UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2022.March 31, 2023.
or
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number: 001-35376
OBLONG, INC.
(Exact Name of Registrant as Specified in its Charter)
| | | | | |
Delaware | 77-0312442 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
25587 Conifer Road, Suite 105-231, Conifer, CO 80433
(Address of Principal Executive Offices, including Zip Code)
(303) 640-3838
(Registrant’s Telephone Number, including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.0001 per share | | OBLG | | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | |
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock as of August 8, 2022May 9, 2023 was 30,816,048.2,580,370.
OBLONG, INC.
Index
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PART I - FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
| Condensed Consolidated Balance Sheets at June 30, 2022March 31, 2023 (unaudited) and December 31, 20212022 | |
| Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30,March 31, 2023 and 2022 and 2021 | |
| Unaudited Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity for the three and six months ended June 30,March 31, 2023 and 2022 and 2021 | |
| Unaudited Condensed Consolidated Statements of Cash Flows for the sixthree months ended June 30,March 31, 2023 and 2022 and 2021 | |
| Notes to unaudited Condensed Consolidated Financial Statements | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
| | |
PART II - OTHER INFORMATION | |
Item 1. Legal Proceedings | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. Defaults Upon Senior Securities | |
Item 4. Mine Safety Disclosures | |
Item 5. Other Information | |
Item 6. Exhibits | |
Signatures | |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (this “Report”) contains statements that are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and its rules and regulations (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, and its rules and regulations (the “Exchange Act”). These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of Oblong, Inc. (“Oblong” or “we” or “us” or the “Company”). All statements other than statements of current or historical fact contained in this Report, including statements regarding Oblong’s future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to Oblong, are intended to identify forward-looking statements. These statements are based on Oblong’s current plans, and Oblong’s actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this Report may turn out to be inaccurate. Oblong has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors that are discussed under the section entitled “Part I. Item 1A. Risk Factors” and in our consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2021,2022, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2022.21, 2023. Oblong undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to Oblong or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Report. Forward-looking statements in this Report include, among other things: our ability to meet commercial commitments; our expectations and estimates relating to customer attrition, the potential release of the equity financing proceeds from escrow, the future exercise of warrants, demand for our product offerings, sales cycles, future revenues, expenses, capital expenditures and cash flows; our ability to develop and launch new product offerings; evolution of our customer solutions and our service platforms; our ability to fund operations and continue as a going concern; expectations regarding adjustments to our cost of revenue and other operating expenses; our ability to finance investments in product development and sales and marketing; our ability to raise capital through sales of additional equity or debt securities and/or loans from financial institutions; our beliefs about the ongoing performance and success of our Managed Service business; statements relating to market need and evolution of the industry, our solutions and our service platforms; our expected insurance coverage on our second quarter 2022 casualty loss; and effectivenessadequacy of our disclosure controls and procedures.internal controls. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
•the failure to obtain stockholder approval in connection with our March 2023 equity financing;
•the continued impact of the coronavirus pandemic on our business, including its impact on our customers and other business partners, our ability to conduct operations in the ordinary course, and our ability to obtain capital financing important to our ability to continue as a going concern;
•our ability to continue as a going concern;
•our ability to raise capital in one or more debt and/or equity offerings in order to fund operations or any growth initiatives;
•customer acceptance and demand for our video collaboration services and network applications;
•our ability to launch new products and offerings and to sell our solutions;
•our ability to compete effectively in the video collaboration services and network services businesses;
•the ongoing performance and success of our Managed Services business;
•our ability to maintain and protect our proprietary rights;
•potential future impairment charges related to goodwill and intangible assets;
•our ability to withstand industry consolidation;
•our ability to adapt to changes in industry structure and market conditions;
•actions by our competitors, including price reductions for their competitive services;
•the quality and reliability of our products and services;
•the prices for our products and services and changes to our pricing model;
•the success of our sales and marketing approach and efforts, and our ability to grow revenue;
•customer renewal and retention rates;
•risks related to the concentration of our customers and the degree to which our sales, now or in the future, depend on certain large client relationships;
•increases in material, labor or other manufacturing-related costs;
•changes in our go-to-market cost structure;
•inventory management and our reliance on our supply chain;
•our ability to attract and retain highly skilled personnel;
•our reliance on open-source software and technology;
•potential federal and state regulatory actions;
•our ability to innovate technologically, and, in particular, our ability to develop next generation Oblong technology;
•our ability to satisfy the standards for continued listing of our common stock on the Nasdaq Capital Market;
•changes in our capital structure and/or stockholder mix;
•the costs, disruption, and diversion of management’s attention associated with campaigns commenced by activist investors; and
•our management’s ability to execute its plans, strategies and objectives for future operations.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OBLONG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value, stated value, and shares)
| | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
ASSETS | ASSETS | | ASSETS | |
Current assets: | Current assets: | | Current assets: | |
Cash | Cash | $ | 5,107 | | | $ | 8,939 | | Cash | $ | 3,714 | | | $ | 3,085 | |
Restricted cash | — | | | 61 | | |
| Accounts receivable, net | Accounts receivable, net | 491 | | | 849 | | Accounts receivable, net | 392 | | | 415 | |
Inventory | 1,078 | | | 1,821 | | |
Inventory, net | | Inventory, net | 634 | | | 723 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 1,150 | | | 1,081 | | Prepaid expenses and other current assets | 947 | | | 649 | |
Total current assets | Total current assets | 7,826 | | | 12,751 | | Total current assets | 5,687 | | | 4,872 | |
Property and equipment, net | Property and equipment, net | 75 | | | 159 | | Property and equipment, net | 3 | | | 3 | |
Goodwill | — | | | 7,367 | | |
| Intangibles, net | Intangibles, net | 6,402 | | | 7,562 | | Intangibles, net | 518 | | | 604 | |
Operating lease - right of use asset, net | Operating lease - right of use asset, net | 245 | | | 659 | | Operating lease - right of use asset, net | 99 | | | 142 | |
Other assets | Other assets | 22 | | | 109 | | Other assets | 31 | | | 40 | |
Total assets | Total assets | $ | 14,570 | | | $ | 28,607 | | Total assets | $ | 6,338 | | | $ | 5,661 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | 325 | | | 259 | | Accounts payable | $ | 207 | | | $ | 184 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 976 | | | 959 | | Accrued expenses and other current liabilities | 1,665 | | | 1,074 | |
Current portion of deferred revenue | Current portion of deferred revenue | 686 | | | 783 | | Current portion of deferred revenue | 341 | | | 436 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | 378 | | | 492 | | Current portion of operating lease liabilities | 139 | | | 219 | |
| Total current liabilities | Total current liabilities | 2,365 | | | 2,493 | | Total current liabilities | 2,352 | | | 1,913 | |
Long-term liabilities: | Long-term liabilities: | | Long-term liabilities: | |
| Operating lease liabilities, net of current portion | Operating lease liabilities, net of current portion | 68 | | | 236 | | Operating lease liabilities, net of current portion | — | | | 17 | |
Deferred revenue, net of current portion | Deferred revenue, net of current portion | 213 | | | 381 | | Deferred revenue, net of current portion | 84 | | | 114 | |
| Total long-term liabilities | 281 | | | 617 | | |
| Total liabilities | Total liabilities | 2,646 | | | 3,110 | | Total liabilities | 2,436 | | | 2,044 | |
Commitments and contingencies (see Note 11) | Commitments and contingencies (see Note 11) | 0 | | 0 | Commitments and contingencies (see Note 11) | | | |
Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
| Common stock, $.0001 par value; 150,000,000 shares authorized; 30,929,331 shares issued and 30,816,048 outstanding at June 30, 2022 and December 31, 2021 | 3 | | | 3 | | |
Treasury stock, 113,283 shares of common stock at June 30, 2022 and December 31, 2021 | (181) | | | (181) | | |
Preferred stock Series F, convertible; $.0001 par value; $6,550,000 stated value; 42,000 shares authorized, 6,550 and zero shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | | Preferred stock Series F, convertible; $.0001 par value; $6,550,000 stated value; 42,000 shares authorized, 6,550 and zero shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | — | | | — | |
Common stock, $.0001 par value; 150,000,000 shares authorized; 2,070,861 shares issued and 2,063,308 outstanding at March 31, 2023 and December 31, 2022 | | Common stock, $.0001 par value; 150,000,000 shares authorized; 2,070,861 shares issued and 2,063,308 outstanding at March 31, 2023 and December 31, 2022 | — | | | — | |
Treasury stock, 7,553 shares of common stock at March 31, 2023 and December 31, 2022 | | Treasury stock, 7,553 shares of common stock at March 31, 2023 and December 31, 2022 | (181) | | | (181) | |
Additional paid-in capital | Additional paid-in capital | 227,580 | | | 227,581 | | Additional paid-in capital | 229,149 | | | 227,645 | |
Accumulated deficit | Accumulated deficit | (215,478) | | | (201,906) | | Accumulated deficit | (225,066) | | | (223,847) | |
Total stockholder's equity | 11,924 | | | 25,497 | | |
Total stockholders' equity | | Total stockholders' equity | 3,902 | | | 3,617 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 14,570 | | | $ | 28,607 | | Total liabilities and stockholders’ equity | $ | 6,338 | | | $ | 5,661 | |
See accompanying notes to condensed consolidated financial statements.
-1-
OBLONG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | June 30, | | June 30, | | March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Revenue | Revenue | $ | 1,333 | | | $ | 2,049 | | | $ | 2,865 | | | $ | 3,967 | | Revenue | $ | 1,038 | | | $ | 1,532 | | |
Cost of revenue (exclusive of depreciation and amortization and casualty loss) | 926 | | | 1,249 | | | 1,959 | | | 2,539 | | |
Cost of revenue (exclusive of depreciation and amortization) | | Cost of revenue (exclusive of depreciation and amortization) | 762 | | | 1,033 | | |
Gross profit | Gross profit | 407 | | | 800 | | | 906 | | | 1,428 | | Gross profit | 276 | | | 499 | | |
| Operating expenses: | Operating expenses: | | Operating expenses: | | |
Research and development | Research and development | 398 | | | 599 | | | 1,402 | | | 1,291 | | Research and development | 6 | | | 1,004 | | |
Sales and marketing | Sales and marketing | 317 | | | 572 | | | 879 | | | 1,099 | | Sales and marketing | 218 | | | 562 | | |
General and administrative | General and administrative | 1,185 | | | 1,383 | | | 2,875 | | | 3,450 | | General and administrative | 1,169 | | | 1,690 | | |
Impairment charges | Impairment charges | 6,408 | | | 17 | | | 7,546 | | | 48 | | Impairment charges | — | | | 1,138 | | |
Casualty loss | 533 | | | — | | | 533 | | | — | | |
| Depreciation and amortization | Depreciation and amortization | 599 | | | 707 | | | 1,226 | | | 1,429 | | Depreciation and amortization | 86 | | | 627 | | |
Total operating expenses | Total operating expenses | 9,440 | | | 3,278 | | | 14,461 | | | 7,317 | | Total operating expenses | 1,479 | | | 5,021 | | |
Loss from operations | Loss from operations | (9,033) | | | (2,478) | | | (13,555) | | | (5,889) | | Loss from operations | (1,203) | | | (4,522) | | |
Interest and other expense, net | | Interest and other expense, net | 5 | | | 6 | | |
Other income | | Other income | (27) | | | — | | |
| Interest and other (income) expense, net | | Interest and other (income) expense, net | (22) | | | 6 | | |
Loss before income taxes | | Loss before income taxes | (1,181) | | | (4,528) | | |
Income tax expense | | Income tax expense | 38 | | | 11 | | |
Net loss | | Net loss | (1,219) | | | (4,539) | | |
| Interest and other expense (income), net | — | | | (232) | | | 6 | | | (210) | | |
Loss before income taxes | (9,033) | | | (2,246) | | | (13,561) | | | (5,679) | | |
Income tax expense | — | | | — | | | 11 | | | — | | |
Net loss | (9,033) | | | (2,246) | | | (13,572) | | | (5,679) | | |
Preferred stock dividends | — | | | — | | | — | | | 1 | | |
Undeclared dividends | — | | | — | | | — | | | 366 | | |
Induced conversion of Series A-2 Preferred Stock | — | | | — | | | — | | | 300 | | |
| Warrant Modification | | Warrant Modification | 25 | | | — | | |
Net loss attributable to common stockholders | Net loss attributable to common stockholders | $ | (9,033) | | | $ | (2,246) | | | $ | (13,572) | | | $ | (6,346) | | Net loss attributable to common stockholders | $ | (1,244) | | | $ | (4,539) | | |
| Net loss attributable to common stockholders per share: | Net loss attributable to common stockholders per share: | | Net loss attributable to common stockholders per share: | | |
Basic and diluted net loss per share | Basic and diluted net loss per share | $ | (0.29) | | | $ | (0.08) | | | $ | (0.44) | | | $ | (0.29) | | Basic and diluted net loss per share | $ | (0.60) | | | $ | (2.20) | | |
| | Weighted-average number of shares of common stock: | Weighted-average number of shares of common stock: | | Weighted-average number of shares of common stock: | | |
Basic and diluted | Basic and diluted | 30,816 | | | 26,644 | | | 30,816 | | | 22,250 | | Basic and diluted | 2,065 | | | 2,065 | | |
| |
See accompanying notes to condensed consolidated financial statements.
-2-
OBLONG, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Three and Six Months Ended June 30, 2022March 31, 2023
(In thousands, except shares)
(Unaudited)
| | | Common Stock | | Treasury Stock | | | Series F Preferred Stock | | Common Stock | | Treasury Stock | |
| | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Total | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Total |
Balance at December 31, 2021 | 30,929,331 | | | $ | 3 | | | 113,283 | | | $ | (181) | | | $ | 227,581 | | | $ | (201,906) | | | $ | 25,497 | | |
Balance at December 31, 2022 | | Balance at December 31, 2022 | — | | | $ | — | | | 2,071,000 | | | $ | — | | | 8,000 | | | $ | (181) | | | $ | 227,645 | | | $ | (223,847) | | | $ | 3,617 | |
Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | (4,539) | | | (4,539) | | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,219) | | | (1,219) | |
Stock-based compensation | Stock-based compensation | — | | | — | | | — | | | — | | | 52 | | | — | | | 52 | | Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | 31 | | | — | | | 31 | |
Forfeiture of unvested stock options | — | | | — | | | — | | | — | | | (84) | | | — | | | (84) | | |
Balance at March 31, 2022 | 30,929,331 | | | 3 | | | 113,283 | | | (181) | | | 227,549 | | | (206,445) | | | 20,926 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (9,033) | | | (9,033) | | |
Stock-based compensation | — | | | — | | | — | | | — | | | 31 | | | — | | | 31 | | |
| Balance at June 30, 2022 | 30,929,331 | | | $ | 3 | | | 113,283 | | | $ | (181) | | | $ | 227,580 | | | $ | (215,478) | | | $ | 11,924 | | |
Proceeds from private placement, net of fees and amounts held in escrow | | Proceeds from private placement, net of fees and amounts held in escrow | 6,550 | | | — | | | — | | | — | | | — | | | — | | | 1,473 | | | — | | | 1,473 | |
Balance at March 31, 2023 | | Balance at March 31, 2023 | 6,550 | | | $ | — | | | 2,071,000 | | | $ | — | | | 8,000 | | | $ | (181) | | | $ | 229,149 | | | $ | (225,066) | | | $ | 3,902 | |
| |
See accompanying notes to condensed consolidated financial statements.
