forecasted level ofsales. We have developed programs to reduce the inventory to normal operating levels in the near future. We expect to sell the above inventory, net ofreserves, 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 $1,555 and $1,530 as of December 31, 2017 and2016, respectively. Distributor channel inventories represent inventory at distributors and other customers where revenue recognition criteria have notbeen achieved. The losses incurred on valuation of inventory at the lower of cost or market value and write-off of obsolete inventory amounted to $649, $653 and $496during the years ended December 31, 2017, 2016 and 2015, respectively. 5. Property and Equipment Major classifications of property and equipment and estimated useful lives were as follows: Estimateduseful lives As of December 31, in years 2017 2016 Office furniture and equipment 3to10 $4,904 $4,835 Leasehold improvements 1to6 1,509 1,495 Vehicles 5to10 160 - Manufacturing and test equipment 2to10 2,577 2,537 9,150 8,867 Accumulated depreciation and amortization (7,601) (7,354)Property and equipment, net $1,549 $1,513 Depreciation expense on property and equipment for the years ended December 31, 2017, 2016 and 2015 was $599, $723, and $801, respectively. Duringthe twelve months ended December 31, 2017 we recorded $128 thousand for the disposal of fixed assets consisting of software, manufacturing equipmentand furniture. 6. Leases and Deferred Rent Rent expense is recognized on a straight-line basis over the period of the lease taking into account future rent escalation and holiday periods. Rentexpense was $999, $1,099 and $1,420, including amortization of deferred rent of $44, $73, and $95 for the years ended December 31, 2017, 2016 and2015, respectively. We occupy a 5,000 square-foot facility in Gainesville, Florida under the terms of an operating lease that expires in February 2021 with the possibility ofrenewing the lease for 10 more years. The Gainesville facility was used primarily to support our research and development activities. | F- 17 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) We lease a 4,700 square-foot office facility in Hod Hasharon, Israel under the terms of an operating lease expiring in December 2019 which serves tosupport our research and development activities. Upon expiration, we will have the option to extend the lease for two additional years. We currently occupy a 31,000 square-foot facility in Salt Lake City, Utah under the terms of an operating lease expiring in May 2019, which supports ourprincipal administrative, sales, marketing, customer support, and research and product development activities. We occupy a 10,700 square-foot warehouse in Shenzhen, China under the terms of an operating lease expiring in September 2019, which serves as ourprimary inventory fulfillment and repair center for Asia. We occupy a 7,070 square-foot facility in Austin, Texas - under the terms of an operating lease expiring in October 2019. This facility support ouradministrative, sales, marketing, customer support, and research and development activities. We occupy a 40,000 square-foot warehouse in Salt Lake City, Utah under the terms of an operating lease expiring in April 2025, which serves as ourprimary inventory fulfillment and repair center. This facility also serves as our assembly workshop for digital signage products. Future minimum lease payments under non-cancellable operating leases with initial terms of one year or more are as follows: Years ending December 31, 2018 $762 2019 412 2020 182 2021 187 2022 193 Thereafter 472 Total minimum lease payments $2,208 7. Accrued Liabilities Accrued liabilities consist of the following: As of December 31, 2017 2016 Accrued salaries and other compensation $1,072 $1,098 Sales and marketing programs 435 319 Product warranty 245 246 Other accrued liabilities 91 231 Total $1,843 $1,894 8. Commitments and Contingencies We establish contingent liabilities when a particular contingency is both probable and estimable. The Company is not aware of any pending claims orassessments, other than as described below, which may have a material adverse impact on the Company’s financial position or results of operations. Outsource Manufacturers. We have manufacturing agreements with electronics manufacturing service (“EMS”) providers related to the outsourcedmanufacturing of our products. Certain manufacturing agreements establish annual volume commitments. We are also obligated to repurchase Company-forecasted but unused materials. The Company has non-cancellable, non-returnable, and long-lead time commitments with its EMS providers and certainsuppliers for inventory components that will be used in production. The Company’s purchase commitments under such agreements is approximately$3,402 as of December 31, 2017. Uncertain Tax Positions. As further discussed in Note 12, we had $652 of uncertain tax positions as of December 31, 2017. Due to the inherentuncertainty of the underlying tax positions, it is not possible to forecast the payment of this liability to any particular year. | F- 18 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts)Legal Proceedings. Intellectual Property Litigation On April 25, 2017, the Company was awarded a new patent, U.S. Patent No. 9,635,186 (the “186 Patent”), which relates to a system and methodinvolving the combination of echo cancellation and beamforming microphone arrays. Also on April 25, 2017, the Company filed a lawsuit in the U.S.Federal District Court in the District of Utah against three parties—Shure, Inc. (“Shure”), Biamp Systems Corporation (“Biamp”), and QSC AudioProducts, LLC (“QSC,” together with Shure and Biamp, collectively, the “Defendants”), alleging that the Defendants were jointly and indirectlyinfringing the newly issued ‘186 Patent (the “Infringement Action”). On that same day, Shure filed a separate action in the U.S. Federal District Court inthe Northern District of Illinois (the “Illinois Action”) requesting a declaratory judgment as to the invalidity or non-infringement with respect to the‘186 Patent. The Illinois Action also seeks the same declaratory judgment with respect to another Company patent, United States Patent No. 9,264,553(the “553 Patent”), and which has not been asserted by the Company against any defendant and has been submitted to the USPTO for reissue. In early2018, Shure added a claim that the ‘186 Patent is unenforceable. On May 22, 2017, the U.S. Supreme Court issued its opinion in the TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16–341. That opinionchanged the law on permissible venues for patent litigation from any district in which there was personal jurisdiction over a defendant to only districtsin which a defendant was incorporated or had a regular and established place of business. Given that none of the Defendants were incorporated or had aregular and established place of business in the District of Utah, on May 30, 2017, the Company filed an answer to the Illinois Action and counterclaimssubstantially the same as those in the Company’s Infringement Action, joining Biamp and QSC as counter-defendants with Shure in such counterclaimsin the Illinois Action, and on May 31, 2017, the Company voluntarily dismissed the Infringement Action in Utah without prejudice. On November 14,2017 the U.S. Federal District Court in the Northern District of Illinois granted Biamp’s and QSC’s motions to dismiss for lack of appropriate venue andfollowed up with a written opinion on March 16, 2018 consistent with its minute order on November 14, 2017. Also on March 16, the Court granted theCompany’s motion to dismiss Shure’s declaratory judgment claim for noninfringement of the '553 Patent. On July 14, 2017, Shure filed a petition with Patent Trial and Appeals Board (“PTAB”) for inter partes review against the ‘553 Patent. On January 29,2018, PTAB decided to institute inter partes review. On August 6, 2017, the Company filed a motion seeking a preliminary injunction to enjoin the defendants from continuing to infringe on theCompany’s '186 Patent. On March 16, 2018 the Court denied the Company’s motion for preliminary injunction. On November 7, 2017, the U.S. Patent and Trademark Office awarded the Company U.S. Patent No. 9,813,806 ("the '806 Patent"). On February 6, 2018,the Company filed a motion for leave to file a Second Amended Counterclaim adding the '806 Patent to the case. The Court granted the motion the nextday. On April 17, the Company filed a motion for preliminary injunction to enjoin Shure from continuing to infringe the Company’s '806 Patent. The Company intends to continue to vigorously enforce and defend its intellectual property rights in the Illinois Action. During twelve months ended December 31, 2016 and 2016, the Company recorded $408 and $1,111 respectively, of pretax gross expenses related tothis intellectual property litigation to prevent infringement of the Company’s patents. In addition, the Company also capitalized $2,289 of litigationexpenses related to this matter during the twelve months ended December 31, 2017. Former Employee Litigation On or about October 24, 2016, the Company received written notice from the United States Department of Labor, Occupational Health and SafetyAdministration (“OSHA”) that a complaint had been filed against it by a former employee. Among other things, the former employee’s OSHA complaintalleged harassment, retaliation, and violations of 18 U.S.C.A. Section 1514A, et seq. (the “Sarbanes-Oxley Act”), arising out of the termination of hisemployment with the Company on or about August 17, 2016 (the “OSHA Complaint”). By letter dated March 2, 2017, the Company received noticethat the same former employee who initiated the OSHA Complaint filed a