Business context and reporting period
The supplied filing is Glowpoint, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018; this does not match the request metadata identifying Taoweave, Inc. Glowpoint provides managed video collaboration and network application services.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $2.931 million | $3.481 million | $9.698 million | $11.417 million |
| Gross profit, before depreciation and amortization | $1.127 million | $1.493 million | $3.817 million | $4.720 million |
| Gross margin, before depreciation and amortization | 38% | 43% | 39% | 41% |
| Operating loss | $1.470 million | $2.000 million | $4.029 million | $2.449 million |
| Net income (loss) | $(1.470) million | $7.104 million | $(4.444) million | $5.846 million |
| Operating cash flow | Not separately presented | Not separately presented | $(0.609) million | $1.073 million |
At September 30, 2018, cash was $2.578 million, working capital was $3.355 million, total assets were $10.538 million, and total liabilities were $1.075 million. The company reported no debt, down from $1.563 million of net debt carrying value at December 31, 2017. Cash declined by $1.368 million over the nine-month period. Capital expenditures were $0.311 million; cash interest paid was $0.318 million.
Material changes versus the prior comparable period
- Revenue fell 16% in Q3 and 15% for the nine-month period. Video collaboration revenue declined 14% and 16%, respectively; network services revenue declined 22% and 21%. Management attributed these decreases to customer attrition, lower service demand, competition, and pricing pressure. Professional and other services revenue increased, partly from video equipment resale.
- Q3 operating loss narrowed year over year, mainly due to lower impairment and depreciation and amortization expense. Nine-month operating loss widened, reflecting lower revenue and increased goodwill impairment.
- Goodwill impairment charges were $0.975 million for Q3 and $3.150 million for nine months, compared with $1.707 million and $1.712 million in the respective 2017 periods. Remaining goodwill was $4.600 million.
- Q3 2017 net income included $8.820 million of interest and other income, primarily associated with a debt extinguishment gain; it is not comparable to recurring operating performance. In 2018, the company completed debt repayments, including a Super G payoff, and issued Series C preferred stock for net proceeds of $1.527 million.
- Cost of revenue declined, but as a share of revenue increased to 62% in Q3 and 61% for nine months, from 57% and 59%. General and administrative expense increased, including $0.216 million of advisory fees related to potential M&A initiatives.
Outlook, risks, and unusual items
- Management expects declines in legacy video collaboration and network services revenue to continue for the foreseeable future. It plans to develop automated/software-based offerings and expects to release services focused on IT service management and microlearning in 2019; successful launch and meaningful revenue are not assured.
- Management stated it expects current resources to fund operations for at least 12 months after filing, but warned that declining revenue, reduced operating cash flow, higher planned capital expenditures, and investment needs may require additional capital. Any equity financing may be unavailable or on unfavorable terms.
- NYSE American had notified the company that its low share price put continued listing at risk unless it completed a reverse split or otherwise achieved sustained price improvement by January 5, 2019. The company’s ability to take corrective measures and regain compliance was uncertain.
- On October 24, 2018, after quarter-end, Glowpoint signed a non-binding letter of intent to acquire SharedLabs for 112,802,326 Glowpoint shares. Existing Glowpoint shareholders would own approximately 34% of the combined company if completed on those terms. The proposal was subject to definitive agreements, financing, shareholder and regulatory approvals, and other conditions; completion was not assured. SharedLabs was expected to obtain equity financing and credit facilities with at least $16 million of borrowing capacity.
- Goodwill may require further impairment if revenue, cash flow, or share price declines. Two major customers represented 47% of Q3 revenue combined, and the same customers accounted for 21% and 25% of nine-month revenue and 14% and 54% of accounts receivable, respectively.
- The company adopted revenue recognition Topic 606 on January 1, 2018 using the modified retrospective method; it reported no material opening adjustment. It also authorized a $0.750 million share repurchase program and had $0.673 million remaining at quarter-end.
Most important facts to verify
- Confirm the issuer identity: the filing names Glowpoint, Inc., not Taoweave, Inc.
- Verify the continuing revenue decline, customer concentration, and whether the planned new offerings can stabilize sales and margins.
- Assess cash burn, capital expenditure plans, and the stated 12-month funding outlook against the company’s actual financing needs.
- Check subsequent developments in NYSE American listing compliance and the SharedLabs proposal, including definitive terms, financing, dilution, and closing conditions.
- Review the assumptions supporting goodwill valuation and the potential for additional impairment charges.