-3-
OBLONG, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Three and Six Months Ended June 30, 2021March 31, 2022
(In thousands, except shares)
(Unaudited)
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| Series A-2 Preferred Stock | | | | | | Series D Preferred Stock | | Series E Preferred Stock | | Common Stock | | Treasury Stock | | | | | | |
| Shares | | Amount | | | | | | | | | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Total |
Balance at Balance at December 31, 2020 | 45 | | | $ | — | | | | | | | | | | | 1,697,958 | | | $ | — | | | 131,579 | | | $ | — | | | 7,861,912 | | | $ | 1 | | | 113,283 | | | $ | (181) | | | $ | 215,092 | | | $ | (192,855) | | | $ | 22,057 | |
Net loss | — | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,433) | | | (3,433) | |
Stock-based compensation | — | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 33 | | | — | | | 33 | |
Conversion of Series A-2 Preferred Stock, including dividend accrual | (45) | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | 84,292 | | | — | | | — | | | — | | | — | | | — | | | — | |
Conversion of Series D and E Preferred Stock | — | | | — | | | | | | | | | | | (1,697,022) | | | — | | | (131,579) | | | — | | | 18,762,119 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | |
Issuance of stock for services | — | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | 21,008 | | | — | | | — | | | — | | | 274 | | | — | | | 274 | |
Forfeitures of restricted stock | — | | | — | | | | | | | | | | | (81) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
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Series D Preferred shares to pay withholding taxes | — | | | — | | | | | | | | | | | (855) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance at March 31, 2021 | — | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | 26,729,331 | | | 3 | | | 113,283 | | | (181) | | | 215,397 | | | (196,288) | | | 18,931 | |
Net loss | — | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,246) | | | (2,246) | |
Issuance of stock from financing, net of issuance costs | — | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | 4,000,000 | | | — | | | — | | | — | | | 11,504 | | | — | | | 11,504 | |
Issuance of stock for services | — | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 116 | | | — | | | 116 | |
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Balance at June 30, 2021 | — | | | $ | — | | | | | | | | | | | — | | | $ | — | | | — | | | $ | — | | | 30,729,331 | | | $ | 3 | | | 113,283 | | | $ | (181) | | | $ | 227,017 | | | $ | (198,534) | | | $ | 28,305 | |
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| | | Common Stock | | Treasury Stock | | | | | | |
| | | | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Total |
Balance at December 31, 2021 | | | | | 2,071,000 | | | $ | — | | | 8,000 | | | $ | (181) | | | $ | 227,584 | | | $ | (201,906) | | | $ | 25,497 | |
Net loss | | | | | — | | | — | | | — | | | — | | | — | | | (4,539) | | | (4,539) | |
Stock-based compensation | | | | | — | | | — | | | — | | | — | | | 52 | | | — | | | 52 | |
Forfeiture of unvested stock options | | | | | — | | | — | | | — | | | — | | | (84) | | | — | | | (84) | |
Balance at March 31, 2022 | | | | | 2,071,000 | | | $ | — | | | 8,000 | | | $ | (181) | | | $ | 227,552 | | | $ | (206,445) | | | $ | 20,926 | |
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See accompanying notes to condensed consolidated financial statements.
-4-
OBLONG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
| Six Months Ended June 30, |
| Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net loss | Net loss | $ | (13,572) | | | $ | (5,679) | | Net loss | $ | (1,219) | | | $ | (4,539) | |
Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | |
Depreciation and amortization | Depreciation and amortization | 1,226 | | | 1,429 | | Depreciation and amortization | 86 | | | 627 | |
Bad debt expense | 125 | | | 449 | | |
Bad debt (recovery) expense | | Bad debt (recovery) expense | (24) | | | 111 | |
Non-cash lease expense from right-of-use asset | | Non-cash lease expense from right-of-use asset | 43 | | | 127 | |
Stock-based compensation | Stock-based compensation | 83 | | | 33 | | Stock-based compensation | 31 | | | 52 | |
Stock-based expense for services | — | | | 390 | | |
| Forfeiture of unvested stock options | Forfeiture of unvested stock options | (84) | | | — | | Forfeiture of unvested stock options | — | | | (84) | |
Gain on extinguishment of liability | — | | | (227) | | |
Casualty loss on inventory | 533 | | | — | | |
Loss on foreign currency remeasurement | — | | | 3 | | |
Impairment charges - property and equipment | — | | | 48 | | |
Impairment charges - right of use asset | 179 | | | — | | |
| Impairment charges - goodwill | Impairment charges - goodwill | 7,367 | | | — | | Impairment charges - goodwill | — | | | 1,138 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | 233 | | | 1,764 | | Accounts receivable | 47 | | | 183 | |
Inventory | Inventory | 210 | | | (1,205) | | Inventory | 89 | | | 103 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (69) | | | (702) | | Prepaid expenses and other current assets | (298) | | | (360) | |
Right of use asset | 235 | | | 250 | | |
Other assets | Other assets | 87 | | | 7 | | Other assets | 9 | | | 45 | |
Accounts payable | Accounts payable | 66 | | | 205 | | Accounts payable | 23 | | | 294 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 17 | | | 408 | | Accrued expenses and other current liabilities | 591 | | | 188 | |
Deferred revenue | Deferred revenue | (265) | | | (429) | | Deferred revenue | (125) | | | (126) | |
Lease liabilities | Lease liabilities | (282) | | | (414) | | Lease liabilities | (97) | | | (163) | |
Net cash used in operating activities | Net cash used in operating activities | (3,911) | | | (3,670) | | Net cash used in operating activities | (844) | | | (2,404) | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Purchases of property and equipment | Purchases of property and equipment | (11) | | | (17) | | Purchases of property and equipment | — | | | (11) | |
Proceeds from sale of equipment | Proceeds from sale of equipment | 29 | | | — | | Proceeds from sale of equipment | — | | | 1 | |
Net cash provided by (used in) investing activities | 18 | | | (17) | | |
Net cash used in investing activities | | Net cash used in investing activities | — | | | (10) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from stock issuance, net of issuance costs | — | | | 11,504 | | |
Proceeds from private placement, net of issuance costs and amounts in escrow | | Proceeds from private placement, net of issuance costs and amounts in escrow | 1,473 | | | — | |
| Net cash provided by financing activities | Net cash provided by financing activities | — | | | 11,504 | | Net cash provided by financing activities | 1,473 | | | — | |
(Decrease) increase in cash and restricted cash | (3,893) | | | 7,817 | | |
Increase (decrease) in cash and restricted cash | | Increase (decrease) in cash and restricted cash | 629 | | | (2,414) | |
Cash and restricted cash at beginning of period | Cash and restricted cash at beginning of period | 9,000 | | | 5,277 | | Cash and restricted cash at beginning of period | 3,085 | | | 9,000 | |
Cash and restricted cash at end of period | Cash and restricted cash at end of period | $ | 5,107 | | | $ | 13,094 | | Cash and restricted cash at end of period | $ | 3,714 | | | $ | 6,586 | |
| Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | Supplemental disclosures of cash flow information: | |
| Reconciliation of cash and restricted cash | Reconciliation of cash and restricted cash | | Reconciliation of cash and restricted cash | |
Cash | Cash | $ | 5,107 | | | $ | 13,033 | | Cash | $ | 3,714 | | | $ | 6,525 | |
Restricted cash | Restricted cash | — | | | 61 | | Restricted cash | — | | | 61 | |
Total cash and restricted cash | Total cash and restricted cash | $ | 5,107 | | | $ | 13,094 | | Total cash and restricted cash | $ | 3,714 | | | $ | 6,586 | |
| Cash paid during the period for interest | Cash paid during the period for interest | $ | 6 | | | $ | 2 | | Cash paid during the period for interest | $ | 2 | | | $ | — | |
Cash paid for income taxes | | Cash paid for income taxes | $ | 31 | | | $ | — | |
Non-cash investing and financing activities: | Non-cash investing and financing activities: | | Non-cash investing and financing activities: | |
Accrued preferred stock dividends | $ | — | | | $ | 1 | | |
Inducement to convert Series A-2 Preferred Stock to common | $ | — | | | $ | 300 | | |
Common stock issued for conversion of Preferred Stock | $ | — | | | $ | 3 | | |
| Warrant modification | | Warrant modification | $ | 25 | | | $ | — | |
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See accompanying notes to condensed consolidated financial statements.
-5-
OBLONG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022March 31, 2023
(Unaudited)
Note 1 - Business Description and Significant Accounting Policies
Business Description
Oblong, Inc. (“Oblong” or “we” or “us” or the “Company”) was formed as a Delaware corporation in May 2000 and is a provider of patented multi-stream collaboration technologies and managed services for video collaboration and network applications. Prior to March 6, 2020, Oblong, Inc. was named Glowpoint, Inc. (“Glowpoint”). On March 6, 2020, Glowpoint changed its name to Oblong, Inc.
Basis of Presentation
The Company's fiscal year ends on December 31 of each calendar year. The accompanying interim condensed consolidated financial statementsCondensed Consolidated Financial Statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statementsConsolidated Financial Statements for the fiscal year ended December 31, 2021.2022. In the opinion of the Company's management, these interim condensed consolidated financial statementsCondensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statementsCondensed Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
The December 31, 20212022 year-end condensed consolidated balance sheetCondensed Consolidated Balance Sheet data in this document was derived from audited consolidated financial statements. These condensed consolidated financial statementsThe Condensed Consolidated Financial Statements and notes included in this quarterly report on Form 10-Q doesdo not include all disclosures required by U.S. generally accepted accounting principles and should be read in conjunction with the Company's audited consolidated financial statements as of and for the year ended December 31, 20212022 and notes thereto included in the Company's fiscal 20212022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 29, 202221, 2023 (the “2021“2022 10-K”).
The results of operations and cash flows for the interim periods included in these condensed consolidated financial statementsCondensed Consolidated Financial Statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.
Principles of Consolidation
The condensed consolidated financial statementsCondensed Consolidated Financial Statements include the accounts of Oblong and our 100%-owned subsidiaries (i) GP Communications, LLC (“GP Communications”), whose business function is to provide interstate telecommunications services for regulatory purposes, and (ii) Oblong Industries, and (iii) Oblong Europe Limited, a subsidiary of Oblong Industries.Inc. All inter-company balances and transactions have been eliminated in consolidation. The U.S. Dollar is the functional currency for all subsidiaries.
Segments
The Company currently operates in 2two segments: (1) “Collaboration Products” which represents the Oblong Industries business surrounding our Mezzanine™ product offerings, and (2) “Managed Services” which represents the Oblong (formerly Glowpoint) business surrounding managed services for video collaboration and network solutions. See Note 10 - Segment Reporting for further discussion.
Use of Estimates
Preparation of the consolidated financial statementsCondensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates made. We continually evaluate estimates used in the preparation of our consolidated financial statements for reasonableness. Appropriate
adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. The significant areas of estimation include determining the allowance for doubtful accounts, the estimated lives and recoverability
of property and equipment and intangible assets, the inputs used in the valuation of goodwill and intangible assets in connection with our impairment tests,test, and the inputs used in the fair value of equity basedequity-based awards.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statementsCondensed Consolidated Financial Statements are disclosed in our 20212022 10-K, and there have been no changes to the Company’s significant accounting policies during the sixthree months ended June 30, 2022.March 31, 2023.
Recently Issued Accounting Pronouncements
In June 2016 the Financial Accounting Standards Board (“FASB”)FASB issued ASU 2016-13, as amended, “Financial“Financial Instruments - Credit Losses (Topic 326),” which was subsequently amended in February 2020 by ASU 2020-02, “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842).” Topic 326 introducesThe amendments introduce an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g. accounts receivable,, loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. Topic 326 isThe update was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has evaluated the impactadopted the new guidance, will have on its consolidated financial statements, and does not expect the impact to be material.
In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchangesas of Freestanding Equity-Classified Written Call Options. The FASB is issuing this update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring after the effective date of the amendments. The Company has adopted this standard, effective January 1, 2022,2023, and it did not have a material affect on our financial statements.
Casualty Loss
During the three months ended June 30, 2022, the Company discovered that $533,000 of inventory was stolen from the Company’s warehouse in City of Industry, California. This theft has been recorded as a casualty loss of $533,000 during the three and six months ended June 30, 2022impact on the Company’s condensed consolidated Statements of Operations. The theft is being investigated further by the Los Angeles, CA Sheriff’s Department and a claim has been filed with the Company’s insurance company. We are seeking to recover the majority of the loss through our insurance policies and we will offset the casualty loss with the recognition of a gain of any proceeds should we subsequently receive them from our insurance company. No assurances can be provided that we will be successful in recovering any or all of the casualty loss.Condensed Consolidated Financial Statements.
Note 2 - Liquidity and Going Concern Uncertainty
As of June 30, 2022,March 31, 2023, we had $5,107,000$3,714,000 in cash and working capital of $5,461,000.$3,335,000. For the sixthree months ended June 30, 2022,March 31, 2023, we incurred a net loss of $13,572,000$1,219,000 and used $3,911,000$844,000 of net cash in operating activities.
Equity Private Placement
On March 30, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which we issued and sold, in a private placement transaction (the “Private Placement”), (i) 6,550 shares (the “Preferred Shares”) of our newly designated Series F convertible preferred stock, $0.0001 par value per share (the “Series F Preferred Stock”), initially convertible into up to 3,830,409 shares of our Common Stock, (ii) preferred warrants (“Preferred Warrants”) to acquire 32,750 shares of Series F Preferred Stock, and (iii) common warrants (“Common Warrants” and with the Preferred Warrants the “Investor Warrants”) to acquire up to 3,830,413 shares of Common Stock. The terms of the Series F Preferred Stock are as set forward in the Certificate of Designations of Series F Preferred Stock of Oblong, Inc. (the “Certificate of Designations”), which was filed and became effective with the Secretary of State of the State of Delaware on March 31, 2023. The Private Placement closed on March 31, 2023. Please see the discussion in Note 6 - Capital Stock for further details on the Common Warrants and Note 7 - Preferred Stock for further discussion on the Series F Preferred Stock and Preferred Warrants.