complaint with the Utah Labor Commission, Anti-Discrimination & LaborDivision (“UALD“), alleging that the employee's termination was discriminatory based upon a disability or, in the alternative, retaliatory forsubstantially the same reasons alleged in the OSHA Complaint. The charge was also forwarded to the United States Equal Employment and OpportunityCommission (“EEOC“) and was also recognized as a charge under the EEOC's federal jurisdiction. Following negotiations between the parties, the parties executed a settlement agreement on December 7, 2017 (“the Agreement“) with respect to theOSHA Complaint. Per the terms of the Agreement, the Company's signing of the Agreement in no way constitutes an admission of a violation of any lawor regulation enforced by OSHA. Around the same time in December 2017, the parties executed a side settlement agreement by which the formeremployee acknowledged that he does not believe that the Company engaged in activities which would be construed as violations of securities-relatedlaws and agreed to withdraw his charge against the Company from the UALD and the EEOC. The charge was effectively withdrawn on December 6,2017. During the twelve months ended December 31, 2016 and 2017, the Company recorded $927 and $152 respectively, of pretax gross expenses andsettlement costs related to the defense of the OSHA Complaint and review of the allegations underlying the former employee’s OSHA complaint. Theamount recorded in 2017 is net of recoveries from the insurance company towards this matter. The Company maintains an Employment Practices Liability policy with Chubb/Federal Insurance Company (the “EPL Policy”). Based on theallegations contained in the OSHA Complaint, the Company has tendered a claim for coverage under the EPL Policy. | F- 19 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) In addition, the Company is also involved from time to time in various claims and legal proceedings which arise in the normal course of our business.Such matters are subject to many uncertainties and outcomes that are not predictable. However, based on the information available to us, we do notbelieve any such other proceedings will have a material adverse effect on our business, results of operations, financial position, or liquidity. Conclusion We believe there are no other items that will have a material adverse impact on the Company’s financial position or results of operations. Legalproceedings are subject to all of the risks and uncertainties of legal proceedings and there can be no assurance as to the probable result of any legalproceedings. The Company believes it has adequately accrued for the aforementioned contingent liabilities. If adverse outcomes were to occur, our financial position,results of operations and cash flows could be negatively affected materially for the period in which the adverse outcomes are known. 9. Share-Based Payments 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 eachstock 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 commonstock was made available for issuance to employees and directors. Through December 1999, 1,066,000 options were granted that would cliff vest after 9.8years; however, such vesting was accelerated for 637,089 of these options upon meeting certain earnings per share goals through the fiscal year endedJune 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, suchvesting 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, 2016. Provisions of therestated 2007 Plan include the granting of up to 2,000,000 incentive and non-qualified stock options, stock appreciation rights, restricted stock andrestricted stock units. Options may be granted to employees, officers, non-employee directors and other service providers and may be granted upon suchterms 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-fourthvesting 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 acorporate transaction, the Company’s Board of Directors has the authority to elect that all unvested options shall vest and become exercisableimmediately prior to the event or closing of the transaction. All options outstanding as of December 31, 2017 had contractual lives of ten years. Under the 1998 Plan, 2,500,000 shares were authorized for grant. As of December 31, 2017, there were no options outstanding under the 1998 Plan. As of December 31, 2017, there were 764,430 options outstanding under the 2007 Plan. As of December 31, 2017, the 2007 Plan had 774,456 authorizedunissued options, while there were no options remaining that could be granted under the 1998 Plan. The Company uses judgment in determining the fair value of the share-based payments on the date of grant using an option-pricing model withassumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the risk-free interest rate ofthe awards, the expected life of the awards, the expected volatility