10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2013

or

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period _______ to _______

Commission file number: 001-33660

CLEARONE, INC.

(Exact name of registrant as specified in its charter)

Utah	87-0398877
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)
5225 Wiley Post Way, Suite 500, Salt Lake City, Utah	84116
(Address of principal executive offices)	(Zip Code)
(801) 975-7200
(Registrant’s telephone number, including area code)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  [x] No [ ]

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 9,080,060 shares issued and outstanding as of August 5, 2013.

CLEARONE, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2013

INDEX

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	20

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CLEARONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

	June 30, 2013			December 31, 2012
ASSETS	Unaudited
Current assets:
Cash and cash equivalents	$	32,386		$	55,509
Marketable securities	337			—
Receivables, net of allowance for doubtful accounts of $55 and $60, respectively	8,439			8,388
Inventories, net	12,304			10,873
Deferred income taxes	3,148			3,148
Prepaid expenses and other assets	1,785			1,369
Total current assets	58,399			79,287
Long-term marketable securities	8,873			—
Long-term inventories, net	1,609			1,955
Property and equipment, net	1,783			1,708
Intangibles, net	3,996			4,258
Goodwill	3,472			3,472
Deferred income taxes	1,195			1,195
Other assets	61			64
Total assets	$	79,388		$	91,939
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	3,031		$	2,302
Accrued liabilities	2,009			2,143
Income taxes payable	—			14,782
Deferred product revenue	4,300			3,593
Total current liabilities	9,340			22,820
Deferred rent	365			422
Other long-term liabilities	2,028			2,029
Total liabilities	11,733			25,271
Shareholders' equity:
Common stock, par value $0.001, 50,000,000 shares authorized, 9,080,060 and 9,163,462 shares issued and outstanding	9			9
Additional paid-in capital	39,729			40,430
Accumulated other comprehensive loss	(87		)	—
Retained earnings	28,004			26,229
Total shareholders' equity	67,655			66,668
Total liabilities and shareholders' equity	$	79,388		$	91,939

See accompanying notes

1

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Revenue	$	11,703		$	11,655		$	22,996		$	21,809
Cost of goods sold	4,839			4,562			9,133			8,608
Gross profit	6,864			7,093			13,863			13,201
Operating expenses:
Sales and marketing	2,088			2,254			4,356			4,388
Research and product development	1,843			2,029			3,709			4,037
General and administrative	1,437			1,611			3,234			3,091
Proceeds from litigation, net	—			—			—			(250		)
Total operating expenses	5,368			5,894			11,299			11,266
Operating income	1,496			1,199			2,564			1,935
Other income (expense), net	47			(5		)	33			11
Income before income taxes	1,543			1,194			2,597			1,946
Provision for income taxes	498			544			822			818
Net income	$	1,045		$	650		$	1,775		$	1,128
Basic earnings per common share	$	0.11		$	0.07		$	0.19		$	0.12
Diluted earnings per common share	$	0.11		$	0.07		$	0.19		$	0.12
Basic weighted average shares outstanding	9,093,461			9,107,420			9,122,996			9,102,786
Diluted weighted average shares outstanding	9,459,495			9,226,426			9,499,452			9,224,727
Net income	$	1,045		$	650		$	1,775		$	1,128
Comprehensive income:
Unrealized (loss) on available-for-sale securities, net of tax	(87		)	—			(87		)	—
Comprehensive income	$	958		$	650		$	1,688		$	1,128

See accompanying notes

2

CLEARONE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Six months ended June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	1,775		$	1,128
Adjustments to reconcile net income to net cash (used in) operations:
Depreciation and amortization expense	644			654
Amortization of deferred rent	(167		)	—
Stock-based compensation expense	126			111
Provision for (recoveries of) doubtful accounts, net	27			(64		)
Inventory valuation reserve adjustments	(34		)	278
Tax benefit from the exercise of stock options	(38		)	—
Changes in operating assets and liabilities:
Receivables	(78		)	1,112
Inventories	(1,051		)	(2,616		)
Deferred income taxes	—			(11		)
Prepaid expenses and other assets	(414		)	(39		)
Accounts payable	729			(1,529		)
Accrued liabilities	(24		)	121
Income taxes payable	(14,782		)	(750		)
Deferred product revenue	707			47
Other long-term liabilities	—			138
Net cash (used in) operating activities	(12,580		)	(1,420		)
Cash flows from investing activities:
Purchase of property and equipment	(457		)	(202		)
Purchase of marketable securities	(9,297		)	—
Payment towards business acquisitions	—			(4,632		)
Net cash (used in) investing activities	(9,754		)	(4,834		)
Cash flows from financing activities:
Proceeds from the exercise of stock options	164			81
Tax benefit from the exercise of stock options	38			—
Treasury stock purchased	(991		)	(92		)
Net cash (used in) financing activities	(789		)	(11		)
Net (decrease) in cash and cash equivalents	(23,123		)	(6,265		)
Cash and cash equivalents at the beginning of the period	55,509			16,683
Cash and cash equivalents at the end of the period	$	32,386		$	10,418
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	16,757		$	1,393

See accompanying notes

3

	Six months ended June 30,
	2013		2012
Supplemental disclosure of non-cash activities:
The Company acquired the business of VCON Video Conferencing, Ltd. in February 2012 and recorded the following assets and liabilities:
Inventory	$	—	$	40
Property and equipment	—		34
Product warranty liability	—		(8		)
Proprietary software	—		2,247
Goodwill	—		2,319
Cash paid	$	—	$	4,632

See accompanying notes

4

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited – Dollars in thousands)

1. Business Description, Basis of Presentation and Significant Accounting Policies

Business Description:

ClearOne, Inc. together with its subsidiaries (collectively, “ClearOne” or the “Company”) is a global company that designs, develops and sells conferencing, collaboration, streaming and digital signage solutions for audio and visual communications.  The performance and simplicity of its advanced comprehensive solutions offer unprecedented levels of functionality, reliability and scalability.  

Basis of Presentation:

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

These accompanying interim condensed consolidated financial statements for the three and six months ended June 30, 2013 and 2012, respectively, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not audited. Certain information and footnote disclosures that are usually included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted in accordance with SEC rules and regulations. The accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company's financial position as of June 30, 2013 and December 31, 2012, the results of operations for the three and six months ended June 30, 2013 and 2012, and the statements of cash flows for the six months ended June 30, 2013 and 2012. The results of operations for the three and six months ended June 30, 2013 and 2012 are not necessarily indicative of the results for a full-year period.  These interim condensed consolidated financial statements should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 25, 2013 as amended on April 30, 2013.

Significant Accounting Policies:

The significant accounting policies were described in Note 2 to the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2012. There have been no changes to these policies during the six months ended June 30, 2013 that are of significance or potential significance to the Company.

Warranty Costs – The Company accrues for warranty costs based on estimated warranty return rates and estimated costs to repair. 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:

	June 30, 2013			December 31, 2012
Balance at the beginning of year	$	385		$	467
Warranty accruals/additions	232			443
Warranty usage	(251		)	(525		)
Balance at end of period	$	366		$	385

5

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited – Dollars in thousands)

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

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Numerator:
Net income	$	1,045	$	650	$	1,775	$	1,128
Denominator:
Basic weighted average shares outstanding	9,093,461		9,107,420		9,122,996		9,102,786
Dilutive common stock equivalents using treasury stock method	366,034		119,006		376,456		121,941
Diluted weighted average shares outstanding	9,459,495		9,226,426		9,499,452		9,224,727
Basic earnings per common share	$	0.11	$	0.07	$	0.19	$	0.12
Diluted earnings per common share	$	0.11	$	0.07	$	0.19	$	0.12
Weighted average options outstanding	1,122,797		1,207,302		1,125,624		1,185,414
Anti-dilutive options not included in the computations	94,789		630,737		94,789		630,737

2. 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, net of the related tax effect, included in accumulated other comprehensive income/loss in stockholders' equity until realized. Gains and losses on marketable security transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned.

