Oblong, Inc. (formerly Glowpoint, Inc.) — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is for Oblong, Inc., not Taoweave, Inc. The company changed its name from Glowpoint to Oblong in March 2020. Oblong Industries was acquired on October 1, 2019, so reported 2019 results include its operations only for the fourth quarter; 2018 reported results do not include them.
Business context and financial results
The combined company provides Mezzanine visual collaboration products and services, as well as legacy Glowpoint managed video collaboration and network services. Management expects to direct most future product-development and sales-and-marketing investment toward Oblong Industries’ offerings.
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $12.827 million | $12.557 million |
| Gross profit / gross margin | $5.400 million / 42% | $4.959 million / approximately 39% |
| Operating loss | $7.574 million | $6.740 million |
| Net loss | $7.761 million | $7.168 million |
| Net loss attributable to common stockholders per share | $1.52 | $1.50 |
| Cash used in operating activities | $3.253 million | $1.155 million |
| Cash and cash equivalents at year-end | $4.602 million | $2.007 million |
Year-end current assets were $9.926 million and current liabilities were $8.258 million. Total assets were $34.909 million and total liabilities were $13.124 million. SVB loan obligations were $5.609 million before a $0.102 million unamortized discount; the balance sheet reported $2.664 million current and $2.843 million long-term debt, net of discounts. Lease liabilities totaled $3.314 million.
Changes versus the prior period and unusual items
- Reported revenue rose 2%, but this comparison is not like-for-like because Oblong Industries contributed $3.167 million of 2019 revenue only after the acquisition. On an unaudited pro forma basis, as if acquired at the start of each year, combined revenue declined to $25.586 million in 2019 from $29.806 million in 2018, approximately 14%.
- Glowpoint revenue declined to $9.660 million from $12.557 million. Video collaboration services fell 27%, network services 11%, and professional and other services 62%, primarily reflecting customer attrition, reduced service levels or pricing, competition, and lower equipment resale.
- Oblong Industries generated $3.167 million of reported fourth-quarter revenue, with a 63% segment gross margin; Glowpoint’s gross margin was 35%. Oblong Industries recorded a $3.173 million operating loss for the included quarter.
- Net loss increased to $7.761 million. Operating expenses included $2.317 million of impairment charges, chiefly a $2.254 million Glowpoint goodwill impairment. The comparable 2018 impairment charge was $5.093 million.
- Operating cash use increased. Investing cash flow was a reported $2.149 million inflow, primarily reflecting $2.194 million of cash acquired in the merger; purchases of property and equipment were $0.045 million.
Outlook, liquidity, and principal risks
- Management expects 2020 revenue to increase mainly because the results will include a full year of Oblong Industries, partly offset by continued decline in Glowpoint. It anticipates cost reductions and integration synergies, while continuing investment in product development and sales and marketing. No specific numeric revenue or earnings guidance is provided.
- The company and auditor identify substantial doubt about the company’s ability to continue as a going concern. Management said available resources were not expected to fund operations for the 12 months following the filing, and additional capital and a restructuring of the SVB loan were needed. The audited statements do not include adjustments for the outcome of this uncertainty.
- SVB obligations were $5.609 million at year-end. Principal-and-interest payments were scheduled after March 31, 2020, with repayment by September 1, 2021. SVB indicated or verbally agreed to defer certain April and May 2020 payments to June 1 while restructuring discussions continued; failure to pay could trigger default. The loan is secured by substantially all company assets and includes restrictive covenants.
- In April 2020, the company received a $2.417 million PPP loan at 1% interest, with a two-year term and initial six-month payment deferral. Forgiveness was uncertain.
- COVID-19 created material uncertainty around operations, customer spending, liquidity, and financing. A major customer suspended certain professional services effective April 30, 2020; those services represented $0.7 million, or 13% of fourth-quarter reported revenue and 6% of full-year reported revenue. The filing says it was uncertain whether the work would resume.
- Series D and E preferred stock could convert into approximately 18.665 million common shares, compared with 5.162 million common shares outstanding at year-end. Conversion required NYSE American approvals and a new listing application; meeting initial listing requirements, including a stated $15 million non-affiliate public-float threshold, could be difficult. Conversion would cause substantial dilution.
- Two Glowpoint customers accounted for 20% and 18% of consolidated revenue in 2019. Other key risks include declining legacy revenue, competition and pricing pressure, successful integration and commercialization, customer concentration, further impairment, and exchange-listing and financing requirements.
Important facts for investors to verify
- Whether SVB and the company reached a restructuring agreement, and whether any deferred payments were made or a default occurred.
- Cash runway, subsequent operating cash use, financing raised, and the status and amount of any PPP loan forgiveness.
- Whether the major customer resumes the suspended services and how COVID-19 affects customer renewals and orders.
- Progress on NYSE American listing requirements and preferred-share conversion, including the resulting dilution and resale-registration status.
- Whether reported results and management’s outlook align with the unaudited pro forma revenue trend and continued Glowpoint attrition.