over the term of the awards, and the expected dividends of the awards. The Companyuses the Black-Scholes option pricing model to determine the fair value of share-based payments granted under the guidelines of ASC Topic 718. In applying the Black-Scholes methodology to the options granted, the Company used the following assumptions: Year ended December 31, 2017 2016 2015 Risk-free interest rate, average 2.21% 1.52% 2.00%Expected option life, average (in years) 7.9 6.1 6.1 Expected price volatility, average 40.71% 43.75% 44.30%Expected dividend yield 2.83% 1.71% 1.10% The risk-free interest rate is determined using the U.S. Treasury rate in effect as of the date of the grant, based on the expected life of the stock option. Theexpected life of the stock option is determined using historical data. The expected price volatility is determined using a weighted average of daily historical volatility of the Company’s stock price over the correspondingexpected option life. Under guidelines of ASC Topic 718, the Company recognizes the associated compensation cost for only those awards expected to vest on a straight-linebasis over the underlying requisite service period. The Company estimated the forfeiture rates based on its historical experience and expectations aboutfuture forfeitures. | F- 20 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) The following table shows the stock option activity: Number of Shares Weighted AverageExercise Price WeightedAverageRemainingContractualTerm (Years) Aggregate IntrinsicValue As of December 31, 2014 1,040,081 $5.65 5.60 $4,286 Granted 56,666 13.03 Reinstated 4,583 4.47 Expired and canceled (1,000) 3.42 Forfeited prior to vesting (15,252) 7.85 Exercised (56,143) 5.51 As of December 31, 2015 1,028,935 $6.03 4.73 $7,104 Granted 217,700 11.73 Expired and canceled (4,186) 12.03 Forfeited prior to vesting (17,360) 10.67 Exercised (374,857) 4.46 As of December 31, 2016 850,232 $8.06 5.78 $3,001 Granted 105,000 9.90 Expired and canceled (3,144) 10.29 Forfeited prior to vesting (8,996) 11.01 Exercised (178,662) 5.90 As of December 31, 2017 764,430 $8.78 6.48 $1,038 Vested and Expected to Vest atDecember 31, 2015 1,028,935 $6.03 4.73 $7,104 Vested at December 31, 2015 820,022 $5.10 3.74 $6,419 Vested and Expected to Vest atDecember 31, 2016 850,232 $8.06 5.78 $3,001 Vested at December 31, 2016 552,097 $6.33 4.09 $2,843 Vested and Expected to Vest atDecember 31, 2017 764,430 $8.78 6.48 $1,038 Vested at December 31, 2017 529,669 $7.89 5.50 $1,033 The weighted average per share fair value of options granted during the years ending December 31, 2017, 2016 and 2015 was $3.31, $4.27, and $ 5.27respectively. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $646, $2,824, and $404respectively. The total pre-tax compensation cost related to stock options recognized during the years ended December 31, 2017, 2016, and 2015 was $665, $667 and$848, respectively. Tax benefit from compensation cost related to stock options during the years ended December 31, 2017, 2016 and 2015 was $0, $107and $41, respectively. As of December 31, 2017, the total compensation cost related to stock options not yet recognized and before the effect of anyforfeitures was $829, which is expected to be recognized over approximately the next 1.80 years on a straight-line basis. Employee Stock Purchase Plan During 2017, the Company issued shares to employees under the Company’s 2016 Employee Stock Purchase Plan (the “ESPP”). The ESPP was approvedby the Company’s shareholders on December 12, 2016. As of December 31, 2017, 466,783 of the originally approved 500,000 shares were available forofferings 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 isavailable 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 theCompany, its parent or subsidiary. During each offering period, each eligible employee may purchase shares under the ESPP after authorizing payroll deductions. Under the ESPP, eachemployee 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 foreach offering period. Unless the employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchasecommon 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 firstor last day of the offering period, whichever is lower. | F- 21 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) Shares purchased and compensation expense associated with Employee Stock Purchase Plans were as follows: 2017 2016 2015 Shares purchased under ESPP plans 9,110 9,140 14,982 Plan compensation expense $13 $18 $31 Stock Repurchase Program and Cash Dividends In May 2012, our Board of Directors authorized a stock repurchase program to purchase the Company’s common stock in the open market. A total of272,767 shares costing $2,598 were purchased under this program during the year ended December 31, 2014. The cost of shares purchased were recordedas a reduction to shareholders’ equity. On December 2, 2016, the Company announced the discontinuance of the stock repurchase program along with theinitiation of a cash dividend plan. 