Glowpoint, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for Glowpoint, Inc., not Taoweave, Inc. It covers the quarter and nine months ended September 30, 2019; the financial statements are unaudited and exclude the October 1 acquisition of Oblong Industries.
Business context and financial performance
Glowpoint provided managed video-collaboration and network services. Dollar amounts below are in millions except per-share data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $2.370 | $2.931 | $7.403 | $9.698 |
| Gross profit / margin | $0.788 / 33% | $1.127 / 38% | $2.502 / 34% | $3.817 / 39% |
| Operating loss | $(0.640) | $(1.470) | $(2.112) | $(4.029) |
| Net loss | $(0.640) | $(1.470) | $(2.113) | $(4.444) |
| Net loss per common share | $(0.12) | $(0.30) | $(0.42) | $(0.94) |
- Revenue fell 19% in Q3 and 24% in the nine-month period year over year. Video-collaboration revenue declined 27% and 25%, respectively; network-services revenue declined 6% and 15%.
- Cost of revenue fell more slowly than revenue, raising its share of revenue to 67% in Q3 and 66% year to date, from 62% and 61%. Management attributed the pressure chiefly to personnel costs as a proportion of revenue.
- Operating losses improved year over year, mainly because impairment charges were lower. The nine-month 2019 period included $0.453 million of goodwill impairment; Q3 included $0.020 million of capitalized-software impairment. The comparable 2018 periods included $0.975 million and $3.150 million of impairment charges.
- Cash used in operating activities was $0.668 million for the first nine months, versus $0.609 million in 2018. Investing activities used $0.017 million and financing activities used $0.051 million. Cash declined $0.736 million to $1.271 million.
Financial position, liquidity and subsequent financing
- At September 30, cash was $1.271 million, working capital was $1.568 million, total current assets were $2.736 million and current liabilities were $1.168 million. Total assets were $5.878 million and stockholders’ equity was $4.710 million.
- The September 30 balance sheet reports no borrowing balance. After quarter-end, Glowpoint and Oblong entered into a loan agreement with Silicon Valley Bank for approximately $5.2 million, all outstanding at closing. Interest was 7.00% as of October 1, 2019; interest-only payments run through March 31, 2020, followed by principal and interest payments through September 1, 2021. The loan is secured by substantially all company assets and includes restrictive covenants and events of default.
- On October 1, Glowpoint raised approximately $2.51 million gross through Series E preferred stock and had commitments for an additional $1.25 million upon demand. The filing states that, based on current projections, the combined company would not have sufficient resources for the 12 months following the filing and would need additional capital. Management said this raised substantial doubt about the company’s ability to continue as a going concern.
Material developments, outlook and risks
- Glowpoint completed its acquisition of Oblong on October 1, 2019. Oblong’s results are not included in Glowpoint’s reported Q3 or nine-month results. Oblong’s unaudited standalone results for the first nine months of 2019 showed revenue of $12.758 million and a net loss of $10.917 million.
- Glowpoint exchanged Oblong shares for approximately 1.68 million Series D preferred shares; current Oblong employee options were exchanged for approximately 50,000 restricted Series D preferred shares. Series D and E conversions into common stock require stockholder approval and NYSE American authorization. The filing warns that, if conversion is approved, existing holders could collectively own approximately 25% of fully diluted common shares.
- Management expected Glowpoint’s negative revenue trend to continue for the foreseeable future. It said Oblong’s product-development and commercialization costs were expected to exceed its revenue for the foreseeable future, while also anticipating revenue and cost synergies and future reductions to Oblong operating expenses. No quantified earnings or revenue guidance was provided.
- Key risks include continued customer attrition and pricing pressure, customer concentration, the need for additional financing, integration and commercialization challenges, potential dilution, and the ability to satisfy NYSE American listing requirements. Three customers accounted for 62% of Q3 revenue; two accounted for 66% of accounts receivable at September 30.
- The filing reported no material legal proceedings and no material change in internal control over financial reporting during the quarter. Management concluded disclosure controls were effective as of September 30.
Investor verification priorities
- Confirm current cash, operating cash burn and financing availability against the going-concern warning.
- Review the acquired company’s audited financials, combined pro forma results, integration costs and progress toward stated synergies.
- Verify the loan’s outstanding balance, covenant compliance, repayment capacity and any subsequent amendments or defaults.
- Track stockholder and exchange approvals for Series D/E conversion, the resulting dilution and continued NYSE American listing compliance.
- Monitor revenue trends, customer renewals and concentration, gross margins, and any further impairment charges.