The aggregate gross proceeds of the Private Placement are expected to be $6,386,000. All of the Preferred Shares and Investor Warrants were issued at the Closing, but part of the purchase price equivalent to $4,000,000 was placed into an escrow account with American Stock Transfer & Trust Company (the “Escrow”), to be released upon our obtaining stockholder approval permitting the issuance of more than 19.99% of our outstanding shares of Common Stock at less than the Minimum Price (as defined under the Nasdaq Rules) in accordance with Nasdaq listing standards and as otherwise may be required (the “Stockholder Approval”). The Company expects to use the net proceeds from the Private Placement and the proceeds, if any, from the exercise of the Investor Warrants for general corporate purposes and potential strategic alternatives. We have not, nor has anyone on our behalf, initiated any substantive discussions directly or indirectly with any strategic alternatives partner.
In connection to the Private Placement, pursuant to an engagement letter dated March 30, 2023 (the “Engagement Letter”), between the Company and Dawson James Securities, Inc. (the “Placement Agent”), the Company agreed to (i) pay the Placement Agent a cash fee equal to 8% of the aggregate gross proceeds raised in the Private Placement, and (ii) grant to the Placement Agent warrants (the “Placement Agent Warrants”) to purchase 306,433 shares of Common Stock at an initial exercise price of $1.71 per share. Additionally, we agreed to reimburse the Placement Agent for certain expenses incurred in connection with the Private Placement and to pay certain contingent fees upon the occurrence of specified future events. Please see the discussion in Note 6 - Capital Stock for further details on the Placement Agent Warrants.
Future Capital Requirements and Going Concern
Our capital requirements in the future will continue to depend on numerous factors, including the timing andpotential release of the Escrow, the amount of revenue for the Company is able to generate, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to the Company’s major customers, the expense to deliver services, expense for sales and marketing, and expense for research and development, and capital expenditures. We expect to continue to invest in product development and sales and marketing expenses with the goal of growing the Company’s revenue in the future.development. The Company believes that, in the event the Escrow is not released, based on its current projection of revenue, expenses, capital expenditures, and cash flows, it will not have sufficient resources to fund its operations for the next twelve months following the filing of this Report. We believe additional capital will be required to fund operations and provide growth capital including investments in technology, product development and sales and marketing. To access capital to fund operations or provide growth capital, we will need to raise capital in one or more debt and/or equity offerings. There can be no assurance that we will be successful in raising necessary capital or that any such offering will be on terms acceptable to the Company. If we are unable to raise additional capital that may be needed on terms acceptable to us, it
could have a material adverse effect on the Company. The factors discussed above raise substantial doubt as to our ability to continue as a going concern. The accompanying condensed consolidated financial statementsCondensed Consolidated Financial Statements do not include any adjustments that might result from these uncertainties.
Note 3 - Intangible Assets and Goodwill
As of June 30, 2022 and December 31, 2021, goodwill was zero and $7,367,000, respectively, recorded in connection with the October 1, 2019 acquisition of Oblong Industries (our Collaboration Products reporting unit).
We test goodwill for impairment on an annual basis on September 30 of each year, or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. To determine the fair value of the reporting unit for the goodwill impairment test, we use a weighted average of the discounted cash flow method and market-based method.
We considered the sustained decline in our stock price to be a triggering event for an interim goodwill impairment test, as of both March 31, 2022 and June 30, 2022, and we recorded impairment charges against the carrying value of Goodwill of $6,229,000 and $7,367,000 for the three and six months ended June 30, 2022, respectively, as the carrying amount of the Collaboration Products reporting unit exceeded its fair value on the test dates. These charges are recognized as “Impairment Charges” on our condensed consolidated Statements of Operations. Following these impairment charges, our goodwill value was reduced to zero as of June 30, 2022.
Note 4 - IntangibleIntangioble Assets
The following table presents the components of net intangible assets for our Collaboration Products reporting segment (in thousands):
| | | As of June 30, 2022 | | As of December 31, 2021 | | | As of March 31, 2023 | | As of December 31, 2022 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Lives | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Developed technology | Developed technology | $ | 10,060 | | | $ | (5,544) | | | $ | 4,516 | | | $ | 10,060 | | | $ | (4,537) | | | $ | 5,523 | | | 5 years | Developed technology | $ | 486 | | | $ | (121) | | | $ | 365 | | | $ | 486 | | | $ | (61) | | | $ | 425 | |
Trade names | Trade names | 2,410 | | | (663) | | | 1,747 | | | 2,410 | | | (542) | | | 1,868 | | | 10 years | Trade names | 204 | | | (51) | | | 153 | | | 204 | | | (25) | | | 179 | |
Distributor relationships | 310 | | | (171) | | | 139 | | | 310 | | | (139) | | | 171 | | | 5 years | |
| Total | Total | $ | 12,780 | | | $ | (6,378) | | | $ | 6,402 | | | $ | 12,780 | | | $ | (5,218) | | | $ | 7,562 | | | Total | $ | 690 | | | $ | (172) | | | $ | 518 | | | $ | 690 | | | $ | (86) | | | $ | 604 | |
At each reporting period, we determine if there was a triggering event that may result in an impairment of our intangible assets. During the three and six months ended June 30, 2022,March 31, 2023, we considered the declines in revenue for the Collaboration Products reporting segment to be a triggering event for an impairment test of intangible assets for this reporting unit.segment. Based on the corresponding recoverability testsfair value of the intangible assets for this reporting unit, weasset group, which was determined using a market approach, no impairment changescharges were requiredrecorded for the three and six months ended June 30, 2022. The recoverability test consisted of comparing the estimated undiscounted cash flows expected to be generated by those assets to the respective carrying amounts, and involves significant judgements and assumptions, related primarily to the future revenue and profitability of the assets. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five years to ten years in accordance with ASC Topic 350.March 31, 2023.
Related amortization expense was $580,000, $1,160,000, $613,000,$86,000 and $1,224,000$580,000 for the three and six months ended June 30,March 31, 2023 and 2022, and 2021, respectively.
Amortization expense for each of the next five succeeding years will be as follows (in thousands):
| | | | | |
| |
Remainder of 2022 | $ | 1,158 | |
2023 | 2,309 | |
2024 | 1,791 | |
2025 | 241 | |
2026 | 241 | |
Thereafter | 662 | |
Total | $ | 6,402 | |
| | | | | |
Remainder of 2023 | $ | 260 | |
2024 | 258 | |
| |
| |
| |
Total | $ | 518 | |
Goodwill
During 2022, Goodwill was written down to zero with an impairment charge of $1,138,000 during the three months ended March 31, 2022, and a subsequent impairment charge of $6,229,000 during the three months ended June 30, 2022.
Note 54 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | June 30, | | December 31, | | March 31, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| Accrued compensation costs | $ | 677 | | | $ | 551 | | |
Accrued professional fees | 77 | | | 69 | | |
Accrued taxes and regulatory fees | 84 | | | 92 | | |
Compensation costs | | Compensation costs | $ | 779 | | | $ | 707 | |
Customer deposits | Customer deposits | 115 | | | 145 | | Customer deposits | 271 | | | 128 | |
Professional fees | | Professional fees | 344 | | | 57 | |
Taxes and regulatory fees | | Taxes and regulatory fees | 43 | | | 59 | |
Other accrued expenses and liabilities | Other accrued expenses and liabilities | 23 | | | 102 | | Other accrued expenses and liabilities | 77 | | | 123 | |
| Rent expense | | Rent expense | 151 | | | — | |
| Accrued expenses and other liabilities | Accrued expenses and other liabilities | $ | 976 | | | $ | 959 | | Accrued expenses and other liabilities | $ | 1,665 | | | $ | 1,074 | |
|
Note 65 - Leases
We lease 3three facilities in Los Angeles, California and 1 facility in Austin, Texas, each providing office space. We also lease aspace and one facility in City of Industry, California, providing warehouse space. These leases expire between 20222023 and 2024. During the six months ended June 30, 2022, we exited leases in Boston, Massachusetts and Dallas, Texas. We currently occupy the warehouse space in City of Industry, andIndustry; however, we do not occupy any of the office facilityspace in Austin, Texas, and weLos Angeles. We have a sublease in place for one of the Los Angeles, California office spaces. With the exception of these spaces described above, we currently operate out of remote employment sites with a remote office located at 25587 Conifer Road, Suite 105-231, Conifer, Colorado 80433.
Lease expenses, includingnet of common charges, for the three months ended March 31, 2023 and net of sublet2022, were $46,000 and $139,000, respectively. Sublease proceeds for the three and six months ended June 30,March 31, 2023 and 2022, were $16,000 and 2021 were $76,000, $145,000, $92,000, and $167,000,$66,000, respectively.
The following provides balance sheet information related to leases as of June 30, 2022March 31, 2023 and December 31, 20212022 (in thousands):
| | | | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Assets | Assets | | | | | Assets | | | | |
| | Operating lease, right-of-use asset, net | | $ | 245 | | | $ | 659 | | | Operating lease, right-of-use asset, net | | $ | 99 | | | $ | 142 | |
| Liabilities | Liabilities | | Liabilities | |
| | Current portion of operating lease liabilities | | $ | 378 | | | $ | 492 | | | Current portion of operating lease liabilities | | $ | 139 | | | $ | 219 | |
| | Operating lease liabilities, net of current portion | | 68 | | | 236 | | | Operating lease liabilities, net of current portion | | — | | | 17 | |
| | Total operating lease liabilities | | $ | 446 | | | $ | 728 | | | Total operating lease liabilities | | $ | 139 | | | $ | 236 | |
During the three and six months ended June 30,March 31, 2023 and 2022, and 2021, payments of $125,000, $298,000, $218,000,$100,000 and $451,000$173,000 were made on leases, respectively. The following table summarizes the future undiscounted cash payments reconciled to the lease liability (in thousands):
| Remaining Lease Payments | Remaining Lease Payments | | Remaining Lease Payments | |
2022 | | $ | 221 | | |
2023 | 2023 | | 225 | | 2023 | | $ | 125 | |
2024 | 2024 | | 17 | | 2024 | | 17 | |
Total lease payments | Total lease payments | | 463 | | Total lease payments | | 142 | |
Effect of discounting | Effect of discounting | | (17) | | Effect of discounting | | (3) | |
Total lease liability | Total lease liability | | $ | 446 | | Total lease liability | | $ | 139 | |
During the six months ended June 30, 2022, we did not enter into any new leases, we exited our Boston, MA and our Dallas, TX leases upon expiration, and we vacated two of the properties in Los Angeles. The properties we vacated are under leases until May 2023 and management does not expect to be able to sublet the properties given the limited time remaining on the leases. Therefore, due to not utilizing the asset, management believes that the right-of-use assets attached to these leases have lost their value. An impairment charge of $179,000 was recorded for these assets during the three months ended June 30, 2022. During the year ended December 31, 2021, we entered into 1 new operating lease, modified 1 operating lease, and terminated 2 operating leases. The following table provides a reconciliation of activity for our right-of-use (“ROU”) assets and lease liabilities (in thousands):
| | | | | | | | | | | | | | |
| | Right-of-Use Asset | | Operating Lease Liability |
Balance at December 31, 2020 | | $ | 903 | | | $ | 1,432 | |
Additions | | 60 | | | 60 | |
Terminations and Modifications | | 192 | | | 156 | |
Amortization and Payments | | (496) | | | (920) | |
| | | | |
Balance at December 31, 2021 | | $ | 659 | | | $ | 728 | |
| | | | |
| | | | |
Amortization and Payments | | (235) | | | (282) | |
Impairment Charges | | (179) | | | — | |
Balance at June 30, 2022 | | $ | 245 | | | $ | 446 | |
| | | | | | | | | | | | | | |
| | Right-of-Use Asset | | Operating Lease Liabilities |
Balance at December 31, 2021 | | $ | 659 | | | $ | 728 | |
Additions | | 11 | | | 11 | |
| | | | |
Non-cash lease expense and payments | | (349) | | | (503) | |
Impairment charges | | (179) | | | — | |
Balance at December 31, 2022 | | 142 | | | 236 | |
Additions | | — | | | — | |
Terminations and modifications | | $ | — | | | $ | — | |
Non-cash lease expense and payments | | (43) | | | (97) | |
Impairment charges | | — | | | — | |
Balance at March 31, 2023 | | $ | 99 | | | $ | 139 | |
The ROU assets and lease liabilities are recorded on the Company’s condensed consolidatedCondensed Consolidated Balance Sheets as of June 30, 2022March 31, 2023 and December 31, 2021.2022.
Note 76 - Capital Stock
Common Stock
On January 3, 2023, the Company effected a 1-for-15 reverse stock split of its Common Stock. All Common Stock share information (including treasury share information) in our Condensed Consolidated Financial Statements and has been adjusted for this stock split retrospectively for all periods represented herein.
The Company’s common stock, par value $0.0001 per share (the “Common Stock”), is listed on Thethe Nasdaq Capital Market (“Nasdaq”), under the ticker symbol “OBLG”. As of June 30, 2022,March 31, 2023, we had 150,000,000 shares of our Common Stock authorized, with 30,929,3312,070,861 and 30,816,0482,063,308 shares issued and outstanding, respectively.
The Company did not issue any shares of Common Stock during the three months ended March 31, 2023.
On April 18, 2023, the Company issued 339,498 shares of Common Stock in relation to certain warrant exercises discussed below, and 177,564 shares of Common Stock related to vested RSUs discussed in Note 8 - Stock Based Compensation.
Common Stock Warrants
As described in Note 2, in connection with the Private Placement, on March 31, 2023, the Company issued the Common Warrants and Placement Agent Warrants to purchase an aggregate of 4,136,846 shares of the Company’s Common Stock. The Common Warrants and Placement Agent Warrants have a term of 5 years, commencing six months and one day from the date of issuance, and are initially exercisable for $1.71 per share. The exercise price is subject to customary adjustments for stock splits, stock dividends, stock combination, recapitalization, or other similar transactions involving the Common Stock, and subject to price-based adjustment, on a full ratchet basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable exercise price for the Common Warrants (subject to certain exceptions). The Common Warrants and Placement Agent Warrants are exercisable for cash, provided that if there is no effective registration statement available permitting the resale of the common shares, they may be exercised on a cashless basis. Exercise of the Common Warrants and Placement Agent Warrants is subject to certain limitations, including a 4.99% beneficial ownership limitation. The fair value of the warrants was recorded within additional paid-in capital during the three months ended June 30, 2022.March 31, 2023.