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 ofcommon stock under a new stock repurchase program. In connection with the repurchase authorization, the Company was authorized to complete therepurchase through open market transactions or through an accelerated share repurchase program, in each case to be executed at management’s discretionbased on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. The repurchase program may besuspended or discontinued at any time without prior notice. The transactions effectuated to date occurred in open market purchases. On March 1, 2017, the Board of Directors of the Company renewed and extended the repurchase program for up to an additional $10 million of commonstock over the next twelve months. In connection with the repurchase extension authorization, the Company was authorized to complete the repurchasethrough open market transactions or through an accelerated share repurchase program, in each case to be executed at management’s discretion based onbusiness and market conditions, stock price, trading restrictions, acquisition activity and other factors. The repurchase program may be suspended ordiscontinued at any time without prior notice. The transactions effectuated to date occurred in open market purchases. This program terminated in March2018. During the twelve months ended December 31, 2017, we acquired the following shares of common stock under the stock repurchase program authorizedby the Board of Directors in March 2016 and renewed and extended in March 2017: $ in thousands except per share price Total Numberof SharesPurchased(a) Average PricePaid per Share(b) Total Numberof SharesPurchased asPart of PubliclyAnnouncedPlans orPrograms(c) ApproximateDollar Value ofShares that MayYet Be PurchasedUnder the Plansor Programs($ thousands)(d) January 1 to March 31 78,956 $11.75 78,956 $9.9 April 1 to June 30 214,866 9.91 214,866 7.7 July 1 to September 30 139,570 7.84 139,570 6.6 October 1 to December 31 118,544 8.18 118,544 5.7 Total 551,936 $9.28 551,936 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 2007Plan from employees and directors. The Company repurchased delivered options at a repurchase price equal to the difference between the closing marketprice on the date of the employee’s communication of accepting the repurchase offer and the exercise price of such employee’s delivered options, subjectto applicable withholding taxes and charges. The Company repurchased 225,542 stock options from employees and directors at an average purchaseprice of $7.77. | F- 22 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) 10. Significant Customers Sales to significant customers that represented more than 10 percent of total revenues are as follows: Year ended December 31, 2017 2016 2015 Customer A 16.1% 16.3% 14.2%Customer B -%* -%* 10.4%Total 16.1% 16.3% 24.6% * Sales did not exceed 10% of the revenue. The following table summarizes the percentage of total gross accounts receivable from significant customers: As of December 31, 2017 2016 Customer A 20.3% 13.4%Customer B 11.0% 11.7%Total 31.3% 25.1% These customers facilitate product sales to a large number of end-users, none of which is known to account for more than 10 percent of the Company’srevenue from product sales. Nevertheless, the loss of one or more of these customers could reduce revenue and have a material adverse effect on theCompany’s business and results of operations. 11. Fair Value Measurements The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of anasset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). Thefair 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 notactive; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets orliabilities. This category generally includes U.S. Government and agency securities; municipal securities; mutual funds and securities sold andnot 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 tables set forth the fair value of the financial instruments re-measured by the Company as of December 31, 2017 and 2016: Level 1 Level 2 Level 3 Total December 31, 2017 Corporate bonds and notes $— $8,428 $— $8,428 Municipal bonds — 4,610 — 4,610 Total $— $13,038 $— $13,038 December 31, 2016 Corporate bonds and notes $— $19,970 $— $19,970 Municipal bonds — 6,425 — 6,425 Total $— $26,395 $— $26,395 | F- 23 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) 12. Income Taxes Consolidated income before taxes for domestic and foreign operations consisted of the following: Year ended December 31, 2017 2016 2015 Domestic $(12,630) $6,332 $13,295 Foreign (3,263) (2,454) (2,744)Total $(15,893) $3,878 $10,551 The Company’s (provision) for income taxes consisted of the following: Year ended December 31, 2017 2016 2015 