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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Fiscal Period, Policy [Policy Text Block]

Fiscal Year

– This report on Form

-K includes consolidated balance sheets for the years ended

December 31, 2017

and

2016

and the related consolidated statements of operations and comprehensive income/(loss), cash flows, and shareholders’ equity for each of the years

2017,

2016

and

2015.

Consolidation, Policy [Policy Text Block]

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 current year presentation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Key estimates in the accompanying 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. Actual results could differ materially from these estimates.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation

– We are exposed to foreign currency exchange risk through our foreign subsidiaries. Other than our Spain subsidiary, our foreign subsidiaries are U.S. dollar functional, for which gains and losses arising from remeasurement are included in earnings. Our Spain subsidiary is Euro functional, for which gains and losses arising from translation are included in accumulated other comprehensive income or loss. We translate and remeasure foreign assets and liabilities at exchange rates in effect at the balance sheet dates. We translate revenue and expenses using average rates during the year.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration Risk

– We depend on an outsourced manufacturing strategy for our products. We outsource the manufacture of all of our products (except digital signage products) to

third

party manufacturers located in both the U.S. and Asia. If any of these manufacturers experience difficulties in obtaining sufficient supplies of components, component prices significantly exceeding the anticipated costs, an interruption in their operations, or otherwise suffer capacity 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 or other restrictions associated with infectious diseases, or other similar events, or any other reason, such disruption

may

have a material adverse effect on our business. Operating in the international environment exposes us to certain inherent risks, including unexpected changes in regulatory requirements and tariffs, and potentially adverse tax consequences, which could materially affect our results of operations. Currently, we have

second

source of manufacturing for a portion of our products.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Equivalents

– The Company considers all highly-liquid investments with a maturity of

three

months or less, when purchased, to be cash equivalents. The Company places its temporary cash investments with high-quality financial institutions. At times, such investments

may

be in excess of the Federal Deposit Insurance Corporation insurance limits.

Marketable Securities, Policy [Policy Text Block]

Marketable Securities -

The Company has classified its marketable securities as available-for-sale securities. These securities are carried at estimated fair value with unrealized holding gains and losses included in accumulated other comprehensive income/(loss) in shareholders’ equity until realized. Gains and losses on marketable security transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned.

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 and establishes a new cost basis for the security. Losses are charged against “Other income” when a decline in fair value is determined to be other than temporary. We review several factors to determine whether a loss is other than temporary. These factors include, but are

not

limited to: (i) the extent to which 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) the length 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 anticipated recovery in fair value. There were

other-than-temporary impairments recognized during the years ended

December 31, 2017,

2016

and

2015.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts Receivable

– Accounts receivable are recorded at the invoiced amount. Generally, credit is granted to customers on a short-term basis without requiring collateral, and as such, these accounts receivable, do

not

bear interest, although a finance charge

may

be applied to such receivables that are past due. The Company extends credit to customers who it believes have the financial strength to pay. The Company has in place credit policies and procedures, 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 accounts receivable. 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 customer accounts quarterly by

first

assessing accounts with aging over a specific duration and balance over a specific amount. We review all other balances on a pooled basis based on past collection experience. Accounts identified in our customer-level review as exceeding certain thresholds are assessed for potential allowance adjustment if we conclude the financial condition of that customer has deteriorated, adversely affecting their ability to make payments. Delinquent account balances are written off if the Company determines that the likelihood of collection is

not

probable. If the assumptions that are used to determine the allowance for doubtful accounts change , the Company

may

have to provide for a greater level of expense in future periods or reverse 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			201 5
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

Inventory, Policy [Policy Text Block]

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 the product 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 under warranty. 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 of our current (next

months) requirements based on our recent sales and forecasted level of sales.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

– Property and equipment are stated at cost less accumulated depreciation and amortization. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs, and renewal costs are expensed as incurred. Gains or losses from the sale, trade-in, or retirement of property and equipment are recorded in current operations and the related book 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

ten

years. Depreciation and amortization are calculated over the estimated useful lives of the respective assets using the straight-line method. Leasehold improvement amortization is computed using the straight-line method over the shorter of the lease term or the estimated useful life of the related assets.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Intangible Assets –

Intangible assets acquired in a purchase business combination are amortized over their useful lives unless these lives are determined to be indefinite. Intangible assets are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, which are generally

three

ten

years. Goodwill represents the excess of costs over the fair value of net assets of businesses acquired. 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 identifiable intangible assets acquired less liabilities assumed. In accordance with the provisions of FASB ASC Topic

350,

Intangibles – Goodwill and Other

the Company performs impairment tests of goodwill on an annual basis in the

fourth

fiscal quarter, or sooner if a triggering event occurs suggesting possible impairment of the values of these assets.