Warrants
Warrants outstanding as of June 30, 2022March 31, 2023 are as follows:
| Issue Date | Issue Date | | Warrants Issued | | Exercise Price | | Expiration Date | Issue Date | | Warrants Issued | | Exercise Price | | Expiration Date |
October 21, 2020 | October 21, 2020 | | 521,500 | | | $ | 4.08 | | | October 22, 2022 | October 21, 2020 | | 34,767 | | | $ | 61.20 | | | April 22, 2023 |
December 6, 2020 | December 6, 2020 | | 625,000 | | | 5.49 | | | December 7, 2022 | December 6, 2020 | | 41,667 | | | 82.35 | | | June 7, 2023 |
June 30, 2021 - Series A(1) | | 1,000,000 | | | 4.00 | | | January 4, 2023 | |
June 30, 2021 - Series B | | 3,000,000 | | | 4.40 | | | June 30, 2024 | |
June 28, 2021 | | June 28, 2021 | | 66,667 | | | 60.00 | | | January 4, 2024 (a) |
June 28, 2021 | | June 28, 2021 | | 200,000 | | | 66.00 | | | June 28, 2024 |
March 31, 2023 | | March 31, 2023 | | 4,136,846 | | | $ | 1.71 | | | September 30, 2028 |
| | 5,146,500 | | | |
(1) Series A Warrants shown as amended on December 31, 2021 | |
| | | 4,479,947 | | |
(a) On January 3, 2023, the Company and all the holders of the Series A Warrants agreed to amend the terms of the Series A Warrants to extend the termination date from January 4, 2023 to January 4, 2024. All other terms of the Series A Warrants will remain in full force and effect. The modification resulted in an incremental value adjustment, and deemed dividend, of $25,000, which was recorded within additional paid-in capital during the three months ended March 31, 2023.
On April 18, 2023, the Company entered into warrant exercise inducement offer letters with certain holders of outstanding warrants to purchase shares of the Company’s common stock originally issued on October 21, 2020, December 6, 2020, and June 28, 2021, as reflected in the table above (such holders the “Exercising Holders” and such warrants the “Existing Warrants”) pursuant to which the Exercising Holders agreed to exercise, for cash, Existing Warrants to purchase, in the aggregate, 339,498 shares of the Company’s common stock (the “Existing Warrant Shares”), in exchange for the Company’s agreement to lower the exercise price of the Existing Warrants to $1.71. The Company received net proceeds of $534,000 from the exercise of the Existing Warrants in April 2023 (net of $46,000 of financing costs). Following the exercise of the Existing Warrants, an aggregate of 3,603 Existing Warrants remained outstanding.
Warrant activity for the three months ended March 31, 2023 and the year ended December 31, 20212022 is presented below. There was no warrant activity for the three or six months ended June 30, 2022.
| | Outstanding | |
| Number of Warrants (in thousands) | | Weighted Average Exercise Price | |
Warrants outstanding and exercisable, December 31, 2020 | | 1,146,500 | | | $ | 4.85 | | |
Granted | | 4,000,000 | | | 4.30 | | |
| | | | Outstanding |
| | | Number of Warrants | | Weighted Average Exercise Price |
Warrants outstanding and exercisable, December 31, 2021 | Warrants outstanding and exercisable, December 31, 2021 | | 5,146,500 | | | 4.42 | | Warrants outstanding and exercisable, December 31, 2021 | | 343,101 | | | $ | 66.34 | |
| Warrants outstanding and exercisable, June 30, 2022 | | 5,146,500 | | | $ | 4.42 | | |
Warrants outstanding and exercisable, December 31, 2022 | | Warrants outstanding and exercisable, December 31, 2022 | | 343,101 | | | 66.34 | |
Granted | | Granted | | 4,136,846 | | | 1.71 | |
| Warrants outstanding and exercisable, March 31, 2023 | | Warrants outstanding and exercisable, March 31, 2023 | | 4,479,947 | | | $ | 6.66 | |
Treasury Shares
The Company maintains treasury stock for the Common Stock shares bought back by the Company when withholding shares to cover taxes on transactions related to equity awards. There were no treasury stock transactions during the sixthree months ended June 30, 2022March 31, 2023 or the year ended December 31, 2021.2022.
Note 7 - Preferred Stock
Our Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock. As of March 31, 2023, we had 1,983,250 designated shares of preferred stock and 6,550 shares of preferred stock issued and outstanding. As of December 31, 2022, we had no shares of preferred stock outstanding.
Series F Preferred Stock
As described in Note 2, on March 31, 2023, the Company closed a Private Placement and issued (i) 6,550 shares of our newly designated Series F Preferred Stock and (ii) Preferred Warrants to acquire 32,750 shares of Series F Preferred Stock.
As of March 31, 2023, the Company recorded net proceeds from the Private Placement of $1,473,000 to stockholders’ equity. The net proceeds included $6,386,000 in gross proceeds, less (i) $4,000,000 that is being held in escrow and (ii) $913,000 in financing costs.
The Series F Preferred Shares are convertible into fully paid and non-assessable shares of the Company’s Common Stock at the election of the holder at any time at an initial conversion price of $1.71 (the “Conversion Price”). The holders of the Series F Preferred Shares may also elect to convert their shares at an alternative conversion price equal to the lower of (i) 80% of the applicable Conversion Price as in effect on the date of the conversion, (ii) 80% of the closing price on the trading day immediately preceding the delivery of the conversion notice, and (iii) the greater of (a) the Floor Price (as defined in the Certificate of Designations) and (b) the quotient of (x) the sum of the five lowest Closing Bid Prices (as defined in the Certificate of Designations) for trading days in the 30 consecutive trading day period ending and including the trading day immediately preceding the delivery of the applicable Conversion Notice, divided by (y) five, provided that that such price may not be lower than the Minimum Price (as defined under the Nasdaq Rules) prior to obtaining Stockholder Approval for the issuance. The Conversion Price is subject to customary adjustments for stock splits, stock dividends, stock combination recapitalization, or other similar transactions involving the Common Stock, and subject to price-based adjustment, on a full ratchet basis, in the event of any issuances of our common stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Conversion Price (subject to certain exceptions).
Under the Certificate of Designations, the Series F Preferred Shares have an initial stated value of $1,000 per share (the “Stated Value”). The holders of the Series F Preferred Shares are entitled to dividends of 9% per annum, which will be payable in arrears quarterly. Accrued dividends may be paid, at our option, in cash and if not paid, shall increase the stated value of the Series F Preferred Shares. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Certificate of Designations), the Series F Preferred Shares will accrue dividends at the rate of 20% per annum (the “Default Rate”). The Series F Preferred Shares have no voting rights, other than with respect to certain matters affecting the rights of the Series F Preferred Shares. On matters with respect to which the holders of the Series F Preferred Shares have a right to vote, holders of the Preferred Shares will have voting rights on an as-converted basis, provided that until receipt of Stockholder Approval, any adjustment to the Conversion Price shall not cause the Conversion Price for voting purposes to be less than the Minimum Price (as defined in Nasdaq Listing Rule 5635(d)).
Our ability to settle conversions is subject to certain limitations set forth in the Certificate of Designations, including a limit on the number of shares of Common Stock that may be issued until the time that the Stockholder Approval is obtained permitting the issuance of more than 19.99% of our outstanding shares of Common Stock in accordance with Nasdaq listing standards. We agreed to seek Stockholder Approval of these matters at a meeting to be held no later than May 31, 2023. Further, the Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares of common stock issuable upon conversion of the Series F Preferred Shares.
The Certificate of Designations includes certain Triggering Events (as defined in the Certificate of Designations), including, among other things, (i) the failure to file and maintain an effective registration statement covering the sale of the holder’s securities registrable pursuant to the Registration Rights Agreement, (ii) the failure to pay any amounts due to the holders of the Series F Preferred Shares when due, and (iii) if Peter Holst ceases to be the chief executive officer of the Company other than because of his death, and a qualified replacement, reasonably acceptable to a majority of the holders of the Series F Preferred Shares, is not appointed within thirty (30) business days. In connection with a Triggering Event, the Default Rate is triggered. The Default Rate is also triggered in the event that we are unable, from the failure to obtain the Stockholder Approval prior to May 31, 2023 (the “Approval Date”), to issue shares of Common Stock in connection with a conversion of the Series F Preferred Stock after the Approval Date. We are subject to certain affirmative and negative covenants regarding the incurrence of indebtedness, acquisition transactions, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends (other than dividends pursuant to the Certificate of Designations), maintenance of properties and the transfer of assets, among other matters.
Series F Preferred Stock Warrants
The Preferred Warrants are exercisable for Series F Preferred Shares at an exercise price of $975. The exercise price is subject to customary adjustments for stock splits, stock dividends, stock combination recapitalizations or other similar transactions involving the Common Stock. The Preferred Warrants expire three years from the date of issuance and are exercisable for cash. For each Preferred Warrant exercised, the Investors shall receive Common Warrants to purchase a number of shares of Common Stock equal to 100% of the number of shares of Common Stock the Investors would receive if the Series F Preferred Shares issuable upon exercise of such Warrant were converted at the applicable Conversion Price. The fair value of the Preferred Warrants was recorded within additional paid-in capital during the three months ended March 31, 2023.
Note 8 - Stock Based Compensation
On January 3, 2023, the Company effected a 1-for-15 reverse stock split for its Common Stock. All Common Stock share information in the following net loss per share discussion and tables are shown as adjusted for this stock split retrospectively for all periods represented herein.
2019 Equity Incentive Plan
On December 19, 2019, the Oblong, Inc. 2019 Equity Incentive Plan (the “2019 Plan”) was approved by the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders. The 2019 Plan is an omnibus equity incentive plan pursuant to which the Company may grant equity and cash incentive awards to certain key service providers of the Company and its subsidiaries. As of June 30, 2022,March 31, 2023, the share pool available for new grants under the 2019 Plan is 2,663,500.177,567. On April 18, 2023, 177,564 restricted stock units were granted to certain members of the board, reducing the share pool available for new grants under the 2019 Plan to 3.
Stock Options
ForDuring the sixthree months ended June 30,March 31, 2023 and 2022, no stock options were granted 50,000 stock options vested, 7,500and 6,501 and 334 vested stock options expired, and 150,000respectively. During the three months ended March 31, 2022, 10,000 unvested stock options were forfeited. In accordance with the 2019 Plan, these cancelled unvested options were added back into the share pool. For the six months ended June 30, 2021, 300,000 stock options were granted.
A summary of stock options granted, expired, and forfeited under our plans, and options outstanding as of, and changes made during the sixthree months ended June 30, 2022March 31, 2023 and the year ended December 31, 20212022 is presented below:
| | Outstanding | | Exercisable | |
| Number of Options | | Weighted Average Exercise Price | | Number of Options | | Weighted Average Exercise Price | |
Options outstanding and exercisable, December 31, 2020 | 107,500 | | | $ | 19.64 | | | 107,500 | | | $ | 19.64 | | |
Granted | 300,000 | | | 3.25 | | | — | | | — | | |
| | | | Outstanding | | Exercisable |
| | | Number of Options | | Weighted Average Exercise Price | | Number of Options | | Weighted Average Exercise Price |
Options outstanding and exercisable, December 31, 2021 | Options outstanding and exercisable, December 31, 2021 | 407,500 | | | 7.57 | | | 107,500 | | | 19.64 | | Options outstanding and exercisable, December 31, 2021 | 27,169 | | | $ | 113.63 | | | 7,169 | | | $ | — | |
| Vested | Vested | — | | | — | | | 50,000 | | | 3.25 | | Vested | — | | | — | | 3,332 | | | 48.75 |
Expired | Expired | (7,500) | | | 27.40 | | | (7,500) | | | 27.40 | | Expired | (501) | | | 410.18 | | (501) | | | 410.18 |
Forfeited | Forfeited | (150,000) | | | 3.25 | | | — | | | — | | Forfeited | (10,000) | | | 48.75 | | — | | | — | |
Options outstanding and exercisable, June 30, 2022 | 250,000 | | | $ | 9.57 | | | 150,000 | | | $ | 12.98 | | |
Options outstanding and exercisable, December 31, 2022 | | Options outstanding and exercisable, December 31, 2022 | 16,668 | | | 143.63 | | | 10,000 | | | 206.85 | |
| Expired | | Expired | (6,501) | | | 289.77 | | | (6,501) | | | 289.77 | |
| Options outstanding and exercisable, March 31, 2023 | | Options outstanding and exercisable, March 31, 2023 | 10,167 | | | $ | 50.17 | | | 3,499 | | | $ | 52.87 | |
|
Additional information as of June 30, 2022March 31, 2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Outstanding | | Exercisable |
Range of price | | Number of Options | | Weighted Average Remaining Contractual Life (In Years) | | Weighted Average Exercise Price | | Number of Options | | Weighted Average Exercise Price |
$0.00 – $10.00 | | 152,500 | | | 8.88 | | $ | 3.34 | | | 52,500 | | | $ | 1.20 | |
$10.01 – $20.00 | | 97,500 | | | 0.56 | | 19.32 | | | 97,500 | | | 19.32 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | 250,000 | | | 5.63 | | $ | 9.57 | | | 150,000 | | | $ | 12.98 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Outstanding | | Exercisable |
Range of price | | Number of Options | | Weighted Average Remaining Contractual Life (In Years) | | Weighted Average Exercise Price | | Number of Options | | Weighted Average Exercise Price |
$0.00 – $100.00 | | 10,000 | | | 8.25 | | $ | 48.75 | | | 3,332 | | | $ | 48.75 | |
$100.01 – $200.00 | | 167 | | | 0.25 | | 135.00 | | | 167 | | | 135.00 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | 10,167 | | | 8.12 | | $ | 50.17 | | | 3,499 | | | $ | 52.87 | |
The intrinsic value of vested options,and unvested options and exercised options werewas not significant for all periods presented. Stock compensation expense, related to stock options, for the three months ended March 31, 2023 was $31,000. Net stock compensation expense, related to stock options, for the six months ended June 30, 2022 was a negative $1,000$32,000, made up of $83,000$52,000 in expense andoffset by $84,000 in forfeiture credits. No stock compensation expense, related to stock options, was recordedforfeiture credits, for the sixthree months ended June 30, 2021.March 31, 2022. The remaining unrecognized stock-based compensation expense for options as of June 30, 2022March 31, 2023 is $247,000,$154,000, which will be recognized over a weighted average period of 2.001.25 years.
Restricted Stock Awards
As of June 30, 2022 and 2021,March 31, 2023, there were 62742 unvested restricted stock awards outstanding, with a weighted average grant date price of $15.80.$235.87. The awards were issued in 2014 and vest over the lesser of ten years, a change in control, or separation from the company. Due to the variability of the vesting, the expense was amortized over an average service period of five years, therefore, there is no unrecognized stock-based compensation expense for restricted stock awards as of June 30, 2022.March 31, 2023.
Restricted Stock Units
As of June 30, 2022 and 2021,March 31, 2023, there were no unvested restricted stock units (“RSUs”) outstanding. As of June 30, 2022, 28,904March 31, 2023, 1,929 vested RSUs remain outstanding as shares of common stock have not yet been delivered for these units in accordance with the terms of the RSUs.
There was no stock compensation expense related to RSUs for the three and six months ended June 30, 2022March 31, 2023 and 2021.2022. There was no remaining unrecognized stock-based compensation expense for RSUs as of June 30, 2022.March 31, 2023.
On April 18, 2023, 177,564 RSUs were granted to certain board members. These RSUs vested immediately upon issuance.
