Oblong, Inc. — Q3 2020 Form 10-Q Summary
Filing identity: The supplied filing is for Oblong, Inc. (formerly Glowpoint, Inc.), not Taoweave, Inc. It covers the quarter and nine months ended September 30, 2020; the financial statements are unaudited. Amounts below are in U.S. dollars unless noted.
Business context and reporting period
Oblong provides visual-collaboration technology and managed video-collaboration and network services. It acquired Oblong Industries on October 1, 2019, and now reports two segments: Glowpoint and Oblong Industries. The 2019 reported comparison excludes Oblong Industries, so reported year-over-year revenue growth is not like-for-like.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $3.266m | $2.370m | $11.410m | $7.403m |
| Gross profit / margin | $1.654m / 51% | $0.788m / 33% | $5.726m / 50% | $2.502m / 34% |
| Operating loss | $1.990m | $0.640m | $8.276m | $2.112m |
| Net loss | $2.085m | $0.640m | $8.598m | $2.113m |
| Net loss per share, basic and diluted | $0.40 | $0.12 | $1.64 | $0.42 |
Q3 revenue rose 38% versus reported Q3 2019, primarily because 2020 included Oblong Industries. Against 2019 pro forma revenue of $6.629m, Q3 2020 revenue was lower; management attributed the decline to COVID-related order and fulfillment delays and the cancellation of a customer’s professional-services work. Nine-month 2020 revenue likewise includes Oblong Industries, unlike reported 2019 results.
For Q3, Glowpoint generated $1.324m revenue and a 33% gross margin; Oblong Industries generated $1.942m and a 63% gross margin. Glowpoint video-collaboration services revenue fell 81% to $249,000 from $1.317m. Nine-month Glowpoint revenue fell to $4.741m from $7.403m, including a 57% decline in video-collaboration services. Management expects continuing revenue decline in the Glowpoint business.
Operating expenses were $3.644m in Q3 and $14.002m for the nine months, including elevated research and development, sales and marketing, and acquisition-related depreciation and amortization. Goodwill impairment was $541,000 in the Glowpoint reporting unit in Q1; Q3 property-and-equipment impairment was $117,000. No goodwill remained in the Glowpoint reporting unit at September 30.
Cash was $2.670m at September 30, down from $4.602m at December 31, 2019. Nine-month operating cash use was $4.325m, compared with $668,000 in 2019; investing cash use was $8,000. Financing provided $2.401m, including the $2.417m PPP loan. Working capital deficit was $3.245m. Total assets were $27.242m, total liabilities $13.897m, and stockholders’ equity $13.345m.
Debt principal at September 30 included $5.609m under the Silicon Valley Bank (SVB) loan and $2.417m under the PPP loan; reported debt carrying value, net of discount, was $7.977m. Current debt maturities were $4.942m. The SVB loan’s rate was 7.50% as of September 30. Operating lease liabilities totaled $1.796m.
Material changes, outlook, risks, and unusual items
- Going concern: Management stated that available resources were insufficient to fund operations for the 12 months following filing and that substantial doubt existed about the Company’s ability to continue as a going concern. It said further capital was needed and there was no assurance it could be raised on acceptable terms.
- Subsequent financing and debt settlement: After quarter-end, the Company completed a private placement of 1,043,000 common shares at $2.85 per share and warrants for up to 521,500 shares, receiving $2.973m gross. It then paid SVB $2.5m to satisfy the $5.609m SVB obligations and obtain release of related liens and guarantees. The filing says net proceeds funded the payment; it does not state the remaining net proceeds clearly.
- PPP loan: The Company estimated approximately $2.266m of the $2.417m PPP loan would be forgiven, but forgiveness was not assured. The remaining balance and any ultimate forgiveness should be verified.
- COVID-19 and customer exposure: COVID-19 delayed product orders and fulfillment and affected customer spending. A major customer suspended professional services effective April 30; those services represented $1.0m, or 9%, of nine-month revenue, with none in Q3. Customer concentration was material: one customer contributed 20% of Q3 revenue and another 12%; one customer contributed 19% of nine-month revenue.
- Integration and costs: Management reported quarterly reductions in combined general and administrative, research and development, and sales and marketing expenses, from $5.656m in Q4 2019 to $2.747m in Q3 2020. It expects ongoing investment in product development and sales and marketing, while Oblong Industries’ development and commercialization costs are expected to exceed its revenue for the foreseeable future. The Company is developing subscription-based, hybrid, and SaaS offerings.
- Potential dilution and listing: Series D and E preferred stock remained outstanding. If converted at September 30 terms, they would have represented about 18.3m additional common shares, versus 5.24m common shares then outstanding. Conversion is subject to listing-related conditions; the filing says meeting NYSE American initial listing standards, including a $15m non-affiliate public float requirement, may be difficult or impossible. The October financing also included warrants and triggered a lower Series A-2 conversion price.
- Contingency: A Series A-2 preferred holder asserted that joining the SVB loan without consent violated approval rights. No liability was accrued, and the filing reported no further update. Management said it knew of no legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- Confirm the filing entity: the document identifies Oblong, Inc., not Taoweave, Inc.
- Review liquidity after the October share placement and SVB settlement, including available cash, future cash needs, and the going-concern disclosure.
- Verify the PPP loan forgiveness outcome and repayment obligations for any unforgiven amount.
- Assess revenue trends on a comparable basis, especially Glowpoint customer attrition and Oblong Industries’ post-acquisition performance versus pro forma 2019.
- Check customer concentration, COVID-related demand effects, and the status of the suspended services contract.
- Assess potential dilution from preferred stock conversion, warrants, and any future capital raises, as well as compliance with NYSE American listing requirements.