Taoweave, Inc. quarterly report, Q2 FY2021

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Business context and reporting period

This is Oblong, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021; the filing does not identify Taoweave, Inc. as the registrant. Oblong operates managed video-collaboration and network services (formerly Glowpoint) and visual-collaboration products and services (Oblong Industries).

Financial performance and position

  • Revenue: Q2 revenue was $2.05 million, down 27% from $2.82 million. First-half revenue was $3.97 million, down 51% from $8.14 million.
  • Profitability: Q2 gross profit was $0.80 million (39% margin), versus $1.13 million (40%) a year earlier. First-half gross profit was $1.43 million (36%), versus $4.07 million (50%). Q2 net loss was $2.25 million, improved from $3.39 million; first-half net loss was $5.68 million, versus $6.51 million. First-half loss attributable to common stockholders was $6.35 million, including preferred dividends and a $0.30 million induced-conversion charge. Basic and diluted loss per share was $0.08 for Q2 and $0.29 for the first half.
  • Cash flow: Operating cash use was $3.67 million in the first half, compared with $2.86 million in 2020. Investing cash use was $0.02 million. Financing provided $11.50 million, principally from the June equity offering. Cash and restricted cash at period-end totaled $13.09 million, including $13.03 million unrestricted cash.
  • Liquidity and debt: Working capital was $13.999 million. The $2.417 million PPP loan was outstanding at June 30 and classified as long-term; it was forgiven in July, with the gain expected to be recognized in Q3. Total liabilities were $6.63 million and stockholders’ equity $28.31 million.
  • Other metrics: Total assets were $34.94 million. No income tax expense was recorded. Goodwill was $7.37 million; net intangible assets were $8.95 million.

Material changes versus comparable periods

  • First-half revenue fell sharply in both segments. Oblong Industries revenue declined to $1.69 million from $4.73 million, principally due to delayed product orders, loss of a professional-services customer, and termination of a licensing customer. The legacy Glowpoint segment declined to $2.27 million from $3.42 million, reflecting customer attrition, lower service levels and pricing pressure.
  • Q2 Oblong Industries product revenue was $0.94 million, slightly above the prior-year quarter’s $0.92 million; however, professional-services and licensing revenue fell substantially. Legacy-segment Q2 revenue declined to $1.08 million from $1.37 million.
  • Operating expenses fell, reflecting lower headcount and lease costs and Employee Retention Credits. Operating loss improved to $2.48 million in Q2 from $3.30 million, and to $5.89 million for the first half from $6.29 million. First-half margin deterioration reflects lower revenue and mix.
  • The June 30 financing issued 4.0 million common shares and warrants, generating $11.50 million net proceeds. Preferred stock converted to common stock in February; common shares issued rose from 7.86 million at year-end to 30.73 million at June 30. The filing reported 30.62 million shares outstanding on August 10.

Outlook, risks and unusual items

  • Management stated that existing resources were not expected to fund operations for the 12 months following the filing and that additional debt or equity financing would be needed. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern; there is no assurance that further financing will be available on acceptable terms.
  • Management expects the cost of developing and commercializing Oblong Industries products to exceed that segment’s revenue for the foreseeable future, while it plans continued investment in product development and sales and marketing. It expects legacy Glowpoint revenue declines to continue and may seek to divest some or all of that business. No quantitative revenue or earnings guidance is provided.
  • COVID-19-related shifts in customer implementation schedules delayed distribution-channel orders and affected revenue and results. Other key risks include customer concentration, renewals and attrition, competition and pricing, product acceptance, capital availability, Nasdaq listing compliance, and execution of product-development plans.
  • A Munich office lease settlement produced a $0.227 million gain recorded as other income. The company recorded $0.141 million of ERC-related cost-of-revenue reductions in Q2; it also described ERC reductions in operating expenses. Verify the reported ERC treatment and timing when assessing period comparability.
  • Management reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting. It reported no legal proceedings believed likely to have a material adverse effect.

Important facts for investors to verify

  1. Confirm the registrant identity: the supplied filing is for Oblong, Inc., not Taoweave, Inc.
  2. Assess cash runway and financing needs against ongoing operating cash burn, the going-concern warning, and subsequent capital-raising activity, if any.
  3. Track whether delayed product orders recover and whether revenue declines, customer concentration, or legacy-business attrition worsen.
  4. Review the effects of the June offering and outstanding warrants on potential dilution; the filing reports 5.147 million warrants outstanding at June 30.
  5. Confirm the PPP loan forgiveness and related income recognition in the subsequent quarter, and evaluate the recurring versus nonrecurring effects of the lease gain and ERC credits.