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 a qualitative 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 carrying value, we are

not

required to perform the

two

-step impairment test. Otherwise, using the two−step approach is required (See

Note

– Business Combinations, 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 the Company’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 its carrying value, the goodwill is

not

impaired and

further review is required. However, if the fair value of the reporting unit is less than its carrying value, 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 if the business unit were newly acquired, which results in an implied fair value of goodwill. The amount of the impairment charge is the excess of the recorded 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 or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-Lived Assets -

Long-lived assets, such as property, equipment, and definite-lived intangible assets subject to depreciation and amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset

may

not

be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated future undiscounted net cash flows of the related asset or group of assets over their remaining lives. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent of other groups of assets. The impairment of long-lived assets requires judgments and estimates. If circumstances change, such estimates could also change. Assets held for sale are reported at the lower of the carrying amount or fair value, less the estimated costs to sell.

During the

twelve

months ended

December 31, 2017

we recorded

$769

as a charge for impairment of an intangible asset consisting of customer relationships.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

– Product revenue is recognized when (i) the products are shipped, (ii) persuasive evidence of an arrangement exists, (iii) the price is fixed 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

not

exceeding

15%

of the distributor’s or reseller’s net purchases during the preceding quarter. The distributor or reseller is, however, required to place a new purchase order for an amount

not

less than the value of products returned under the stock rotation program. When products are returned, the associated revenue, cost of goods sold, inventory and accounts receivable originally recorded are reversed. When the new order is fulfilled, the revenue, associated cost of goods sold, inventory and accounts receivable are recorded and the product revenue is subject to the deferral analysis described below. In a small number of cases, the distributors are also permitted to return products for other business reasons.

Revenue from product sales to distributors is

not

recognized until the return privilege has expired or until it can be determined with reasonable certainty that the return privilege has expired, which approximates when product is sold-through to customers of the Company’s 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, the Company evaluates the inventory in the channel through information provided by our distributors. The level of inventory in the channel will fluctuate up-ward or down-ward each quarter, based upon its distributors’ individual operations. Accordingly, at each quarter-end, the deferral for revenue and associated cost of goods sold are calculated and recorded based upon the actual channel inventory reported at quarter-end. Further, with respect to distributors and other channel partners

not

reporting the channel inventory, the revenue and associated cost of goods sold are deferred until the Company receives payment for the 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 product purchased 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 purpose of 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 due from the customer upon failure to return the products is accounted as receivable only after establishing customer's failure to return the products. The inventory 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 from revenues.

Shipping and Handling Cost, Policy [Policy Text Block]

Shipping and Handling Costs –

Shipping and handling billed to customers is recorded as revenue. Shipping and handling costs are included in cost of goods sold.

Standard Product Warranty, Policy [Policy Text Block]

Warranty Costs

– The Company accrues for warranty costs based on estimated warranty return rates and estimated costs to repair. These reserve costs are classified 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 quarterly basis.

The details of changes in the Company’s warranty accrual are as follows:

	Year Ended December 31,
	2017			2016			201 5
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 Cost, Policy, Expensed Advertising Cost [Policy Text Block]

Advertising

– The Company expenses advertising costs as incurred. Advertising costs consist of trade shows, magazine advertisements, and other forms of media. Advertising expenses for the years ended

December 31, 2017,

2016

and

2015

totaled

$1,079,

$836,

and

$728,

respectively, and are included under the caption “Sales and Marketing”.

Research and Development Expense, Policy [Policy Text Block]

Research and Product Development Costs

– The Company expenses research and product development costs as incurred.

Income Tax, Policy [Policy Text Block]

Income Taxes

– The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry-forwards. These temporary differences will result in deductible or taxable amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered 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 the enactment 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. The Company evaluates the realizability of its net deferred tax assets on a quarterly basis and valuation allowances are provided, as necessary. Adjustments to the valuation allowance increase or decrease the Company’s income tax provision or benefit. As of

December 31, 2017

and

2016,

the Company had a valuation allowance of

$2,236

and

$1,404,

respectively against foreign net operating losses, foreign intangible assets, capital losses carryforwards, and state research and development credits.

