Business context and reporting period
This is Glowpoint, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The request metadata names Taoweave, Inc., but the filing identifies Glowpoint, Inc. as the registrant. Glowpoint provides managed video-collaboration and network services.
Financial performance and position
Unless noted otherwise, amounts are in millions of dollars.
- Revenue: Second-quarter revenue was $2.439 million, down 26% from $3.293 million a year earlier. First-half revenue was $5.033 million, down 26% from $6.767 million.
- Profit and margins: Second-quarter net loss was $0.875 million versus $1.689 million; first-half net loss was $1.473 million versus $2.974 million. First-half loss per share was $0.29 versus $0.64. Gross profit was $0.795 million in Q2 and $1.714 million for the first half; gross margin was approximately 33% and 34%, respectively, versus approximately 41% and 40% in 2018.
- Cash flow: First-half operating cash use was $0.968 million, compared with $0.689 million in 2018. Investing and financing activities used $0.017 million and $0.035 million, respectively. Cash declined to $0.987 million from $2.007 million at year-end 2018.
- Liquidity and debt: Working capital was $2.022 million at June 30. The company reported no debt. Current assets were $2.934 million and current liabilities $0.912 million.
- Assets and equity: Total assets were $6.268 million, down from $7.962 million at December 31, 2018; stockholders’ equity was $5.356 million, down from $6.830 million.
Material changes versus the prior comparable period
- Revenue declined across all reported service categories. Q2 video-collaboration revenue fell 28%, network-services revenue 18%, and professional and other services revenue 66% year over year. Management attributes declines to customer attrition, reduced service levels or pricing, competition, and lower equipment resale.
- Cost of revenue fell less quickly than revenue; it rose to 67% of revenue in Q2 and 66% for the first half, from 59% and 60%. Management cited personnel costs as a proportion of revenue.
- Operating losses narrowed to $0.874 million for Q2 and $1.472 million for the first half, primarily because goodwill impairment charges were lower than in 2018—notwithstanding weaker gross margins.
- The company recorded a $0.453 million goodwill impairment in Q2 after revenue and share-price declines triggered an interim test. Goodwill remaining was $2.342 million.
- The proposed SharedLabs merger was terminated on April 28, 2019. The company is pursuing possible recovery of fees and expenses, but has recorded no recovery because the contingency remains unresolved.
Outlook, risks, contingencies and unusual items
- Going concern: Management says current projections indicate the company will not have sufficient resources to fund operations for the 12 months following the report’s filing. It expects negative operating cash flow for the remainder of 2019 and states that these conditions raise substantial doubt about its ability to continue as a going concern.
- Funding and strategy: Additional capital is considered necessary; the company may seek debt or equity financing, but gives no assurance it can obtain funding on acceptable terms. It is exploring organic growth, acquisitions, and partnerships, while adjusting costs. No timeline for new services or resulting revenue is provided.
- Revenue outlook: Management expects the negative year-over-year revenue trend to continue for the foreseeable future. Sales cycles are generally six to eighteen months. No quantified revenue or earnings guidance is provided.
- Concentration and competition: Three customers represented 29%, 22%, and 10% of Q2 revenue; two customers accounted for 46% and 14% of receivables at quarter-end. Customer retention, pricing pressure, and competition are key risks.
- Other notable items: A one-for-ten reverse stock split took effect in April 2019. Adoption of the new lease standard resulted in recognition of approximately $0.099 million in right-of-use assets and $0.111 million in lease liabilities at January 1, 2019. The company reported no material off-balance-sheet arrangements and no legal proceedings it believed would have a material adverse effect.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for Glowpoint, Inc., not Taoweave, Inc.
- Review cash runway, operating cash burn, and the company’s ability to obtain additional financing given the stated going-concern uncertainty.
- Track revenue trends, customer attrition and concentration, pricing, and gross margins.
- Assess whether the $0.453 million goodwill impairment and further potential impairment accurately reflect current business and market conditions.
- Monitor whether Glowpoint recovers SharedLabs-related fees or expenses; no recovery was recognized as of June 30, 2019.
- Consider potential dilution and preferred-stock terms, including conversion rights and accrued Series A-2 dividends.