Note 9 - Net Loss Per Share
On January 3, 2023, the Company effected a 1-for-15 reverse stock split for its Common Stock. All Common Stock share information in the following net loss per share discussion and tables are shown as adjusted for this stock split retrospectively for all periods represented herein.
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares of common stock outstanding does not include any potentially dilutive securities or unvested restricted stock. Unvested restricted stock, although classified as issued and outstanding at June 30,March 31, 2023 and 2022, and 2021, is considered contingently returnable until the restrictions lapse and will not be included in the basic net loss per share calculation until the shares are vested. Unvested restricted stock does not
contain non-forfeitable rights to dividends and dividend equivalents. Unvested RSUs are not included in calculations of basic net loss per share, as they are not considered issued and outstanding at time of grant.
Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, preferred stock, RSUs, and unvested restricted stock, to the extent they are dilutive. For the three and six months ended June 30,March 31, 2023 and 2022, and 2021, all such common stock equivalents have been excluded from diluted net loss per share as the effect to net loss per share would be anti-dilutive (due to the net loss).
The following table sets forth the computation of the Company’s basic and diluted net loss per share (in thousands, except per share data):
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | |
Net loss | Net loss | $ | (9,033) | | | $ | (2,246) | | | $ | (13,572) | | | $ | (5,679) | | Net loss | $ | (1,219) | | | $ | (4,539) | | |
Less: preferred stock dividends | — | | | — | | | — | | | (1) | | |
Less: undeclared dividends | — | | | — | | | — | | | (366) | | |
Less: loss on induced conversion of Series A-2 Preferred Stock | — | | | — | | | — | | | (300) | | |
| | Less: warrant modification | | Less: warrant modification | $ | (25) | | | $ | — | | |
Net loss attributable to common stockholders | Net loss attributable to common stockholders | $ | (9,033) | | | $ | (2,246) | | | $ | (13,572) | | | $ | (6,346) | | Net loss attributable to common stockholders | $ | (1,244) | | | $ | (4,539) | | |
Denominator: | Denominator: | | | | | | | | Denominator: | | | | |
Weighted-average number of shares of common stock | 30,816 | | | 26,644 | | | 30,816 | | | 22,250 | | |
Weighted-average number of shares of common stock for basic and diluted net loss per share | | Weighted-average number of shares of common stock for basic and diluted net loss per share | 2,065 | | | 2,065 | | |
Basic and diluted net loss per share | Basic and diluted net loss per share | $ | (0.29) | | | $ | (0.08) | | | $ | (0.44) | | | $ | (0.29) | | Basic and diluted net loss per share | $ | (0.60) | | | $ | (2.20) | | |
|
The following table represents the potential shares that were excluded from the computation of weighted-average number of shares of common stock in computing the diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect (due to the net loss):
| | | | | | | | | | | |
| Three and Six Months Ended June 30, |
| 2022 | | 2021 |
Unvested restricted stock awards | 627 | | | 627 | |
| | | |
Outstanding stock options | 250,000 | | | 407,500 | |
Warrants | 5,146,500 | | | 5,146,500 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Unvested restricted stock awards | 42 | | | 42 | |
| | | |
Outstanding stock options | 10,167 | | | 16,835 | |
Common stock issuable upon conversion of Series F Preferred Stock | 3,830,409 | | | — | |
Warrants | 4,479,947 | | | 343,101 | |
Note 10 - Segment Reporting
The Company currently operates in 2two segments: (1) “Managed Services”, which represents the Oblong (former Glowpoint) business surrounding managed services for video collaboration and network applications; and (2) “Collaboration Products” which represents the Oblong Industries business surrounding our Mezzanine™ product offerings.
Certain information concerning the Company’s segments for the three and six months ended June 30,March 31, 2023 and 2022 and 2021 is presented in the following tables (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| Managed Services | | Collaboration Products | | Corporate | | Total |
Revenue | $ | 810 | | | $ | 523 | | | $ | — | | | $ | 1,333 | |
Cost of revenues | 525 | | | 401 | | | — | | | 926 | |
Gross profit | $ | 285 | | | $ | 122 | | | $ | — | | | $ | 407 | |
Gross profit % | 35 | % | | 23 | % | | | | 31 | % |
| | | | | | | |
Allocated operating expenses | $ | 1 | | | $ | 8,254 | | | $ | — | | | $ | 8,255 | |
Unallocated operating expenses | — | | | — | | | 1,185 | | | 1,185 | |
Total operating expenses | $ | 1 | | | $ | 8,254 | | | $ | 1,185 | | | $ | 9,440 | |
| | | | | | | |
Income (loss) from operations | $ | 284 | | | $ | (8,132) | | | $ | (1,185) | | | $ | (9,033) | |
Interest and other expense, net | — | | | — | | | — | | | — | |
Net income (loss) before tax | $ | 284 | | | $ | (8,132) | | | $ | (1,185) | | | $ | (9,033) | |
Income tax expense | (1) | | | 1 | | | — | | | — | |
Net income (loss) | $ | 285 | | | $ | (8,133) | | | $ | (1,185) | | | $ | (9,033) | |
| | | Six Months Ended June 30, 2022 | | Three Months Ended March 31, 2023 |
| | Managed Services | | Collaboration Products | | Corporate | | Total | | Managed Services | | Collaboration Products | | Corporate | | Total |
Revenue | Revenue | $ | 1,776 | | | $ | 1,089 | | | $ | — | | | $ | 2,865 | | Revenue | $ | 690 | | | $ | 348 | | | $ | — | | | $ | 1,038 | |
Cost of revenues | Cost of revenues | 1,170 | | | 789 | | | — | | | 1,959 | | Cost of revenues | 460 | | | 302 | | | — | | | 762 | |
Gross profit | Gross profit | $ | 606 | | | $ | 300 | | | $ | — | | | $ | 906 | | Gross profit | $ | 230 | | | $ | 46 | | | $ | — | | | $ | 276 | |
Gross profit % | Gross profit % | 34 | % | | 28 | % | | 32 | % | Gross profit % | 33 | % | | 13 | % | | 27 | % |
| Allocated operating expenses | Allocated operating expenses | $ | 57 | | | $ | 11,529 | | | $ | — | | | $ | 11,586 | | Allocated operating expenses | $ | — | | | $ | 286 | | | $ | — | | | $ | 286 | |
Unallocated operating expenses | Unallocated operating expenses | 0 | | 0 | | 2,875 | | | 2,875 | | Unallocated operating expenses | — | | | — | | | 1,193 | | | 1,193 | |
Total operating expenses | Total operating expenses | $ | 57 | | | $ | 11,529 | | | $ | 2,875 | | | $ | 14,461 | | Total operating expenses | $ | — | | | $ | 286 | | | $ | 1,193 | | | $ | 1,479 | |
| Income (loss) from operations | Income (loss) from operations | $ | 549 | | | $ | (11,229) | | | $ | (2,875) | | | $ | (13,555) | | Income (loss) from operations | $ | 230 | | | $ | (240) | | | $ | (1,193) | | | $ | (1,203) | |
Interest and other expense, net | 6 | | | — | | | — | | | 6 | | |
Interest and other expense (income), net | | Interest and other expense (income), net | 3 | | | (25) | | | — | | | (22) | |
Net income (loss) before tax | Net income (loss) before tax | $ | 543 | | | $ | (11,229) | | | $ | (2,875) | | | $ | (13,561) | | Net income (loss) before tax | 233 | | | (215) | | | (1,193) | | | (1,181) | |
Income tax expense | Income tax expense | 8 | | | 3 | | | — | | | 11 | | Income tax expense | 7 | | | 31 | | | — | | | 38 | |
Net income (loss) | Net income (loss) | $ | 535 | | | $ | (11,232) | | | $ | (2,875) | | | $ | (13,572) | | Net income (loss) | $ | 226 | | | $ | (246) | | | $ | (1,193) | | | $ | (1,219) | |
|
| | | Three Months Ended June 30, 2021 | | Three Months Ended March 31, 2022 |
| | Managed Services | | Collaboration Products | | Corporate | | Total | | Managed Services | | Collaboration Products | | Corporate | | Total |
Revenue | Revenue | $ | 1,078 | | | $ | 971 | | | $ | — | | | $ | 2,049 | | Revenue | $ | 966 | | | $ | 566 | | | $ | — | | | $ | 1,532 | |
Cost of revenues | Cost of revenues | 739 | | | 510 | | | — | | | 1,249 | | Cost of revenues | 645 | | | 388 | | | — | | | 1,033 | |
Gross profit | Gross profit | $ | 339 | | | $ | 461 | | | $ | — | | | $ | 800 | | Gross profit | $ | 321 | | | $ | 178 | | | $ | — | | | $ | 499 | |
Gross profit % | Gross profit % | 31 | % | | 47 | % | | 39 | % | Gross profit % | 33 | % | | 31 | % | | 33 | % |
| Allocated operating expenses | Allocated operating expenses | $ | 82 | | | $ | 1,796 | | | $ | — | | | $ | 1,878 | | Allocated operating expenses | $ | 56 | | | $ | 3,425 | | | $ | — | | | $ | 3,481 | |
Unallocated operating expenses | Unallocated operating expenses | — | | | — | | | 1,400 | | | 1,400 | | Unallocated operating expenses | — | | | — | | | 1,540 | | | 1,540 | |
Total operating expenses | Total operating expenses | $ | 82 | | | $ | 1,796 | | | $ | 1,400 | | | $ | 3,278 | | Total operating expenses | $ | 56 | | | $ | 3,425 | | | $ | 1,540 | | | $ | 5,021 | |
| Income (loss) from operations | Income (loss) from operations | $ | 257 | | | $ | (1,335) | | | $ | (1,400) | | | $ | (2,478) | | Income (loss) from operations | $ | 265 | | | $ | (3,247) | | | $ | (1,540) | | | $ | (4,522) | |
Interest and other expense, net | 9 | | | (241) | | | — | | | (232) | | |
Interest and other expense (income), net | | Interest and other expense (income), net | 6 | | | — | | | — | | | 6 | |
Income (loss) before income taxes | Income (loss) before income taxes | $ | 248 | | | $ | (1,094) | | | $ | (1,400) | | | $ | (2,246) | | Income (loss) before income taxes | 271 | | | (3,247) | | | (1,540) | | | (4,528) | |
Income tax expense | Income tax expense | — | | | — | | | — | | | — | | Income tax expense | 9 | | | 2 | | | — | | | 11 | |
Net income (loss) | Net income (loss) | $ | 248 | | | $ | (1,094) | | | $ | (1,400) | | | $ | (2,246) | | Net income (loss) | $ | 262 | | | $ | (3,249) | | | $ | (1,540) | | | $ | (4,539) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Managed Services | | Collaboration Products | | Corporate | | Total |
Revenue | $ | 2,273 | | | $ | 1,694 | | | $ | — | | | $ | 3,967 | |
Cost of revenues | 1,572 | | | 967 | | | — | | | 2,539 | |
Gross profit | $ | 701 | | | $ | 727 | | | $ | — | | | $ | 1,428 | |
Gross profit % | 31 | % | | 43 | % | | | | 36 | % |
| | | | | | | |
Allocated operating expenses | $ | 193 | | | $ | 3,626 | | | $ | — | | | $ | 3,819 | |
Unallocated operating expenses | — | | | — | | | 3,498 | | | 3,498 | |
Total operating expenses | $ | 193 | | | $ | 3,626 | | | $ | 3,498 | | | $ | 7,317 | |
| | | | | | | |
Income (loss) from operations | $ | 508 | | | $ | (2,899) | | | $ | (3,498) | | | $ | (5,889) | |
Interest and other expense, net | 14 | | | (224) | | | — | | | (210) | |
Net income (loss) before tax | $ | 494 | | | $ | (2,675) | | | $ | (3,498) | | | $ | (5,679) | |
Income tax expense | — | | | — | | | — | | | — | |
Net income (loss) | $ | 494 | | | $ | (2,675) | | | $ | (3,498) | | | $ | (5,679) | |
Unallocated operating expenses in Corporate include costs for the three and six months ended June 30,March 31, 2023 and 2022 and 2021 that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.
For the three and six months ended June 30, 2022 and 2021,March 31, 2023, there was no material revenue attributable to any individual foreign country. For three months ended March 31, 2022, approximately 12% of revenue was attributable to the United Kingdom.
Revenue by geographic area is allocated as follows (in thousands):
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Domestic | Domestic | $ | 705 | | | $ | 1,227 | | | $ | 1,546 | | | $ | 2,242 | | Domestic | $ | 563 | | | $ | 843 | | |
Foreign | Foreign | 628 | | | 822 | | | 1,319 | | | 1,725 | | Foreign | 475 | | | 689 | | |
| | $ | 1,333 | | | $ | 2,049 | | | $ | 2,865 | | | $ | 3,967 | | | $ | 1,038 | | | $ | 1,532 | | |
|
Disaggregated information for the Company’s revenue has been recognized in the accompanying condensed consolidatedCondensed Consolidated Statements of Operations and is presented below according to contract type (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | % of Revenue | | 2021 | | % of Revenue |
Revenue: Managed Services | | | | | | | |
Video collaboration services | $ | 79 | | | 6 | % | | $ | 230 | | | 11 | % |
Network services | 723 | | | 54 | % | | 830 | | | 41 | % |
Professional and other services | 8 | | | 1 | % | | 18 | | | 1 | % |
Total Managed Services revenue | $ | 810 | | | 61 | % | | $ | 1,078 | | | 53 | % |
| | | | | | | |
Revenue: Collaboration Products | | | | | | | |
Visual collaboration product offerings | $ | 520 | | | 39 | % | | $ | 942 | | | 46 | % |
| | | | | | | |
Licensing | 3 | | | — | % | | 29 | | | 1 | % |
Total Collaboration Products revenue | 523 | | | 39 | % | | 971 | | | 47 | % |
Total revenue | $ | 1,333 | | | 100 | % | | $ | 2,049 | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | % of Revenue | | 2021 | | % of Revenue |
Revenue: Managed Services | | | | | | | |
Video collaboration services | $ | 195 | | | 7 | % | | $ | 521 | | | 23 | % |
Network services | 1,544 | | | 54 | % | | 1,711 | | | 75 | % |
Professional and other services | 37 | | | 1 | % | | 41 | | | 2 | % |
Total Managed Services revenue | $ | 1,776 | | | 62 | % | | $ | 2,273 | | | 57 | % |
| | | | | | | |
Revenue: Collaboration Products | | | | | | | |
Visual collaboration product offerings | $ | 1,082 | | | 38 | % | | $ | 1,635 | | | 80 | % |
| | | | | | | |
Licensing | 7 | | | — | % | | 59 | | | 3 | % |
Total Collaboration Products revenue | 1,089 | | | 38 | % | | 1,694 | | | 43 | % |
Total revenue | $ | 2,865 | | | 100 | % | | $ | 3,967 | | | 100 | % |
-16-
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | % of Revenue | | 2022 | | % of Revenue |
Revenue: Managed Services | | | | | | | |
Video collaboration services | $ | 64 | | | 6 | % | | $ | 116 | | | 7 | % |
Network services | 618 | | | 60 | % | | 821 | | | 54 | % |
Professional and other services | 8 | | | 1 | % | | 29 | | | 2 | % |
Total Managed Services revenue | $ | 690 | | | 67 | % | | $ | 966 | | | 63 | % |
| | | | | | | |
Revenue: Collaboration Products | | | | | | | |
Visual collaboration product offerings | $ | 348 | | | 33 | % | | $ | 562 | | | 37 | % |
| | | | | | | |
Licensing | — | | | — | % | | 4 | | | — | % |
Total Collaboration Products revenue | 348 | | | 33 | % | | 566 | | | 37 | % |
Total revenue | $ | 1,038 | | | 100 | % | | $ | 1,532 | | | 100 | % |
The Company considers a significant customer to be one that comprises more than 10% of the Company’s consolidated revenues or accounts receivable. The loss of or a reduction in sales or anticipated sales to our most significant or several of our smaller customers could have a material adverse effect on our business, financial condition and results of operations.