The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security at June 30, 2013 and December 31, 2012 were as follows:

(In thousands)			Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses			Estimated fair value
June 30, 2013
	Available-for-sale securities:
		Corporate bonds and notes	$	5,877	$	—	$	(59	)	$	5,818
		Municipal bonds	3,420		1		(29		)	3,392
	Total available-for-sale securities		$	9,297	$	1	$	(88	)	$	9,210

(In thousands)			Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Estimated fair value
December 31, 2012
	Available-for-sale securities:
		Corporate bonds and notes	$	—	$	—	$	—	$	—
		Municipal bonds	—		—		—		—
	Total available-for-sale securities		$	—	$	—	$	—	$	—

Maturities of marketable securities classified as available-for-sale securities were as follows at June 30, 2013:

6

(In thousands)		Amortized cost		Estimated fair value
	Due within one year	$	337	$	337
	Due after one year through five years	8,528		8,449
	Due after five years through ten years	432		424
Total available-for-sale securities		$	9,297	$	9,210

3. Intangible Assets

Intangible assets as of June 30, 2013 and December 31, 2012 consisted of the following:

	Estimated useful lives	June 30, 2013			December 31, 2012
Tradename	7 years	$	435		$	435
Patents and technological know-how	10 years	2,070			2,070
Proprietary software	3 to 15 years	2,961			2,961
In-process research and development	Indefinite	159			159
Other	5 years	49			49
		5,674			5,674
Accumulated amortization		(1,678		)	(1,416		)
		$	3,996		$	4,258

The amortization of intangibles with finite lives for the three and six months ended June 30, 2013 and 2012 was as follows:

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Amortization of intangibles with finite lives	$	119	$	130	$	261	$	231

7

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited – Dollars in thousands)

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

Years ending December 31,
2013 (remainder)	$	271
2014	528
2015	483
2016	446
2017	357
Thereafter	1,752
	$	3,837

4. Inventories

Inventories, net of reserves, as of June 30, 2013 and December 31, 2012 consisted of the following:

	June 30, 2013		December 31, 2012
Current:
Raw materials	$	902	$	734
Finished goods	11,402		10,139
	$	12,304	$	10,873
Long-term:
Raw materials	$	681	$	891
Finished goods	928		1,064
	$	1,609	$	1,955

Long-term inventory represents inventory held in excess of our current (next 12 months) requirements based on our recent sales and forecasted level of sales. We expect to sell the above inventory, net of reserves, at or above the stated cost and believe that no loss will be incurred on its sale.

Current finished goods include consigned inventory in the amounts of approximately $1,605 and $1,289 as of June 30, 2013 and December 31, 2012, respectively. Consigned inventory represents inventory at distributors and other customers where revenue recognition criteria have not yet been achieved.

The following table summarizes the losses incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory during the three and six months ended June 30, 2013 and 2012, respectively.

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Losses incurred on valuation of inventory and write-off of obsolete inventory	$	—	$	188	$	—	$	278

8

CLEARONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited – Dollars in thousands)

5. Share-based Compensation Expense

Share-based compensation expense has been recorded as follows:

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Cost of goods sold	$	2	$	2	$	4	$	1
Sales and marketing	19		16		34		30
Research and product development	13		10		24		17
General and administrative	33		32		64		63
	$	67	$	60	$	126	$	111

As of June 30, 2013, the total remaining unrecognized compensation cost related to non-vested stock options, net of forfeitures, was approximately $681, which will be recognized over a weighted average period of 2.90 years.

During the three and six months ended June 30, 2013, we granted 57,500 and 57,500 stock options, respectively. During the three and six months ended June 30, 2012, we granted 65,000 and 95,000 stock options, respectively. We use judgment in determining the fair value of the share-based payments on the date of grant using an option-pricing model with assumptions regarding a number of highly complex and subjective variables.  These variables include the risk-free interest rate of the awards, the expected life of the awards, the expected volatility over the term of the awards, the expected dividends of the awards, and an estimate of the amount of awards that are expected to be forfeited.  We use the Black-Scholes option pricing model to determine the fair value of share-based payments granted under ASC Topic 718.

In applying the Black-Scholes methodology to the options granted, the Company used the following assumptions:

	Three months ended June 30,		Six months ended June 30,
	2013	2012	2013	2012
Risk-free interest rate, average	1.2%	1.2%	1.2%	1.5%
Expected option life, average	6.8 years	7.0 years	6.8 years	7.1 years
Expected price volatility, average	50.1%	51.7%	50.1%	51.6%
Weighted average per share fair value	$4.49	$2.07	$4.49	$2.23

6. Shareholders’ Equity

The following table summarizes the change in shareholders’ equity during the three and six months ended June 30, 2013 and 2012, respectively:

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Balance at the beginning of the period	$	66,960		$	40,193		$	66,668		$	39,664
Net income during the period	1,045			650			1,775			1,128
Treasury stock purchased	(418		)	(92		)	(991		)	(92		)
Stock-based compensation	67			60			126			111
Exercise of stock options	88			81			164			81
Unrealized gain or loss in investments	(87		)	—			(87		)	—
Balance at end of the period	$	67,655		$	40,892		$	67,655		$	40,892

9

7. Fair Value Measurements

The fair value of the Company's financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:

Level 1 - Quoted prices in active markets for identical assets and liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. This category generally includes U.S. Government and agency securities; municipal securities; mutual funds and securities sold and not yet settled. The Company's marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.

Level 3 - Unobservable inputs.

For Level 2 securities, the Company uses a third party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application and corroborative information. The Company reviews, tests and validates this information. The following table sets forth the fair value of the financial instruments re-measured by the Company:

		Level 1		Level 2		Level 3		Total
(In thousands)
June 30, 2013
Corporate bonds and notes		$	—	$	5,818	$	—	$	5,818
Municipal bonds		—		3,392		—		3,392
	Total	$	—	$	9,210	$	—	$	9,210

		Level 1		Level 2		Level 3		Total
(In thousands)
December 31, 2012
Corporate bonds and notes		$	—	$	—	$	—	$	—
Municipal bonds		—		—		—		—
	Total	$	—	$	—	$	—	$	—

8. Income Taxes

The Company's forecasted effective tax rate at June 30, 2013 was 33.3%, a (4.1)%decrease from the 37.4% effective tax rate recorded at December 31, 2012. The forecasted effective tax rate of 33.3% excludes jurisdictions for which no benefit from forecasted current year losses is anticipated. Including losses from such jurisdictions results in a forecasted effective tax rate of 37.2%. Our forecasted effective tax rate could fluctuate significantly on a quarterly basis and could change, to the extent that earnings in countries with tax rates that differ from that of the U.S. from amounts anticipated at June 30, 2013.

After discrete benefit of $272, the effective tax rate for the six months ended June 30, 2013 was 31.6%. The discrete benefit is primarily attributable to the recognition of the U.S. research and development credit for 2012.

10

9. Subsequent Events

The Company evaluated its consolidated financial statements as of and for the six months ended June 30, 2013 for subsequent events through the date the financial statements were issued. Other than the Utah Supreme Court's denial of Dorsey's petitions for rehearing as described in detail in Part II, Item I, Legal Proceedings, within this Form 10-Q, the Company is not aware of any subsequent event which would require recognition or disclosure in the financial statements.