Current: Federal $577 $(593) $(3,386)State (66) 63 (344)Foreign (682) (37) - Total current (171) (567) (3,730)Deferred: Federal 1,497 (633) (220)State 480 (17) (10)Foreign 748 115 470 Total 2,725 (535) 240 Change in valuation allowance (833) (332) (285)Total deferred 1,892 (867) (45)Benefit/(provision) for income taxes $1,721 $(1,434) $(3,775) The income tax benefit (provision) differs from that computed at the federal statutory corporate income tax rate as follows: Year ended December 31, 2017 2016 2015 Tax benefit (provision) at federal statutory rate $5,403 $(1,318) $(3,587)State income tax benefit (provision), net of federal benefit 439 (148) (408)Research and development tax credits 411 423 456 Subpart F inclusion (370) - - Foreign earnings or losses taxed at different rates (540) (292) (231)Tax rate change (3,161) - - Other 372 233 280 Change in valuation allowance (833) (332) (285)Tax benefit (provision) $1,721 $(1,434) $(3,775) | F- 24 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) The tax effects of significant temporary differences representing net deferred tax assets and liabilities consisted of the following: 2017 2016 Deferred revenue $738 $845 Basis difference in intangible assets 3,403 (56)Inventory reserve 2,089 2,650 Net operating loss carryforwards 1,627 1,391 Research and development tax credits 163 88 Accrued expenses 75 92 Stock-based compensation 327 584 Allowance for sales returns and doubtful accounts 119 70 Difference in property and equipment basis (212) (350)Other 438 743 Total net deferred income tax asset 8,767 6,057 Less: Valuation allowance (2,236) (1,403)Net deferred income tax asset (liability) $6,531 $4,654 The Company has not provided for U.S. deferred income taxes or foreign withholding taxes on undistributed earnings of its non-U.S. subsidiaries sincethese earnings are intended to be reinvested indefinitely, in accordance with guidelines contained in ASC Topic 740, Accounting for Income Taxes. It isnot practical to estimate the amount of additional taxes that might be payable on such undistributed earnings. In accordance with ASC Topic 740, the Company analyzed its valuation allowance at December 31, 2017 and determined that, based upon availableevidence, it is more likely than not that certain of its deferred tax assets may not be realized and, as such, has established a valuation allowance againstcertain deferred tax assets. These deferred tax assets include foreign net operating loss carryforwards, foreign intangible assets, state R&D tax creditcarryforwards, and capital loss carryforwards. The Company has federal net operating loss (“NOL”) carryforwards of approximately $692 (pre-tax), and Spain NOL carryforwards of approximately$5,805. The federal NOL carryforwards will begin to expire in 2029. The Spain NOL carryforward does not expire. Effective July 1, 2007, the Company adopted the accounting standards related to uncertain tax positions. This standard requires that tax positions beassessed using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount ofbenefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded asa result of this analysis must generally be recorded separately from any current or deferred income tax accounts. The total amount of unrecognized tax benefits at December 31, 2017 and 2016, that would favorably impact our effective tax rate if recognized was$647 and $588, respectively. As of December 31, 2017 and 2016, we accrued $14 and $87, respectively, in interest and penalties related to unrecognizedtax benefits. We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision. Although we believe our estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from thatwhich we have reflected in our historical income tax provisions and accruals. Such difference could have a material impact on our income tax provisionand operating results in the period in which we make such determination. | F- 25 |Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share and per share amounts) A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows: Year ended December 31, 2017 2016 Balance - beginning of year $1,189 $1,126 Additions based on tax positions related to the current year 67 16 Additions for tax positions of prior years 520 47 Reductions for tax positions of prior years - - Settlements (165) - Lapse in statutes of limitations (959) - Uncertain tax positions, ending balance $652 $1,189 The Company’s U.S. federal income tax returns for 2014 through 2017 are subject to examination. The Company also files in various state and foreignjurisdictions. With few exceptions, the Company is no longer subject to federal, state, or non-U.S. income tax examinations by tax authorities for yearsprior to 2014. The Company completed its audit by the Internal Revenue Service (“IRS”) for its 2012 and 2013 tax returns in 2017. As a result of theaudit by the IRS, there were no material adjustments made to the Company’s tax return. The Inland Revenue Department of Hong Kong, a Special Administrative Region (the “IRD”), commenced an examination of the Company’s Hong Kongprofits tax returns for 2009 through 2011 in the fourth quarter of 2012, which was completed subsequent to December 31, 2017. As a result of the audit,there were no material changes to the Company’s financial position. During the next twelve months, it is reasonably possible that the amount of theCompany’s unrecognized income tax benefits could change significantly. These changes could be the result of our ongoing tax audits or the settlementof outstanding audit issues. However, due to the issues being examined, at the current time, an estimate of the range of reasonably possible outcomescannot be made, beyond amounts currently accrued. 13. Geographic Sales Information The United States was the only country to contribute more than 10 percent of total revenues in each fiscal year. The Company’s revenues are substantiallydenominated in U.S. dollars and are summarized geographically as follows: Year ended December 31, 2017 2016 2015 United States $24,569 $31,838 $39,563 All other countries 17,235 16,799 18,233 Total $41,804 $48,637 $57,796 14. Subsequent Events On February 21, 2018, the Company declared a stock dividend of $0.07 per share of ClearOne common stock payable on March 21, 2018 to shareholdersof record on March 7, 2018. In March 2018, the Company did not renew its common stock repurchase program. | F-26 | EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT NetStreams, Inc. (DE)NetStreams, LLC. (TX)ClearOne Web Solutions, Inc. (DE)ClearOne Communications Hong Kong Limited (Hong Kong)ClearOne Ltd. (Israel)ClearOne Middle East FZE (Dubai)ClearOne DMCC Branch (Dubai)ClearOne Innovation India Private Ltd. (India)ClearOne Technology Ltd (China)ClearOne Spain SL (Spain)Gentner Communications Limited (Ireland)Gentner Ventures, Inc. (UT)E.mergent, Inc. (DE)Sabine, Inc. (FL) EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statements (Nos. 333-205356, 333-209130, 333-148789 and 333-137859) on Form S-8 andRegistration Statement (No. 333-195591) on Form S-3 of ClearOne, Inc. of our report dated April 20, 2018, relating to our audit of the consolidatedfinancial statements, which appears in this Annual Report on Form 10-K of ClearOne, Inc. for the year ended December 31, 2017 . /s/ Tanner LLC Salt Lake City, UTApril 20, 2018 EXHIBIT 31.1 CERTIFICATION I, Zeynep Hakimoglu, certify that: 1.I have reviewed this annual report of ClearOne, Inc. on Form 10-K; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting. 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. April 20, 2018By:/s/ Zeynep Hakimoglu Zeynep Hakimoglu Chief Executive Officer (principal executive officer) EXHIBIT 31.2 CERTIFICATION I, Narsi Narayanan, certify that: 1.I have reviewed this annual report of ClearOne, Inc. on Form 10-K; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting. 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. April 20, 2018By:/s/ Narsi Narayanan Narsi Narayanan Senior Vice President of Finance (principal accounting and principal financial officer) EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to 18 U.S.C. Section 1350,As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I, Zeynep Hakimoglu, certify, to my best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the annual report of ClearOne, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017 , fully complies withthe requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such annual reporton Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. April 20, 2018By:/s/ Zeynep Hakimoglu Zeynep Hakimoglu Chief Executive Officer (principal executive officer) This certification accompanies each Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by theSarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to theSecurities and Exchange Commission or its staff upon request. EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to 18 U.S.C. Section 1350,As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I, Narsi Narayanan, certify, to my best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the annual report of ClearOne, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017 , fully complies withthe requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such annual reporton Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. April 20, 2018By:/s/ Narsi Narayanan Narsi Narayanan Senior Vice President of Finance (principal accounting and principal financial officer) This certification accompanies each Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by theSarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to theSecurities and Exchange Commission or its staff upon request. 

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