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, (

) reducing the U.S. federal corporate tax rate from

percent to

percent; (

) eliminating the corporate alternative minimum tax (AMT); (

) bonus depreciation that will allow for full expensing of qualified property; (

) creating a new limitation on deductible interest expense; (

) the repeal of the domestic production activity deduction; (

) the creation of the base erosion anti-abuse tax (BEAT), a new minimum tax; (

) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries and imposing a

one

-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries (the Transition Tax); (

) 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

percent to offset the income tax liability (subject to some limitations); and (

) 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 GAAP guidance on the accounting for the Act's impact at

December 31, 2017.

A reporting entity

may

recognize provisional amounts, where the necessary information is

not

available, prepared or analyzed (including computations) in reasonable detail or where additional guidance is needed from the taxing authority to determine the appropriate application of the Act. A reporting entity's provisional impact analysis

may

be adjusted within the

-month measurement 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 had previously deferred U.S. income taxes. Due to the aggregate loss position of these subsidiaries, the Company estimates that the Transition Tax will

not

result in additional U.S. tax.

The reduction in the corporate tax rate to

percent due to the Tax Act is effective

January 1, 2018.

Consequently, the Company has recorded a decrease related 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

-month measurement period due to, among other things, further refinement of the Company's calculations, changes in interpretations and assumptions the Company has made, guidance that

may

be issued and 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 position only 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 of the position.

Judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Company’s tax returns are subject to audit by various tax authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share

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

	Year Ended December 31,
	2017			2016		201 5
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 Compensation, Option and Incentive Plans Policy [Policy Text Block]

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 expected volatilities and the risk-free interest rate used in the option-pricing model. The resulting calculated fair value of stock options is recognized as compensation expense over the requisite service period, which is generally the vesting period. When there are changes to the assumptions used in the option-pricing model, including fluctuations in the market price of our common stock, there will be variations in the calculated fair value of our future stock option awards, which results in variation in the compensation cost recognized.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements -

Recent Accounting Standards

Not

Yet Effective as of Fiscal Year End.

May 2014,

the FASB issued ASU

2014

09,

Revenue from Contracts with Customers (Topic

606

), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is permitted. The updated standard becomes effective for the Company on

January 1, 2018.

The Company expects to adopt this accounting standard update on a modified retrospective basis in the

first

quarter of fiscal

2018,

and it is currently evaluating the impact of this accounting standard update on the consolidated financial statements.

February 2016,

the FASB issued ASU

No.

2016

02,

Leases (Topic

842

) to bring transparency to lessee balance sheets. The ASU will require organizations that lease assets (lessees) to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than

months. The standard will apply to both types of leases-capital (or finance) leases and operating leases. Previously, GAAP has required only capital leases to be recognized on lessee balance sheets. The standard is effective for fiscal years beginning after

December 15, 2018

and interim periods within fiscal years beginning after

December 15, 2018.

Early application will be permitted for all organizations. The Company has

not

yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.

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

was effective for the Company on

January 1, 2017.

As a result of the adoption of ASU

2016

09,

excess tax benefits or deficiencies related to stock-based compensation are now reflected in the Consolidated Statements of Operations as a component of the provision for income taxes, whereas they previously were recognized in additional paid-in capital. In addition, our Consolidated Statements of Cash Flows will now present, on a prospective basis, excess tax benefits as an operating activity. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures.

August 2016,

the FASB issued ASU

No.

2016

15,

Classification of Certain Cash Receipts and Cash Payments, which addresses

eight

specific cash flow issues with the objective of reducing the existing diversity in practice. ASU

2016

is effective for the Company beginning

January 1, 2018

and the Company is currently evaluating the impact that ASU

2016

will have on the consolidated financial statements.

May 2017,

the FASB issued ASU

No.

2017

09,

Compensation—Stock Compensation (Topic

718

): Scope of Modification Accounting. The new guidance provides clarity and reduces both (

) diversity in practice and (

) 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 be effective for The Company beginning

January 1, 2018

on a prospective basis, and early adoption is permitted. The Company has

not

yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.