Concentration of revenues was as follows:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, |
| | | 2022 | | 2021 |
| Segment | | % of Revenue | | % of Revenue |
Customer A | Managed Services | | 48 | % | | 32 | % |
Customer B | Collaboration Products | | 11 | % | | 5 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, |
| | | 2022 | | 2021 |
| Segment | | % of Revenue | | % of Revenue |
Customer A | Managed Services | | 46 | % | | 34 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2023 | | 2022 |
| Segment | | % of Revenue | | % of Revenue |
Customer A | Managed Services | | 52 | % | | 44 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Concentration of accounts receivable was as follows:
| | | As of June 30, 2022 | | As of March 31, 2023 |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | Segment | | % of Accounts Receivable | | % of Accounts Receivable | | Segment | | % of Accounts Receivable | | % of Accounts Receivable |
Customer A | Customer A | Managed Services | | 42 | % | | 22 | % | Customer A | Managed Services | | 41 | % | | 38 | % |
Customer B | Customer B | Managed Services | | 7 | % | | 13 | % | Customer B | Managed Services | | 11 | % | | — | % |
Customer C | Customer C | Collaboration Products | | 10 | % | | — | % | Customer C | Collaboration Products | | 14 | % | | — | % |
| Customer D | | Customer D | Collaboration Products | | 15 | % | | — | % |
Customer E | | Customer E | Collaboration Products | | — | % | | 13 | % |
Customer F | | Customer F | Collaboration Products | | — | % | | 10 | % |
Note 11 - Commitments and Contingencies
From time to time, we are subject to various legal proceedings arising in the ordinary course of business, including proceedings for which we have insurance coverage. As of the date hereof, we are not party to any legal proceedings that we currently believe will have a material adverse effect on our business, financial position, results of operations or liquidity.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the disease. There has been continued widespread infection inIn May 2023, the United States and abroad, asWHO declared COVID-19 has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. Such measures have included restrictions on travel and business operations, temporary closures of businesses, hybrid operations of businesses and for workers, and quarantine and shelter-in-place orders. Some businesses have imposed vaccine mandates and many businesses are experiencing labor shortages. These factors have also impacted the supply chain, leading to significant delays and shortages. These measures, while intended to protect human life, have had serious adverse impacts on domestic and foreign economies. The severity and duration of such impacts are uncertain as new variants of the COVID-19 virus emerge and a resulting surge in diagnosed cases may be seen. The sweeping nature of the coronavirus pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run. The COVID-19 pandemic has materially affected our revenue and results of operations for 2020, 2021, and the six months ended June 30, 2022. The decreases in our revenue are primarily attributable to the effects of the global pandemic on our channel partners and customers as they evaluate how and when to re-open their commercial real estate footprints. The Company’s results reflect the challenges due to long and unpredictable sales cycles, delays in customer retrofit budgets, project starts, and supply delayed orders in our distribution channelsover as a direct result of customer implementation schedules shifting due to the COVID-19 pandemic. The COVID-19 pandemicglobal health emergency. Customers generally use our Mezzanine™ products in particular has,traditional office and may continue to have, a significant economic and business impact on our Company. During 2020, 2021, and the first half of 2022, we have seen a continuing weakness in revenueoperating center environments such as our customers across all sectors delayed order placements in reaction to the ongoing impacts of the COVID-19 pandemic that caused our customers to suspendconference rooms or postpone real estate retrofit projects due to budget and occupancy uncertainties. We continue to monitor the impact of the COVID-19 pandemic on our customers, suppliers and logistics providers, and to evaluate governmental actions being taken to curtail and respond to the spread of the virus. The significance and duration of the ongoing impact on us is still uncertain. Material adverse effects of the COVID-19 pandemic on market drivers, our customers, suppliers or logistics providers could significantly impact our operating results. We will continue to actively follow, assess and analyze the ongoingother presentation
impactspaces. Revenue declines for our Collaboration Products business are primarily attributable to the aftermath of the COVID-19 pandemic on our existing and adjusttarget customers as they continue to evaluate behavioral changes in how and when employees choose to work from traditional office environments, resulting in delayed buying decisions for our organizational structure, strategies, plans and processes to respond. BecauseCollaboration Products. Continuation of the situation continues to evolve, we cannot reasonably estimate the ultimate impact to our business, results of operations, cash flows and financial position that the COVID-19 pandemic may have. Continuationongoing effects of the COVID-19 pandemic, and government actions in response thereto could cause further disruptions to our operations and the operations of our customers, suppliers and logistics partners and could significantly adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a provider of patented multi-stream collaboration products and managed services for video collaboration and network solutions.
Mezzanine™ Product Offerings
Our flagship product is called Mezzanine™, a family of turn-key products that enable dynamic and immersive visual collaboration across multi-users, multi-screens, multi-devices, and multi-locations (see further description of .Mezzanine™ in Part I, Item 1). Mezzanine™ allows multiple people to share, control and arrange content simultaneously, from any location, enabling all participants to see the same content in its entirety at the same time in identical formats, resulting in dramatic enhancements to both in-room and virtual videoconference presentations. Applications include video telepresence, laptop and application sharing, whiteboard sharing and slides. Spatial input allows content to be spread across screens, spanning different walls, scalable to an arbitrary number of displays and interaction with our proprietary wand device. Mezzanine™ substantially enhances day-to-day virtual meetings with technology that accelerates decision making, improves communication, and increases productivity. Mezzanine™ scales up to support the most immersive and commanding innovation centers; across to link labs, conference spaces, and situation rooms; and down for the smallest work groups. Mezzanine’s digital collaboration platform can be sold as delivered systems in various configurations for small teams to total immersion experiences. The family includes the 200 Series (two display screen), 300 Series (three screen), and 600 Series (six screen). We also sell maintenance and support contracts related to Mezzanine™.
Historically, customers have used Mezzanine™ products in conventional commercial real estate spacestraditional office and operating center environments such as conference rooms.rooms or other presentation spaces. As discussed below, sales of our Mezzanine product have been adversely affected by commercial response to the COVID-19 pandemic. We expect toLike many technology companies in recent months, we will continue to invest in product developmentmonitor and sales and marketing expensesmanage our costs relative to demand with the goal of growing the Company’s revenue in the future. These initiatives will require significant investmentTo the extent we believe new investments in technology and product development, andmarketing, or sales and marketing. Weare warranted as a result of changes in market demand, we believe additional capital will be required to fund these investmentsthose efforts and our ongoing operations.
Managed Services for Video Collaboration
We provide a range of managed services for video collaboration, from automated to orchestrated, to simplify the user experience in an effort to drive adoption of video collaboration throughout our customers’ enterprise. We deliver our services through a hybrid service platform or as a service layer on top of our customers’ video infrastructure. We provide our customers with i) managed videoconferencing, where we set up and manage customer videoconferences and ii) remote service management, where we provide 24/7 support and management of customer video environments.
Managed Services for Network
We provide our customers with network solutions that ensure reliable, high-quality and secure traffic of video, data and internet. Network services are offered to our customers on a subscription basis. Our network services business carries variable costs associated with the purchasing and reselling of this connectivity.
Oblong’s Results of Operations
Three Months Ended June 30, 2022March 31, 2023 (the “2022 Second2023 First Quarter”) compared to the Three Months Ended June 30, 2021March 31, 2022 (the “2021 Second“2022 First Quarter”)
Segment Reporting
The Company currently operates in two segments: (1) “Collaboration Products,” which represents the Oblong Industries business surrounding our Mezzanine™ product offerings, and (2) “Managed Services,” which represents the Oblong (formerly Glowpoint) business surrounding managed services for video collaboration and network solutions. Certain information concerning the Company’s segments for the three months ended June 30,March 31, 2023 and 2022 and is presented in the following tablebelow (in thousands):
| | | Three Months Ended June 30, 2022 | | Three Months Ended March 31, 2023 |
| | Managed Services | | Collaboration Products | | Corporate | | Total | | Managed Services | | Collaboration Products | | Corporate | | Total |
Revenue | Revenue | $ | 810 | | | $ | 523 | | | $ | — | | | $ | 1,333 | | Revenue | $ | 690 | | | $ | 348 | | | $ | — | | | $ | 1,038 | |
Cost of revenues | Cost of revenues | 525 | | | 401 | | | — | | | 926 | | Cost of revenues | 460 | | | 302 | | | — | | | 762 | |
Gross profit | Gross profit | $ | 285 | | | $ | 122 | | | $ | — | | | $ | 407 | | Gross profit | $ | 230 | | | $ | 46 | | | $ | — | | | $ | 276 | |
Gross profit % | Gross profit % | 35 | % | | 23 | % | | 31 | % | Gross profit % | 33 | % | | 13 | % | | 27 | % |
| Allocated operating expenses | Allocated operating expenses | $ | 1 | | | $ | 8,254 | | | $ | — | | | $ | 8,255 | | Allocated operating expenses | $ | — | | | $ | 286 | | | $ | — | | | $ | 286 | |
Unallocated operating expenses | Unallocated operating expenses | — | | | — | | | 1,185 | | | 1,185 | | Unallocated operating expenses | — | | | — | | | 1,193 | | | 1,193 | |
Total operating expenses | Total operating expenses | $ | 1 | | | $ | 8,254 | | | $ | 1,185 | | | $ | 9,440 | | Total operating expenses | $ | — | | | $ | 286 | | | $ | 1,193 | | | $ | 1,479 | |
| Income (loss) from operations | Income (loss) from operations | $ | 284 | | | $ | (8,132) | | | $ | (1,185) | | | $ | (9,033) | | Income (loss) from operations | $ | 230 | | | $ | (240) | | | $ | (1,193) | | | $ | (1,203) | |
Interest and other expense, net | — | | | — | | | — | | | — | | |
Interest and other expense (income), net | | Interest and other expense (income), net | 3 | | | (25) | | | — | | | (22) | |
Net income (loss) before tax | Net income (loss) before tax | $ | 284 | | | $ | (8,132) | | | $ | (1,185) | | | $ | (9,033) | | Net income (loss) before tax | 233 | | | (215) | | | (1,193) | | | (1,181) | |
Income tax expense | Income tax expense | (1) | | | 1 | | | — | | | — | | Income tax expense | 7 | | | 31 | | | — | | | 38 | |
Net income (loss) | Net income (loss) | $ | 285 | | | $ | (8,133) | | | $ | (1,185) | | | $ | (9,033) | | Net income (loss) | $ | 226 | | | $ | (246) | | | $ | (1,193) | | | $ | (1,219) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Managed Services | | Collaboration Products | | Corporate | | Total |
Revenue | $ | 966 | | | $ | 566 | | | $ | — | | | $ | 1,532 | |
Cost of revenues | 645 | | | 388 | | | — | | | 1,033 | |
Gross profit | $ | 321 | | | $ | 178 | | | $ | — | | | $ | 499 | |
Gross profit % | 33 | % | | 31 | % | | | | 33 | % |
| | | | | | | |
Allocated operating expenses | $ | 56 | | | $ | 3,425 | | | $ | — | | | $ | 3,481 | |
Unallocated operating expenses | — | | | — | | | 1,540 | | | 1,540 | |
Total operating expenses | $ | 56 | | | $ | 3,425 | | | $ | 1,540 | | | $ | 5,021 | |
| | | | | | | |
Income (loss) from operations | $ | 265 | | | $ | (3,247) | | | $ | (1,540) | | | $ | (4,522) | |
Interest and other expense (income), net | 6 | | | — | | | — | | | 6 | |
Income (loss) before income taxes | 271 | | | (3,247) | | | (1,540) | | | (4,528) | |
Income tax expense | 9 | | | 2 | | | — | | | 11 | |
Net income (loss) | $ | 262 | | | $ | (3,249) | | | $ | (1,540) | | | $ | (4,539) | |
Unallocated operating expenses in Corporate include costs during the 20222023 SecondFirst Quarter that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.
Revenue. Total revenue decreased 35%32% in the 2022 Second2023 First Quarter compared to the 2021 Second2022 First Quarter. The following table summarizes the changes in components of our revenue (in thousands), and the significant changes in revenue are discussed in more detail below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | % of Revenue | | 2021 | | % of Revenue |
Revenue: Managed Services | | | | | | | |
Video collaboration services | $ | 79 | | | 6 | % | | $ | 230 | | | 11 | % |
Network services | 723 | | | 54 | % | | 830 | | | 41 | % |
Professional and other services | 8 | | | 1 | % | | 18 | | 1 | % |
Total Managed Services revenue | $ | 810 | | | 61 | % | | $ | 1,078 | | | 53 | % |
| | | | | | | |
Revenue: Collaboration Products | | | | | | | |
Visual collaboration product offerings | $ | 520 | | | 39 | % | | $ | 1,635 | | | 46 | % |
Licensing | 3 | | | — | % | | 59 | | | 1 | % |
Total Collaboration Products revenue | $ | 523 | | | 39 | % | | $ | 971 | | | 47 | % |
Total revenue | $ | 1,333 | | | 100 | % | | $ | 2,049 | | | 100 | % |
Managed Services
•The decrease in revenue for video collaboration services is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and loss of customers to competition.
•The decrease in revenue for network services is mainly attributable to net attrition of customers and lower demand for our services given the competitive environment and pressure on pricing that exists in the network services business.