11

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

This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  All statements in this report, other than statements of historical fact, are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing.  All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date.  We assume no obligation to update any forward-looking statement.   In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,”  “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology.  Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that any such expectations or any forward-looking statement will prove to be correct.  Our actual results will vary, and may vary materially, from those projected or assumed in the forward-looking statements.  Future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including, without limitation, product recalls and product liability claims; infringement of our technology or assertion that our technology infringes the rights of other parties; termination of supplier relationships, or failure of suppliers to perform; inability to successfully manage growth; delays in obtaining regulatory approvals or the failure to maintain such approvals; concentration of our revenue among a few customers, products or procedures; development of new products and technology that could render our products obsolete; market acceptance of new products; introduction of products in a timely fashion; price and product competition, availability of labor and materials, cost increases, and fluctuations in and obsolescence of inventory; volatility of the market price of our common stock; foreign currency fluctuations; changes in key personnel; work stoppage or transportation risks; and other factors referred to in our press releases and reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2012. All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  Additional factors that may have a direct bearing on our operating results are discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012.

BUSINESS OVERVIEW

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

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

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

On February 16, 2012, we completed the acquisition of the video conferencing business of Israel-based VCON Video Conferencing, Ltd. (“VCON”). VCON was a pioneer in software-based video conferencing solutions with product offerings that included group video conferencing endpoints, desktop video conferencing endpoints, video conferencing infrastructure solutions and software development kits. This acquisition and the combination of our streaming and digital signage technologies has provided us with complementary technology opportunities allowing us to enter new growth markets. Pursuant to the asset purchase agreement, ClearOne paid $4.6 million in cash to VCON in consideration for all VCON's assets, including intellectual property, fixed assets and inventory, and assumed no debt.

12

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

Our business goals are to:

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

• Leverage the video conferencing, streaming and digital signage technologies we recently acquired to enter new growth markets;

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

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

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

• Expand and strengthen our sales channels.  

We will continue to improve our existing high-quality products and develop new products for the burgeoning conferencing and collaboration and multimedia streaming markets and focus on strategic initiatives to achieve our business goals.

Our revenues were $11.7 million and $11.7 million during the three months ended June 30, 2013 and 2012, respectively. The increased revenues from our new products introduced in the last 18 months was offset by decline in revenue from other products. Our gross profit reduced by $229,000 during the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  Net income increased by $395,000 during the three months ended June 30, 2013 compared to the three months ended June 30, 2012, primarily due to lower operating costs and lower tax rates.

Our revenues were $23.0 million and $21.8 million during the six months ended June 30, 2013 and 2012, respectively. The increase in revenue was primarily from our new products introduced in the last 18 months and from our video products.  Our gross profit increased by $662,000 during the six months ended June 30, 2013 compared to the six months ended June 30, 2012. Net income increased by $647,000 during the six months ended June 30, 2013 compared to the six months ended June 30, 2012 primarily due to higher gross profits from higher revenue.

We expect overall growth in revenue from our products, especially video products and new products. However, the prospects of growth and its magnitude in both revenues and profits in the near future will depend on the strength of the global economy and the penetration level of our new products, including products added through acquisitions. We continue to closely monitor the economic situation caused by the US government's budget cuts and global economic events.

A detailed discussion of our results of operations follows below.

ANALYSIS OF RESULTS OF OPERATIONS

Results of Operations for the three and six months ended June 30, 2013, and 2012

The following table sets forth certain items from our unaudited condensed consolidated statements of operations (dollars in thousands) for the three and six months ended June 30, 2013 and 2012, respectively, together with the percentage of total revenue which each such item represents:

13

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

	Three months ended June 30,									Six months ended June 30,
	2013		% of Revenue		2012			% of Revenue		2013		% of Revenue		2012			% of Revenue
Revenue	$	11,703	100	%	$	11,655		100	%	$	22,996	100	%	$	21,809		100	%
Cost of goods sold	4,839		41	%	4,562			39	%	9,133		40	%	8,608			39	%
Gross profit	6,864		59	%	7,093			61	%	13,863		60	%	13,201			61	%
Sales and marketing	2,088		18	%	2,254			19	%	4,356		19	%	4,388			20	%
Research and product development	1,843		16	%	2,029			17	%	3,709		16	%	4,037			19	%
General and administrative	1,437		12	%	1,611			14	%	3,234		14	%	3,091			14	%
Proceeds from litigation	—		—	%	—			—	%	—		—	%	(250		)	(1	)%
Operating income	1,496		13	%	1,199			10	%	2,564		11	%	1,935			9	%
Other income (expense), net	47		0	%	(5		)	0	%	33		0	%	11			0	%
Income before income taxes	1,543		13	%	1,194			10	%	2,597		11	%	1,946			9	%
Provision for income taxes	498		4	%	544			5	%	822		4	%	818			4	%
Net income	$	1,045	9	%	$	650		6	%	$	1,775	8	%	$	1,128		5	%

Revenue

Revenue for the three months ended June 30, 2013 ("2013 Q2") was essentially flat compared to revenue for the three months ended June 30, 2012 ("2012 Q2"). The increase in revenue from new products introduced in the last 18 months was offset by a decline in revenue from other products. An overall increase in demand for our products in North America was offset by a decline in demand in Asia and Europe.

Revenue for the six months ended June 30, 2013 ("2013 H1") increased by approximately 5% over the six months ended June 30, 2012 ("2012 H1"). The revenue primarily increased due to the increase in revenue from video products and new products introduced in the last 18 months. The revenue grew across all regions in the world.

The net change in deferred revenue during the three months ended June 30, 2013 and 2012 was a net increase (decrease) of deferred revenue of $108,000 and $(371,000), respectively. The net change in deferred revenue during the six months ended June 30, 2013 and 2012 was a net increase of deferred revenue of $707,000 and $47,000, respectively. See “Critical Accounting Policies and Estimates” under “Revenue and Associated Allowance for Revenue Adjustments and Doubtful Accounts” below for a detailed discussion of deferred revenue.

Costs of Goods Sold and Gross Profit

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

Our gross profit margin (GPM), which is gross profit as a percentage of revenue, was 59% and 61% for 2013 Q2 and 2012 Q2, respectively. The decline in gross margin was due to increase in inventory obsolescence costs and changes in our product mix. Our GPM was 60% and 61% for 2013 H1 and 2012 H1, respectively. The slight decrease in gross margin was due to changes in our product mix.

Operating Expenses

2013 Q2 operating expenses were approximately $5.4 million, compared to 2012 Q2 operating expenses of approximately $5.9 million. 2013 H1 operating expenses were approximately $11.3 million, compared to 2012 H1 operating expenses, excluding litigation proceeds of $250,000, of approximately $11.5 million.

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

14

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

S&M expenses during 2013 Q2 decreased $166,000, or 7%, when compared to 2012 Q2 due to reduced commissions to sales persons and independent representatives and reduction in marketing expenses. S&M expenses during 2013 H1 decreased $32,000, or 1%, when compared to 2012 H1 primarily due to reduced commissions to sales persons and independent representatives and reduction in marketing expenses.

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

R&D expenses during 2013 Q2 decreased by $186,000, or 9%, compared to R&D expenses during 2012 Q2. The decrease was mainly due to reduced employee costs and consulting fees, partially offset by an increase in R&D project costs. R&D expenses during 2013 H1 decreased by $328,000, or 8%, compared to R&D expenses during 2012 H1. The decrease was mainly due to reduced employee costs and consulting fees, partially offset by an increase in R&D project costs.

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

G&A expenses during 2013 Q2 decreased by $174,000, or 11%, compared to G&A expenses during 2012 Q2. The decrease was mainly due to reduced legal fees partially offset by increased consulting and accounting fees. G&A expenses during 2013 H1 increased by $143,000, or 5%, compared to G&A expenses during 2012 H1.

