Oblong, Inc. — Form 10-Q for Q2 2020
Entity note: The filing identifies the registrant as Oblong, Inc. (formerly Glowpoint, Inc.), not Taoweave, Inc. The quarter ended June 30, 2020; the report was signed August 14, 2020.
Business context and reporting period
Oblong provides visual collaboration technology and managed video-collaboration and network services. The company acquired Oblong Industries on October 1, 2019 and reports two segments: Glowpoint and Oblong Industries. The 2019 comparative results exclude Oblong Industries, so reported year-over-year growth is not directly comparable; the filing also provides unaudited pro forma 2019 comparisons.
Financial performance and position
- Q2 revenue: $2.816 million, up 15% from $2.439 million. Gross profit was $1.133 million (40% margin), versus $795,000 (33%) a year earlier. Operating loss was $3.300 million; net loss was $3.385 million, or $0.65 per share, versus a $875,000 net loss, or $0.17 per share.
- First half revenue: $8.144 million, up 62% from $5.033 million. Gross profit was $4.072 million (50% margin), versus $1.714 million (34%). Operating loss was $6.287 million; net loss was $6.514 million, or $1.25 per share, versus a $1.473 million net loss, or $0.29 per share.
- Segment mix, Q2: Glowpoint revenue was $1.373 million and Oblong Industries revenue was $1.443 million. Their gross margins were 35% and 46%, respectively. Glowpoint video-collaboration revenue fell 62% and network-services revenue fell 19% year over year.
- Cash flow: First-half operating cash use was $2.857 million, investing cash use was $5,000, and financing provided $2.401 million, primarily from the PPP loan. Cash declined to $4.141 million from $4.602 million at year-end 2019.
- Liquidity and debt: Working capital deficit was $755,000. Debt principal was $8.026 million: $5.609 million under the SVB facility and $2.417 million under the PPP loan. The balance sheet reported $3.665 million of current debt and $4.304 million of long-term debt. Total liabilities were $13.886 million and stockholders’ equity was $15.407 million.
Material changes, outlook, and risks
- Revenue growth reflects the acquired Oblong Industries business; the legacy Glowpoint business weakened. First-half Glowpoint revenue declined 32% to $3.417 million. Management expects continued revenue decline in that business.
- COVID-19 delayed product fulfillment and order placement and contributed to the cancellation of a major customer’s professional-services work effective April 30. The affected services represented $0.2 million (7%) of Q2 revenue and $0.8 million (10%) of first-half revenue.
- Management reported quarterly reductions in combined G&A, R&D, sales, and marketing expense—from $5.656 million in Q4 2019 to $3.637 million in Q2 2020—and expects further reductions in the second half of 2020. It also expects to invest in product development and sales and marketing, particularly to grow Oblong Industries’ offerings.
- Going concern: Management said current projections indicate the company will not have sufficient resources to fund operations for the 12 months following filing. It expects to need additional debt or equity financing; the filing states there is no assurance it can raise capital on acceptable terms. These conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Debt covenant/default matters: SVB waived certain covenant failures and defaults, including missed principal payments due April, May, and June 2020 and a $100,000 deferral fee. The loan’s interest-only period was extended through September 30, 2020; thereafter monthly principal payments of $291,500 plus interest were scheduled through March 2022. The rate increased to Prime plus 4.25% (7.50% at June 30).
- The company estimated approximately $1.7 million of the $2.417 million PPP loan may be forgiven, but forgiveness is not assured. COVID-19-related uncertainty, customer concentration, competition, financing needs, and NYSE American listing standards are significant risks. A holder’s claim concerning consent rights related to the SVB loan remained unresolved; no liability was accrued.
- Goodwill impairment charges were $550,000 in the first half, including a $541,000 charge that eliminated Glowpoint goodwill. No Q2 impairment charge was recorded.
Important facts for investors to verify
- Whether Oblong can secure enough financing to meet its stated 12-month funding need, and the resulting dilution, cost, or terms.
- Actual PPP loan forgiveness and the company’s ability to service SVB and PPP debt as scheduled.
- Post-quarter revenue, order fulfillment, customer renewals, and the trajectory of legacy Glowpoint services and Oblong Industries products.
- Progress on cost reductions and product commercialization, including whether expected investments can produce sustainable revenue growth.
- NYSE American listing eligibility and the potential conversion of Series D and E preferred stock: conversion could increase common shares from 5.23 million to approximately 23.57 million, subject to required approvals and listing conditions.