•We expect revenue declines in our Managed Services segment will continue in the future. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | % of Revenue | | 2022 | | % of Revenue |
Revenue: Managed Services | | | | | | | |
Video collaboration services | $ | 64 | | | 6 | % | | $ | 116 | | | 7 | % |
Network services | 618 | | | 60 | % | | 821 | | | 54 | % |
Professional and other services | 8 | | | 1 | % | | 29 | | 2 | % |
Total Managed Services revenue | $ | 690 | | | 67 | % | | $ | 966 | | | 63 | % |
| | | | | | | |
Revenue: Collaboration Products | | | | | | | |
Visual collaboration product offerings | $ | 348 | | | 33 | % | | $ | 562 | | | 37 | % |
Licensing | — | | | — | % | | 4 | | | — | % |
Total Collaboration Products revenue | 348 | | | 33 | % | | 566 | | | 37 | % |
Total revenue | $ | 1,038 | | | 100 | % | | $ | 1,532 | | | 100 | % |
Collaboration Products
•The decrease in revenue for visual collaboration product offerings is primarily attributable to the effects of the COVID-19 pandemic on our existing and target customers as they evaluate how and when to re-open their conventional office and conference facility footprints, as Mezzanine™ products are currently used in conventional spaces such as conference rooms. The Company’s results reflect the challenges due to long and unpredictable sales cycles, delays in customer retrofit budgets, project starts, and supply delayed orders in our distribution channels as a direct result of customer implementation schedules shifting due to the COVID-19 pandemic. The COVID-19 pandemic in particular has, and may continue to have, a significant economic and business impact on our Company. During 2020, 2021 and the first half of 2022, we saw a weakness in revenue as our prospective customers across all sectors delayed order placements in reaction to the ongoing impacts of the pandemic that caused our customers to suspend or postpone real estate retrofit projects due to budget and occupancy uncertainties. We continue to monitor the impact of the pandemic on our customers, suppliers and logistics providers, and evaluate governmental actions being taken to curtail and respond to the spread of the virus. The significance and duration of the ongoing impact on us is still uncertain. Material adverse effects of the COVID-19 pandemic on market drivers, our customers, suppliers or logistics providers may be expected to continue to significantly impact our operating results. We will continue to actively follow, assess and analyze the ongoing impact of the pandemic and adjust our organizational structure, strategies, plans and processes to respond. Because the situation continues to evolve, we cannot reasonably estimate the ultimate impact to our business, results of operations, cash flows and financial position that the pandemic may have. Continuation of thepandemic and government actions in response thereto could cause further disruptions to our operations and the operations of our customers, suppliers and logistics partners and may be expected to continue to significantly adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows.
Cost of Revenue (exclusive of depreciation and amortization and casualty loss). Cost of revenue, exclusive of depreciation and amortization and casualty loss, includes all internal and external costs related to the delivery of revenue. Cost of revenue also includes taxes which have been billed to customers. Cost of revenue by segment is presented in the following table (in thousands):
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
Cost of Revenue | | | |
Managed Services | $ | 525 | | | $ | 739 | |
Collaboration Products | 401 | | | 510 | |
Total cost of revenue | $ | 926 | | | $ | 1,249 | |
The decrease in cost of revenue is mainly attributable to lower costs associated with the decrease in revenue during the same period. The Company’s gross profit as a percentage of revenue was 31% in the 2022 Second Quarter compared to 39% in the 2021 Second Quarter.
Operating expenses are presented in the following table (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
Operating expenses: | | | | | | | |
Research and development | $ | 398 | | | $ | 599 | | | $ | (201) | | | (34) | % |
Sales and marketing | 317 | | | 572 | | | (255) | | | (45) | % |
General and administrative | 1,185 | | | 1,383 | | | (198) | | | (14) | % |
Impairment charges | 6,408 | | | 17 | | | 6,391 | | | 37594 | % |
Casualty loss | 533 | | | — | | | 533 | | | 100 | % |
Depreciation and amortization | 599 | | | 707 | | | (108) | | | (15) | % |
Total operating expenses | $ | 9,440 | | | $ | 3,278 | | | $ | 6,162 | | | 188 | % |
Research and Development. Research and development expenses include internal and external costs related to developing new product offerings as well as features and enhancements to our existing product offerings. The decrease in research and development expenses for the 2022 Second Quarter compared to the 2021 Second Quarter is primarily attributable to lower personnel costs due to reduced headcount, partially offset by a $66,000 increase in consulting and outsourced labor costs between these periods.
Sales and Marketing Expenses. The decrease in sales and marketing expenses for 2022 Second Quarter compared to the 2021 Second Quarter is mainly attributable to the lower personnel costs due to reduced headcount and lower marketing costs.
General and Administrative Expenses. General and administrative expenses include direct corporate expenses and costs of personnel in the various corporate support categories, including executive, finance and accounting, legal, human resources and information technology. The decrease in general and administrative expenses for the 2022 Second Quarter compared to the 2021 Second Quarter is mainly attributable to a decrease in bad debt expense of $195,000.
Impairment Charges. The impairment charges in the 2022 Second Quarter are mainly attributable to impairment charges on goodwill for our Collaboration Products reporting unit, and the impairment in the 2021 Second Quarter was attributable to impairment charges on property and equipment no longer in service. Future declines of our revenue, cash flows and/or stock price may give rise to a triggering event that may require the Company to record impairment charges in the future related to our intangible assets and other long-lived assets.
Casualty Loss. During the second quarter of 2022, the Company discovered that $533,000 of inventory was stolen from the Company’s warehouse in City of Industry, California. This theft has been recorded as a casualty loss of $533,000 during the three and six months ended June 30, 2022 on the Company’s condensed consolidated Statements of Operations. The theft is being investigated further by the Los Angeles, CA Sheriff’s Department and a claim has been filed with the Company’s insurance company. We are seeking to recover the majority of the loss through our insurance policies and we will offset the casualty loss with the recognition of a gain of any proceeds should we subsequently receive them from our insurance company. No assurances can be provided that we will be successful in recovering any or all of the casualty loss.
Depreciation and Amortization. The decrease in depreciation and amortization expenses for the 2022 Second Quarter compared to the 2021 Second Quarter is mainly attributable to the disposition and impairment of certain assets during the second half of 2021 and the first half of 2022, as well as a decrease in depreciation as certain assets became fully depreciated.
Loss from Operations. The increase in the Company’s loss from operations for the 2022 Second Quarter compared to the 2021 Second Quarter is mainly attributable to lower revenue and gross profit and higher operating expenses as addressed above.
Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021
Segment Reporting
Certain information concerning the Company’s two segments for the six months ended June 30, 2022 is presented in the following table (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Managed Services | | Collaboration Products | | Corporate | | Total |
Revenue | $ | 1,776 | | | $ | 1,089 | | | $ | — | | | $ | 2,865 | |
Cost of revenues | 1,170 | | | 789 | | | — | | | 1,959 | |
Gross profit | $ | 606 | | | $ | 300 | | | $ | — | | | $ | 906 | |
Gross profit % | 34 | % | | 28 | % | | | | 32 | % |
| | | | | | | |
Allocated operating expenses | $ | 57 | | | $ | 11,529 | | | $ | — | | | $ | 11,586 | |
Unallocated operating expenses | | | | | 2,875 | | | 2,875 | |
Total operating expenses | $ | 57 | | | $ | 11,529 | | | $ | 2,875 | | | $ | 14,461 | |
| | | | | | | |
Income (loss) from operations | $ | 549 | | | $ | (11,229) | | | $ | (2,875) | | | $ | (13,555) | |
Interest and other expense, net | 6 | | | — | | | — | | | 6 | |
Net income (loss) before tax | $ | 543 | | | $ | (11,229) | | | $ | (2,875) | | | $ | (13,561) | |
Income tax expense | 8 | | | 3 | | | — | | | 11 | |
Net income (loss) | $ | 535 | | | $ | (11,232) | | | $ | (2,875) | | | $ | (13,572) | |
Unallocated operating expenses in Corporate include costs during the first half of 2022 that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.
Revenue. Total revenue decreased 28% in the first half of 2022 compared to the first half of 2021. The following table summarizes the changes in components of our revenue (in thousands), and the significant changes in revenue are discussed in more detail below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | % of Revenue | | 2021 | | % of Revenue |
Revenue: Managed Services | | | | | | | |
Video collaboration services | $ | 195 | | | 7 | % | | $ | 521 | | | 23 | % |
Network services | 1,544 | | | 54 | % | | 1,711 | | | 75 | % |
Professional and other services | 37 | | | 1 | % | | 41 | | 2 | % |
Total Managed Services revenue | $ | 1,776 | | | 62 | % | | $ | 2,273 | | | 57 | % |
| | | | | | | |
Revenue: Collaboration Products | | | | | | | |
Visual collaboration product offerings | $ | 1,082 | | | 38 | % | | $ | 1,635 | | | 80 | % |
| | | | | | | |
Licensing | $ | 7 | | | — | % | | $ | 59 | | | 3 | % |
Total Collaboration Products revenue | $ | 1,089 | | | 38 | % | | $ | 1,694 | | | 43 | % |
Total revenue | $ | 2,865 | | | 100 | % | | $ | 3,967 | | | 100 | % |
Managed Services
•The decrease in revenue for video collaboration services is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and loss of customers to competition.
•The decrease in revenue for network services is mainly attributable to net attrition of customers and lower demand for our services given the competitive environment and pressure on pricing that exists in the network services business.
•We expect revenue declines in our Managed Services segment will continue in the future.
Collaboration Products
•Customers generally use our Mezzanine™ products in traditional office and operating center environments such as conference rooms or other presentation spaces. The year over year decrease in revenue for visual collaboration product offeringsour Collaboration Products business is primarily attributable to the effectsaftermath of the COVID-19 pandemic on our existing and target customers as they continue to evaluate behavioral changes in how and when employees choose to re-open their conventionalwork from traditional office environments, resulting in delayed buying decisions for our Collaboration Products. Continuation of the ongoing effects of the COVID-19 pandemic, could cause further disruptions to our operations and conference facility footprints, as Mezzanine™ products are currently used in conventional spaces such as conference rooms, as discussed above in - Oblong’s Resultsthe operations of Operations - Three Months Ended June 30, 2022 (the “2022 Second Quarter”) compared to the Three Months Ended June 30, 2021 (the “2021 Second Quarter”).our customers, suppliers and logistics partners and could significantly adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows.
Cost of Revenue (exclusive of depreciation and amortization and casualty loss)amortization). Cost of revenue, exclusive of depreciation and amortization and casualty loss, includes all internal and external costs related to the delivery of revenue. Cost of revenue also includes taxes which have been billed to customers. Cost of revenue by segment is presented in the following table (in thousands):
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cost of Revenue | Cost of Revenue | | | | Cost of Revenue | | | |
Managed Services | Managed Services | $ | 1,170 | | | $ | 1,572 | | Managed Services | $ | 460 | | | $ | 645 | |
Collaboration Products | Collaboration Products | 789 | | | 967 | | Collaboration Products | 302 | | | 388 | |
Total cost of revenue | Total cost of revenue | $ | 1,959 | | | $ | 2,539 | | Total cost of revenue | $ | 762 | | | $ | 1,033 | |
The decrease in our consolidated cost of revenue is mainly attributable to lower costs associated with the decrease in revenue during the same period. The Company’sOur consolidated gross profit as a percentage of revenue was 32%27% in the 2023 First Quarter compared to 33% in the 2022 First Quarter. The gross profit as a percentage of revenue for our Collaboration Products segment was 13% in the first half2023 First Quarter compared to 31% in the 2022 First Quarter. This decrease was mainly attributable to i) an increase in our inventory obsolescence reserve of $26,000 in the 2023 First Quarter as compared to the 2022 First Quarter, ii) a
one-time assessment for common area charges on warehouse space of $12,000, and 36% for the first halfiii) an increase in personnel costs as a percentage of 2021.revenue between these periods.
Operating expenses are presented in the following table (in thousands):
| | | Six Months Ended June 30, 2022 | | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
Research and development | Research and development | $ | 1,402 | | | $ | 1,291 | | | $ | 111 | | | 9 | % | Research and development | $ | 6 | | | $ | 1,004 | | | $ | (998) | | | (99) | % |
Sales and marketing | Sales and marketing | 879 | | | 1,099 | | | (220) | | | (20) | % | Sales and marketing | 218 | | | 562 | | | (344) | | | (61) | % |
General and administrative | General and administrative | 2,875 | | | 3,450 | | | (575) | | | (17) | % | General and administrative | 1,169 | | | 1,690 | | | (521) | | | (31) | % |
Impairment charges | Impairment charges | 7,546 | | | 48 | | | 7,498 | | | 15621 | % | Impairment charges | — | | | 1,138 | | | (1,138) | | | (100) | % |
Casualty loss | 533 | | | — | | | 533 | | | 100 | % | |
| Depreciation and amortization | Depreciation and amortization | 1,226 | | | 1,429 | | | (203) | | | (14) | % | Depreciation and amortization | 86 | | | 627 | | | (541) | | | (86) | % |
Total operating expenses | Total operating expenses | $ | 14,461 | | | $ | 7,317 | | | $ | (7,666) | | | 130 | % | Total operating expenses | $ | 1,479 | | | $ | 5,021 | | | $ | (3,542) | | | (71) | % |
Research and Development. Research and development expenses include internal and external costs related to developing new product offerings as well as features and enhancements to our existing product offerings. The increasedecrease in research and development expenses for the first half of 20222023 First Quarter compared to the first half of 20212022 First Quarter is primarily attributable to a $300,000
increasethe shut down of R&D expenses at the end of the 2022 First Quarter, in order to conserve cash, which resulted in lower personnel costs due to reduced headcount, consulting, and outsourced labor costs between these periods, partially offset by lower personnel costs due to reduced headcount.periods.
Sales and Marketing Expenses. The decrease in sales and marketing expenses for the first half of 20222023 First Quarter compared to the first half of 20212022 First Quarter is mainlyprimarily attributable to lower personnel costs due to reduced headcount, reduced marketing costs between these periods, and lower marketing costs.sales as discussed above.
General and Administrative Expenses. General and administrative expenses include direct corporate expenses and costs of personnel in the various corporate support categories, including executive, finance and accounting, legal, human resources and information technology. The decrease in general and administrative expenses for the first half of 20222023 First Quarter compared to the first half of 20212022 First Quarter is mainly attributable to decreases of $390,000 in stock-based expense for professional service fees and $324,000 in bad debt expense, partially offset by an increase in personnel expenses, primarily attributable to receiving an Employee Retention Credit (“ERC”) during the first half of 2021a decrease in office related expenses and not during the first half of 2022.professional services.
Impairment Charges. There were no impairment charges in the 2023 First Quarter. The impairment charges in the first half of 2022 are primarilyFirst Quarter were attributable to impairment charges on goodwill for our Collaboration Products reporting unit and the impairment of the right-of-use assets associated with two of our Los Angeles, CA leases. The impairment charge in the first half of 2021 was attributable to impairment charges on property and equipment no longer in service.goodwill. Future declines of our revenue, cash flows and/or stock pricemarket capitalization may give rise to a triggering event that may require the Company to record impairment charges in the future related to our intangible assets and other long-lived assets.
