CLEARONE INC

Item 1A. RISK FACTORS

The risk factors set forth under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 are herend Part II, Item 1A of our Current Report on Form 10-Q for the quarter ended June 30, 2025 are hereby supplemented and amended with the following additional risk factors:

Risks Related to Our Recent Financing and Asset Sale Obligaduced Operations

Our recent issuance of convertible notes and designati Following Completion of preferred stock may result in significant dilutithe Asset Disposition to existing stockholders and could adversely affect our financial condition. On June 20, 2025, we issued $3.0 million in convertible notes to First Finance Ltd., which are mandatorily convertible into Biamp Systems

Under the terms of the Certificate of Designation for our Class B ConvertiA Redeemable Preferred Stock, further convertible into common stock at $6.008 per share (subject to adjustments). This, combined with First Finance Ltd.'s option to purchase up  net proceeds of the Asset Disposition to Biamp Systems can only be used to an additional $2.0 million ofredeem the Class B ConvertiA Redeemable Preferred Stock, could lead to substantial dilution of existi and are not available for ongoing stockholders' ownership and voting powoperations, other upon conversion.

We are obligatthan permitted to pursue an Asset Saleransaction costs, which may not be completed on favorable terms or at all, potentially leading to adverse consequences for our business and stockholders. Under the terms of our recent financing, we must use reasonable best efforts to complete a sale of all could constrain liquidity and accelerate the need for substantially all of our current assets and operations within 180 days of issuing the Class A Redeemable Preferred Stock. If we fail to consummate an Asset Sale, we may face ladditional financing. (See Note 3 and MDA Liquidity constraints, as the .)

We will convertible notes and preferred stock include provisions for mtinue to offer product support andatory redemption or conversion that could strain  warranty services to our resources. Moreover, the process of customers while we pursuing an Asset Sale may disrupt opee a Strations, divert management attentegic Transaction, and result  in the loss of key customers, suppliers, or employees, furthfourth quarter impacting our financial performance.

Our dependence on third-party financing terms introduces risks related to control and governance changes. The appointment of two directors nominated by First Finance Ltd. on June 20, 2025, expands our Board and may influence strategic decisions, including the Asset Sale. The financing termof 2025. Warranty claim rates and repair costs are uncertain. If actual claim volume, parts availability, labor rates, including restricted use of proand logistics costs exceeds and potential warrant repurchases, limit  estimates, our operational flexibility and expose us failure to risks if we cannot comply with covenants or if First Fiobtain additional finance Ltd. exercises its rights in ways adverse to other stakeholding would have a material advers.

The reduction in force we implemented may impair e effect on our ability to maintain operationsbusiness and comply with obligations. On June 20, 2025, we reduced our workforce significantly as part results of scaling operations for the Asset Sale pursuit. This RIF could lea.

Risks Related to decreased morale, lossOur Pursuit of institutional knowledge, and challenges in continuing essential funStrategic Transactions such as sales, customer support, and p

As a public reporting, potentially resulting in regulatory non-ly traded compliance, revenue declines, or increased costs to rebuild capabilities if the Asset Saany, we are susceptible is not completed.

The special stock dividend of Class A Redeemable Preferred Stock may not result in value to to potential creditor or stockholders if the Asset Sale is not completed, or if completed on unfavorable terms, potentially lead claims relating to no or minimal redemption proceeds and increased complexity in our capital structure.

Concentration of Ownership and Control

Concentration of ownership by significant stockholders could adversely affect our operatany Strategic Transactions and stockholder value. As disclosed in a Schedule 13D/A filed on July 1, 2025, First Finance Ltd. beneficially owns approximately 32.4% of our common stock on an as converted basis (ithat we may consummate, including rights to acquire up to an additional $2 million of shares of our Class B Convertible Preferred Stock (the Additional Financing Right)), with rights to nominate two directors. In addition, assuming full exercise by First Finance Ltd. of its Additional Financing Right, Edward D. Bagley beneficithe recently completed Asset Disposition to Biamp Systems. Any such legal chally owns approximately 32.5% of our issued and outstanding shares of engers could delay the commpletion stock. Mr. Bagleys daughter, Lisa Higley, is a member of our board of directors.

Each of First Financeof any possible Strategic Transactions and Mr. Bagley will be able to significantly influenreduce over corporatthe actions, including the Asset Sale, boardmount of composition, and other matters requiring stockholder approval, potentially in ways that conflict with the interests of other nsideration available to the Companys stockholders or lead to delays in strategic initiatives. In addiconnection, the concentration of ownership in First Finance Ltd.  with any such transactions and Mr. Bagley may discourage third parties from seeking to acquire control of us, which may ahave a material adversely a effect the market price ofon our common stock

For more information on these events, see Notes [7, 8, 12, 13] to the Condensed Consolidated Financial Statements and 'Liquidity and Capital Resources' in MDA. business and results of operations.