During the first part of 2013 H1, we continued to incur high legal expenses due to various legal proceedings explained in detail in our Form 10-K for the year ended December 31, 2012.

Proceeds from Litigation

The litigation proceeds received in 2012 H1 of $250,000 represent the receipt of a settlement of amounts due from a defendant in our litigation related to the “Theft of Intellectual Property and Related Cases” described in detail in Note 8 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements in our Form 10-K for the year ended December 31, 2012.

Other income (expense), net

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

Provision for income taxes

During 2013 Q2, we accrued income taxes at the expected annualized rate of 33.3% as compared to an annualized rate of 37.4% in 2012 Q2. The decrease in the expected annualized rate in 2013 Q2 was primarily due to earnings anticipated in countries that have lower statutory tax rates. In addition, a discrete tax benefit of $272 related to the U.S. research and development credit was recognized in the first half of 2013.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2013, our cash, cash equivalents, and marketable securities were approximately $41.6 million, a decrease of $13.9 million compared to cash and cash equivalents of approximately $55.5 million as of December 31, 2012.

Net cash used in operating activities was $12.8 million in 2013 H1, an increase in outflow of approximately $11.4 million compared to $1.4 million cash used in operating activities in 2012 H1. The increase in outflow was primarily due to payment of income taxes associated with the arbitration settlement proceeds received in 2012, reduction in collections from receivables and reduction in accrued payables partially offset by reduction in payments for inventories and accounts payable.

Net cash used in investing activities in 2013 H1 was approximately $9.8 million, which consisted of purchases of marketable securities of $9.3 million and purchases of equipment of $457,000. Net cash used in investing activities in 2012 H1 consisted of the acquisition of the business of VCON for $4.6 million and $202,000 towards purchases of equipment.

15

Net cash used in financing activities in 2013 H1 was approximately $583,000, which consisted of the acquisition of outstanding stock totaling $991,000, offset by $408,000 in proceeds received through exercise of stock options. In 2012 H1, net cash used in financing activities was $11,000 which consisted of the acquisition of outstanding stock totaling $92,000, offset by $81,000 in proceeds received through the exercise of stock options.

As of June 30, 2013, our working capital was $49.1 million as compared to $56.5 million as of December 31, 2012.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our results of operations and financial position are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations. We believe that the estimates we use are reasonable; however, actual results could differ from those estimates.

Our significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 and Note 1 to the Condensed Consolidated Financial Statements set forth in Part I, Item I herein. We believe the policies described below identify our most critical accounting policies, which are the policies that are both important to the representation of our financial condition and results and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Revenue and Associated Allowances for Revenue Adjustments and Doubtful Accounts

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

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

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

16

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

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

The amount of deferred cost of goods sold was included in consigned inventory. The following table details the amount of deferred revenue, cost of goods sold, and gross profit as of June 30, 2013 and December 31, 2012:

	As of June 30, 2013		As of December 31, 2012
Deferred revenue	$	4,300	$	3,593
Deferred cost of goods sold	1,605		1,289
Deferred gross profit	$	2,695	$	2,304

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

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

Impairment of Goodwill and Intangible Assets

We allocated the purchase price for the acquisitions of NetStreams in 2009, MagicBox in 2011 and VCON in 2012 on the basis of well-established valuation techniques performed by qualified experts. Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. We perform impairment tests of goodwill and intangible assets with indefinite useful lives on an annual basis in the fourth fiscal quarter, or sooner if a triggering event occurs suggesting possible impairment of the values of these assets. In connection with the acquisition of NetStreams, $726,000 and $400,000 were recorded as goodwill and intangible assets with indefinite useful life, respectively. With respect to the MagicBox acquisition, $427,000 and $159,000 were recorded as goodwill and intangible assets with indefinite useful life, respectively. Goodwill of $2.3 million was recorded in connection with the VCON acquisition. There were no impairments recorded in 2013 or 2012 as no impairment indicators existed. However, due to uncertainty in the industrial, technological, and competitive environments in which we operate, we might be required to exit or dispose of the assets acquired through the NetStreams, MagicBox or VCON acquisitions, which could result in an impairment of goodwill and intangible assets.

Impairment of Long-Lived Assets

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

Accounting for Income Taxes

We are subject to income taxes in both the United States and in certain foreign jurisdictions. We estimate our current tax position together with our future tax consequences attributable to temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation, and other reserves for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, prior year carryback, or future reversals of existing taxable temporary differences. To the extent we

17

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

believe that recovery is not more likely than not, we establish a valuation allowance against these deferred tax assets. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets.

To the extent we establish a valuation allowance in a period, we must include and expense the allowance within the tax provision in the consolidated statement of operations. In accordance with ASC Topic 740, "Accounting for Income Taxes", we analyzed our valuation allowance at December 31, 2012 and determined that, based upon available evidence, it is more likely than not that certain of our deferred tax assets related to capital loss carryovers and state research and development credits will not be realized and, accordingly, we have recorded a valuation allowance against these deferred tax assets in the amount of $270,000.

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

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

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

Share-Based Compensation

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

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

Under ASC Topic 718, we recognize compensation cost net of an anticipated forfeiture rate and recognize the associated compensation cost for those awards expected to vest on a straight-line basis over the requisite service period. We use judgment in determining the fair value of the share-based payments on the date of grant using an option-pricing model with assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the risk-free interest rate of the awards, the expected life of the awards, the expected volatility over the term of the awards, the expected dividends of the awards, and an estimate of the amount of awards that are expected to be forfeited. If assumptions change in the application of ASC Topic 718 and its fair value recognition provisions in future periods, the stock-based compensation cost ultimately recorded under the guidelines of ASC Topic 718 may differ significantly from what was recorded in the current period.

18

CLEARONE, INC.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4. CONTROLS AND PROCEDURES

An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2013 was performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer.  Based on this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective as of June 30, 2013 to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms.

There was no change in our internal control over financial reporting during the quarter ended June 30, 2013 that materially affected, or that we believe is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The following is an update to the status of the legal proceedings and commitments and contingencies reported in our Form 10-K for the year ended December 31, 2012 under Part I, Item 3. Legal Proceedings and Note 8 - Commitments and Contingencies of the Notes to Consolidated Financial Statements (Part II, Item 8), and our Form 10-Q for the period ended March 31, 2013 under Part II, Item I, Legal Proceedings.

Former Officer Indemnification:

Strohm: On April 9, 2013, the Utah Supreme Court issued its Opinion declaring that Strohm's attorney, Dorsey, is not entitled to recover any attorneys' fees or expenses in connection with its civil action against ClearOne but that Dorsey is entitled to recover post-verdict criminal fees incurred in connection with Strohm's sentencing and appeal. On April 23, 2013, Dorsey filed a petition for rehearing with the Utah Supreme Court seeking to recover its attorneys' fees and expenses incurred in obtaining court-ordered indemnification for Strohm. Dorsey has further requested that the Court reverse its public policy ruling that Dorsey is not entitled to attorneys' fees and expenses in connection with its civil action against ClearOne. In early August 2013, the Utah Supreme Court denied Dorsey's petitions for rehearing.

Item 1A. RISK FACTORS

Not applicable.

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

Issuer Purchases of Equity Securities

The table below summarizes information about our purchases of our equity securities registered pursuant to Section 12 of the Exchange Act of 1934, as amended, during the quarterly period ended June 30, 2013.

Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Program (in millions)
April 1, 2013 through April 30, 2013	—	$	—	—	$	9,042,065
May 1, 2013 through May 31, 2013	45,150	$	9.23	416,943.15	$	8,625,122
June 1, 2013 through June 30, 2013	—	$	—	—	$	8,625,122
Total	45,150	$	9.23	416,943.15

___________________

(1) In May 2012, our Board of Directors authorized a stock repurchase program.  Under the program, we were originally authorized to repurchase up to $2 million of our outstanding common stock from time to time over the following 12

19

CLEARONE, INC.

months.  Any stock repurchases may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans.  Rule 10b5-1 permits us to establish, while not in possession of material nonpublic information, prearranged plans to buy stock at a specific price in the future, regardless of any subsequent possession of material nonpublic information. The timing and actual number of shares repurchased will depend on a variety of factors, including market conditions and other factors. The stock repurchase program may be suspended or discontinued at any time without prior notice. 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 increased the repurchase amount to $10 million from $3 million.

(2) The price paid per share of common stock includes the related transaction costs.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

Exhibit No.	Title of Document
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Principal Financial Officer
32.1	Section 906 Certification of Chief Executive Officer
32.2	Section 906 Certification of Principal 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

20

CLEARONE, INC.

SIGNATURES

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

		ClearOne, Inc., (Registrant)
August 7, 2013	By:	/s/ Zeynep Hakimoglu
		Zeynep Hakimoglu Chief Executive Officer (Principal Executive Officer)
August 7, 2013	By:	/s/ Narsi Narayanan
		Narsi Narayanan  Vice President of Finance (Principal Financial and Accounting Officer)

21

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Zeynep Hakimoglu, certify that:

1. I have reviewed this quarterly report of ClearOne, Inc. on Form 10-Q;

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 make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the 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 in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by 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 under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements 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 about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably 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, to the 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 are reasonably 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’s internal control over financial reporting.

August 7, 2013	By:	/s/ Zeynep Hakimoglu
		Zeynep Hakimoglu Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Narsi Narayanan, certify that:

1. I have reviewed this quarterly report of ClearOne, Inc. on Form 10-Q;

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 make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the 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 in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by 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 under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements 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 about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably 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, to the 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 are reasonably 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’s internal control over financial reporting.

August 7, 2013	By:	/s/ Narsi Narayanan
		Narsi Narayanan Vice President of Finance (Principal Financial and Accounting Officer)

EX-32.1

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 Quarterly Report of ClearOne, Inc. on Form 10-Q for the quarter ended June 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ClearOne, Inc.

August 7, 2013	By:	/s/ Zeynep Hakimoglu
		Zeynep Hakimoglu Chief Executive Officer (Principal Executive Officer)

EX-32.2

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 Quarterly Report of ClearOne, Inc. on Form 10-Q for the quarter ended June 30, 2013, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ClearOne, Inc.

August 7, 2013	By:	/s/ Narsi Narayanan
		Narsi Narayanan  Vice President of Finance (Principal Financial and Accounting Officer)

XML

Business Description, Basis of Presentation and Significant Accounting Policies - Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Schedule of Product Warranty Liability

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

	June 30, 2013			December 31, 2012
Balance at the beginning of year	$	385		$	467
Warranty accruals/additions	232			443
Warranty usage	(251		)	(525		)
Balance at end of period	$	366		$	385

Schedule of Earnings Per Share, Basic and Diluted

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

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Numerator:
Net income	$	1,045	$	650	$	1,775	$	1,128
Denominator:
Basic weighted average shares outstanding	9,093,461		9,107,420		9,122,996		9,102,786
Dilutive common stock equivalents using treasury stock method	366,034		119,006		376,456		121,941
Diluted weighted average shares outstanding	9,459,495		9,226,426		9,499,452		9,224,727
Basic earnings per common share	$	0.11	$	0.07	$	0.19	$	0.12
Diluted earnings per common share	$	0.11	$	0.07	$	0.19	$	0.12
Weighted average options outstanding	1,122,797		1,207,302		1,125,624		1,185,414
Anti-dilutive options not included in the computations	94,789		630,737		94,789		630,737

XML

Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenue	$ 11,703	$ 11,655	$ 22,996	$ 21,809
Cost of goods sold	4,839	4,562	9,133	8,608
Gross profit	6,864	7,093	13,863	13,201
Operating expenses:
Sales and marketing	2,088	2,254	4,356	4,388
Research and product development	1,843	2,029	3,709	4,037
General and administrative	1,437	1,611	3,234	3,091
Proceeds from litigation, net	0	0	0	(250)
Total operating expenses	5,368	5,894	11,299	11,266
Operating income	1,496	1,199	2,564	1,935
Other income (expense), net	47	(5)	33	11
Income before income taxes	1,543	1,194	2,597	1,946
Provision for income taxes	498	544	822	818
Net income	1,045	650	1,775	1,128
Basic earnings per common share	$ 0.11	$ 0.07	$ 0.19	$ 0.12
Diluted earnings per common share	$ 0.11	$ 0.07	$ 0.19	$ 0.12
Basic weighted average shares outstanding	9,093,461	9,107,420	9,122,996	9,102,786
Diluted weighted average shares outstanding	9,459,495	9,226,426	9,499,452	9,224,727
Unrealized (loss) on available-for-sale securities, net of tax	(87)	0	(87)	0
Comprehensive income	$ 958	$ 650	$ 1,688	$ 1,128

XML

Inventories

6 Months Ended

Jun. 30, 2013

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories, net of reserves, as of June 30, 2013 and December 31, 2012 consisted of the following:

	June 30, 2013		December 31, 2012
Current:
Raw materials	$	902	$	734
Finished goods	11,402		10,139
	$	12,304	$	10,873
Long-term:
Raw materials	$	681	$	891
Finished goods	928		1,064
	$	1,609	$	1,955

Long-term inventory represents inventory held in excess of our current (next 12 months) requirements based on our recent sales and forecasted level of sales. We expect to sell the above inventory, net of reserves, at or above the stated cost and believe that no loss will be incurred on its sale.

Current finished goods include consigned inventory in the amounts of approximately $1,605 and $1,289 as of June 30, 2013 and December 31, 2012, respectively. Consigned inventory represents inventory at distributors and other customers where revenue recognition criteria have not yet been achieved.

The following table summarizes the losses incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory during the three and six months ended June 30, 2013 and 2012, respectively.

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Losses incurred on valuation of inventory and write-off of obsolete inventory	$	—	$	188	$	—	$	278

XML

Business Description, Basis of Presentation and Significant Accounting Policies - Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Numerator:
Net income	$ 1,045	$ 650	$ 1,775	$ 1,128
Basic weighted average shares outstanding	9,093,461	9,107,420	9,122,996	9,102,786
Dilutive common stock equivalents using treasury stock method	366,034	119,006	376,456	121,941
Diluted weighted average shares outstanding	9,459,495	9,226,426	9,499,452	9,224,727
Basic earnings per common share	$ 0.11	$ 0.07	$ 0.19	$ 0.12
Diluted earnings per common share	$ 0.11	$ 0.07	$ 0.19	$ 0.12
Weighted average options outstanding	1,122,797	1,207,302	1,125,624	1,185,414
Anti-dilutive options not included in the computations	94,789	630,737	94,789	630,737

XML

Marketable Securities (Tables)

6 Months Ended

Jun. 30, 2013

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-sale Securities Reconciliation

(In thousands)			Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Estimated fair value
December 31, 2012
	Available-for-sale securities:
		Corporate bonds and notes	$	—	$	—	$	—	$	—
		Municipal bonds	—		—		—		—
	Total available-for-sale securities		$	—	$	—	$	—	$	—

The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security at June 30, 2013 and December 31, 2012 were as follows:

(In thousands)			Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses			Estimated fair value
June 30, 2013
	Available-for-sale securities:
		Corporate bonds and notes	$	5,877	$	—	$	(59	)	$	5,818
		Municipal bonds	3,420		1		(29		)	3,392
	Total available-for-sale securities		$	9,297	$	1	$	(88	)	$	9,210

Available-for-sale Securities

Maturities of marketable securities classified as available-for-sale securities were as follows at June 30, 2013:

(In thousands)		Amortized cost		Estimated fair value
	Due within one year	$	337	$	337
	Due after one year through five years	8,528		8,449
	Due after five years through ten years	432		424
Total available-for-sale securities		$	9,297	$	9,210

XML

Marketable Securities - Available-for-sale Securities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Investments, Debt and Equity Securities [Abstract]
Available-for-sale Securities, Debt Maturities, Next Twelve Months, Amortized Cost Basis	$ 337
Available-for-sale Securities, Debt Maturities, Next Twelve Months, Fair Value	337
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Amortized Cost Basis	8,528
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Fair Value	8,449
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Amortized Cost Basis	432
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	424
Available-for-sale Securities, Amortized Cost Basis	9,297	0
Available-for-sale Securities, Fair Value Disclosure	$ 9,210	$ 0

XML

Marketable Securities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	$ 9,297	$ 0
Available-for-sale Securities, Gross Unrealized Gains	1	0
Available-for-sale Securities, Gross Unrealized Losses	(88)	0
Available-for-sale Securities, Fair Value Disclosure	9,210	0
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	5,877	0
Available-for-sale Securities, Gross Unrealized Gains	0	0
Available-for-sale Securities, Gross Unrealized Losses	(59)	0
Available-for-sale Securities, Fair Value Disclosure	5,818	0
Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Amortized Cost Basis	3,420	0
Available-for-sale Securities, Gross Unrealized Gains	1	0
Available-for-sale Securities, Gross Unrealized Losses	(29)	0
Available-for-sale Securities, Fair Value Disclosure	$ 3,392	$ 0

XML

Income Taxes - Income Tax Rates (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Income Tax Disclosure [Abstract]
Effective tax rate, forecasted	33.30%
Effective Income Tax Rate, Continuing Operations, Forecasted Increase (Decrease) in Rate	(4.10%)
Effective Income Tax Rate, Continuing Operations	37.40%
Effective tax rate, including loss jurisdictions	37.20%
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	$ 272
Effective Tax Rate, After Discreet Benefits	31.60%

XML

Share-based Compensation Expense (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 67	$ 60	$ 126	$ 111
unrecognized compensation cost related to non-vested stock options, net of forfeitures	681		681
Outstanding, weighted average remaining contractual term (in years)			2 years 10 months 24 days
Options, grants in period, gross	57,500	65,000	57,500	95,000
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Risk-free interest rate, average	1.20%	1.20%	1.20%	1.50%
Expected option life, average	6 years 9 months 18 days	7 years 0 months 3 days	6 years 9 months 18 days	7 years 1 month 10 days
Expected price volatility, average	50.10%	51.70%	50.10%	51.60%
Weighted average per share fair value	$ 4.49	$ 2.07	$ 4.49	$ 2.23
Cost of Goods, Total [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	2	2	4	1
Selling and Marketing Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	19	16	34	30
Research and Development Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	13	10	24	17
General and Administrative Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 33	$ 32	$ 64	$ 63

XML

Business Description, Basis of Presentation and Significant Accounting Policies Summary of Significant Accounting Policies - Warranties (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Dec. 31, 2011
Accounting Policies [Abstract]
Product Warranty Accrual	$ 366	$ 385	$ 467
Warranty accruals/additions	232	443
Warranty Usage	$ (251)	$ (525)

XML

Consolidated Statements of Cash Flows - Suppplemental Cash Flow Disclosure (VCON Video Conferencing, Ltd. (VCON), USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Jun. 30, 2012
VCON Video Conferencing, Ltd. (VCON)
Other Significant Noncash Transactions [Line Items]
Inventory	$ 0	$ 40
Property and equipment	0	34
Product warranty liability	0	(8)
Proprietary software	0	2,247
Goodwill	0	2,319
Cash paid	$ 0	$ 4,632

XML

Marketable Securities

6 Months Ended

Jun. 30, 2013

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

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, net of the related tax effect, included in accumulated other comprehensive income/loss in stockholders' equity until realized. Gains and losses on marketable security transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned.

The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security at June 30, 2013 and December 31, 2012 were as follows:

(In thousands)			Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses			Estimated fair value
June 30, 2013
	Available-for-sale securities:
		Corporate bonds and notes	$	5,877	$	—	$	(59	)	$	5,818
		Municipal bonds	3,420		1		(29		)	3,392
	Total available-for-sale securities		$	9,297	$	1	$	(88	)	$	9,210

(In thousands)			Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Estimated fair value
December 31, 2012
	Available-for-sale securities:
		Corporate bonds and notes	$	—	$	—	$	—	$	—
		Municipal bonds	—		—		—		—
	Total available-for-sale securities		$	—	$	—	$	—	$	—

Maturities of marketable securities classified as available-for-sale securities were as follows at June 30, 2013:

(In thousands)		Amortized cost		Estimated fair value
	Due within one year	$	337	$	337
	Due after one year through five years	8,528		8,449
	Due after five years through ten years	432		424
Total available-for-sale securities		$	9,297	$	9,210

XML

Share-based Compensation Expense

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation Expense

Share-based Compensation Expense

Share-based compensation expense has been recorded as follows:

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Cost of goods sold	$	2	$	2	$	4	$	1
Sales and marketing	19		16		34		30
Research and product development	13		10		24		17
General and administrative	33		32		64		63
	$	67	$	60	$	126	$	111

As of June 30, 2013, the total remaining unrecognized compensation cost related to non-vested stock options, net of forfeitures, was approximately $681, which will be recognized over a weighted average period of 2.90 years.

During the three and six months ended June 30, 2013, we granted 57,500 and 57,500 stock options, respectively. During the three and six months ended June 30, 2012, we granted 65,000 and 95,000 stock options, respectively. We use judgment in determining the fair value of the share-based payments on the date of grant using an option-pricing model with assumptions regarding a number of highly complex and subjective variables.  These variables include the risk-free interest rate of the awards, the expected life of the awards, the expected volatility over the term of the awards, the expected dividends of the awards, and an estimate of the amount of awards that are expected to be forfeited.  We use the Black-Scholes option pricing model to determine the fair value of share-based payments granted under ASC Topic 718.

In applying the Black-Scholes methodology to the options granted, the Company used the following assumptions:

	Three months ended June 30,		Six months ended June 30,
	2013	2012	2013	2012
Risk-free interest rate, average	1.2%	1.2%	1.2%	1.5%
Expected option life, average	6.8 years	7.0 years	6.8 years	7.1 years
Expected price volatility, average	50.1%	51.7%	50.1%	51.6%
Weighted average per share fair value	$4.49	$2.07	$4.49	$2.23

XML

Intangible Assets

6 Months Ended

Jun. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible Assets

Intangible assets as of June 30, 2013 and December 31, 2012 consisted of the following:

	Estimated useful lives	June 30, 2013			December 31, 2012
Tradename	7 years	$	435		$	435
Patents and technological know-how	10 years	2,070			2,070
Proprietary software	3 to 15 years	2,961			2,961
In-process research and development	Indefinite	159			159
Other	5 years	49			49
		5,674			5,674
Accumulated amortization		(1,678		)	(1,416		)
		$	3,996		$	4,258

The amortization of intangibles with finite lives for the three and six months ended June 30, 2013 and 2012 was as follows:

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Amortization of intangibles with finite lives	$	119	$	130	$	261	$	231

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

Years ending December 31,
2013 (remainder)	$	271
2014	528
2015	483
2016	446
2017	357
Thereafter	1,752
	$	3,837

XML

Intangible Assets - Intangibles (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Finite and Indefiite-Lived Intangible Assets [Line Items]
Total finite and indefinite-lived intangible assets, gross	$ 5,674		$ 5,674		$ 5,674
Accumulated amortization	(1,678)		(1,678)		(1,416)
Intangibles, net	3,996		3,996		4,258
Amortization of Intangible Assets	119	130	261	231
In-process research and development
Finite and Indefiite-Lived Intangible Assets [Line Items]
Indefinite-lived Intangible Assets	159		159		159
Tradename
Finite and Indefiite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)			7 years
Finite-lived intangible assets, gross	435		435		435
Patents and technological know-how
Finite and Indefiite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)			10 years
Finite-lived intangible assets, gross	2,070		2,070		2,070
Proprietary software
Finite and Indefiite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross	2,961		2,961		2,961
Other
Finite and Indefiite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)			5 years
Finite-lived intangible assets, gross	$ 49		$ 49		$ 49
Minimum
Finite and Indefiite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)			3 years
Maximum
Finite and Indefiite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)			15 years

XML

Shareholders' Equity (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance at beginning of period	$ 66,960	$ 40,193	$ 66,668	$ 39,664
Net income	1,045	650	1,775	1,128
Treasury stock purchased	(418)	(92)	(991)	(92)
Stock-based compensation	67	60	126	111
Exercise of stock options	88	81	164	81
Balance at end of period	67,655	40,892	67,655	40,892
Unrealized Gain (Loss) on Investments	$ (87)	$ 0	$ (87)	$ 0

XML

Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 55	$ 60
Common Stock:
Par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, sharse issued (in shares)	9,080,060	9,163,462
Common stock, shares outstanding (in shares)	9,080,060	9,163,462

XML

Income Taxes

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's forecasted effective tax rate at June 30, 2013 was 33.3%, a (4.1)%decrease from the 37.4% effective tax rate recorded at December 31, 2012. The forecasted effective tax rate of 33.3% excludes jurisdictions for which no benefit from forecasted current year losses is anticipated. Including losses from such jurisdictions results in a forecasted effective tax rate of 37.2%. Our forecasted effective tax rate could fluctuate significantly on a quarterly basis and could change, to the extent that earnings in countries with tax rates that differ from that of the U.S. from amounts anticipated at June 30, 2013.

After discrete benefit of $272, the effective tax rate for the six months ended June 30, 2013 was 31.6%. The discrete benefit is primarily attributable to the recognition of the U.S. research and development credit for 2012.

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net income	$ 1,775	$ 1,128
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense	644	654
Amortization of deferred rent	(167)	0
Stock-based compensation expense	126	111
Provision for (recoveries of) doubtful accounts, net	27	(64)
Inventory valuation reserve adjustments	(34)	278
Excess Tax Benefit (Tax Deficiency) from Share-based Compensation, Operating Activities	(38)	0
Changes in operating assets and liabilities:
Receivables	(78)	1,112
Inventories	(1,051)	(2,616)
Deferred income taxes	0	(11)
Prepaid expenses and other assets	(414)	(39)
Accounts payable	729	(1,529)
Accrued liabilities	(24)	121
Income taxes payable	(14,782)	(750)
Deferred product revenue	707	47
Other long-term liabilities	0	138
Net cash (used in) operating activities	(12,580)	(1,420)
Cash flows from investing activities:
Purchase of property and equipment	(457)	(202)
Purchase of marketable securities	(9,297)	0
Payment towards business acquisitions	0	(4,632)
Net cash (used in) investing activities	(9,754)	(4,834)
Cash flows from financing activities:
Proceeds from the exercise of stock options	164	81
Excess Tax Benefit (Tax Deficiency) from Share-based Compensation, Financing Activities	38	0
Treasury stock purchased	(991)	(92)
Net cash (used in) financing activities	(789)	(11)
Net (decrease) in cash and cash equivalents	(23,123)	(6,265)
Cash and cash equivalents at the beginning of the period	55,509	16,683
Cash and cash equivalents at the end of the period	32,386	10,418
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$ 16,757	$ 1,393

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 32,386	$ 55,509
Marketable securities	337	0
Receivables, net of allowance for doubtful accounts of $55 and $60, respectively	8,439	8,388
Inventories, net	12,304	10,873
Deferred income taxes	3,148	3,148
Prepaid expenses and other assets	1,785	1,369
Total current assets	58,399	79,287
Long-term marketable securities	8,873	0
Long-term inventories, net	1,609	1,955
Property and equipment, net	1,783	1,708
Intangibles, net	3,996	4,258
Goodwill	3,472	3,472
Deferred income taxes	1,195	1,195
Other assets	61	64
Total assets	79,388	91,939
Current Liabilities:
Accounts payable	3,031	2,302
Accrued liabilities	2,009	2,143
Income taxes payable	0	14,782
Deferred product revenue	4,300	3,593
Total current liabilities	9,340	22,820
Deferred rent	365	422
Other long-term liabilities	2,028	2,029
Total liabilities	11,733	25,271
Shareholders' equity:
Common stock, par value $0.001, 50,000,000 shares authorized, 9,080,060 and 9,163,462 shares issued and outstanding	9	9
Additional paid-in capital	39,729	40,430
Accumulated other comprehensive loss	(87)	0
Retained earnings	28,004	26,229
Total shareholders' equity	67,655	66,668
Total liabilities and shareholders' equity	$ 79,388	$ 91,939

XML

Intangible Assets - Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
2013 (remainder)	$ 271
2014	528
2015	483
2016	446
2017	357
Thereafter	1,752
Finite-Lived Intangible Assets, Net	$ 3,837

XML

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table sets forth the fair value of the financial instruments re-measured by the Company:

		Level 1		Level 2		Level 3		Total
(In thousands)
June 30, 2013
Corporate bonds and notes		$	—	$	5,818	$	—	$	5,818
Municipal bonds		—		3,392		—		3,392
	Total	$	—	$	9,210	$	—	$	9,210

		Level 1		Level 2		Level 3		Total
(In thousands)
December 31, 2012
Corporate bonds and notes		$	—	$	—	$	—	$	—
Municipal bonds		—		—		—		—
	Total	$	—	$	—	$	—	$	—

XML

Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The fair value of the Company's financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:

Level 1 - Quoted prices in active markets for identical assets and liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. This category generally includes U.S. Government and agency securities; municipal securities; mutual funds and securities sold and not yet settled. The Company's marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.

Level 3 - Unobservable inputs.

For Level 2 securities, the Company uses a third party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application and corroborative information. The Company reviews, tests and validates this information. The following table sets forth the fair value of the financial instruments re-measured by the Company:

		Level 1		Level 2		Level 3		Total
(In thousands)
June 30, 2013
Corporate bonds and notes		$	—	$	5,818	$	—	$	5,818
Municipal bonds		—		3,392		—		3,392
	Total	$	—	$	9,210	$	—	$	9,210

		Level 1		Level 2		Level 3		Total
(In thousands)
December 31, 2012
Corporate bonds and notes		$	—	$	—	$	—	$	—
Municipal bonds		—		—		—		—
	Total	$	—	$	—	$	—	$	—

XML

Inventories (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Inventory Disclosure [Abstract]
Losses incurred on valuation of inventory and write-off of obsolete inventory	$ 0	$ 188	$ 0	$ 278
Current:
Raw materials	902		902		734
Finished goods	11,402		11,402		10,139
Inventories, current	12,304		12,304		10,873
Long-term:
Raw materials	681		681		891
Finished Goods	928		928		1,064
Inventory, Noncurrent	1,609		1,609		1,955
Inventory, finished goods, amount under consignment	$ 1,605		$ 1,605		$ 1,289

XML

Business Description, Basis of Presentation and Significant Accounting Policies - Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Warranty Costs

Warranty Costs – The Company accrues for warranty costs based on estimated warranty return rates and estimated costs to repair. 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.

XML

Shareholders' Equity

6 Months Ended

Jun. 30, 2013

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Shareholders’ Equity

The following table summarizes the change in shareholders’ equity during the three and six months ended June 30, 2013 and 2012, respectively:

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Balance at the beginning of the period	$	66,960		$	40,193		$	66,668		$	39,664
Net income during the period	1,045			650			1,775			1,128
Treasury stock purchased	(418		)	(92		)	(991		)	(92		)
Stock-based compensation	67			60			126			111
Exercise of stock options	88			81			164			81
Unrealized gain or loss in investments	(87		)	—			(87		)	—
Balance at end of the period	$	67,655		$	40,892		$	67,655		$	40,892

XML

Business Description, Basis of Presentation and Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Business Description, Basis of Presentation and Significant Accounting Policies

Business Description, Basis of Presentation and Significant Accounting Policies

Business Description:

ClearOne, Inc. together with its subsidiaries (collectively, “ClearOne” or the “Company”) is a global company that designs, develops and sells conferencing, collaboration, streaming and digital signage solutions for audio and visual communications.  The performance and simplicity of its advanced comprehensive solutions offer unprecedented levels of functionality, reliability and scalability.  

Basis of Presentation:

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

These accompanying interim condensed consolidated financial statements for the three and six months ended June 30, 2013 and 2012, respectively, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not audited. Certain information and footnote disclosures that are usually included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted in accordance with SEC rules and regulations. The accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company's financial position as of June 30, 2013 and December 31, 2012, the results of operations for the three and six months ended June 30, 2013 and 2012, and the statements of cash flows for the six months ended June 30, 2013 and 2012. The results of operations for the three and six months ended June 30, 2013 and 2012 are not necessarily indicative of the results for a full-year period.  These interim condensed consolidated financial statements should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 25, 2013 as amended on April 30, 2013.

Significant Accounting Policies:

The significant accounting policies were described in Note 2 to the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2012. There have been no changes to these policies during the six months ended June 30, 2013 that are of significance or potential significance to the Company.

Warranty Costs – The Company accrues for warranty costs based on estimated warranty return rates and estimated costs to repair. 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:

	June 30, 2013			December 31, 2012
Balance at the beginning of year	$	385		$	467
Warranty accruals/additions	232			443
Warranty usage	(251		)	(525		)
Balance at end of period	$	366		$	385

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

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Numerator:
Net income	$	1,045	$	650	$	1,775	$	1,128
Denominator:
Basic weighted average shares outstanding	9,093,461		9,107,420		9,122,996		9,102,786
Dilutive common stock equivalents using treasury stock method	366,034		119,006		376,456		121,941
Diluted weighted average shares outstanding	9,459,495		9,226,426		9,499,452		9,224,727
Basic earnings per common share	$	0.11	$	0.07	$	0.19	$	0.12
Diluted earnings per common share	$	0.11	$	0.07	$	0.19	$	0.12
Weighted average options outstanding	1,122,797		1,207,302		1,125,624		1,185,414
Anti-dilutive options not included in the computations	94,789		630,737		94,789		630,737

XML

Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	$ 9,210	$ 0
Fair Value, Measurements, Recurring [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	9,210	0
Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	5,818	0
Fair Value, Measurements, Recurring [Member] | Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	3,392	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	9,210	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	5,818	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	3,392	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Fair Value Disclosure	$ 0	$ 0

XML

Intangible Assets Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived and Indefinite-Lived Intangible Assets

Intangible assets as of June 30, 2013 and December 31, 2012 consisted of the following:

	Estimated useful lives	June 30, 2013			December 31, 2012
Tradename	7 years	$	435		$	435
Patents and technological know-how	10 years	2,070			2,070
Proprietary software	3 to 15 years	2,961			2,961
In-process research and development	Indefinite	159			159
Other	5 years	49			49
		5,674			5,674
Accumulated amortization		(1,678		)	(1,416		)
		$	3,996		$	4,258

Schedule of Finite-Lived Intangible Assets Amortization Expense

The amortization of intangibles with finite lives for the three and six months ended June 30, 2013 and 2012 was as follows:

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Amortization of intangibles with finite lives	$	119	$	130	$	261	$	231

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

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

Years ending December 31,
2013 (remainder)	$	271
2014	528
2015	483
2016	446
2017	357
Thereafter	1,752
	$	3,837

XML

Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

The Company evaluated its consolidated financial statements as of and for the six months ended June 30, 2013 for subsequent events through the date the financial statements were issued. Other than the Utah Supreme Court's denial of Dorsey's petitions for rehearing as described in detail in Part II, Item I, Legal Proceedings, within this Form 10-Q, the Company is not aware of any subsequent event which would require recognition or disclosure in the financial statements.

XML

Shareholders' Equity (Tables)

6 Months Ended

Jun. 30, 2013

Stockholders' Equity Note [Abstract]

Schedule of Shareholders' Equity

The following table summarizes the change in shareholders’ equity during the three and six months ended June 30, 2013 and 2012, respectively:

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Balance at the beginning of the period	$	66,960		$	40,193		$	66,668		$	39,664
Net income during the period	1,045			650			1,775			1,128
Treasury stock purchased	(418		)	(92		)	(991		)	(92		)
Stock-based compensation	67			60			126			111
Exercise of stock options	88			81			164			81
Unrealized gain or loss in investments	(87		)	—			(87		)	—
Balance at end of the period	$	67,655		$	40,892		$	67,655		$	40,892

XML

Inventories (Tables)

6 Months Ended

Jun. 30, 2013

Inventory Disclosure [Abstract]

Schedule of inventory, net of reserves

Inventories, net of reserves, as of June 30, 2013 and December 31, 2012 consisted of the following:

	June 30, 2013		December 31, 2012
Current:
Raw materials	$	902	$	734
Finished goods	11,402		10,139
	$	12,304	$	10,873
Long-term:
Raw materials	$	681	$	891
Finished goods	928		1,064
	$	1,609	$	1,955

Schedule of Non-Current Inventory Valuation Losses

The following table summarizes the losses incurred on valuation of inventory at lower of cost or market value and write-off of obsolete inventory during the three and six months ended June 30, 2013 and 2012, respectively.

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Losses incurred on valuation of inventory and write-off of obsolete inventory	$	—	$	188	$	—	$	278

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 05, 2013
Document and Entity Information
Entity Registrant Name	CLEARONE INC
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Entity Central Index Key	0000840715
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		9,080,060
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

XML

Share-based Compensation Expense (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of share-based compensation expense

Share-based compensation expense has been recorded as follows:

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Cost of goods sold	$	2	$	2	$	4	$	1
Sales and marketing	19		16		34		30
Research and product development	13		10		24		17
General and administrative	33		32		64		63
	$	67	$	60	$	126	$	111

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

In applying the Black-Scholes methodology to the options granted, the Company used the following assumptions:

	Three months ended June 30,		Six months ended June 30,
	2013	2012	2013	2012
Risk-free interest rate, average	1.2%	1.2%	1.2%	1.5%
Expected option life, average	6.8 years	7.0 years	6.8 years	7.1 years
Expected price volatility, average	50.1%	51.7%	50.1%	51.6%
Weighted average per share fair value	$4.49	$2.07	$4.49	$2.23