Casualty Loss. During the second quarter of 2022, the Company discovered that $533,000 of inventory was stolen from the Company’s warehouse. This theft has been recorded as a casualty loss of $533,000 during the three and six months ended June 30, 2022 on the Company’s condensed consolidated Statements of Operations. The theft is being investigated further by the Los Angeles, CA Sheriff’s Department and a claim has been filed with the Company’s insurance company. We are seeking to recover the majority of the loss through our insurance policies and we will offset the casualty loss with the recognition of a gain of any proceeds should we subsequently receive them from our insurance company. No assurances can be provided that we will be successful in recovering any or all of the casualty loss.
Depreciation and Amortization. The decrease in depreciation and amortization expenses for the first half of 20222023 First Quarter compared to the first half of 20212022 First Quarter is mainly attributable to the disposition and impairment of certain assets during the second half of 2021 and the first half ofyear ended 2022, as well as a decrease in depreciation as certain assets became fully depreciated.
Loss from Operations. The increasedecrease in the Company’s loss from operations for the first half of 20222023 First Quarter compared to the first half of 20212022 First Quarter is mainly attributable to lower revenue and gross profit and higher operating expenses as addressed above.
Off-Balance Sheet Arrangements
As of June 30, 2022,March 31, 2023, we had no off-balance sheet arrangements.
Inflation
Management does not believe inflation had a significant effect on the condensed consolidated financial statementsCondensed Consolidated Financial Statements for the periods presented.
Critical Accounting Policies
There have been no changes to our critical accounting policies during the sixthree months ended June 30, 2022.March 31, 2023. Critical accounting policies and the significant estimates made in accordance with such policies are regularly discussed with our Audit
Committee. Those policies are discussed under “Critical Accounting Policies” in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in our condensed consolidated financial statementsCondensed Consolidated Financial Statements and the footnotes thereto, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, filed with the SEC on March 29, 202221, 2023 (the “2021“2022 Annual Report”).
Liquidity and Capital Resources
As of June 30, 2022,March 31, 2023, we had $5,107,000$3,714,000 in cash and working capital of $5,461,000.$3,335,000. For the sixthree months ended June 30, 2022,March 31, 2023, we incurred a net loss of $13,572,000$1,219,000 and used $3,911,000$844,000 of net cash in operating activities.
Equity Private Placement
-25-On March 30, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which we issued and sold, in a private placement transaction (the “Private Placement”), (i) 6,550 shares (the “Preferred Shares”) of our newly designated Series F convertible preferred stock, $0.0001 par value per share (the “Series F Preferred Stock”), initially convertible into up to 3,830,409 shares of our Common Stock, (ii) preferred warrants (“Preferred Warrants”) to acquire 32,750 shares of Series F Preferred Stock, and (iii) common warrants (“Common Warrants” and with the Preferred Warrants, the “Investor Warrants”) to acquire up to 3,830,413 shares of Common Stock. The terms of the Series F Preferred Stock are as set forward in the Certificate of Designations of Series F Preferred Stock of Oblong, Inc. (the “Certificate of Designations”), which was filed and became effective with the Secretary of State of the State of Delaware on March 31, 2023. The Private Placement closed on March 31, 2023. Please see the discussion in Note 6 - Capital Stock for further details on the Common Warrants and Note 7 - Preferred Stock for further discussion on the Series F Preferred Stock and Preferred Warrants.
The aggregate gross proceeds of the Private Placement are expected to be $6,386,250. All of the Preferred Shares and warrants were issued at the Closing, but part of the purchase price equivalent to $4,000,000 was placed into an escrow account with American Stock Transfer & Trust Company (the “Escrow”), to be released upon our obtaining stockholder approval permitting the issuance of more than 19.99% of our outstanding shares of Common Stock at less than the Minimum Price (as defined under the Nasdaq Rules) in accordance with Nasdaq listing standards and as otherwise may be required (the “Stockholder Approval”). The Company expects to use the net proceeds from the Private Placement and the proceeds, if any, from the exercise of the Investor Warrants for general corporate purposes and potential strategic alternatives. We have not, no has anyone on our behalf, initiated any substantive discussions directly or indirectly with any strategic alternatives partner.
In connection with the Private Placement, pursuant to an engagement letter dated March 30, 2023 (the “Engagement Letter”), between the Company and Dawson James Securities, Inc. (the “Placement Agent”), the Company agreed to (i) pay the Placement Agent a cash fee equal to 8% of the aggregate gross proceeds raised in the Private Placement, and (ii) grant to the Placement Agent warrants (the “Placement Agent Warrants”) to purchase 306,433 shares of Common Stock at an initial exercise price of $1.71 per share. Additionally, we agreed to reimburse the Placement Agent for certain expenses incurred in connection with the Private Placement and to pay certain contingent fees upon the occurrence of specified future events. Please see the discussion in Note 6 - Capital Stock for further details on the Placement Agent Warrants.
Future Capital Requirements and Going Concern
Our capital requirements in the future will continue to depend on numerous factors, including the timing andpotential release of the Escrow, the amount of revenue for the Company is able to generate, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to the Company’s major customers, the expense to deliver services, expense for sales and marketing, and expense for research and development, and capital expenditures. We expect to continue to invest in product development and sales and marketing expenses with the goal of growing the Company’s revenue in the future.development. The Company believes that, in the event the Escrow is not released, based on its current projection of revenue, expenses, capital expenditures, and cash flows, it will not have sufficient resources to fund its operations for the next twelve months following the filing of this Report. We believe additional capital will be required, in the short-term and the long-term, to fund operations and provide growth capital including investments in technology, product development and sales and marketing. To access capital to fund operations or provide growth capital, we will need to raise capital in one or more debt and/or equity offerings. There can be no assurance that we will be successful in raising necessary capital or that any such offering will be on terms acceptable to the Company. If we are unable to raise additional capital that may be needed on terms acceptable to us, it could have a material adverse effect on the Company. The factors discussed above raise substantial doubt as to our ability to continue as a going concern. The accompanying consolidated financial statementsConsolidated Financial Statements do not include any adjustments that might result from these uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by the rules and regulations of the SEC, we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2022.March 31, 2023. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022,March 31, 2023, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting occurred during the fiscal quarter ended June 30, 2022March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to various legal proceedings arising in the ordinary course of business, including proceedings for which we have insurance coverage. As of the date hereof, we are not party to any legal proceedings that we currently believe will have a material adverse effect on our business, financial position, results of operations or liquidity.
ITEM 1A. RISK FACTORS
A description of the risks associated with our business, financial conditions and results of operations is set forth in “Part I. Item 1A. Risk Factors” of our 20212022 Annual Report. Except as set forth below, there have been no material changes to these risks during the sixthree months ended June 30, 2022.March 31, 2023. The risks described in the 20212022 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
The terms of the Series F Preferred Stock could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests. The Certificate of Designations for the Series F Preferred Stock contains a number of affirmative and negative covenants regarding matters such as the payment of dividends, maintenance of our properties and assets, transactions with affiliates, and our ability to issue other indebtedness. No assurances can be given that we will be able to comply with the financial or other covenants contained in the Certificate of Designations. If we are unable to comply with certain terms in the Certificate of Designations:
• dividends will accrue on the Series B Preferred Stock at 20% per annum;
• the holders of the Series B Preferred Stock could foreclose against our assets; and/or
• we could be forced into bankruptcy or liquidation.
Our ability to comply with these covenants may be adversely affected by events beyond our control, and we cannot assure you that we can maintain compliance with these covenants. The financial covenants could limit our ability to make needed expenditures or otherwise conduct necessary or desirable business activities.
The issuance of the securities in the Private Placement significantly diluted the ownership interest of the existing holders of our common stock, and the market price of our common stock will likely decline significantly as a result of sales of such securities into the public market by the Investors and subsequent investors or the perception that such sales may
We may incur non-cash impairment charges for our right-of-useoccur. Our existing holders of common stock have been significantly diluted by the issuance of the securities in the Private Placement. Our public float was significantly increased and intangible assets which would negatively impact our operating results. The failure to use the full valuemarket price of our right-of-use assets, suchcommon stock could decline significantly as that which occurreda result of subsequent sales of the shares of common stock issued in the second quarterPrivate Placement, or the perception that such sales may occur.
In addition, the exercise price or conversion price of 2022, could resultthese securities may be at prices below the current and/or then trading prices of shares of our common stock or at prices below the price at which our existing shareholders purchased our common stock. The Investors may potentially make a significant profit with the resale of the securities depending on the trading price of our securities at the time of a sale and the purchase price of such securities by them. While the Investors may experience a positive rate of return based on the trading price of our securities, the existing holders of our common stock may not experience a similar rate of return on the shares of common stock they purchased due to differences in significant impairment charges which could havethe applicable purchase price and trading price.
If our stockholders do not approve the issuance by us in the Private Placement of more than 19.99% of our outstanding shares of Common Stock at less than the Minimum Price (as defined under the Nasdaq listing rules), our ability to finance our operations, execute our business plan and fund our capital needs will be materially and adversely affected. All of the Preferred Shares and Investor Warrants were issued at the closing of the Private Placement, but part of the purchase price equivalent to $4 million has been placed in an adverse effect onescrow account until the Stockholder Approval is obtained. Effectively, stockholder approval is one of the conditions for us to receive (i) $4 million in escrow and (ii) approximately $31.9 million upon the exercise of the Preferred Warrants, if exercised for cash. If the Stockholder Approval is not obtained, we will not be able to access such funds and our results of operations.ability to execute our business plan will be jeopardized and we will be materially and adversely affected.
The Company assesses the impairmentfailure of purchased intangible assets subjectour stockholders to amortization when events and circumstances indicateapprove this proposal will mean that the carrying valueconversion of the assets might notPreferred Shares and the exercise of the Common Warrants will be recoverable. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarilylimited to the future profitability and/extent that such conversion or future valueexercise, together with any other securities convertible or exchangeable for shares, would result in the issuance, in the aggregate, of no more than 19.99% of the assets. Changes in the Company’s strategic plan and/or other-than-temporary changes in market conditions could significantly impact these judgments and could require adjustments to recorded asset balances.shares of our Common Stock outstanding. As a result, of declines in revenue for the Collaboration Products reporting segment, we concluded that a triggering event had occurred and conducted impairment testing of our intangible assets during the six months ended June 30, 2022. Based on the corresponding recoverability testsmay be unable to issue sufficient shares upon conversion of the intangible assets forPreferred Shares or exercise of the Collaboration Products reporting unit,Warrants which will, in lieu of those shares, require that we determined that no impairment changes were required for the six months ended June 30, 2022. The recoverability test consisted of comparing the estimated undiscountedpay buy-in cash flows expected to be generated by those assetsamounts to the respective carrying amounts.Investors. We do not anticipate having sufficient funds to make any substantial cash payments to the holders of the Preferred Shares.
The fairOur ability to successfully implement our business plan and ultimately generate value determinations underlyingfor our stockholders is dependent upon our ability to raise capital and satisfy our ongoing business needs. If we are required to satisfy our buy-in payment obligations in cash rather than Common Stock, we may not have the quantitative aspectcapital necessary to fully satisfy our ongoing business needs, the effect of which would adversely impact future operating results, and result in a delay in our impairment testing require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of our intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic and regulatory conditions. If current expectations are not met, or if market factors outside of our control change significantly, then our intangible assets might become impaired in the future, adversely affecting our operating results. The carrying amounts of our intangible assets are susceptible to impairment risk if there are unfavorable changes in such assumptions, estimates, and market factors. To the extent that we experience future declines in revenue, business conditions deteriorate, or key assumptions and estimates differ significantly from our management’s expectations,plans. Additionally, it may be necessary for the Company to recognize an impairment chargeobtain additional financing in order to pay the future.obligations in cash, which may result in additional transaction expenses.
Cyber-attacks, data breachesFurther, pursuant to the terms of the Purchase Agreement, if our stockholders do not approve this proposal, we will be required to seek stockholder approval of this proposal again on or malware or a breachbefore July 31, 2023, and thereafter semi-annually until we receive stockholder approval of this proposal. As such, our physical security systems may disrupt our business operations, result infailure to obtain stockholder approval of this proposal at the loss of critical and confidential information, harm our operating results and financial condition, and damage our reputation; and cyber-attacks or data breaches on our customers’ networks, or in cloud-based services provided by or enabled by us, could result in claims of liability against us, damage our reputation or otherwise harm our business. In the ordinary course of providing video communications services, we transmit sensitive and proprietary information of our customers. We are dependent on the proper function, availability and security of our information systems, including without limitation those systems utilized in our operations. We have undertaken measures to protect the safety and security of our inventory and of our information systems and the data maintained within those systems, and on an annual basis, we test the adequacy of our security measures. Despite our implementation of security measures, there can be no assurance our safety and security measuresMay 18, 2023 Special Meeting will detect and prevent security breaches in a timely manner or otherwise prevent damage or interruption of our systems and operations or inventory theft. The products and services we sell to customers, and our servers, data centers and the cloud-based solutions on which our data, and data of our customers, suppliers and business partners are stored, are vulnerable to improper functioning, cyber-attacks, data breaches, malware, and similar disruptions from unauthorized access or tampering by malicious actors or inadvertent error. Any such event could compromise our products, services and networks or those of our customers, and the proprietary information stored on our systems or those of our customers could be improperly accessed, processed, disclosed, lost or stolen, which could subjectrequire us to liability to our customers, suppliers, business partners and others, give rise to legal/regulatory action, and could have a material adverse effect on our business, operating results and financial condition and may cause damage to our reputation. A security breach at anyincur the costs of holding one of our physical facilities,or more additional stockholder meetings until we receive such as that occurred in the second quarter of 2022, could result in a significant loss of inventory, or increase expenses relating to the resolution and future prevention of similar thefts, any of which could have an adverse effect on our business, financial condition and results of operations. Efforts to limit the ability of malicious actors to disrupt the operations of the Internet or undermine our own security efforts may be costly to implement and meet with resistance and may not be successful. Breaches of security in our customers’ networks, or in cloud-based services provided by or enabled by us, regardless of whether the breach is attributable to a vulnerability in our products or services, could result in claims of liability against us, damage our reputation, or otherwise harm our business.
approval.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities by the Company
There have been no unregistered sales of securities by the Company during the period covered by this Report that have not been previously reported in a Current Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit Number | | Description |
3.1* | | |
4.1 | | |
4.2 | | |
4.3 | | |
4.4 | | |
4.5 | | |
4.6 | | |
4.7 | | |
4.8 | | |
4.9 | | |
4.10 | | |
4.11 | | |
4.12 | | |
10.1 | | |
10.2 | | |
10.3 | | |
10.4 | | |
31.1* | | |
31.2* | | |
32.1** | | |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith.
** Furnished herewith.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| OBLONG, INC. |
| | |
AugustMay 10, 20222023 | By: | /s/ Peter Holst |
| | Peter Holst |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
| | | | | | | | |
AugustMay 10, 20222023 | By: | /s/ David Clark |
| | David Clark |
| | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |